Oct. 16 (Bloomberg) -- During the panic of 1792, the Bank of North America tried to stave off a run by having employees “carry its specie busily to and from the cellar in order to give a magnified notion of what it had,” historian Bray Hammond wrote. Bank managers “ostentatiously brought in deposits of gold and silver that had unostentatiously been carried out a little while before.”
The show of specie reassured jittery customers, saving the bank from failure. As a young clerk in Iowa during the panic of 1907, Hammond recalled employing exactly the same dodge: heaping impressively large sacks of low-value coin in plain view and ostentatiously counting it to give the impression of overflowing vaults.
President Franklin D. Roosevelt used a similar trick when he authorized the construction of the U.S. Bullion Depository at Fort Knox, Kentucky.
Roosevelt took the U.S. off the domestic gold standard in 1934. Although the nation remained on the standard in international exchange, the Gold Reserve Act made it illegal for private citizens to hold “monetary gold” -- that is, coins or bullion. Banks had to transfer to the U.S. government any title to gold reserves they held, in return for dollars. Individuals could still own gold jewelry and keep their gold dental fillings, but anyone owning monetary gold had to sell it to the government.
In speeches explaining the change, Roosevelt paradoxically stressed the importance of gold reserves.“By making clear that we are establishing permanent metallic reserves in the possession and ownership of the federal government,” he told Congress in 1934, “we can organize a currency system which is both sound and adequate.” But the U.S. already had “metallic reserves” -- the act had actually eliminated that gold’s legal function.
Roosevelt turned to Fort Knox, which had been an Army base since 1918 and was used in the 1930s primarily as a training site for mechanized cavalry. Putting the U.S. Bullion Depository at Fort Knox amounted to a kind of psychic compensation.
No one at the Treasury Department or the Federal Reserve was asking for a new vault. The Treasury’s gold had been stored at mints in San Francisco, Philadelphia and Denver, and in the assay office in New York. Lack of space could have been the reason: The country’s stock of gold tripled from 1933 to 1936. But it doesn’t take much space to store gold. John Maynard Keynes famously calculated that all the gold in the world would fit easily in the cargo hold of an ocean liner. The Federal Reserve banks probably offered more than adequate physical space, and safety, for gold deposits. But creating and publicizing a new fortress offered a kind of “security theater.”
The government made a great show of moving its bullion to Kentucky after the gold vault was completed in 1936. “Fifty armored trains to carry Federal gold,” announced the New York Times. Soldiers and Treasury agents with submachine guns rode with the gold as it moved by rails along a secret route. “Dummy” trains decoyed would-be thieves. Tanks and infantry protected armored transports as they drove the bricks from railhead to vault.
An Impregnable Fortress
Treasury Department press releases described the vault’s extraordinary security measures, including electric fences, a moat, steel-and-concrete walls, a bombproof roof, poison-gas booby traps, and an emergency flooding system. The Treasury hinted at other forms of protection too secret and awful to mention. “We thought Fort Knox would be a safe place,” Treasury Secretary Henry Morgenthau answered cryptically when a reporter asked why he chose Fort Knox. “You know what I mean -- safe.”
The Treasury kept the actual moving day secret, and it didn’t divulge where the bullion sent to Fort Knox came from, or exactly how much was moved. But it took pains to call attention to the gold’s enormous but unspecified value. The elaborate and well-publicized precautions demonstrated unmistakably that the U.S. owned the gold, that the gold was immensely valuable and that it now sat in an impregnable fortress in the nation’s heartland.
This impression has persisted over the years, and given Fort Knox a prominent place in American popular culture. Magazines and newspapers seized on the vault as a symbol of security and strength. Several accounts noted that any potential thieves would have to “first fight their way across the Appalachians” just to approach the fort. Bugs Bunny tricked Yosemite Sam into a raid on the vault in a Warner Bros. cartoon. In 1960, Life magazine published articles and illustrations describing the fort as equally resistant to gangsters, tunneling burglars, Russian bombs and teenage hoodlums. An attack on Fort Knox was the centerpiece of the 1964 James Bond movie “Goldfinger.” Even today, Americans often imagine that their currency is in some way backed by gold stored in Fort Knox.
Roosevelt used the construction of the vault to create an impression of permanence and solidity that his other actions undercut: Fort Knox appeared to protect the nation’s gold precisely at a time when that gold had lost its “redemptive” function. It was a masterful example of politics as theater.
(Michael O’Malley is an associate professor of history at George Mason University, and the author of “Face Value: The Entwined Histories of Race and Money.” The opinions expressed are his own.)
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