Franklin Roosevelt’s Great Gold Confiscation Still Echoes
It’s an anniversary week, of sorts.
That is, it’s been 88 years since President Franklin D. Roosevelt (FDR) seized the nation’s gold.
It was an outright act of bait and switch confiscation and a seismic political and cultural event in the history of the nation. We still live with the aftershocks.
Of course, you can own gold today, per federal law passed in 1974. And plenty of history has transpired since 1933. But it’s still a very different world because of what happened.
The same federal power which seized the nation’s gold in 1933 is still there, hanging cloud-like in the legal ether. It remains at the beck and call of people in the White House or government agencies, if not the puppet masters who pull their strings.
In essence, at the personal level, your wealth is subject to the whims, greed and covetousness of people who control the throttles of political power.
Let’s dig deeper into what happened and what it means for you…
First, some basics: on April 5, 1933, FDR signed Executive Order 6102. This order forbade, “the hoarding of gold coin, gold bullion, and gold certificates within the continental United States.”
The legal basis for this was a law from World War I, called the Trading With the Enemy Act of 1917. It prevented Americans from engaging in commerce with Germany during the war. But of course, in 1933 the “Great War” (what people used to call World War I) was long over.
Immediately with FDR’s new executive order, the wheels of power began to turn. The Government Printing Office put millions of copies of this edict into circulation, posted across the country from post offices to banks and more.
FDR’s Executive Order 6102. Public Domain.1
Americans had less than a month to turn in their gold to the government or face ruinous fines — $10,000 was a lot of money back then –— and/or up to 10 years in prison.
For our purposes, April 5 makes a good starting point to discuss all of this. But as with most such things, there’s a lot of nuts-and-bolts history here, too.
Begin a month earlier on Saturday, March 4, 1933, when FDR was inaugurated as President, succeeding Herbert Hoover.
(Quick note: March 4 was the inauguration day originally specified under the U.S. Constitution of 1787. After 1933, per the 20th Amendment, presidents were inaugurated on Jan. 20, which is what we’re used to seeing today.)
You probably know that FDR took office during the depths of the Great Depression. The economy was in ruins. Unemployment was high. The country was a financial and social mess.
During the transition period from Hoover to FDR, the U.S. experienced a widespread collapse of its banking system. Across the land, people made runs on banks. They would show up and demand their deposits back.
Unable to meet massive cash calls, banks failed by the thousands and entire communities were wiped out. (Another note, just to be clear: there was no deposit insurance back then. If a bank failed, depositors typically lost everything.)
Obviously, newly inaugurated FDR had to do something. And on Monday, March 6 he declared what he called a “national banking holiday.” That is, he ordered banks to shut the doors.
Immediately, the country went from bank runs to no working banks at all. There was confusion among the populace. What was FDR planning?
Feverishly, staff at the Treasury Department worked with Congress to craft and pass a new banking law, much of which had already been drafted under Hoover’s administration.
The result was the Emergency Banking Relief Act of 1933, passed by both the House and Senate and signed by the president all in the space of one day, Thursday, March 9.2
As we saw above, there was a sense of national panic over banks and finance. To confront this, FDR dove into the maelstrom with a large element of showmanship and outright propaganda. He went on nationwide radio to make one of his famous fireside chats.
FDR explained that over the next few days the government would inspect banks and review the books for solvency. He promised that government regulators would close banks that had no hope of recovery and consolidate or support banks that could make a go of things.
The fact is, there was no way that any government bureaucrats could truly scrub the books of thousands of banks across half a continent over one tumultuous week; but that was the tale. The idea was to inspire public confidence in the nation’s banking system.
Then on Monday, March 13, four days after the new law passed, banks reopened.
In an awesome display of the power of mass persuasion in the new era of radio and nationwide news reportage, people lined up outside of any banks which appeared to have some sort of government imprimatur. And this time, most people deposited cash, as opposed to demand its return.
By Wednesday, March 15 the New York Stock Exchange was rallying hard. Confidence was returning.
Within two more weeks, by the end of March, much of the money that people had withdrawn in earlier bank runs was back in the vaults. And much of that was in the form of gold and silver coins which were then in wide circulation.
U.S. $10 gold “Indian Head,” minted 1932.
Think about that for a moment. If you had a stash of gold coins, would you keep them at home where they might be stolen? Or place them in a nice, safe bank with steel vaults, especially after FDR and Congress just went to the trouble of salvaging the entire system?
As April dawned, cash was returning to the banks and the system was reliquefying.
But then came the great bait and switch. On Wednesday, April 5, 1933, FDR seized the gold.
Turn it in! Give us the gold! That was the command from Washington, D.C.
This was unprecedented, and truly a turning point in the relationship of the American people to federal power, let alone to the cultural view of the very idea of money.
In the roots of the country’s history, gold was scarce in America, dating back to Colonial days. Indeed, the Revolutionary War was fought with credit, versus gold. The U.S. issued a paper currency called Continentals to pay for the war.
Part of the national monetary problem was basic geology. The original 13 Colonies weren’t located atop significant gold deposits. To make any money, Americans had to work and trade for it.
