FDR and the Gold Slackers

Hey you getting drunk, so sorry
I've got you sussed
Hey you smoking Mother Nature
This is a bust!
--The Who

Eighty years ago this month FDR's gold confiscation order (Executive Order 6102) was being enforced.

And FDR's attorney general was publicly labeling people 'slackers' who did not turn in their gold.

The Roosevelt administration viewed this as warfare. The AG said:

"We are trying to win a war against depression and hard times...We are endeavoring to drive the gold out of hoarding. Each dollar that is held in hoard ties up from $15 to $20 in credit, or perhaps more. We are out to win this warfare."

Going into 1933, the dollar was still backed by gold. Citizens, and foreign trading partners for that matter, who felt uneasy about the federal government's monetary policy could go to the bank window and swap a $20 bill for roughly one ounce of gold. This is the discipline that a gold-back currency instills on policymakers. Either keep your inflationary urges in check, or people will drain gold from government vaults.

FDR employed aggression to overcome this problem. He confiscated the gold of US citizens. He further confiscated their property by devaluing the dollar. Because he broke the promise to repay creditors with gold if they chose, he also effectively defaulted on US government debt.

Some people suggest that the federal government couldn't do this again. After all, the dollar is no longer backed by gold, so what does the federal government care about where gold goes?

Perhaps, but gold can be viewed as a bet on disorder. Soaring gold prices signal that people are losing confidence in paper currency to the point where they will trade it for gold colored metal. Policy makers do not want to operate under such a signal.

The really interesting question isn't whether government might seek to confiscate gold again. It is whether people will obey next time around.

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