Executive Order 6102: The Gold Recall That Devalued the Dollar

Thirty-two days into his presidency, on the afternoon of 5 April 1933, Franklin Roosevelt signed a document whose title told American citizens exactly what was being asked of them. It was an executive order "forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States."

What the text required was plainer still. Every person in the country was to deliver, on or before 1 May 1933, all gold coin, gold bullion and gold certificates in their possession to a Federal Reserve Bank or a member bank of the Federal Reserve System. They would be paid the statutory price of $20.67 a fine troy ounce, in currency that could no longer be redeemed in the metal. Anyone who kept their gold faced a fine of up to $10,000 or up to ten years in prison, or both.

Four exemptions were written in: up to $100 in gold coin per person, rare coins of recognised value to collectors, gold required for a customary industrial or artistic use, and gold earmarked for foreign governments. A double eagle held $20 of face value, so the domestic exemption covered five coins.

The Dollar Roosevelt Inherited

Since the Gold Standard Act of 14 March 1900, the dollar had been defined as 25.8 grains of gold nine-tenths fine. That definition produced the figure every American banker could recite without thinking: $20.67 an ounce. It had survived a world war, the Federal Reserve's founding, and the boom of the 1920s. Britain had abandoned the parity in September 1931, and by early 1933 the pressure had crossed the Atlantic.

Two drains were running at once. Foreign holders converted dollars into gold and shipped it out, on the reasonable expectation that Roosevelt intended to follow Britain. Americans, watching banks fail at a pace no one had seen since the founding of the Federal Reserve, withdrew deposits and converted currency into coin. In the last week of February 1933 the internal drain turned vertical. Michigan declared a bank holiday on 14 February and the panic moved state by state. By the weekend of 3 and 4 March the Federal Reserve Bank of New York's reserve ratio had fallen through its statutory minimum, and Herbert Hoover and the president-elect exchanged letters across a four-month interregnum without agreeing on anything that would stop it.

Roosevelt was inaugurated on Saturday 4 March. On Monday 6 March he proclaimed a national bank holiday, resting his authority on section 5(b) of the Trading with the Enemy Act of 1917 — a wartime statute of contested application in peacetime. Congress met on 9 March, passed the Emergency Banking Act in a single day, and amended section 5(b) retroactively so that the question could not be asked again. The same act gave the Treasury power to require the surrender of gold.

Friedman and Schwartz treat this fortnight as the point at which the American monetary system stopped being a gold standard in anything but name and became a managed currency with a metallic label attached (Friedman and Schwartz, 1963).

What Compliance Looked Like

Gold came in. It arrived at Federal Reserve banks in canvas bags and shoeboxes through the last three weeks of April, and the queues at the discount windows were reported in newspapers with the tone of a civic exercise. Compliance was voluntary in the sense that nobody searched houses, and near-universal in the sense that a coin nobody would accept in payment was worth carrying to a teller.

Enforcement was close to nonexistent. Only one prosecution of any prominence followed. Frederick Barber Campbell, a New York lawyer, had 5,000 ounces on deposit at Chase National Bank; when the bank refused to hand it over he sued, and the government indicted him in September 1933. Judge John Munro Woolsey dismissed the charge on a defect in the form of the order under which it was brought, and the administration quietly reissued its gold orders in corrected shape rather than appeal. No wave of prosecutions followed, and the Treasury never mounted a systematic hunt for the coin that stayed in mattresses and safe deposit boxes.

Lewis Douglas, Roosevelt's Director of the Budget and the administration's most committed defender of the old parity, had already given the private verdict that historians quote most often. Told in April that the United States was leaving gold, he said flatly that this was the end of Western civilisation.

The Price Nobody Could Explain

Between April 1933 and January 1934 the dollar had no fixed gold value at all. It had a value the President set, and he set it in ways that alarmed the people closest to him.

The legal scaffolding went up first. An order of 20 April embargoed gold exports. The Thomas Amendment of 12 May, attached to the Agricultural Adjustment Act, authorised the President to reduce the gold content of the dollar by as much as half. A joint resolution of 5 June abrogated the gold clauses written into public and private contracts — provisions requiring payment in gold coin of a stated weight and fineness, standard in American bond indentures since the Civil War — and declared them contrary to public policy. In July, Roosevelt sent the message that broke up the London Economic Conference rather than accept a currency stabilisation agreement that would have bound the dollar before he had finished moving it.

Then came the part that had no precedent in American practice. On 22 October Roosevelt used a fireside chat to tell the country that "the United States must firmly take in its own hands the control of the gold value of our dollar," and three days later the Reconstruction Finance Corporation began buying newly mined domestic gold at prices set daily by the President. The opening price was $31.36. Each morning Roosevelt, Henry Morgenthau and Jesse Jones met in the President's bedroom while he ate breakfast and chose the day's figure.

Morgenthau's diary preserved one of those mornings. Roosevelt settled on an increase of 21 cents, explaining that it was a lucky number because it was three times seven. Morgenthau wrote afterwards that if anybody ever knew how the gold price had really been set, through a combination of lucky numbers and the rest of it, they would be frightened.

John Maynard Keynes, who had spent a decade arguing for exactly this kind of discretion, found the execution hard to defend. The dollar's movements, he wrote at the end of 1933, looked more like the gold standard on the booze than the ideal managed currency of his dreams.

