Question of Gold Seizure Hits Radar Screen By David L. Ganz, Numismatic
October 02, 2008
a $700 billion mortgage bailout package on the table, Wall
Street investment bank Lehman Brothers in bankruptcy, brokerage
giant Merrill Lynch sold and the appearance of economic chaos
on at least three continents - North America, Europe and Asia
- gold has moved to the forefront and with it issues that
parallel 1933-1934, the time of the Great Depression.
The question fairly rises as to whether or not the U.S. government
is moving to consolidate its economic power by an outright
gold seizure or whether they are prepared to allow the free
gold market to speak about the dollar bill and a gaggle of
other foreign currencies. Some wonder if they are willing
to let the dollar's purchasing power slip away entirely.
Cause of the initial crisis: bad bank loans. RealtyTrac®
(realtytrac.com), a leading online marketplace for foreclosure
properties, released its second quarter 2008 U.S. Foreclosure
Market Report", which shows foreclosure filings were
reported on 739,714 U.S. properties during the second quarter.
The report also shows that one in every 171 U.S. households
received a foreclosure filing during the quarter.
If the typical home owner has a $300,000 mortgage, the rescue
package Congress will be asked to look at and approve virtually
at the same time - unprecedented since the banking crisis
of 1933 - would cover 2.1 million homes.
From March 14-18, 2008, gold topped $1,000 an ounce; then
it began a slow settled decline into the $700s - still high
by contemporary standards. As the evolving national financial
crisis began around Sept. 11, 2008 - the seventh anniversary
of the attack that took down the twin towers of the World
Trade Center in New York gold started at $740, went to $750,
then to $775, $779 and it was off to the races.
The change from Sept. 12 ($750) to Sept. 19 ($869) the rate
of change was 15.8 percent - in just a week. Meanwhile, Lehman
Brothers stock, which was $67 a year ago, was trading at 18.99
cents a share. Five thousand shares, which a year earlier
had a value of $335,000 could be purchased for a mere $1,000.
Prior to 1933, "gold seizure" in the New York Times
historical data base, yields six news stories all of which
are parts of wars in South Africa and elsewhere. The story
is different by early 1934 when President Franklin D. Roosevelt
used executive orders - without congressional approval - to
claim the nation's gold stock, including its coinage. (There
were some exceptions).
The Jan. 13, 1934, New York Times had a series of articles
whose headlines and sub-heads that tell the central points
of the dispute. "Roosevelt Claims Power to Capture Reserve
Bank Gold," the first headline began. The sub-point:
"Believes He Has Ample Authority, but Does Not Disclose
How was this accomplished: with the connivance of the attorney
general. Again the Times headlines: "Cummings Gives Ruling
But Definite Word on the Attorney General's Conclusions Is
Withheld." There is more to the headlines: "No Central
Bank Plan," followed by "Roosevelt Declares That
Such Reports of Aims Are Only Very Bad Guesses" and goes
on to make the summary point: "President Claims He Can
Over the next few weeks, there is more drama, more headlines:
"Gold Bill Constitutional, Cummings Tells Senate; Early
Passage Expected" is one thought. But there are those
who claim that the seizure contemplated is unconstitutional
- which headlines address, too.
"Committee Gets Ruling Eminent Domain Applies to Bank
Gold, Says the Attorney General." Still, there was opposition.
Sen. Carter Glass of Virginia was opposed, as the headlines
of the day disclose. Says the Times: "Held for 'Public
Service' Glass Is Not Convinced While Reserve Board Is Inclined
to Give Up Profit Only. House Group Scores Point Beats Rival
Committee to Floor with Bill - Stabilization Reports Persist.
Reports Gold Bill Is Constitutional"
Carter Glass, Woodrow Wilson's Secretary of the Treasury,
and also FDR's choice (he declined) had been U.S. senator
from Virginia since 1920 when he did battle with FDR over
gold seizure. Again, the Times summarizes in its headlines
the problems of the day: "Glass Denounces Aims of Gold
Bill; Silver Men Rally."
Glass's principal objection was taking gold from the Federal
Reserve. He charged that Britain and Germany did not cripple
their central banks when they went off the gold standard.
That would be changed in the final executive order and the
eventual custodian, which was the Fed.
Citizens once had the right to deposit silver or gold bullion
with the Mint and receive, in return, a full measure of precious
metal coinage, less the cost of coining. (The specifics are
found in the original Mint Act of April 2, 1792, sections
14-15) The government and the population could thus control
The right to deposit these metals was called "free coinage,"
though this was hardly so since there was a modest charge
by the Mint for the service. Free coinage of silver ended
with passage of the Coinage Act of 1873; general circulation
gold coinage itself was halted in 1933, when FDR acted on
his announcement discussed above and created the first modern
government regulatory function: controlling those numismatic
coins that were exempted from an otherwise nation-wide recall
of gold coins.
