In September of 1965, Joe Barr, a Treasury Department official with a long history in government, agreed to meet with a group of members of Congress from Western states. He knew what to expect. Earlier that year, he had met with the same group, and endured its ire over the Treasury’s reluctance to help the American gold industry.
After the Second World War, world leaders had met at Bretton Woods, in New Hampshire, and, as part of an agreement on an international monetary system, had fixed the price of gold at thirty-five dollars an ounce. This had, predictably, depressed the U.S. mining industry, even as the demand for private gold shot up. The more easily obtained sources of gold had been depleted over the years, while harder-to-reach sources became more difficult to mine profitably, given the static price.
Foreign competition—chiefly from Canada and South Africa, where mines were less depleted and labor costs were lower—was far more intense by 1960 than it had been after the war, when the price of gold was set. The United States was a distant third in gold production. Rather than attempt to compete, many mines simply shut down.
Politicians from Western states, where most gold was mined in the U.S., considered this an economic crisis, and by 1965 they had lost their patience. Nineteen Senators—including influential Democrats like Frank Church, Henry (Scoop) Jackson, Warren Magnuson, and George McGovern—signed a blunt letter to President Lyndon Johnson accusing him of letting America’s gold industry die.
Gold, they said, “is the only commodity held down to a price established 31 years ago and compelled to sell only to the imposer of this strangling restriction—the Federal government.” (Since the nineteen-thirties, Treasury was the only domestic entity that could legally buy investment gold.) Badly needed reform, they added, was being blocked by Treasury’s “negative attitude.”
These words were just short of a threat that the senators would take action on gold with or without the Administration’s support. It was in this atmosphere, which Barr described as “more heated than usual,” that he trekked to Capitol Hill that September day. Barr later said that at the meeting he had “a stroke of inspiration.”
Instead of maintaining the government’s hard line, he suggested that “possibly the Government could assist in this area by some sort of an R&D approach in the discovery of deposits and in the extraction processes.” It wasn’t the price increase the Western senators hoped for, but it pleased them nonetheless.
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