For the first several decades of national life, most U.S. coins were manufactured from metal that came from overseas, such as foreign coins. These were remelted at the mint in Philadelphia. Or Americans just used foreign coins like Spanish “pieces of eight” or British or Dutch coins.
In the early 1830s, there was a gold strike in western North Carolina. Initially, miners shipped their dust and grains to Philadelphia for processing. Then in 1835, the U.S. government set up a mint in Charlotte. (The building is still there today; it’s an art museum.)
The next big precious metal strikes came in California in 1848, at Sutter’s Mill, which triggered the famous Gold Rush; and then silver at the Comstock Lode in Nevada in 1859.
Throughout the 1850s and 60s, western gold and silver funded American commerce, not the least aspect of which was paying for the North to fight the Civil War.
Indeed, California gold and Nevada silver were so critical to the war effort that President Lincoln arranged with the tsar of Russia to send the Russian navy to American waters. We’ve previously discussed Russia’s 1863 naval deployment to San Francisco, and how Russian sailors guarded the U.S. mint and protected east-bound “treasure ships” from Confederate commerce raiders.
Then throughout the late 1800s, the U.S. experienced a rapid growth in national wealth based, in no small measure, on mines and minerals from across the West; those iconic mining stories are legendary, from Colorado to California, from Idaho into the Arizona Territory.
To add to the story, the 1890s gave America the Alaska gold rush.
The point of all this is that for over a century, pre-FDR, Americans had increasing access to more gold and silver, based on discoveries and mining. This shaped a national attitude towards the nature of money, and by extension towards thrift, savings, investment, industry, work and productivity.
It’s not overstatement to say that in the early 1900s, gold was the very definition of money. In 1912 the banker J.P. Morgan — whose bank had bailed out the U.S. government in 1908 — declared to a committee of Congress that, “Money is gold, nothing else.” (It’s often mis-cited as, “Gold is money. Everything else is credit.”)3
Up until FDR’s gold seizure in 1933, U.S. commerce was grounded upon circulating precious metals as the bedrock of the monetary system. Yes, there was paper currency. But it merely served as a convenient substitute to the real thing.
Decade after decade, paper cash never displaced the fundamental backstop of gold. And then along came FDR’s gold-grab, 88 years ago this week.
Per FDR’s order, Americans had less than a month to hand over their gold to the government. With the stroke of his pen, a new president undid well over a century of American monetary principle, if not principal.
There were exemptions for dentists, jewelers and artists who used gold in trade. And people could keep a few coins for numismatic purposes. But everyone and everything else in the economy was confined to paper currency, plus loose change like silver and copper coins.
FDR framed the gold seizure as Americans making a “loan” of their gold to the government during a pressing national emergency. And looking back, people believed it. They were an obedient lot.
Rapidly, people handed over their shiny coins. And within a few weeks, virtually all gold in monetary circulation exited to the U.S. Treasury.
Quickly, the Treasury melted down many of the coins into gold “melt bars,” most of them about 400 ounces at about 80% purity. Many of those gold bars went to a new facility, hastily constructed between 1935-36, called the Gold Bullion Repository at Fort Knox, Kentucky.
Gold Bullion Repository, Fort Knox.4
In April 1933, those who forked over their gold received $20.67 per ounce in paper (fiat) currency. Then as the year unfolded, FDR began to raise the nominal price of gold from that $20 level.
By January 1934, gold was officially priced at $35 per ounce, a change of $15. This translated into a devaluation of the dollar by 75% from the level of national wealth that prevailed in the first days of April 1933.
FDR’s idea was to devalue gold, which he believed would expand the overall monetary base. More dollars would to circulate and get the economic gears moving.
History shows, though, that those gears remained jammed tight. For all the “extra” dollars somehow flowing out of FDR’s seizure and devaluation of the nation’s gold, the U.S. economy remained stuck in neutral for many years to come.
Meanwhile, FDR’s gold seizure altered the monetary mindset of the nation. The idea of money stopped being grounded on gold, and transformed into a focus on dollars created by the monetary chicanery of the Federal Reserve, the nation’s central bank.
Old habits die hard, and in this case monetary habits actually held up for a while, decades even. The U.S. fought and paid for World War II with a strong currency based on massive amounts of gold. And it was U.S. gold that placed the dollar in the driver’s seat at war’s end, per the Bretton Woods agreement.
But then, several generations of political, monetary and industrial mismanagement undermined the entire system.
Now we’re at the moment of a so-called “great reset,” when the dollar is on the cusp of being dethroned; or to use a different analogy, the train is about to derail.
After 88 years, we’re a long way from the days when FDR was grabbing gold, trying to end the Great Depression.
But we’re also much closer to that day of reckoning, a time when U.S. monetary mismanagement is more than likely to usher in a new era of hardship.
From one Great Depression, the country has made a round trip to the edge of another. Except on this go-round, the former respect for the true value of gold is missing.
Meanwhile, if government can grab your gold it can also grab your stocks, bonds, retirement accounts and even your Bitcoin. And when that happens (not “if”), a lot of people won’t know what hit them.
On that note, I rest my case.
That’s all for now… Thank you for subscribing and reading.
Managing Editor, Whiskey & Gunpowder
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4 U.S. Bullion Depository, Wikimedia Commons