Back in the late 1800s, when men were men and inflation was nonexistent, the industrial barons who needed money to build the Santa Fe railroad did the only gentlemanly thing: They issued 100-year bonds and agreed to pay the principal -- and 4 percent-a-year interest -- in gold coin "or its equivalent."

Doubtless it seemed natural enough. After all, gold was the basic currency at the time, and specifying payments in gold coin, then valued at $20.67 an ounce, lent a venture more respectability. Oh, sure, anyone could offer to pay a bond off in greenbacks. But would that have been any way to run a railroad?

Well, times have changed, some of those bonds are still being traded back and forth, and a few of Santa Fe's creditors are insisting that it start paying them their interest in gold coins again, just as company leaders promised originally in their 1809s' contract with bond-buyers.

The problem is, the coins' intrinsic worth, like almost everything else that's linked to gold, has skyrocketed over the years to 23 times the money's face value. Investors clearly would reap a windfall if the obligations were paid in gold. But many companies would go bankrupt trying to pay them.

Robert A. Ellison, a Seattle-based broker whose Gold Bondholders Protective Council Inc. is spearheading the make-'em-pay-gold effort, estimates that if his constituents have their way, it could triple Santa Fe's annual interest expenses, from $50.1 million in 1980 to just under $150 million.

That alone would reduce Santa Fe's net earnings by more than a third, to $201.8 million rather than the $301.8 million profit the company posted in 1980. The value of its outstanding gold bonds would swell to $2.6 billion, from $112.5 million now. And the interest on each $50 bond would amount to a hefty $1,168.36 a year.

What's more, Santa Fe isn't the only onetime bond-issuer caught with its carats showing. Ellison estimates 28 U.S. and Canadian corporations still have gold-payments bonds outstanding, including Consolidated Edison, $3 million; Boise Cascade, $43.7 million, and Canadian Pacific, $65 million.

In all, he and other modern-day gold-bugs assert, the total amount of gold bonds still not matured stands at well over $1 billion -- $750 million worth issued by corporations, $10 million proffered by the U.S. Treasury and $150 million floated by state and local governments.

And that's all at face value. What if the issuers had to pay in gold? Don't even ask, Ellison shrugs.

Aw, c'mon now, you say. Let's be realistic: The United States isn't on the gold standard anymore. Congress, in 1933, nullified all prior gold transaction. Paper money is legal tender. And inflation has pushed gold coins' value far beyond what the 1890s' buyers ever dreamed. Isn't this going a bit too fat?

Well, that's a good question. Ellison concedes. But Congress' 1933 action came as part of a move to make gold ownership illegal, he argues. The lawmakers voted in 1974 to allow Americans to hold gold again (though they didn't address the goldbond issue at that time). So the earlier abrogation has been reversed.

Besides, Ellison continues, guaranteeing payment in gold was part of a contract the original bondissuers made when they first floated their securities and it ought to be considered sacrosanct, now that private ownership of gold is no longer prohibited by law.

"If you're going to enter into a contract to lend money for 100 or 200 years, the only way you're going to do it is through assured protection," Ellison insists. "The only way to provide that back then was to denominate in gold. It's the only acceptable yardstick to all concerned."

Based largely on that reasoning, Ellison has built a business promoting the sale of gold bonds, snaring potential buyers with the promise that they'll reap a massive windfall if this group wins its legal battle. As part of the deal, buyers give Ellison half their annual interest to finance his fight.

So far, the effort hasn't paid enormous dividends. A court suit against Santa Fe that the bond council filed in Alaska -- where local political climate is considered most conducive to gold bugs -- was dismissed last year for lack of merit. The group is mounting an appeal, but prospects seem dim.

And Ellison has launched a new fight, this time filing suit against the U.S. government to force the Treasury to redeem U.S.-issued 1918 gold Liberty bonds at the gold coins' market. He also is campaigning to require the Internal Revenue Service to accept gold coin at market value for income tax payments.

Ellison complains that the IRS currently is inconsistent, requiring taxpayers to declare their gold coins at market value for tax purposes, but then refusing to accept gold bonds at anything more than face. The Treasury effectively has sidestepped the issue, but Ellison is fighting on.

The big Wall Street bond houses aren't exactly rallying to the bond council's cause. Ellison himself used to be a broker at Bache Halsey Stuart Shields, Inc., but says he was forced to leave after a "falling out" over the gold-bond controversy. Bache & Co. officials have declined to comment on the flap.

Bond specialists say upwards of about 500 gold bonds currently are traded each week, mostly on the over-the-counter market and many of them the result of estate sales, where securities long held in the family are liquidated to make it easier to split up the inheritance.

James Sinclair, the New York-based gold expert, voices "mixed feelings" about Ellison's quest. "I don't really think he's got much of a chance to win in court," Sinclair says. "It would drain railroads to have to pay market value, and no judge lives in a vacuum."

At the same time, Sinclair adds, there's nothing inherently wrong with pushing gold bonds, even if there's little serious prospect of winning the suits. "Some of this deep-discount stuff has worked," Sinclair says. "It's not like a one-armed slot machine. But it is one-armed speculation."

Sinclair describes Ellison as "a very legitimate man who has gotten himself intoxicated by gold bonds. It's very easy to involve yourself in causes," he notes, speaking generally. Indeed, the bond council's letterhead lists a spate of prominent backers.

Meanwhile, Ellison and his customers are waiting in the hopes that their long-shot will pay off. The council plans to meet here May 12 to map out a legislative campaign, and Ellison is appealing his court setback from Alaska.

If the group is lucky in future court cases, owners of the 2,000-odd gold bonds Ellison figures still are outstanding will have found the proverbial pot at the end of the rainbow. If not -- well, as that other saying goes, all that glitters isn't necessarily gold -- no matter what the fine print may have said.