Gold Reserve Act

signs the bill into law in 1934. Standing behind him are (L-R): Henry Morgenthau Jr. (Treasury secretary), Eugene R. Black (Fed chair), George Warren (economist and advisor), Samuel Rosman and James Harvey Rogers (economist and advisor) The United States was still suffering the negative effects of the 1929 stock market crash in 1934 when the Gold Reserve Act was enacted. President Roosevelt was challenged to decrease unemployment, raise wages and increase the money supply, but was restricted in doing so by the United States' strict adherence to the gold standard. The Gold Reserve Act, which banned the export of gold, restricted the ownership of gold and halted the convertibility of paper money into gold helped him overcome this obstacle. This growth in real output is due primarily to a growth in the money supply M1, which grew at an average rate of 10 percent per year between 1933 and 1937. Traditional beliefs about the recovery from the Great Depression hold that the growth was due to fiscal policy and the United States' participation in World War II. Friedman and Schwartz claimed that the "rapid rate [of growth of the money stock] in three successive years from June 1933 to June 1936 ... was a consequence of the gold inflow produced by the revaluation of gold plus the flight of capital to the United States". Treasury holdings of gold in the US tripled from 6,358 in 1930 to 8,998 in 1935 (after the Act) then to 19,543 metric tonnes of fine gold by 1940. The revaluation of gold referenced was an active policy decision made by the Roosevelt administration in order to devalue the dollar. The largest inflow of gold during this period was in direct response to the revaluation of gold. An increase in M1, which is a result of an inflow of gold, would also lower real interest rates, thus stimulating the purchases of durable consumer goods by reducing the opportunity cost of spending. If the Gold Reserve Act had not been enacted, and money supply had followed its historical trend, then real GNP would have been approximately 25 percent lower in 1937 and 50 percent lower in 1942. ==International economic historical narrative==

The international community during the depression began to shift much of its gold reserves to the United States. Foreign investors clamored over the $15 increase in value from $20.67 to $35 per troy ounce, and exported their gold to the United States in record amounts causing U.S. treasury holdings to increase. This data shows two important aspects that involved gold in the early 20th century. The first was the massive expansion of gold as a currency across the globe. This data also demonstrates the rapid increase of gold reserves to the US. Even in 1900 the U.S. only held 602 tonnes of gold in reserve. This was 61 tonnes less than Russia and only 57 tonnes more than France. Over the next 20 years the countries' reserves grew as the amount of gold in the market increased and as normal trading occurred. However, in the 1930s there was a sudden shift up in reserves in the U.S. From 1930 to 1940, treasury holdings had tripled, mostly due to foreign investing. Another reason behind the shift of reserves to the US was the suspension of the gold standard in Britain on September 21, 1931. Gold reserves in the Bank of England also grew over ten times from 1930 to 1940, but it was still less than the amount the U.S. had. The Bank of France also saw over 200 tonnes of gold get transferred to New York following the raising of prices in America. ==Roles of the FRS and Treasury==

Prior to Gold Reserve Act 1934, the Federal Reserve System was in trouble as the Great Depression had swept over the country and people looked to the Fed for solutions. Some people claim that "market failure" was not the cause of this trouble. Instead, they place the blame for the years of the Great Contraction (from 1929 to 1933) on the mismanagement of the monetary policy by the central bank. That explains why Congress handed over the Federal Reserve's powers to the Treasury. Johnson explains that the Treasury's gold policy "was an essential instrument for producing desired political aims". In other words, the Federal Reserve System had served more as a "technical instrument for effecting the Treasury’s policies", according to Johnson. Roosevelt justified the Gold Reserve Act of 1934 by saying "Since there was not enough gold to pay all holders of gold obligations, ... the Government should in the interest of justice allow none to be paid in gold." Litigation arising from GRA The passage of the Gold Reserve Act of 1934 signified that the American people could no longer hold gold, with the exception of jewelry and collectors' coins. After the passage of the Gold Reserve Act several people were indicted for violating the clauses that restricted gold ownership and trade. Frederick Barber Campbell (who was actually convicted under the Gold Reserve Act's predecessor, Executive Order 6102), was convicted of hoarding gold when he tried to withdraw 5,000 troy ounces of gold he had at Chase National Bank. Gus Farber, a diamond and jewelry merchant was arrested with his father and 12 others for illegally selling $20 gold coins without a license. The Baraban family was arrested for operating a gold scrap business under a false license. Foreign companies even had their gold confiscated. The Uebersee Finanz-Korporation, a Swiss banking company, had $1,250,000 in gold coins that were being held in the United States. In the Consolidated Gold Clause Cases (independently known as Perry v. U.S., U.S. v. Bankers Trust Co., Norman v. Baltimore & Ohio R. Co., Nortz v. U.S.), the Gold Reserve Act was subject to scrutiny by the United States Supreme Court, which narrowly upheld Roosevelt's gold confiscation policy. The 1962 case United States v. One Solid Gold Object in Form of a Rooster concerned the seizure of a 14-pound golden statue of a rooster. The United States District Court for the District of Nevada decided that the artistic value of the rooster weighed in favor of the statue and its owner. ==Recent events==

The 2008 decision 216 Jamaica Avenue, LLC vs S&R Playhouse Realty Co. established that a gold clause in contracts signed before 1933 was only suspended, not erased, and under certain limited circumstances might be reactivated. ==See also==