Some of the programs and policies of that era have been
terminated, the moral heritage of the New Deal continues to permeate
American government and political thinking.
In 1936 Franklin Roosevelt declared, "I should like to
have it said of my first Administration that in it the forces of
selfishness and of lust for power met their match. . . . I should like
to have it said of my second Administration that in it these forces met
their master." 1No American president has rivaled Roosevelt
in his denunciation of what he called "economic royalists." He sought to
"master" the "forces of selfishness" by making government master of
every person's private financial destiny. Like today, the citizen who
wanted to retain control over his own life was selfish, while the
bureaucrat who wanted to seize power over the citizen was automatically
presumed benevolent.
One of the most controversial New Deal policies was the
seizure of citizens' gold.2 During the Great Depression,
several foreign nations repudiated their promises to redeem their
currencies for gold. In 1933, when Roosevelt became president, the
United States had the largest gold reserves of any nation in the world.
He announced on March 8, 1933, a few days after taking office, that the
gold standard was safe. But three days later, he issued an executive
order forbidding gold payments by banks; Treasury Secretary Henry
Morgenthau, Jr., announced on March 11 that "the provision is aimed at
those who continue to retain quantities of gold and thereby hinder the
Government's plans for a restoration of public confidence." 3
Thus, according to Morgenthau, any limit on government power was bad for
public confidence. And whatever confidence people might seek to achieve
must be left in abject dependence on politicians' latest salvation
scheme.
The ban on bank gold payments created widespread doubts
about the Roosevelt administration's intentions. Ogden Mills, who had
served as President Herbert Hoover's treasury secretary, observed that
"it was not the maintenance of the gold standard that caused the banking
panic of 1933 and the outflow of gold. . . . [I]t was the definite and
growing fear that the new administration meant to do what they
ultimately did-that is, abandon the gold standard." 4 People
naturally sought to get rid of their paper currency and to put their
savings into something with more secure value-gold.
Gold as Contraband
Fear of devaluation spurred a panic, which Roosevelt
invoked to justify seizing people's gold. On April 5, 1933, Roosevelt
commanded all citizens to surrender their gold to the government. No
citizen was permitted to own more than $100 in gold coins, except for
rare coins with special value for collectors. Morgenthau announced on
the same day that "gold held in private hoards serves no useful purpose
under present circumstances." 5 Gold was thus turned into the
same type of contraband as Prohibition-banned rum. Roosevelt announced,
"Many persons throughout the US. have hastened to turn in gold in their
possession as an expression of their faith in the Government and as a
result of their desire to be helpful in the emergency.
There are others, however, who have waited for the
Government to issue a formal order for the return of gold in their
possession." 6 To speak of the "return of gold" implied that
government was the rightful owner of all the gold in the nation, and
thus that no citizen had a right to possess the most respected store of
value in history. Roosevelt assured the country: "The order is limited
to the period of the emergency." But the order stayed on the books until
1974.
Roosevelt labeled anyone who did not surrender his gold
a "hoarder." His executive order defined "hoarding" as "the withdrawal
and withholding of gold coin, gold bullion or gold certificates from the
recognized and customary channels of trade." 7 Actually,
Roosevelt was not concerned with the gold being in the "customary
channels of trade"; instead, he wanted government to possess all the
gold. And the notion that people were "withholding" their gold merely
because they did not rush to the nearest Federal Reserve bank to
surrender it was political logic at its best.
Roosevelt, in a later note to his Public Papers,
justified the order because it "served to prevent the accumulation of
private gold hoards in the US." 8 Roosevelt used the same
"hoarding" rhetoric against anyone who owned gold that Stalin used
against Ukrainian peasants who sought to retain part of their wheat
harvest to feed their families. But while Stalin sent execution squads
to kill peasants who had a few bushels of grain hidden in their hovels,
Roosevelt was kinder and gentler, seeking only ten-year prison sentences
and $250,000 fines for any citizen who defied his edict and possessed
more than five Double Eagle gold coins.
Roosevelt was hailed as a visionary and a savior for
his repudiation of the government's gold commitment. Citizens who
distrusted the government's currency management or integrity were
branded as social enemies, and their gold was seized. And for what? So
that the government could betray its promises and capture all the profit
itself from the devaluation it planned. Shortly after Roosevelt banned
private ownership of gold, he announced a devaluation of 59 percent in
the gold value of the dollar. In other words, after Roosevelt seized the
citizenry's gold, he proclaimed that the gold would henceforth be of
much greater value in dollar terms.
Citizens who had desired to hold gold as a hedge
against government inflation policies were completely vindicated. FDR's
administration subsequently did everything possible to inflate prices,
foolishly confident that a mere change in numerical prices would produce
prosperity. Citizens had accepted a paper currency based on the
government's pledge to redeem it in gold at $20 per ounce; then, when
Roosevelt decided to default on that pledge, he also felt obliged to
turn all citizens holding gold into criminals. Roosevelt stated that the
ban on private ownership "was the first step also to that complete
control of all monetary gold in the United States, which was essential
in order to give the Government that element of freedom of action which
was necessary as the very basis of its monetary goal and objective."
