Why James Bond (and Fixed Exchange Rates) is the Real Villain of Goldfinger

A blog about business and economics.
Aug. 9 2013 9:19 AM

Economics of Goldfinger: James Bond as the Enforcer for Harold Wilson's Doomed Austerity Policies

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Gold paint is the new crucified upon a cross of gold.

Thanks to the miracle of Amazon Prime Instant Video I watched Goldfinger for free (or, rather, for no additional cost beyond a Prime membership that more than pays for itself in free shipping alone) Saturday afternoon. This was a favorite of movie of mine when I was a kid, but upon rewatching it  turns out to deal with some important pieces of economic history that I think contemporary viewers are likely to have forgotten. But when you understand the policy context, you'll see this Goldfinger is, if not exactly the hero of the film, then at minimum a profoundly sympathetic character. The real villains here are a U.K. government hellbent on pursuing a misguided austerity policy and trying to blame smugglers for its failure.

Auric Goldfinger, you see, really liked gold (as the song says "he loves only gold") to the point of wearing a lot of unattractive gold-colored shirts.

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His problem is that the way the Bretton-Woods system of semi-fixed exchange rates worked was that ordinary citizens couldn't just own gold. A little jewelry, sure. But buying and storing large quantities of gold was illegal unless you were licensed to use gold for industrial purposes. Goldfinger, being a gold enthusiast, has in fact obtained such licenses. But naturally as a person obsessed with gold, he bears little love for an economic policy regime that restricts his ability to obtain it. Thus he isn't shy about exploiting the arbitrage opportunities that arise under the system. Since gold couldn't flow frequently across national boundaries and exchange rates couldn't float up or down, the price of gold could vary quite a bit from place to place. As Colonel Smithers from the Bank of England explains, Goldfinger is using his industrial permits to obtain gold in Britain and then spiriting some of it off the island for sale in other countries where the price of gold is higher.

This, to be clear, is against the law. But it also seems like a quintessential victimless crime. Or, rather, a broadly beneficial crime. The global disparities in gold prices show that gold is being misallocated. There's too much gold in Britain relative to demand for it, and too little in the countries where Goldfinger is bringing the gold. His enterprise is helping citizens of the gold-glutted United Kingdom get money and citizens of gold-starved countries get some discount gold.

Why is this a matter for MI-6?

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Prime Minister Harold Wilson

Well it goes back to the failed economic policies of Labour Party Prime Minister Harold Wilson in his first term in office. Taking office in 1964, Wilson inherited a country running a large trade deficit and desperately in need of a currency depreciation to bring its balance of payments back into balance and boost domestic employment. But back in 1949 a previous Labour government had devalued the pound, and Wilson and his team felt that a second Labour devaluation would give his party a reputation for economic mismanagement (ironically, previous Labour Prime Minister Ramsay MacDonald's refusal to devalue nearly destroyed the party during the Great Depression). As an alternative to devaluation, he tried to rebalance the current account with a program of fiscal austerity. This merely put more pressure on the domestic economy and did not stop Britain from running a trade deficit that continued to leech the country's gold reserves and eventually forced a devaluation in 1967.

With the benefit of hindsight, we know that Wilson's policies failed thanks to the economic fundamentals and that the years-long struggle against currency depreciation was pointless. But back in 1964 when the film was released, Wilson's austerity drive was just getting under way. Blaming the payments imbalance on gold smugglers and promising an MI-6 crackdown on their nefarious activities would set things straight was a perfect flim-flam companion to the austerity drive. Think of it as the mid-sixties version of eurozone leaders trying to restrict speculation on credit default swaps rather than confronting the imbalances built into the system. James Bond is sent on what's basically a "wag the dog" mission.

But Goldfinger turns out to be something quite a bit bigger. He wants to break into the federal gold depository at Fort Knox and irradiate the American gold supply. With the American gold unusable, the Bretton-Woods system will collapse and the dollar price of gold will skyrocket. This is of course roughly what happened in the real world a few years later. Richard Nixon abandoned the dollar-gold peg in 1972 and the price of gold quintupled over the next three years. Thus the era of floating exchange rates and free trade in gold was born. But had Goldfinger gotten his way, it would have arrived eight years earlier in 1964 and the United Kingdom could have avoided some needless austerity under Wilson and the United States could probably have avoided the recession of 1970. The point being, you don't need to approve of Goldfinger's violent and illegal methods to recognize that he's an economic visionary. Bond, by contrast, is an unwitting pawn being used to try to maintain some deeply misguided economic policies.

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