The Gold Reserve Act of 1934

Roosevelt sent Congress a bill in January to end the improvisation, and the Gold Reserve Act became law on 30 January 1934. Its provisions were structural rather than rhetorical. Title to all gold coin and bullion held by the Federal Reserve Banks passed to the United States Treasury, which issued gold certificates back to the Reserve Banks as bookkeeping entries against the metal. Gold coinage ended. The Act authorised the President to fix the dollar's gold content at between 50 and 60 per cent of its former weight, and required that the profit on any such revaluation belong to the Treasury.

He acted the next day. A proclamation of 31 January 1934 defined the dollar as 15 and 5/21 grains of gold nine-tenths fine, or 59.06 per cent of the weight fixed in 1900. Expressed the other way, the dollar had lost 40.94 per cent of its gold. Expressed the way every newspaper expressed it, gold had gone from $20.67 to $35.00.

Revaluing the nation's gold at the higher price created a paper profit of roughly $2.8 billion for the Treasury, which had bought the metal at $20.67 from its own citizens nine months earlier. Two billion of it was appropriated to establish the Exchange Stabilization Fund, a pool the Treasury could use to intervene in currency markets without asking Congress. The fund still exists, and it was the vehicle through which the Treasury backstopped money market funds in 2008 — a line of descent that runs directly from the coins surrendered in April 1933.

The Gold Clause Cases

Abrogating the gold clauses was worth more to debtors than the recall was to the Treasury, and it was the part of the programme most likely to be struck down. American bonds, mortgages and long leases routinely promised payment in gold coin of the weight and fineness of 1900. After the devaluation, honouring those clauses would have required every such debtor — including the federal government, on its own Liberty bonds — to pay about $1.69 for every dollar of nominal principal. Sebastian Edwards estimates that the clauses covered the great majority of long-term American debt outstanding, and that enforcing them would have added an obligation of a size the Treasury could not have met without a second devaluation (Edwards, 2018).

Three cases reached the Supreme Court together and were decided on 18 February 1935. In Norman v. Baltimore and Ohio Railroad Company, the Court upheld the abrogation of gold clauses in private contracts by five votes to four, Chief Justice Charles Evans Hughes holding that parties could not by private agreement fetter the constitutional power of Congress over the currency. Nortz v. United States turned away a claim on gold certificates for want of provable damages.

Perry v. United States was the awkward one. There the Court held that Congress had no power to repudiate the gold clause in the government's own bonds — and then held that the bondholder had suffered no damages he could recover, since any gold he received would have had to be sold back to the Treasury at $35. The government lost the principle and kept the money.

Justice James McReynolds, reading his dissent from the bench, departed from his written text. The Constitution as many of us have understood it, he said, the instrument that has meant so much to us, is gone.

What the Devaluation Bought

Recovery began in the same month the banks reopened, and the mechanism has been argued over ever since. Christina Romer's reconstruction attributes the bulk of the 1933 to 1937 expansion to monetary growth, and locates its source not in Federal Reserve policy but in gold — the revaluation of the existing stock, then a flood of metal arriving from a Europe preparing for war, which the Treasury monetised (Romer, 1992). Barry Eichengreen's comparative work makes the same point across countries: the date a nation left gold predicts the date its recovery started, from Britain in 1931 through the United States in 1933 to France and the gold bloc in 1936 (Eichengreen, 1992).

Prices turned. Consumer prices had fallen every year since 1930, by more than 10 per cent in 1932 alone; they rose 3.1 per cent in 1934 and 2.2 per cent in 1935. That reversal mattered more than the arithmetic suggests, because it broke the expectation of further deflation that had made borrowing irrational and hoarding cash the best available investment (Bernanke, 1995).

The comparison is with the alternative that was actually on offer. The tariff wall Congress built in 1930 had already shown what defending the old order through trade policy produced, and the banking legislation of the same summer that separated commercial banking from securities underwriting addressed the structure of the banks without touching the monetary constraint that was crushing them.

Forty-One Years

The $35 price held for thirty-four years. It was defended, towards the end, by an arrangement among eight central banks to sell gold in London whenever the market price rose above the official one, which collapsed in March 1968 under French withdrawal and a run that cost the pool hundreds of tonnes. Foreign official convertibility ended when Richard Nixon closed the gold window on a Sunday evening in August 1971. The official price was moved twice more as a bookkeeping formality, to $38.00 in 1972 and to $42.22 in 1973, a figure that still appears on the Treasury's balance sheet.

For Americans the recall outlasted the system it was meant to save. Private ownership of gold bullion remained illegal until Public Law 93-373, signed in August 1974, took effect on 31 December of that year — forty-one years and eight months after the deadline in the order.

Most of what came in through those April queues was melted. The Mint had struck 445,500 double eagles dated 1933 before the order landed, and none of them were ever lawfully released; the entire coinage went to the furnace except for two specimens sent to the Smithsonian and a handful that left the building by routes the Treasury spent seventy years litigating. One of the survivors was sold at auction in New York in June 2021 for $18.9 million, the highest price ever paid for a coin. Its face value, on the day it was struck, was twenty dollars.