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FDR Destroyed the Truth about Gold

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On April 5, 1933, President Franklin Roosevelt issued a decree that made it illegal for Americans to own gold. Any American caught owning gold after that date would be hit with a federal felony prosecution and face a penalty of up to five to ten years in jail and a $10,000 fine. Roosevelt’s decree, which was memorialized as Executive Order 6102, still stands as one of the most remarkable, shocking, and tyrannical events in U.S. history.

Think carefully about what FDR did. Here were tens of millions of Americans owning gold coins. It was their privately owned property. With his decree, Roosevelt took it from them. His nationalization was no different from the nationalizations of private property that were taking place in communist countries, such as the Soviet Union and, later, Cuba.

Why did Roosevelt use federal power to seize everyone’s gold? He maintained that privately owned gold was interfering with his New Deal program to get America out of the Great Depression.

The real reason he did it was to ensure that America could never again return to a gold-coin standard and also to the smash out of the collective memory of the American people that gold and silver coins had once served as the official money of the American people.

Needless to say, FDR succeeded on both counts. Today, the United States still has the paper-money system that Roosevelt established with his decree. Moreover, if you were to do a survey asking Americans to describe the so-called gold standard, my bet is that more than 95 percent of respondents would say that it was a “paper-money system backed by gold.”

A recent example of this phenomenon appeared in the June 30 issue of the Washington Post. In a review of a new book entitled How One Precious Metal Has Dominated the American Imagination for Four Centuries by James Ledbetter, author Simon Johnson describes America’s founding monetary system as follows:  “A monetary system subsequently modeled on that of Britain included gold as an anchor of value for paper money and bank deposits.”

Who is Simon Johnson? The Post describes him as the “head of the Global Economic and Management Group at MIT’s Sloan School of Management” and “previously chief economist of the International Monetary Fund.”

That’s what we would ordinarily describe as a highly educated individual, right? Yet, Johnson, like so many others, gets it wrong about the gold standard. It’s a testament to the brilliance of Franklin Roosevelt, who nationalized gold so that future generations of Americans would forget what the gold standard really was.

Contrary to what Johnson writes, America’s monetary system at the founding of the United States and for the next 140 years was not one based on “paper money backed by gold” or “paper money anchored by gold.” It was a system in which the official money of the United States consisted of gold coins and silver coins.

There was no “paper money backed by gold” because there was no paper money. The reason there was no paper money was because the U.S. Constitution prohibited paper money.

The last thing our American ancestors wanted was a monetary system based on paper money. If you had told them that the Constitution was bringing into existence a paper-money system, the Constitution would never have been ratified. Our American ancestors knew what governments throughout history had done with paper money. They had printed ever-increasing gobs of it to finance the ever-increasing expenditures of government officials. By inflating the supply of paper money by printing more of it, government officials devalued the the paper money holdings of the populace.

Inflation has always been a clever and fraudulent way to tax the citizenry because most people can’t figure out that the reason their money is buying less is because the value of their money is falling. They inevitably blame their woes on the businesspeople who are raising their prices. The last thing people suspect is that it is the government that is causing their woes.

In fact, the term “inflation” is another indoctrination success story, much like people believing that the gold standard was “paper money backed by gold.” Whenever you read an article about inflation in the mainstream press, it is a virtual certainty that the authors describe “inflation” as rising prices rather than the process by which government artificially increases the supply of money and credit.

Our American ancestors at the time of the founding of our country understood what inflation was. Have you ever heard the phrase “Not Worth a Continental”? It referred to the paper money issued by the Continental Congress during the Revolutionary War. The reason the Continental was worthless was because the Continental Congress had printed gobs of it during the Revolution. Congress had inflated the money supply to such a large extent that it became worthless.

Thus, it should surprise no one that the U.S. Constitution established a gold-coin standard for America, not a paper-money standard.

How do we know this? Two reasons: The wording of the Constitution itself and what actually happened after the Constitution was enacted.

The Constitution expressly prohibited the states from making anything but gold and silver coins legal tender. It also prohibited the states from emitting “bills of credit,” which was the term used at that time for paper money. It also empowered the federal government to coin money. It did not empower the federal government to issue paper money.

It’s difficult to get any clearer than that. After all, at the risk of belaboring the obvious, it is impossible to coin money out of paper.

And in fact, a coin standard is precisely what came into existence after the Constitution was enacted. The U.S. government issued gold coins and silver coins. The coins became the official money of the American people and remained their official money until Roosevelt decreed an end to it in 1932.

The Constitution also empowered the federal government to borrow money. That’s what Treasury notes and bills are all about. Everyone understood, however, that those instruments of indebtedness were not money but rather promises to pay money. The money was the gold coins and the silver coins.

Roosevelt was using the Great Depression as a way to convert America’s economic system to a welfare state, which, he knew, would inevitably require ever-increasing expenditures of money. With a gold-coin standard, he knew that that couldn’t happen because the government could not print up ever-increasing gobs of gold coins. FDR knew that with a paper-money standard, the federal government could print up whatever it needed to pay for its ever-increasing welfare-state programs and, later, its warfare-state programs.

FDR wanted to make certain his revolutionary conversion to a paper-money system would not be a temporary measure, one that would expire when the economic crisis was over. He wanted to make certain that his conversion would be permanent. By confiscating everyone’s gold, he made it virtually impossible to restore the gold-coin standard that had been America’s system for more than 140 years.

At the same time, Roosevelt’s seizure was followed by government officials, especially schoolteachers in the public schools and the state-supported colleges and universities, indoctrinating American students with the official story: that America had been founded on a system of “paper money backed by gold.” Within a few generations, the official story had taken hold among most Americans, and it remains the official story today, notwithstanding its manifest falsity.

This post was written by:

The Future of Freedom Foundation was founded in 1989 by FFF president Jacob Hornberger with the aim of establishing an educational foundation that would advance an uncompromising case for libertarianism in the context of both foreign and domestic policy. The mission of The Future of Freedom Foundation is to advance freedom by providing an uncompromising moral and economic case for individual liberty, free markets, private property, and limited government.