Episode 13 of The Gold Story. In 1914 a government left the promise printed on the paper and quietly withdrew the coin. In 1933 a government went further, and asked for the coin itself.
The order
On 5 April 1933, Franklin Roosevelt signed Executive Order 6102, issued under section 5(b) of the Act of 6 October 1917 as amended by the Act of 9 March 1933. It opened by defining a word. Hoarding meant "the withdrawal and withholding of gold coin, gold bullion or gold certificates from the recognized and customary channels of trade". Keeping your own gold, in your own house, was now hoarding.
Section 2 was the instruction: "All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve Bank or a branch or agency thereof" their gold coin, gold bullion and gold certificates. Twenty six days to comply.
The exemptions tell you what the government was after. Gold was left alone where it was "required for legitimate and customary use in industry, profession or art". Every citizen could keep "gold coin and gold certificates in an amount not exceeding in the aggregate $100", roughly five ounces. And, in the same breath, an exemption that saved a great many beautiful things: "gold coins having a recognized special value to collectors of rare and unusual coins". The collector kept his. The saver did not.
Those who delivered were paid. The order provided that the bank "will pay therefor an equivalent amount of any other form of coin or currency", equivalent meaning the legal price of gold at that moment, $20.67 an ounce. Those who did not could be "fined not more than $10,000, or, if a natural person, may be imprisoned for not more than ten years, or both".
The part that usually gets left out
The gold was already coming home before the order was written. The Federal Reserve Bulletin of April 1933, held at FRASER, records that between 4 March and 5 April 1933, $1,225,000,000 of money returned to the reserve banks, of which $645,000,000 was gold coin and gold certificates, and the reserve ratio rose from 45.1 to 59.7 per cent. That period ends on the day the order was signed. The panic had turned during the bank holiday. The order came after.
Why issue it at all? Because of a ceiling. As Federal Reserve History records, American law then required the Federal Reserve to hold gold equal to 40 per cent of the currency it issued, and to convert dollars into gold at $20.67. In a deflationary collapse, that was a hard limit on how much money could exist. The programme was aimed at the ceiling above the government's head. The man with a coin in his pocket is who paid for it.
Three movements, and one piece of arithmetic
What followed was a programme, not a single order. On 20 April 1933, Executive Order 6111 prohibited the export of gold and the conversion of currency into it. From October, the government bought gold at prices it raised itself, day by day, to push the dollar down. Then, on 30 January 1934, came the Gold Reserve Act. Its section 2 transferred all monetary gold in the country, including the Federal Reserve's own holdings, to the Treasury, with compensation at $35 an ounce, reducing the dollar's gold value to 59 per cent of the $20.67 parity set by the Gold Standard Act of 1900. Sections 5 and 6 barred the redemption of dollars for gold altogether.
State the arithmetic plainly and say nothing else about it. The public's gold was bought at $20.67. Nine months later the same ounce was declared to be worth $35. The gain on that revaluation went to the Treasury, around $2.8 billion of it, with $2 billion used to capitalise the Exchange Stabilization Fund. The man who queued at the window in April had been paid in full, at the old price.
The bigger story is not the coins
For generations, serious American contracts carried a gold clause: pay me in gold, or in its value. It existed so that a debtor could not repay you in money worth less than the money you lent. On 5 June 1933, Congress voted those clauses out of existence, declaring them "against public policy" and providing that every obligation "shall be discharged upon payment, dollar for dollar, in any coin or currency which at the time of payment is legal tender".
On 18 February 1935 the Supreme Court answered, five to four. In Norman v. Baltimore & Ohio Railroad Co., it held that "whatever power there is over the currency is vested in the Congress", and that "if the gold clauses now before us interfere with the policy of the Congress in the exercise of that authority, they cannot stand". The private promises fell.
Then came Perry v. United States, because the government had written the same clause on its own bonds. The Court held that "the Congress has not been vested with authority to alter or destroy those obligations". Read that twice. The government could not break its own word. And then the Court told the bondholder he had shown no loss the law would pay for, and he recovered nothing. The promise was unbreakable, and it was worth nothing.
The honest counterweight
It would be dishonest to stop there, because the serious economic history does not call 1933 a disaster. Ben Bernanke and Harold James, writing for the National Bureau of Economic Research in October 1990, studied twenty four countries and found that those which suffered severe banking panics had much worse depressions, as did those which stayed on the gold standard, while countries that abandoned it recovered more quickly. Barry Eichengreen and Jeffrey Sachs, in the Journal of Economic History in December 1985, found that currency depreciation benefited the countries that undertook it. That case is strong, and it is not ours to answer.
Our subject is narrower. For years the paper said gold, the law said gold, the bond said gold and the contract said gold. Within two years every one of those promises had been lawfully withdrawn by the people who wrote them. Not one atom of the metal changed. What changed was a signature.
It was 41 years before an American could lawfully hold gold again: on 31 December 1974, Executive Order 11825 revoked the orders regulating the acquisition and holding of gold, under Public Law 93-373. And the ounce the government had bought for $20.67 was still an ounce.
That is the lesson, and it is not a conspiracy. It is a definition. A promise about gold is only as good as the party who wrote it. Gold is not a promise at all.
Sources: The American Presidency Project, University of California, Santa Barbara; FRASER, Federal Reserve Bank of St Louis; Federal Reserve History; Cornell Law School, Legal Information Institute; the National Bureau of Economic Research; the Journal of Economic History; the US National Archives. Every fact above links to its source.
Chapman Gold buys and sells gold, jewellery and antiques. Own a piece of the story at chapmangold.co.uk.