October 14, 2022

In 1933, in the depth of the Great Depression, the U.S. government called in the gold. Many people have many misconceptions of what happened at that time. This report will clarify what happened. 

More important, this report will discuss why the U.S. government took that action in 1933, and why it will not do this again. The realities of modern finance and economics are such that gold is such a small component of the overall financial system that there is little utility for the U.S. government to try to use gold as a tool to increase financial liquidity. 

Very briefly: CPM estimates that perhaps one-third of the world’s financial wealth in 1933 was held in gold. It may have been much more than that: Data simply are not available. 

Today gold represents 0.7% of global financial assets. It has been less than 1.0% of global financial wealth since at least 1990. Calling in the gold would not increase liquidity in the broad economy or currency markets. 

When the Great Depression began, and even before that, individuals were concerned about their exposure to bank stability. They withdrew their money and held it in gold. This dried up liquidity in the economy and worsened the Great Depression. 

Today, calling in the gold would have a miniscule effect on money market liquidity. There is no value or rationale that would justify it, and there are no reasonable prospects for gold ever assuming a major role in the U.S. or global monetary system, despite what some gold promoters and gold standard believers say.

As a consequence of this irreversible reality, any fears of the U.S. government calling in the gold in the future, near or far, is irrational. 

The Gold “Confiscation” of 1933 – 1934

So what really happened in 1933? There are a lot of myths surrounding the gold recall. 

Readers will have noticed that this report has not referred to the 1933 government actions as a confiscation. There are reasons for that. 

On 5 April 1933 the U.S. federal government decreed (Executive Order 6102) that all private citizens would be required to turn in their gold certificates and gold coins by 1 May 1933, a program that was later extended until the end of January 1934. 

The Treasury had estimated that it had issued 58 million ounces of gold coins and certificates as of the end of February 1933. The U.S. Treasury had issued 28 million ounces of gold coins prior to 1933. 

A bit of context is necessary. FDR was sworn in as President on 4 March 1933. The country was so divided that the Inaugural Committee recommended that there be no parade down Pennsylvania Avenue to the White House after the swearing of the oath of office at the Capital. FDR insisted on a parade, so the Army lined Pennsylvania Avenue with machine gun nests, with the weapons trained on the crowd. 

When FDR got to the White House he signed a decree declaring a four-day bank holiday. There had been a run on U.S. banks and dollars since 1929, which had grown worse in the month leading up to the inauguration. 

When the banks reopened five days later there were long lines of people in front of banks across the country – waiting to deposit their money bank in the banks. The tide of public opinion had turned with FDR’s inauguration and people trusted the Treasury and Federal Reserve System once more. 

FDR did not call in the gold until 5 April, but he had said he would and pretty much everyone believed him. 

U.S. citizens turned in 40 million ounces of gold of the 58 million ounces estimated in circulation before the end of March 1933 — before the decree took effect on 5 April. 

• Another 4 million ounces were turned in within the first month following the passage of the law, by the 1 May 1933 initial deadline for U.S. residents to exchange their gold for dollars. Only another 2 million ounces more were turned in during the subsequent 9 months, while the program continued. 
• The Treasury reported that 8.2 million ounces of gold in coin form must have been exported or “lost,” since it was not turned in. 
• The entire process was based on  citizens voluntarily turning in their gold, with no enforcement. (Compare that to prohibition.)  Holders of 83% of the gold voluntarily complied before the law even went into effect.
• The government did not coerce anyone to turn in their gold. 
• The government did not go through people’s safety deposit boxes, homes, or other locations looking for and physically confiscating gold. 

The gold turn-in was entirely “voluntary,” with no policing to enforce it, and most of the gold actually was turned in during the month PRIOR to the order to turn in the gold.

Contrast the different approaches government took toward Prohibition of alcohol under the Republican Hoover and the voluntary gold “confiscation” under FDR. There are no photographs of police, federal marshals, or Treasury agents looking through homes, offices, or bank safety deposit boxes for gold because there were no such searches or physical confiscations.

Conclusions 

A few points should be made. 

First, the gold recall in 1933 was not as draconian as many people would have you believe. 

More important, gold plays a marginal role in the global financial and currency systems today, and has for several decades. There would be no utility or value for the government to call in private gold in a future major economic crisis. 

While gold may account for less than 1.0% of global financial wealth (and even less in the United States) and not have a major role in the currency system or financial markets, it still is important to individual investors, providing a host of benefits including reduced volatility in one’s wealth, potential capital appreciation, a lack of counterparty risk, and privacy. 

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Sources:

Data for chart and table: CPM Group, IMF, World Federation of Exchanges, McKinsey & Co. 

Photograph: Encyclopedia Britannica.