‘Rare
Coins’ of ‘Special Value’ – Exempt from
Laws Allowing Government to Confiscate Gold by: Adam Jay Doolittle
| Mon, Jun 7, 2010
In 1933, the U.S. government perpetrated what liberty-minded
scholars consider to be the most draconian economic act
in its history by confiscating its citizens’ gold.
Though it is a subject of much debate, many goldbugs insist
the laws allowing the government to do this again are still
on the books. Is there anything a precious-metal investor
can do to put his or her gold out of the government’s
reach?
A Brief History of Confiscation
When Franklin Delano Roosevelt took office in 1933, the
country was experiencing the worst economic depression in
its history. The prior era, the Roaring Twenties, had been
one of inflated assets and an expanding money supply. Eventually,
the bubble burst and prices began to drop precipitously.
FDR knew what needed to be done — prices needed to
be stabilized — but the methods he used to achieve
this end were, according to most constitutional scholars,
well beyond the legitimate scope of federal power.
FDR’s plan was to depreciate the dollar, which, at
that time, was convertible to gold at the rate of $20.67
per ounce. However, this would be impossible to do with
millions of $5, $10, and $20 gold coins in circulation.
These coins were literally worth their weight in gold, and
if the value of the dollar were changed, people would simply
melt down the coins or take them out of circulation —
either way, this would not help depreciate the dollar and
inflate the money supply, as FDR aimed to do.
So, under legally dubious means, FDR and Congress passed
a law outlawing the private ownership of gold in excess
of $100. Millions of Americans were made to trade in their
gold coins for paper dollars — effectively at gunpoint.
Then, once all the coins were in the government’s
coffers, FDR revalued the dollar from $20.67 per ounce of
gold to $35 an ounce — a theft of almost forty-once
cents on the dollar.
Gold ownership remained illegal in the United States until
1954. That year, the Treasury Department legalized the ownership
of “rare” coins. What was a rare coin? Well,
since the government had seized all pre-1934 coins, then
by definition, all such coins were deemed “rare.”
After all, these coins were so uncommon that those few in
circulation were worth much more than their face value or
the value of the gold of which they were made — the
coins had numismatic value. They effectively were no longer
“money,” and thus they didn’t pose a competitive
threat to the government’s fiat currency.
Gold, Government, and the Law
In 1969, the federal government further clarified the 1954
ruling and officially exempted “rare coins”
from any future government confiscations — but still
reserved the “right” for the government to seize
its citizens’ gold in the future. “The basic
principles governing the administration of the Gold Acts
and Orders,” said the Treasury Department in 1969,
“are that gold, as a store of value, can be held only
by the government and that private citizens and entities
in the United States can acquire gold only for legitimate
and customary industrial, professional, and artistic purposes.”
Two years later, in 1971, President Nixon “closed
the gold window” and took the U.S. dollar off the
gold standard — making it a true fiat currency with
no asset backing or intrinsic value. Four years after that,
President Ford legalized the private ownership of all gold
— not just rare coins — and gold has continued
to be fully legal for the past thirty-two years. Or has
it?
Although laws prohibiting gold ownership have been repealed,
the laws allowing the government to confiscate gold have
not. Rare coins, however, are the exception. For the government
to confiscate citizens’ bullion, all the government
has to do is act on long-dormant laws. But for the government
to confiscate rare coins, it would have to overturn fifty-plus
years of precedent and shatter the legal system’s
overarching ideal of jurisprudence. This may not be entirely
impossible, but it certainly offers the holders of pre-1934
gold coins more protection than the owners of bullion.
Reinstating the Gold Standard?
But why would the government confiscate gold? Some argue
it did so in the past in order to revalue the dollar relative
to gold, and since the dollar is no longer on the gold standard,
the government would have no reason to confiscate gold.
This is a good point, but it also begs the counter-argument:
Now that the U.S. dollar is not backed by gold, it’s
only a matter of time before the house of fiat-money cards
crumbles. When this happens — when the government’s
printing presses are incapable of printing money with any
real value, then the government will certainly look to do
something, and conveniently, laws on the books allow it
to confiscate privately owned gold. It’s likely that
the government could do this ostensibly to reinstate the
gold standard!
In such desperate times, would rare coins be safe? It is
impossible to know for sure, but it is certainly true the
coins would be safer than bullion or non-rare coins. After
all, look no further than to the first Great Confiscation
in which many “patriotic” Americans willingly
turned over their gold for paper money. Certainly, some
Americans would do this again, especially if it were in
the name of reinstating the gold standard. The government
would probably promise gold redemptions would be
reinstated “in a matter of time.”
And while certainly not all goldbugs would willingly turn
over their gold, there would be far less resistance to government
confiscation of commodity-valued gold than there would be
to the seizure of rare, numismatic coins. The government
would not want to be in the business of coin dealing, at
least not at first, and it would undoubtedly go after the
low-hanging fruit — especially when laws on the books
allow it to be legally picked.
Win With or Without ‘Financial
Armageddon’
Silver investors should be aware of the potential of another
Great Confiscation. But, a diverse portfolio of stocks,
bonds, cash, and precious metals has worked the best over
the past thirty years, and will probably work the best for
the next thirty. And, as part of a hedging strategy, holding
some rare gold coins — in addition to bullion —
is undoubtedly a wise decision. Just in case.