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TSI Opinion: Fear and Shame: How FDR convinced Americans to turn in their Gold

“The only thing we have to fear is… fear itself.”  Franklin Delano Roosevelt spoke these famous words at his first inauguration as President of the United States on March 4, 1933, in the midst of the Great Depression. Roosevelt’s speech has been widely celebrated for attempting to restore confidence in an ailing economy, but despite the rhetoric, fear was the primary tool of the government in Roosevelt’s enforcement of Executive Order 6102––the executive order which sought to separate Americans from their gold. 

For too long the issue of Franklin Delano Roosevelt’s Executive Order 6102 has escaped the scrutiny of academics and historians alike. Why scholars have neglected to study this topic is a question that has as yet gone unanswered. One possibility is the liberal ideological bias within the academy, as scholars have tended to lean left (some to the extreme) over the past several decades. These historians tend to see Roosevelt’s interventionism in the economy through the New Deal as evidence that government spending has the power to lift people out of poverty, and consequently, the New Deal presents a case for future socialist policies. These ideological crusaders have done everything in their power to try to lift Franklin Delano Roosevelt to the point of apotheosis because of their support for his policies. 

To fully understand Executive Order 6102, we must first begin with an examination of the monetary system in the early 20th century. After the First World War, the United States of America was on the Gold Exchange Standard. Under this system, Federal Reserve Notes of different denominations could be brought to a bank and exchanged for specie. In other words, these notes were simply receipts for the gold and silver coins contained in the bank, which obviously had the advantage of convenience in lieu of individuals carrying around potentially heavy and intrinsically valuable specie. However, the United States banking system was leveraged by fractional reserve lending, meaning that banks issued an extensive amount of credit for every physical coin they had in the vault. The expectation of course was that as long as confidence was maintained, people would rarely want to exchange the paper receipt for their physical gold and silver. 

In the mid to late 1920s, many Western economies including the United States, experienced a credit-induced bubble that fueled inflation in asset prices like the stock market. While history textbooks typically blame greedy speculators on Wall Street for driving up stock prices in the late 1920s, it was in fact the over leveraged banking system that was propped up on the extreme issuance of currency that drove stocks to outrageous highs. Coupled with margin lending from investment banks, the monetary system blew the bubble that burst on the New York Stock Exchange in late October 1929. The celebrated economist Milton Friedman argued that the Federal Reserve was ultimately to blame for the economic collapse that followed, and interestingly, former Federal Reserve Chairman Ben Bernanke, at one time admitted that the Central Bank was indeed responsible saying: 

“Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

Consequently, if the Great Depression was more than just a greed fueled speculative bubble, but was rather a currency problem, it stands to reason that a revaluation of the currency could be seen as a solution by the government. 

As the stock market crash infected other parts of the US financial system, regular everyday people began to see that they had a choice. They could either trust that their money would be safe in the bank in the belief that the government and financial system had their best interests at heart, or they could pull their specie out of the bank and perhaps unknowingly expose the fractional reserve banking system for what it was. As more and more Americans became concerned about the security of their wealth, they pulled their money out of the banks. These so-called “bank runs” have been attributed to the panic of irrational account holders who could have prevented the bank failures by keeping their cool. According to this line of thinking, if only they had trusted the system, the bank failures could have been avoided. No responsibility is set at the feet of the banks themselves which lent out far greater amounts of currency than they had stored in their vaults. 

To stop these “bank runs,” President Roosevelt declared a national banking holiday, and then shortly thereafter issued Executive Order 6102 under the pretense of stabilizing the United States monetary system. The text of the Executive Order made it clear that it was being issued as a result of a “national emergency,” language that is typically used when politicians try to sidestep the Constitution. The order targeted those responsible for “the hoarding of gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations.” The term “hoarding” was a well deployed linguistic device used to propagate the idea that any individual who wanted to keep the value of their money by holding specie was doing harm to their fellow Americans. It is worthwhile to unpack this a bit more, as the choice of this word was designed to directly influence the ego of Americans who withdrew their savings by instilling a sense of guilt about holding their own money. 

Roosevelt made it clear that the target of the Executive Order was “hoarders” of gold, and that: 

All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve Bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion and gold certificates now owned by them or coming into their ownership on or before April 28, 1933

Nevertheless, there were indeed exceptions, as there are to every rule. Americans could still retain a minimal amount of gold coin ($100 worth), gold belonging to foreign governments and trusts was secure from seizure, and gold could still be used in industry (dentistry for example). Furthermore, it is essential to make clear that the executive order did not require citizens to turn in their gold without compensation, as all persons were compensated at the 1933 face value of their gold coins. This is one reason why Roosevelt’s executive order is often the target of semantical debates. Some call the order “confiscation,” while others refer to it as “nationalization.” Perhaps in fact, the best way to think of the executive order is akin to the government’s ability to exercise eminent domain, as eminent domain typically requires the individual whose property is seized to be compensated at a current market value. Semantics aside, under Roosevelt’s executive order, gold money was exchanged for paper currency which has traditionally been considered the receipt for the money. Almost immediately, questions began to arise about the legality of such a measure. Did the President of the United States have the legal authority to force people to turn in their gold? Some people did not question the order, and obediently handed over their gold. Others decided to take a more cautious approach and waited to see how the government intended to enforce the order. 

