A Golden Opportunity
A gold double eagle coin.
From handfuls of salt to silver coins, currency has taken many different forms throughout history. During the nineteenth and early twentieth centuries, the fortunes of American citizens often contained a mix of paper dollars and glittering gold. However, this all changed when the U.S. government outlawed the possession of large amounts of gold.
When Franklin Roosevelt became president of the United States on March 4, 1933, the country was in the middle of the Great Depression. Millions of people were unemployed, and businesses and farms were going bankrupt at alarming rates. Additionally, the country's banking system was in crisis. President Roosevelt decided that printing more paper money would aid the economy, but he could not simply order more money to be produced. At this time, banks were required to keep a supply of gold that could be exchanged for dollars upon request. The Federal Reserve Act of 1913 required that the U.S. central bank keep, in reserve, about forty cents' worth of gold for every dollar it issued. Because of bank failures during the Depression, many people had begun to hoard gold in their homes, and the central bank no longer had enough gold in reserve to produce more paper money.
However, Roosevelt came up with a plan. He signed Executive Order 6102, which prohibited the hoarding of gold by American citizens and ordered them to surrender nearly all of their gold to the government in return for a cash payment of $20.67 per ounce. Of course, this executive order created a good deal of controversy. Many people argued in court that the order was illegitimate because the U.S. Constitution forbids the government from taking people's personal property. The order also drew criticism for how it was enforced. Citizens were required to turn in their gold to the government by May 1, 1933, or they could be forced to pay a fine.
Although Executive Order 6102 was not popular, most citizens eventually complied with it. They were desperate for the Great Depression to be over, and Roosevelt claimed that the practice of stockpiling gold was making the situation worse because it led to less spending. In reality, the president knew the real problem was that a lack of gold was preventing the Federal Reserve from printing additional money and getting the economy back on track. After citizens surrendered their gold, the U.S. government increased the price of gold to $35.00 per ounce. As a result of this price change, the U.S. was able to claim that it had more gold in its coffers than dollars issued, thus allowing the Federal Reserve to print more money.
Executive Order 6102 remained in effect until 1974, when it was repealed by President Gerald Ford. This decision restored the right of U.S. citizens to own gold freely and had a positive impact on financial markets; moreover, it signaled that America was capable of bouncing back from a serious economic challenge.
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