Preface to all four parts: with all the focus on precious metals lately, I wanted to share a chapter from my Panic Prosperity and Progress book about a germane period in financial history related to the Hunts and their attempt to corner the silver market.
The stunning bull market in precious metals in the late 1970s, followed by its swift collapse, has a fascinating and remarkable history. The roots of the event date back to the dark days of the Great Depression, when President Roosevelt issued Executive Order 6102 which outlawed the “hoarding” (that is, the ownership in almost any form) of gold by any person or other entity within the United States.
Prior to this order, gold was intricately intertwined in the nation’s currency. U.S. dollars were convertible into gold on demand, and this convertibility helped constrict the velocity of money severely. Roosevelt recognized that inflating the money supply was essential to turning the economy around, so he took the extraordinary step of criminalizing private ownership of gold as one of the steps to decouple the precious metal from the nation’s currency.
The President signed the order on April 5, 1933, only weeks after his first term in office began, and the order gave the nation’s citizens until May 1 to turn in all their gold in exchange for $20.67 per ounce in cash. This seems like an extraordinarily low price today, but in inflated-adjusted dollars, it equals about $400 per ounce. Some exceptions were made to the order: those who used gold as a component of a professional service (such as artists, dentists, and jewelers) could buy and use gold, and rare, collectible coins were spared the melt-down process that other coins would undergo.
Although they were supposed to obediently turn in their coins, the wealthier citizens of America who had meaningful amounts of gold simply stored it away overseas, usually to Switzerland. In spite of the severe penalties sanctioned in the order, there actually wasn’t a single successful prosecution of anyone in the country for violating the order.
Melting Down Saint-Gaudens
The U.S. Mint had been producing gold coins, as it had for many years, including a $20 gold coin designed in 1907 by famed sculptor August Saint-Gaudens. The coin was called a Double Eagle, and it is considered to this day to be the most beautiful coin ever minted by the United States. It was 90% gold and 10% copper, and its gold content was equal to its $20 face value.
Many of the coins had been minted since the design was completed in 1907, and they were still being produced by the U.S. Mint even after the executive order banning gold had been signed by the President. The new coins were not distributed, however, and by late 1934 all but two of the coins had been ordered to be melted down. The two officially-saved coins were presented to the U.S. National Numismatic Collection and, as far as the U.S. Mint knew, those were the only 1933 Saint-Gaudens Double Eagle coins in existence, as the others had been assumed melted back into gold bars already.
After May 1 passed and the Treasury had paid everyone their $20.67/ounce for the gold that was turned in, the Treasury ratcheted up the official price of the metal to $35 per ounce, an increase of 70%. This had two immediate effects: first, it meant that all the citizens who had dutifully turned in their gold found themselves with paper money that was suddenly worth a lot less, and second, the government had an instant 70% profit on all the gold it had bought from the citizens. The profits were used to fund the Exchange Stabilization Fund that was sanctioned by the Gold Reserve Act of 1934.
One individual who failed to submit his substantial gold holdings (5,000 ounces) to the government was an attorney named Frederick Campbell. The federal government charged Campbell with his failure to turn in his gold, but the judge refused to prosecute Campbell with the crime based on a technicality: since the order was signed the President Roosevelt, as opposed to the Secretary of the Treasury, it was deemed invalid. Campbell did ultimately have to sell his gold to the Treasury, but he did not have to endure a criminal prosecution for his initial failure to do so.
As for the Saint-Gaudens coins, those will return to our story later, and many years after 1934 was over.
The Hunt Fortune
Not that many years before the Great Depression, the seeds of a great American family fortune were being planted. Haroldson Lafayette (H.L.) Hunt had been born in 1889 in Illinois, and although his father provided a very comfortable existence to H.L. in his teenage years, the lad decided to strike out on his own. So, at only 16 years of age, he headed west and took up whatever jobs he could find. He was a logger, a farm worker, and even a mule team driver. He took up any job he could find, but all the while, he was developing his real proficiency: playing poker.
H.L. was intellectually sharp and had a successful gambler’s instinct for risk and reward. He was fearless about betting big, whether early in his life when he had very little money, or later in his life when he was fabulously wealthy. He also seemed to have extraordinarily good luck for most of his business life, which was an excellent attribute for someone inclined to taking large risks. Only six years after he left home, H.L. got word that his father had died, so after receiving his inheritance, he decided he could finally become more ambitious and start his own business.
His first enterprise, cotton farming in southeast Arkansas, didn’t hold his attention very long, and he reverted back to gambling: both the kind with cards and, with his inheritance, land speculation. He met his first wife, Lyda, and they moved to El Dorado, Arkansas, where there was word of newly-found oil.
