1944 Gold Coin Treasury Memorandum (& other cool stuff)

Another important detail as I review the history and personalities around the time of gold confiscation is that the Secretary of the Treasury at the time was William H. Woodin, who was a coin collector. Coin collectors, obviously, will associate with other coin collectors. So, the coin collectors threw a hissy fit over EO 6102, effectively pushing through the numismatic exceptions. So, there was a bit of luck on the side of the numismatists by having powerful people representing them in charge. So, this adds a bit of uncertainty as to how a future confiscation would take place - will the coin collectors have the same pull as they had in 1933? We have to acknowledge that this may have been an accident of history that was not inevitable.

 

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There was a silver confiscation in 1933 based on Executive Order 6814, with an exclusion for coins and numismatic items. It was then rescinded in 1938. In total, the US Treasury collected over 100 million ounces of silver based on this order. However, as far as I am aware, there was no congressional approval of this.

 

5 gold coins per adult was $100 which in The Depression years was alot of money. That's $200 for a married couple (I don't believe the 5 coins limit applied to kids).

Clearly, there weren't too many people who actually read the law, consulted a lawyer, or talked to numismatists (like Eliasberg) who saw that the numismatic exemption was wide enough to drive a truck through.

That's what that memo was about and it is very simplistic and almost idiot-conceived: if a coin was purchased for a price above the gold content value, ipso fatso it's a numismatic coin and exempt frome the gold bans.

 

We have to look at laws not just from literal interpretation, but also from their practical effects: EO 6102 effectively discouraged gold-buying and hoarding by the general public. As I pointed out, having Treasury Secretary Woodin, a coin collector, was likely key in having all of these exceptions in the law. Because these exceptions existed, and because there is a tendency to preserve history, it's likely similar exceptions would exist in a future confiscation. However, there is the possibility that this carve-out could be tightened up, with individuals allowed to hold even less, with maybe more exceptions for dealers (obviously), and with tougher enforcement. We just don't know how nasty a future administration might be under desperate economic conditions. A future administration may not care for coin collectors.

 

It seems that regardless of Woodin's presence (and I believe he died shortly into FDR's 1st term)....the widespread knowledge that you could hold gold in the form of coins wasn't well known until about the time of this memo....1944.

Actual coin collectors were certainly aware...but folks who wanted to take advantage of this memo's core thesis -- that if you paid a PREMIUM to the value of the gold...that the coin was numismatic -- appear to have been a bit late to the party. Louis Eliasberg picked up his gold buying right after 1933, killing 2 birds with 1 stone by buying numismatics (coin collecting + investing in gold).

I have not seen any in-depth analyses....but it is estimated that about 15 million to 40 million Americans hold more than 1 ounce of gold today wheras the amount in the early-1930's was probably a few million, tops. So much more widespread gold ownership today (and far larger in nominal and real terms) makes any talk of confiscation a pipe dream, IMO.

 

These infomercials selling gold coins must be doing OK since they are around so long. They could be selling to the same folks, I have no idea.

I wonder how many people firms like Blanchard and Monex served in the early-1980's.

 

Well, the US population has tripled as well, and individual wealth even in inflation-adjusted terms is probably higher.

All the same, I agree that confiscation is unlikely - but in my opinion, that's more because the dollar and the economy are very much decoupled from gold compared to the 1930s (when we were just starting to move off the "gold standard"). I think there are a lot of other things They would try to confiscate before They came after gold or silver.

 

Bzzzt! According to ChatGPT, around 1925 the average American had about $100 in savings - the middle class may have had more. This seems plausible given the wages in those times (annual income was $1200-1500 - other sources put it at $5,000, which seems a bit dubious as that would be almost $100k today, but I digress - oh, Perplexity gives a median at $3,800). Because the money was gold-backed, this meant the average American had 5 ounces of gold stored by the bank. This was their money by law. Sure, they did not physically have possession of this gold, any more than a typical investor doesn't hold physical stock certificates when they click to buy a stock online today. But not having physical possession does not mean you don't have ownership - sort of like how we may owe money to a creditor, but it's still money owed to them even if we have it in our possession right now. So, when the gold standard was broken, the gold was stolen. And Congress signed off on this.

 

TL;DR:

The Supreme Court screwed us in 1935.

Apparently a post of mine was lost because I was not logged in, but I found this part from Perry v. United States (1935) compelling:

(i) Plaintiff has not attempted to show that, in relation to buying power, he has sustained any loss; on the contrary, in view of the adjustment of the internal economy to the single measure of value as established by the legislation of the Congress, and the universal availability and use throughout the country of the legal tender currency in meeting all engagements, the payment to the plaintiff of the amount which he demands would appear to constitute not a recoupment of loss in any proper sense, but an unjustified enrichment. P. 294 U. S. 357.

To summarize, Perry sued the government because the government bond he held stipulated repayment in gold, which Congress later prohibited. The Supreme Court affirmed the right of Congress to set the price of gold in relation to the U.S. dollar and (implicitly) restrict its trade domestically during a national emergency. The Supreme Court thus upheld the gold ban as constitutional. This means a future ban would be a matter of political "will" rather than "right."

Source: https://supreme.justia.com/cases/federal/us/294/330/

 

Yes, that's what some of the commentaries on The Gold Clause Cases have noted. They really are among the most under-analyzed Supreme Court decisions in history -- they are still relevant today.

The gist of the legal comments today on The Gold Clause Cases from 1935 is that it would be difficult for one branch of government -- the judiciary -- to enforce something like the Gold Clauses, a debt default, etc....against the executive or legislative branches. Separation of powers, sovereign immunity, etc.

