All Commentary
Wednesday, January 1, 1975

Gold Is Legal, But…

Mr. anderson is Executive Secretary and Di­rector of Seminars at the Foundation for Eco­nomic Education.

Today, as was true 42 years ago, the American people once again have freedom to own as much gold as they choose. Devotees of the free market have viewed this development with pleasure, for they have had little cause to re­joice during these many years of steady erosion of individual lib­erty. Socialistic governmental in­tervention has steadily expanded since the denial of our right to own gold.

The restoration of legal gold ownership by individuals is cer­tainly a reversal of this ominous trend of government omnipotence. It has been heralded as a sign of change in the course of statism. Upon closer scrutiny, however, such optimism may be questioned, for there is a marked distinction between conditions then and now.

What has been restored, and what was lost 42 years ago, are not the same. Prior to April 5, 1933, gold was money. Individu­als used gold daily as their me­dium of exchange for goods or services at the rate of $20.67 an ounce of gold. It is true that the payment was rarely made in gold bullion, but the gold certificates or gold coins in use represented bul­lion. Gold was legal tender, along with the coins and currency of the Treasury and Federal Reserve Banks. Upon demand, anyone could surrender his paper money and re­ceive gold bullion.

The legalization of gold owner­ship has not restored it as our medium of exchange — money. The statist legal tender laws (in con­junction with Gresham’s Law) continue to force the fiat paper money of government upon us. The use of gold as money is still forbidden. Any attempt to use or demand gold payment for goods or services remains illegal. The absolute governmental monopoly of fiat money continues to be pro­tected by law against competition from gold.

Calling in the Gold

The evolution of this govern­ment monopoly of money began with a Proclamation of President Roosevelt on April 5, 1933; under enabling legislation passed a month earlier, the destruction of gold as money commenced:

All persons are hereby required to deliver on or before May 1, 1933… all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933…. Until other­wise ordered any person becoming the owner of any gold coin, gold bul­lion, or gold certificates after April 28, 1933, shall, within three days after receipt thereof, deliver the same… upon receipt of gold coin, gold bullion, or gold certificates de­livered to it…. The Federal Reserve Bank or member bank will pay therefore an equivalent amount of any other form of coin or currency coined or issued under the laws of the United States.

This order called for the sur­render of private gold holdings. Individuals, many believing it was merely a temporary action arising out of the “national emergency” of the great depression, obedient­ly exchanged their gold for paper money.

The surrender of gold coins for paper money is understandable, inasmuch as gold could no longer be used as a medium of exchange. Individuals needed money to trans­act their exchanges. Since the ex­change value of money at the time was greater than the commodity value of the gold content in the coins, people generally did not re­sist exchanging their gold for the remaining medium of exchange —paper money.

But the government wanted to make sure of its money monopoly position. It wanted all the gold, and in furtherance of that end, President Roosevelt issued an­other Proclamation on August 28, 1933:

After 30 days from the date of this order no person shall hold in his pos­session or retain any interest, legal or equitable, in any gold coin, gold bul­lion, or gold certificates situated in the United States and owned by any person subject to the jurisdiction of the United States, except under li­cense therefor issued pursuant to this Executive order….

While nominal holdings of gold were exempted from these edicts, any subsequent use of or holding of gold was under the direct con­trol of government. Gold owner‑ship was now illegal except under Treasury license and scrutiny.

It only remained to establish penalties for any violation to these edicts. This came in short order as a part of the Gold Reserve Act, January 30, 1934:

Any gold withheld, acquired, trans­ported, melted or treated, imported, exported, or earmarked or held in custody, in violation of this Act… shall be forfeited to the United States… and in addition any person failing to comply with the provisions of this Act or of any such regulations or licenses, shall be subject to a penalty equal to twice the value of the gold in respect of which such failure oc­curred.

To all intent and purpose, the medium of exchange was now an irredeemable paper currency. Cer­tain legal relationships prevailed between gold and money, but con­vertibility by United States citi­zens was ended. The only remain­ing convertibility was with for­eign holders of our dollars. In time, even these provisions would disappear.

The Gold Reserve Act of 1934 transferred all the gold in the United States into the hands of the Treasury. The Federal Re­serve Banks were issued “gold certificates” by the Treasury in exchange for their gold. It was cynically observed that “These are not certificates that you can get gold. These are certificates that gold has been taken away from you.”1

Gold Repriced at $35

The abandonment of the gold exchange standard was now com­plete. With the bulk of the na­tion’s gold stock in the possession of government, and its monopoly over our money supply established, it didn’t take long for the govern­ment to exploit its position. The very day after the passage of this legislation, January 31, 1934, President Roosevelt reduced the gold content of the dollar by 40.94 per cent. The new price of gold was established at $35.00 per ounce in place of the old price of $20.67 per ounce.