The Trading with the Enemy Act of 1917 authorized the President
to regulate, investigate and prohibit "under such rules
and regulations as he may prescribe ... any transactions in
foreign exchange, export or earmarkings of gold or silver
coin or bullion or currency ... by any person within the United
Prof. Henry Mark Holzer, in a 1973 article in the Brooklyn
Law Review entitled, "How Americans lost the right to
own gold and became criminals in the process" wrote,
"The war emergency and the President's duty to fight
the war provided Congress with a convenient rationale for
The fact is, however, that the Constitution nowhere empowers
Congress to prohibit dealing in gold-much less authorizes
Congress to delegate that power to a coordinate branch of
First came Presidential Proclamation No. 2038 (48 Stat. 1689
(1933)) whose prefatory language sets up the explanation of
"Whereas there have been heavy and unwarranted withdrawals
of gold and currency from our banking institutions for the
purpose of hoarding; and "Whereas continuous and increasingly
extensive speculative activity abroad in foreign exchange
has resulted in severe drains on the Nation's stocks of gold;
and "Whereas these conditions have created a national
emergency; * * * [and a banking holiday would be in the national
"Now, THEREFORE, I, Franklin D. Roosevelt, President
of the United States of America, in view of such national
emergency and by virtue of the authority vested in me by said
Act and in order to prevent the export, hoarding, or earmarking
of gold or silver coin or bullion or currency, do hereby proclaim,
order, direct and declare that from Monday, the sixth day
of March, to Thursday, the ninth day of March, Nineteen Hundred
and Thirty Three, both dates inclusive, there shall be maintained
and observed by all banking institutions and all branches
thereof located in the United States of America, including
the territories and insular possessions, a bank holiday, and
that during said period all banking transactions shall be
The order was then specific about coins and other items:
"During such holiday, excepting as hereinafter provided,
no such banking institution or branch shall pay out, export,
earmark, or permit the withdrawal or transfer in any manner
or by any device whatsoever, of any gold or silver coin or
bullion or currency or take any other action which might facilitate
the hoarding thereof; nor shall any such banking institution
or branch pay out deposits, make loans or discounts, deal
in foreign exchange, transfer credits from the United States
to any place abroad, or transact any other banking business
A generation after World War I and a few months after the
initial shot across-the-bow, FDR issued Executive Order 6260
of Aug. 28, 1933, which recalled all gold coins, but exempted
"rare and unusual gold coins." What was rare, or
unusual, constituted a regulatory function of the Treasury
Department in succeeding years. Millions of coins were melted.
With the 1933 gold recall, all but rare and unusual coins
were required by law to be turned in to the government in
exchange for paper currency. Executive Order 6260 provided
in pertinent part that "no return ... [is required of](b)
gold coins having a recognized special value to collectors
of rare and unusual coin..."
There were other limitations. Because more than $1.5 billion
in coins were melted, calculated at their face value, millions
of coins were forever destroyed.
Collectors knew, of course, that by virtue of their status
as a collector, they were able to continue to hold gold coins,
even quarter eagles (though no more than four of each date
and mintmark) while other citizens were forced to surrender
their coins. Each of these pieces had been produced at a time
when gold was valued at $20.67, and a $20 gold piece contained
$19.99 worth of gold.
Simultaneous with the recall came a devaluation of the dollar,
which meant that the price of gold was raised from $20.67
and ounce to $35. Since each $20 gold piece now contained
$33.86 worth of gold, a significant advantage was attained
by those collectors who retained their coins over those who
patriotically turned them in as directed. (Actually, 1934
Proc. No. 2072, Jan. 31, 1934, 48 Stat. 1730 revalued the
dollar to $35 an ounce (15-5/21 grains of .900 fine gold).
There are a host of laws that govern today's national banking
and economic emergencies. Among them: title 12 of the U.S.
Code (banking), section 4407 (national emergencies), which
notes as a cross-reference: "The provisions of this chapter
may not be construed to limit the authority of the President
under the Trading With the Enemy Act (50 App. U.S.C.A. §
1 et seq.) or the International Emergency Economic Powers
Act (50 U.S.C.A. § 1701 et seq.)."
The law lives on today as 50 App. USCA §5 (subsection
(b)(1)) which still says that, "During the time of war,
the President may, through any agency that he may designate,
and under such rules and regulations as he may prescribe,
by means of instructions, licenses, or otherwise:
(A) investigate, regulate, or prohibit, any transactions
in foreign exchange, transfers of credit or payments between,
by, through, or to any banking institution, and the importing,
exporting, hoarding, melting, or earmarking of gold or silver
coin or bullion, currency or securities ..."
If this sounds like something forgotten 90 years ago, be
aware that the legislative history tells another tale: it
was most recently amended by Congress in 1977, 1988 and 1994.
As the headlines play out, and begin to sound eerily repetitive
with the 1930s, it is worthy of remembering that Americans
were able to own gold abroad until the Kennedy Administration
prohibited it - also by executive order.
By Dec. 31, 1974, Americans regained the right to own gold
as Congress repudiated the declaration of national emergency
- but none of that precludes a Presidential finding of an
emergency that is obvious from reading the newspapers - even
if it can be reversed by another executive order or congressional
action. Put differently, gold seizure could happen again and
it could happen to you.