SPECIFIC violations -- like reneging on a contract's terms such as FIRREA -- are one thing. But areas involving the economy, monetary policy, etc. -- no court is likely to wade into that arena, not even the Supreme Court.

On the surface, I agreed with the plaintiff in PERRY and the other non-governmental Gold Clause cases. But considering the government's insistence that you couldn't get/spend gold at the new higher dollar rate, the Court was at least creative and consistent in their thinking.

Here's some good reading on the subject of if and how a court can get into legal judgements involving another branch of government, like the Executive Branch in The Gold Clause Cases. It gets very legalistic in the back half of the piece, but the reading goes quick and the first half gets you enough up-to-speed.

 

[Disclaimer: This is not a political discussion. This is a discussion about the separation of powers.]

I wonder if these are conclusions perhaps more appropriate to earlier in history but no longer as relevant. Let's take a look at the situation today. You have the president trying to direct monetary policy in various ways, and you also have the president trying to impose tariffs unilaterally while bypassing the legislative branch. So you have had the Supreme Court being forced to rule to maintain the separation of powers and in effect rule directly on monetary and fiscal policies.

In terms of a gold ban, this could be favorable. If by a slim chance both the executive and legislative branches decide to confiscate gold, the Supreme Court might now be more inclined to say "no." There could be numismatists within the Supreme Court with an ax to grind.

 

I don't think I was clear enough when I wrote we must distinguish between the literal interpretation of laws and their practical (or intended) effects. Because the numismatic exception was not widely exploited, according to your own admission above (that most of the public did not hold or intend to hold actual physical gold coins), there was no reason for the government to enforce the law with the severity we might expect. The law was made with the purpose of effectively preventing (or discouraging) people from freely trading and holding gold - which it did successfully. So when addressing the boundaries of the numismatic exception, the Treasury (regarding the memo cited in this thread) used its discretion to allow coin dealers to engage in business as usual. As long as numismatists (as a collective) were not undermining the spirit of the law, they were given plenty of leeway. However, given that so many more people collect gold coins today, this could force a future government to take far more draconian measures with less carve-outs in order to achieve a similar outcome (discouraging gold-trading and hoarding).

 

I think that it has always been and always will be an inherent need to accumulate wealth. The Gov can try to hinder that action all it wants.. Will it succeed?

 

If this were even being debated -- let alone a reality -- I think the impact on gold and/or monetary policy would be tiny compared to what you would see on the business channels.

You'd have HUGE changes and volatility and probably DESTRUCTION in the equity and fixed-income markets if the Rule Of Law and Private Property Rights were null and void. Look at the exodus of Super Rich from California over a "wealth tax" that many regard as outright asset confiscation.

What if a percentage of YOUR home equity, 401(k), financial assets, gold coins....were all subject to confiscation by your neighbor up the street ?

Scary stuff to some. Maybe for good reason.

 

Some people got nailed hard.

You had the guy who went to court when Chase Bank wouldn't give him his $5,000 in gold....you had people who sent their gold overseas and dealers (like Abe Kosoff) had Treasury busting their chops to retrieve it and bring it back....you had Israel Switt (of 1933 Double Eagle fame) have $2,000 in gold coins confiscated on the street from a suitcase because of a licence technicality....and many more.

Amazing that you were limited to just 4 of the $2.50 Quarter Eagles which is where most of the poor and working-class could be expected to be active. Even though it wasn't much money, I'll be many did have a few they saved as family heirlooms or Christmas presents or whatever....and they turned them in when if it weren't for the "Executive Order ban" and unwarrranted fears and misinterpretations of the EO, they didn't have to.

Yup....it's just too bad that you didn't have the internet or podcasts or talk radio to let people know that the loophole(s) were wide enough to drive a Mack Truck through. Very few people probably had to even turn in what little gold they had. The $5,000 Chase guy was 50x over the limit (25x if he was married ).

This memo's thrust -- which was essentially known to the Coin Cognescenti a decade earlier -- was not widely known but even if it was...at the depths of The Depression you were more likely to be concerned with getting a job, providing food for your family or yourself, a place to stay, etc.

Very few people were concerned or obsessed with the right to hold gold, loopholes, or statutory limits ($100 per person). It just wasn't a huge concern in 1933.

 

Read the FINAL SENTENCE in the document...and the final sentence in the next-to-last paragraph.

Treasury reveals that the courts will require an INTENTION to violate the GRA of 1934 to get a conviction and/or to uphold a seizure. The Premium Exception overrides any "intent."

And thus...Treasury is saying to the Secret Service...you MAY want to avoid the "inadvisable" position of seizing ALL COINS -- not most, many, or some coins !! -- because of this. Back off...don't seize ALL the coins !!!

It was generally the Secret Service -- by themselves or from lower-level Treasury officials -- taking the hardline stance from the 1933 Double Eagles to bullion and coin seizures.

Here's the top Treasury and legal people saying.....back off.

 

And here are some articles from The New York Times.

The March 10th, 1933 piece -- BEFORE the EO and the GRA and other laws -- notes the already present animus towards "hoarding" and notes how some people are turning in their Christmas Coins (probably the Quarter/Half Eagles) and it adds up...but probably NOT as much as the guy calling in saying he's bringing in $700,000 in gold !!!

The Christmas Coins were safe but nobody knew it.

The February 19th, 1936 article notes some foreigners trying to move or maintain possession of $338,000 in gold (10,000 $20 Double Eagles included) and you can see various laws we are discussing here being put into play. This situation was clearly different than possessing "Christmas Coins" or holding 5 Double Eagles or using the numismatic exemption.

Wonder what would have happened if the owners of the gold had claimed they paid a premium for the coins !!??!!