Overnight the face value of the gold held by the Treasury and Federal Reserve Banks increased by almost three billion dollars. This devaluation directly repudi­ated forty per cent of the dollar claims to gold held by foreigners. The government wasted no time in getting started its engine of inflation. The American people were about to learn that only the discretion of the government mon­ey monopolists remained to limit the inflation of our money supply.

It is a matter of historical rec­ord that not much discretion ever existed. The money supply has increased more than seventeen fold since our abandonment of the gold exchange standard. The mag­nitude of this monetary expansion has reduced the purchasing power of today’s paper dollar to about one quarter of its value in 1933.

During this era of continued inflation the government was se­vering any remaining legal ties to gold. The final tie was cut on August 15, 1971, when the “gold window” was closed to foreigners. After that date, not even foreign central banks could convert their dollar holdings to gold. The Amer­ican dollar was nothing but irre­deemable fiat money.

Still a Money Monopoly

The legalization of gold owner­ship today does not restore gold as a medium of exchange. As a matter of fact, the willingness of the state to once again permit gold ownership is precisely be­cause the state no longer views gold as a threat to its money monopoly.

Gold can now be owned as a nonmonetary commodity. Any ef­fort, however, by private citizens to re-introduce gold money as a medium of exchange will be promptly challenged by the gov­ernment as illegal competition against its monopoly of paper money. Gold ownership was not legalized in order to restore a sound money, but instead, because government no longer considers gold important.

Overconfidence, however, even by a monopolist, can lead to a miscalculation. So, any relaxation of power by the State, any resto­ration of freedom to the citizenry, should be acclaimed with joy and fully exploited.

The restoration of the legal right to own gold is the action of an overconfident money monop­olist. While the use of gold as a medium of exchange is still pro­hibited, the fact that we may own gold provides a means to protect our wealth from the ravages of inflation.

A Measure of Stability

If the State continues on its inflationary path, cash holdings in paper money will be reduced, or even eliminated in some cases. Holding gold will be more advan­tageous. The expansion of the quantity of the government’s pa­per money, which erodes its pur­chasing power, cannot touch gold. On the contrary, the price of gold may be expected to rise in direct reflection of the declining purchas­ing power of the paper dollar.

This development will become more and more visible. The ad­vantage of holding gold rather than paper money will become ob­vious to all. Conversion from gold to paper money, in order to com­plete an exchange, and then con­verting back to gold from paper will become commonplace.

While the process introduces an addi­tional complication in our exchanges, buyers and sellers in the market will readily discover that this additional “complication” is a small burden to pay in order to offset the inflationary impact of government money.

This trading practice is wide­spread in those countries through­out the world that permit private ownership of gold while still suf­fering from chronic inflation. With lengthy histories of paper infla­tion as their lesson, people in for­eign lands hold gold, not paper, in their secret hiding places. Gold’s immunity from government gen­erated inflation has made it a prized possession in these infla­tionary times.

Our exchange economy does not have to follow such dismal ex­amples. Though not intended as such, the first step toward a re­turn to sound money has been taken. As individuals begin to register their preference for gold over paper in the market, the next major step by our government must be considered: permitting gold as a medium of exchange.2

Leave It to the Market

Past intrusion by government into monetary affairs has only led to monetary destruction. While the law can guard money from fraud, it cannot create money. Money evolves from the market and the need for a means to facil­itate our exchanges.

If individuals are to have their full freedom to make exchanges, they must also be free to deter­mine the media in which their exchanges shall be made. Through­out history, gold has been the com­modity chosen by free men to accomplish this end.

The legalization of gold owner­ship will allow the market to dem­onstrate that gold is the preferred media for making trades. Once again it will be seen that sound money can only originate within the market.

The final restoration of a sound money will require a major shift in political thinking. The futility of continued inflation must first be recognized. As the failure of “po­litical money” becomes increas­ingly obvious to voters, govern­ment hopefully will abandon its monopoly power over the money system. In response to the public clamor for a sound money, gold will finally prevail.

The soundness of gold in con­trast to the deterioration of pa­per money will be clear to all who care to see it. All that is required by government hereafter is the removal of legal barriers to free use of gold in trade. The compet­itive forces of the market will shortly re-establish it as the “market’s money.”

So, from the now restored right to own gold, we may hope even­tually to reassert our right to use it as money. The welfare of all of us is dependent on such a result. The survival of a free market is dependent on the preservation of a sound money. If sound money is to be restored and our freedom preserved, government must sur­render its monopoly over money and allow gold to once again serve buyers and sellers in the market as our medium of exchange.

Gold is legal, but it is not yet money.



1 B. M. Anderson, Economics and the Public Welfare (Princeton, N. J.: D. Van Nostrand Company, Inc., 1959), pp. 348-49.

2See Hans F. Sennholz, Inflation, or Gold Standard?, “Return to the Gold Standard” (Lansing, Mich.: Bramble Minibooks, 1973).  

  • Robert G. Anderson taught economics and business management at Grove City College, Pennsylvania, and served as Executive Secretary of the Foundation for Economic Education in the 1970s.