There are a
number of common misconceptions about the gold confiscation foisted
on the American people by President Franklin Roosevelt in 1933.
Most of these have been offered as justification for FDR’s
nefarious deed, and over time have endured to become urban legends.
perhaps the biggest and most enduring myth is that FDR had to confiscate
gold because it was needed to back the dollar, which was still defined
as 23.22 grains of fine gold, i.e., $20.67 per ounce. What the propagators
of this popular myth conveniently ignore is basic math.
1932, the US Gold Reserve equaled 204.5 million ounces. This weight
was slightly more than the reserve’s average weight of 202.2
million ounces from the October 1929 stock market crash through
December 1932, a period that covers the worst of the depression.
election victory in November 1932, rumors began circulating that
once in office, FDR would seize the people’s gold. Because
of these rumors, which perhaps originated from tips by White House
insiders who knew of the confiscation scheme, dollars were redeemed
for gold, as was possible at the time, and much of this gold was
exported or simply hidden. This point is explained in detail in
Milton Friedman’s The Monetary History of the United States.
As a result
of these redemptions of paper dollars for physical gold, the US
Gold Reserve dropped to 193.3 million ounces by FDR’s inauguration
in March 1933. With the confiscation thereafter in place, the outflows
stopped, and the reserve began to grow with the metal collected
from the confiscation. The reserve reached 195.1 million ounces
in January 1934 when FDR re-defined the dollar as only 13.71 grains.
It was a 41% devaluation of the dollar, which meant that it thereafter
took $35 to exchange for one ounce of gold. So here is the math.
At $35, the
195.1 million ounces in the US Gold Reserve in January 1934 equaled
$6.83 billion of gold backing for the dollar. Gold was now overvalued
in dollar terms, as evidenced by the rapid flow of gold into the
US Gold Reserve, which in the first month rose to 212.5 million
ounces. But the bonanza for gold holders did not stop there. People
continued to exchange their overvalued gold for dollars, with the
result that the US Gold Reserve reached a new all-time record high
of 227.9 million ounces only six months later in August 1934.
huge gold-flows into the reserve, it is clear that valuing the gold
reserve at $6.83 billion was high enough to re-establish confidence
in the dollar. Therefore, if we divide this value by the 193.3 million
ounces in the reserve before the confiscation, we can conclude that
a devaluation of the dollar to $35.33 per ounce would have achieved
the same $6.83 billion valuation necessary to re-establish confidence
in the dollar, but it would have done so without any confiscation.
notwithstanding the enduring myth, FDR really did not need the weight
of gold collected from the confiscation to re-establish confidence
in the dollar. Simply devaluing the dollar by a slightly greater
amount would have achieved the same objective. So why did FDR confiscate
In our book,
Collapse of the Dollar, John Rubino and I provided an answer,
but it wasn’t an explanation that we developed. Rather, the
answer came from Alan Greenspan’s 1966 essay entitled “Gold
and Economic Freedom”.
abandonment of the gold standard made it possible for the welfare
statists to use the banking system as a means to an unlimited
expansion of credit…The financial policy of the welfare state
requires that there be no way for the owners of wealth to protect
themselves. This is the shabby secret of the welfare statists’
tirades against gold. Deficit spending is simply a scheme for
the confiscation of wealth. Gold stands in the way of this insidious
process. It stands as a protector of property rights. If one grasps
this, one has no difficulty in understanding the statists’ antagonism
toward the gold standard.”
So it seems
clear to me that FDR confiscated American’s gold for the same
reason Lenin confiscated it in Russia and Hitler confiscated it
in Germany, namely, to get it out of the hands of the people. This
point is made clear in a wonderful speech given in 1948 by Howard
Buffett, the father of Wall Street legend Warren Buffett, entitled
Rests on Gold Redeemable Money”. A thorough reading of
Buffett’s thoughtful speech will help clear the myths and explain
the reality of gold confiscation.
from the Free Gold Money Report.
November 28, 2011
Turk is founder and chairman of GoldMoney,
which provides a convenient and economical way to buy and sell gold,
silver and platinum online using the digital gold currency for which
he was awarded four US patents. He has specialized in international
banking, finance and investments since graduating in 1969 from George
Washington University with a B.A. degree in International Economics.
He moved to the United Arab Emirates in December 1983 to be appointed
Manager of the Commodity Department of the Abu Dhabi Investment
Authority, a position he held until resigning in 1987 to begin FGMR.
He has written several monographs on money and banking and is the
co-author of The
Collapse of the Dollar.