Government
Confiscation of Gold: It Happened Before — Could It Happen
Again? by: J.D. Seagraves
| Mon, Jun 7, 2010
Our nation was founded with the sacred words,
“We hold these truths to be self-evident, that all
men are created equal; that they are endowed by their Creator
with certain unalienable rights; that among these are life,
liberty and the pursuit of happiness.” But in 1933,
all that was shattered if by “pursuing happiness,”
you chose to pursue gold.
Confiscation all dates back to the Trading
with the Enemy Act of 1917. That year, President Woodrow
Wilson signed the “TWEA” into law, forbidding
American individuals and businesses from engaging in trade
with “enemy nations.” The world’s functional
gold standard, which had overseen tremendous global economic
growth in the early years of the twentieth century, was
effectively halted by the outbreak of World War I, and the
stage was thus set for the Great Depression and World War
II.
Shortly after taking office sixteen years
later, Franklin Delano Roosevelt signed Executive Order
6102 into law, prohibiting the “hoarding” of
gold. Under this executive order, Americans were prohibited
from owning more than $100 worth of gold coins, and all
“hoarders” (i.e. people who owned more than
$100 worth of gold) were forced, by law, to sell their “excess”
gold to the government at the prevailing price of $20.67
per ounce.
Then, once the government had all the gold,
FDR revalued the dollar relative to gold so that gold was
now worth $35 an ounce. By simple decree, the government
had thereby robbed millions of American citizens at a rate
of $14.33 per ounce of confiscated gold, which is why most
historians agree that the Gold Confiscation of 1933 is the
single most draconian economic act in the history of the
United States.
The Utilitarian Rationale Behind
Confiscation
The reasoning behind the Great Gold Confiscation
was, of course, the Great Depression, which had begun several
years prior. After an inflationary run-up in prices and
asset values, the stock market crashed in 1929, and the
economy soon went with the crash.
Rather than responding to the situation
with laissez-fair wisdom, President Herbert Hoover, often
accused of being a proponent of laissez fair by those to
whom the term is considered an epithet — instead raised
taxes and erected new trade barriers, intensifying the misery.
When FDR was elected, the people were willing to go along
with nearly anything to try to alleviate the deflation that
had gripped the country and strangled economic activity.
The boom of the 1920s was largely an illusory
creature of the still-new Federal Reserve’s gross
ineptitude, and by the thirties when reality had caught
up to the loose-money standards of the prior decade, the
money supply quickly contracted, causing deflation.
Like inflation, deflation also begets more
of itself, and as prices dropped, it became wiser for the
possessors of money to hold it rather than spend it, since
prices would be lower the next day — and even lower
the day after that — ad infinitum.
Since no one was spending money, businesses
went under and people were out of the work, thus making
the situation worse. In response, FDR knew what needed to
be done — prices needed to be stabilized. On this,
few would disagree. The exception economists take is with
the implementation the president chose to pursue.
First, as discussed, private ownership of
gold was effectively barred. The only exceptions were coinage
worth $100 or less, or collectible coins, industrial uses,
and jewelry. Gold could not be “hoarded” as
a significant investment, and all “hoarders”
were made to sell their gold to the government.
The Federal Reserve itself — a private
banking cartel more so than an arm of government —
was not excluded from this requirement either, as made clear
by the Gold Reserve Act of 1934. That legislation required
the Fed to surrender all gold and gold certificates held,
to the United States Treasury.
Finally, the dollar was revalued, and U.S.
Dollars was then redeemable at a rate of $35 an ounce, as
opposed to the old gold standard of $20.67. However, it’s
important to note that only foreign bankers and international
governments could redeem their dollars for gold —
private gold ownership was still illegal in the U.S. until
the end of 1974.
The effect revaluation had on the U.S. dollar
was an instant depreciation of 41%. Thus, prices were pushed
back up again, in nominal terms, at least. What the long-term
effects of this action would have been in the absence of
World War II will never be known, but within a few years,
the U.S. war economy was humming.
Following the end of the second great war,
the U.S. stood alone as an economic super power, virtually
untouched by the Axis or Allies, while most of Europe lay
in ruins. It all made Roosevelt’s coercive and unconstitutional
acts look ingenious, but scholars from the left and right
continue to debate whether they were truly wise or if the
New Deal was bailed out by global externalities.
Gold Confiscation: Could it Happen
Again?
Although the U.S. dollar is constantly under
pressure, the U.S. government continues to stockpile debt,
and impossible-to-fulfill entitlement commitments loom on
the horizon, the idea that the U.S. government would try
to confiscate citizens’ gold today or anytime in the
foreseeable future certainly seems spurious at best. After
all, the government did so in the past in order to recalibrate
the gold standard, which we have not been on since 1972.
However, our government has become increasingly
bold in its refusal to be restrained by the Constitution,
and following the return to limited government (at least
in rhetoric) by the Reagan administration in the eighties,
the Constitution has been all but ignored by subsequent
administrations and congresses.
The government might want to reenact gold
confiscation, and most congressmen would feel no moral compunction
about doing so, but logistically, it would seem virtually
impossible in today’s globally interdependent and
well-connected economy.
Investors might need to beware, however,
if certain interest groups on the left and right get their
way and begin building walls, both literally and figuratively,
around the country in an effort to block that global interdependence.
Protectionism and higher taxes led to the greatest depression
in U.S. history, and along with it came gold confiscation.
It would probably take a similar impetus for such a sequence
of events to happen again.