In what would become consistent with his usual good luck, H.L. struck oil with his very first well, and he expanded his new enterprise, the Poor Boy Drilling Company. He sold the firm at a handsome profit in 1925 and proceeded to Florida and its well-publicized land boom. There he met and fell in love with another woman and, not to be inconvenienced by the fact he was already married, got married to her as well. He managed to emerge from Florida’s land speculation successfully, avoiding the collapse, and he and his second wife established a home in Shreveport, Louisiana, about one hundred miles away from his first family.
H.L. then got word from a friend of a promising oil lease in East Texas, so he ventured out there to try his luck at some Texas drilling. With typical Hunt luck, not only did the drilling prove successful, but Hunt Oil would soon found itself to be the leading independent producer of crude oil in the nation, having located itself on one of the biggest oil fields ever found.
Crude oil was only a dollar a barrel in those days, but once the Great Depression had fully gripped the country, and the ocean of oil from East Texas began flooding the market, the price dropped to an almost incomprehensible fifteen cents per barrel. In spite of the low value for the commodity, Hunt Oil thrived, and H.L. moved his first family – the one in El Dorado, Arkansas – down to Dallas, Texas.
In 1955 his first wife, Lyda, died, and he married yet another woman, Ruth Ray, with whom, as his mistress, he already had four children. Thus, with three different women, H.L. Hunt had fifteen different children which, in his mind, would be beneficial to the world, as he was spreading his “genius gene” to all of his offspring.
The Hunt Children
As his children reached adulthood, H.L. looked to them to help grow the family business. His first son from his first marriage, Hassie, seemed to have his father’s knack for finding oil and making shrewd deals. By the age of 25, Hassie already was a successful oil entrepreneur in his own right, but due to an onset of severe psychological problems, he was sent to a variety of treatment centers to remedy the malady. Unfortunately, the most forward-thinking approach to the problem at the time was a full frontal lobotomy which, once complete, rendered Hassie largely incapacitated for the rest of his life.
Thus, H.L.’s second son, Bunker, also from the first marriage, found himself in the lead role. Unfortunately, H.L. didn’t have the fondness for Bunker that he had for Hassie, and he made his feelings abundantly clear to anyone who would listen. Bunker was desperate to prove himself to his father, but his luck seemed just as bad as his father’s seemed good: as he traveled around the globe, looking for promising oil discoveries, he hit dry hole after dry hole. He was losing millions of dollars of the family fortune, and his failings only amplified his father’s distaste for Bunker.
That all changed with the Sarir Field in Libya. Bunker had secured leases on two tracts in Libya designated simply Concession #2 and Concession #65. Due to a need for cash, he sold half his interest in #65 to British Petroleum, and it was subsequently discovered that the area in question contained the largest oil field ever discovered in history: somewhere between 11 and 13 billion barrels of oil. Bunker suddenly found himself with a $5 billion asset, and his father’s grousing about his stupid son came to an immediate and very understandable halt.
The Next Best Thing to Gold
Even with oil priced at a mere $2 per barrel in 1961, Bunker was now the world’s richest man. Bunker parlayed his newfound fortune into many other businesses over the years, including cattle, sugar, restaurants, and millions of acres of real estate. By 1970, both his father H.L. and Bunker himself were breathtakingly rich.
Around this time, Bunker got a visit from a commodities broker who asked him one simple but thought-provoking question, as he gestured to various objects sitting around his house: “Bunker, do you believe you’re going to have to pay more for these things next year than you did this year?” When Bunker acknowledged the prices would probably be higher, the dealer suggested a solution to the problem at hand: silver.
The notion of precious metals as a store of value goes back for thousands of years in human history, but the most obvious choice, gold, was off-limits. FDR’s 1934 prohibition of gold from private ownership in the United States was still in place in 1970, even though most of the people who lived when the order was established had long since died. Silver, however, the “poor man’s gold”, was an interesting alternate candidate.
For one thing, silver was cheap. An ounce of pure silver could be had for less than a barrel of crude oil, and it had many industrial uses. Besides its utility in jewelry and industrial applications, it also was a stable, simple investment tool. If inflation was going to get worse, as Bunker was convinced it would, what better place to allocate paper dollars than the “hard money” of silver?
There were other factors in the world that made purchasing silver seem sensible. In 1970, the world seemed to be a mess, and it looked like it was going to get a lot messier. There was a war raging in Vietnam, the United States was full of protesting hippies, and there the persistently-unstable Middle East. From Bunker’s lofty vantage point, the world looked like it was on a very bad path, and he wanted to protect his fabulous fortune from the wretched road the world seemed to be traveling.
Thus, Bunker and his younger brother Herbert started accumulating silver, buying 200,000 ounces in the first few years of the 1970s. This represented a minuscule fraction of a percent of their wealth, but it was the start of what would ultimately become a vast accumulation of the precious metal.
