The Myths and Reality of Gold Confiscation By James Turk | November 28, 2011
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.
For example, 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.
In December 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.
After FDR’s 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.
From these 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.
So clearly, 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 gold?
In our book, The 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”.
“The 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 “Human
Freedom 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.
Reprinted from the Free Gold Money Report.
James 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.