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Mark Pulliam on Abandoning the Gold Standard
Michael Ramsey

At Law and Liberty, Mark Pulliam: Abandoning Gold and the Constitution? (reviewing Sebastian Edwards, American Default; The Untold Story of FDR, the Supreme Court, and the Battle over Gold (Princeton Univ. Press 2018)).  From the introduction:

Constitutional law scholars tend to focus on decisions involving abortion, same-sex marriage, desegregation, and administrative law, ignoring one of the 20th century’s most contentious legal battles: creditors’ challenge to President Franklin D. Roosevelt’s abrogation of the gold standard, and contemporaneous invalidation of “gold clauses” in contractual debt obligations, in 1933.  The New Deal spawned many events of interest to constitutional historians—such as FDR’s court-packing scheme, the abandonment of the Lochner line of cases, and the Carolene Products decision—but until the publication of Sebastian Edwards’s American Default in 2018, the great debt default of 1933-1935 had unaccountably been largely overlooked. [1] In the pre-“woke” era, constitutional battles were over economics, not culture, and no aspect of the economy is more fundamental than money.  

In response to the Great Depression, one of Roosevelt’s first acts as President, after taking office in March 1933,  was to ban the private ownership of gold—in the form of coins, bullion, or gold certificates—and to require all private gold holdings to be sold to the federal government at a set price. This unprecedented edict was quickly followed by taking the nation off the gold standard. Then, on June 5, 1933, at FDR’s behest Congress passed Joint Resolution No. 10, unilaterally annulling all “gold clauses”—contractual provisions requiring repayment of debts in gold, used in most bonds and mortgages since the Civil War to protect lenders against devaluation of paper money—in all past and future debt contracts, public and private. As the coup de grace, in January 1934, FDR devalued the currency by fixing a new price for gold almost 70 percent higher than its century-old price.


Bond holders who had purchased securities protected by gold clauses challenged the annulment as unconstitutional. This became one of the first skirmishes over the New Deal to be decided by the Supreme Court. In early 1935, following three days of argument, in a trio of related decisions the Court upheld the federal government’s actions in a series of 5-4 decisions written by Chief Justice Charles Evan Hughes, with the conservative “Four Horsemen” dissenting.

The majority blithely upheld the Joint Resolution invalidating gold clauses in private contracts, citing broad congressional power to regulate the economy and, with respect to the impairment of government obligations, denying that bond holders had been damaged by the taking. The rationale of Hughes’s opinion in the public debt cases was that annulment of the gold clause caused no economic injury to the bondholders because—even had the debt been repaid in gold coin—other features of FDR’s monetary reforms would have required that the gold be surrendered at a fixed price (less than actual market value). The dissenters, who viewed FDR’s scheme as an abhorrent and dishonorable repudiation of contractual obligations, scoffed at this reasoning: “Obligations cannot be legally avoided by prohibiting the creditor from receiving the thing promised.” Justice James Clark McReynolds delivered the unitary dissent, departing from the prepared opinion to scornfully declare that the Constitution “is gone,” bitterly lamenting that “Shame and humiliation are upon us now.”

Unfortunately, the review concludes, the book does not present much detailed legal analysis: 

How well does the book, subtitled The Untold Story of FDR, the Supreme Court, and the Battle Over Gold, hold up as legal history or constitutional analysis? We have become inured to fiat currency and monetary gimmicks on the part of the Federal Reserve, but are these innovations consistent with an originalist understanding of the Constitution? What did the Framers mean when granting to Congress the power to “coin money [and] regulate the value thereof”? Were FDR’s reforms within the purview of the Constitution’s “necessary and proper” clause? Were the Reconstruction-era Legal Tender Cases correctly decided? These questions deserve comprehensive treatment. That argument isn’t contained in Edwards’ book. In contrast to Edwards’ economic analysis, his legal narrative is somewhat superficial, derived in large part from contemporaneous accounts, some historical archives, and William Leuchtenberg’s 1995 book The FDR Years: On Roosevelt and His Legacy, which he describes as “the standard work on the Supreme Court during the time of Roosevelt.”  

Edwards acknowledges that the statutory authority for declaring a national bank holiday was “doubtful,” and notes that acting Treasury Secretary Dean Acheson resigned his post because of his concerns that the administration’s policies were illegal.  Beyond this, his largely journalistic rendition of the Supreme Court litigation is informative and may satisfy a general audience, but does not break new ground as legal scholarship. In fairness, this was not the author’s intent; yet, an account of the Gold Clause Cases is incomplete without a reckoning of the larger constitutional questions.