Roosevelt’s administration knew that they could never get all American citizens to cooperate and turn in their gold, so the government took a soft handed approach in trying to convince the people to comply. The order itself called for serious penalties that amounted to as much as a 10,000 dollar fine, and/or up to 10 years in prison for non-compliance. Already operating on the thinnest of legal margins, these penalties were more for show, and in the author’s research, nobody was ever sentenced to either extreme. Rather than kicking in doors, and breaking open piggy banks, the government initiated a nationwide propaganda campaign in the press to publicly shame anyone who challenged the order. 

The Department of Justice and the Treasury compelled banking institutions to turn over their records to the government to see who had withdrawn their coinage before the passage of the Executive Order. From those records, they chose certain individuals to pursue and used the press to publicize every step of their investigation. In 1933, it appears that the government sought to prosecute a wide range of people including recalcitrant politicians, wealthy elites, doctors, and even school teachers, the idea being that no one was immune to prosecution. Almost universally, once a warrant was issued for their arrest, their names were published in the local newspaper. If that wasn’t enough to get them to turn in their gold, they were arrested, their mugshot appeared in the paper and they were publicly ostracized as “gold hoarders.” The press even questioned their patriotism as Americans. 

For Ms. Helen Black (see above), a school teacher in Oklahoma, the experience must have been humiliating. Her mugshot in the papers demonstrated that the government wasn’t just going after the “big fish.” Stories of indictments rang through the press, and the shame associated with having one’s picture in the paper was an incredibly effective tool to get Americans to turn over their gold. For those who were bold enough to continue to stand up to federal officials, they were then typically dragged through the court system, sometimes for years, the process being so onerous that they almost always capitulated. Once they gave up their gold, the charges were dropped, although some elderly defendants actually died before having gotten very far in their court proceedings.

The point is this: The government didn’t need to break down doors, or chisel more than a few safe deposit boxes open. They got people to give up their gold willingly, rather than experience the shame brought to their families by being publicly ostracized in the press, have their patriotism questioned, or be dragged through the courts. It is estimated that there was perhaps a 50% compliance rate to the Executive Order. While 50% is a failing grade in school, if one considers the minuscule amount of effort that the government exerted, it is indeed a rather amazing figure. One newspaper joked “Many people who would like to smile are afraid if they did somebody would see their gold fillings and report them for hoarding.”

Some individuals were unperturbed by the bad press, including Charles Thomas, a former US Senator for Colorado who lived in Denver at the time of the Executive Order. Thomas, himself a lawyer, publicly challenged the government to put him in jail for keeping his gold. When he refused to give up his gold, government officers decided to indict his daughter on the same charges. Even the school teacher, Ms. Helen Black was resistant right up to the last moment. She had stored her gold in a safe deposit box and refused to give federal officers her key. They eventually chiseled the lock off of her safe deposit box, and confiscated her gold. Nevertheless, there were many people who decided that they would not comply and pulled their gold out of the banking system, hiding their coins in cookie jars or burying it in the backyard under the cover of darkness. 

Some Americans were a bit more brazen, and continued secretly using gold as a medium of exchange. As with all instances of government prohibition, an underground trade developed, and sometimes the people involved were referred to as “bootleggers” in the same vein as those circumventing alcohol prohibition. The Santa Cruz Sentinel reported of one such group of gold bootleggers in April 1939. The newspaper headline read “Hoarding: Secret Service Reveals Giant Coin Plot.” The term “plot” was a political one, used to suggest that this was a form of sedition against the government. In the article, the newspaper referred to the bootlegging as “‘the biggest coin conspiracy’ on record,” as 13 suspects trafficked over 100,000 dollars worth of gold coin. The Secret Service got involved as a result of a tip, and infiltrated the group who had been working with jewelers to circumvent the authorities (Jewelry was exempted from the Executive Order).  A much easier and legal way in which investors could protect themselves from losing their purchasing power was to put their money into mining stocks. Homestake Mining became one of the best investments during the Great Depression.

So here we are in 2020, and a new economic crisis is unfolding before our eyes. Naturally, people are starting to seek the safe harbor of sound money to escape from the inflationary forces of currency debasement. The question on everyone’s mind is, will the government confiscate gold (or silver) again? Unlike in 1933, it just wouldn’t make sense and here is why: During the Great Depression, gold was money. Thus, everyone who carried around a 20 dollar Federal Reserve Note in theory owned a claim on gold specie in the bank. In other words, everyone who had currency had gold (again in theory). In our age, the opposite is true. Almost everyone saves in unbacked fiat Federal Reserve Notes, which in the words of former Federal Reserve official John Exter are “I Owe You Nothings.” Very few people possess physical gold or silver for that matter, and some claim that less than 1 percent of all investable assets are in physical gold. While the people possess very little gold, the Central Banks have a great deal of it. Meaning, if they decided to revalue gold to a much higher amount, they would be the primary beneficiaries of that massive upward price increase. 

All sources cited in .pdf version of paper below:

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