9 But the primary "freedom" government acquired was the
freedom to default on its promises and to manipulate the lives of
everyone depending on US. dollars in their daily transactions.
Curiously, FDR retained his denigrating tone toward
so-called gold-hoarders even after he defaulted on the federal
government's gold redemption promise. Even though people who distrusted
politicians' promises were vindicated, they were still evil people
because they had not obeyed FDR's demand to surrender their gold. In the
moral world of the New Deal, justice consisted solely of blind obedience
to political commands. FDR had absolutely no sense of embarrassment or
shame after he defaulted on the federal government's gold promises-it
was simply political business as usual.
Senator Carter Glass of Virginia, chairman of the
Senate Finance Committee, denounced the gold seizure: "It's dishonor.
This great government, strong in gold, is breaking its promises to pay
gold to widows and orphans to whom it has sold government bonds. . . ."
10
Free to Inflate
The refusal to convert paper dollars into gold meant
that the government was "free" to flood the country with paper money and
sabotage the currency's value. The stability of the value of currency is
one of the clearest measures of a government's trustworthiness. Before
Roosevelt took office, Americans clearly recognized the moral
implications of inflation. Vice President Calvin Coolidge had bluntly
declared in 1922: "Inflation is repudiation." Inflation is a tax whereby
government prints extra money to finance its deficit spending. The value
of money is largely determined by the ratio of money to goods; if the
quantity of money increases faster than the increase in the amount of
goods, the result is an increase in the ratio of money to goods and an
increase in prices. Thus, the government's printing presses devalue
people's paychecks and effectively allow government to default on the
value of its debt.
The threat of inflation was invoked in the early 1940s
to justify imposing payroll tax withholding 11 (protecting
people from their own paychecks) and in the 1970s to impose price
controls over the entire economy. Apparently, politicians who decide to
flood the money supply automatically become entitled to increase their
coercion of their victims who hold increasingly worthless currency.
Since Roosevelt banned citizens from owning gold in
1933 and forced people to rely on the unbacked promises of politicians
for the value of their currency, the dollar has lost about 93 percent of
its purchasing power. 12 The collapse in the dollar's
purchasing power severely disrupted the ability of scores of millions of
Americans to plan their own lives and save for retirement. If someone
proposed a law to give government the right to explicitly default by 2
to 3 percent a year on all its debts, the proposal would be widely
denounced. Yet, this is what the government has been doing for decades.
Though inflation has slowed since 1980, the purchasing power of the
dollar has fallen by over 50 percent in subsequent years according to
the government's own numbers (which slightly exaggerate the damage to
the dollar), making a mockery of people's attempts to calculate and save
for the future. A 1997 study by Congress's Joint Committee on Taxation
found that because of how capital gains taxes are calculated, many
citizens are forced to pay taxes on investment "gains" when in reality
they have suffered losses due to the deterioration of purchasing power.
13
Roosevelt's gold seizure was based on the doctrine that
in order for government to save the people, it must be permitted to
breach all the promises it made to the people. According to modem
conventional wisdom, government has no obligation to do justice or treat
any specific individual citizen fairly-instead, government's only duty
is to achieve "social justice" or some other abstraction perfectly
suited for evasion.
James Bovard is the author of Freedom
in Chains: The Rise of the State and the Demise of the Citizen
(St. Martin's Press, 1999).
1. The Public Papers and Addresses of Franklin
Roosevelt, 1936 (New York: Random House, 1938), pp. 232-33.
2. Editor's note: See Richard Timberlake's article
"Gold Policy in the 1930s," The Freeman, May 1999.
3. Gustav Cassell, The Downfall of the Gold Standard
(New York: Augustus Kelley, 1966 [1936]), pp. 118-19.
4. Barry J. Eichengreen, Golden Fetters: The Gold
Standard and the Great Depression (New York: Oxford University Press,
1992), p. 321.
5. Cassell, p. 124,
6. The Public Papers and Addresses of Franklin D.
Roosevelt, The Year of Crisis, 1933 (New York: Random House, 1938), pp.
110-11.
8. Ibid., p. 114.
9. Ibid., p. 115.
10. Benjamin Anderson, Economics and the Public Welfare
(Indianapolis: Liberty Fund Press, 1979 11949]), p. 314.
11. Charlotte Twight, "Evolution of Federal Income Tax
Withholding," Cato Journal, Winter 1995. See http://www.cato.org/pubs/
journal/cj 14n3-I.html.
12. For information on the deterioration of the
dollar's purchasing power, see the Web site of the U.S. Bureau of Labor
Statistics at http://www.bls.gov/cpihome.htm.
13. Bruce Bartlett, "How Inflation Hikes the Capital
Gains Bite," Washington Times, March 31, 1997.
Reprinted with permission from The
Freeman, a publication of The Foundation for Economic Education, Inc.,
June 1999, Vol. 49, No. 6.
Yourname@libertyhaven.com
