History is amazing and incredibly interesting. There are so many stories scattered through out it full of interesting characters. History is also powerful. The knowledge of the past can dictate the decisions of the future. History is a powerful tool for controlling those around you and that makes it one of the most abused tools used by the state. If you can manipulate the past, you control the future. Sometimes these manipulations are tiny. They have been repeated so often they start to become offhand remarks passively accepted as truth. This is partly why historians make such terrible economists most of the time and it’s why the state is so interested in retelling its story.
Now I grew up loving history. It was my favorite subject in school and I loved to watch whatever was on the History Channel. Like a lot of young boys, I was really interested in medieval histories and characters. As I have grown, I can only laugh at the “history” being retold by the likes of the History Channel and others like them. Recently they posted an article about coins. I was interested so I read it. The article was about why coins have ridges on them. The problems I have is with a couple of off hand remarks about economics and policy.
FDR and the Confiscation of Gold:
The remark that bothered me was “The U.S. Mint stopped producing all gold coins during the Great Depression, thanks to an executive order from President Franklin D. Roosevelt”. This seems like an innocent enough statement and it is true. But I find it interesting that the reasons for this incident are not even mentioned. FDR made an executive order that affected the economic activities of everyone. With the confiscation of gold, the president was able to fix gold at a $35. This price fixing of gold was part of the Bretton Woods Agreement finalized after World War II.1 The point was to have fixed parities between the U.S. dollar and other industrialized currencies. This market manipulation of course produced a lot of problems.
“The problem with these flat lines is that they imply that monetary authorities were able to keep the actual gold price fixed at the precise level they specified, and conversely, that the purchasing power of the dollar remained constant. This was not the case, as the market price for gold often differed from the official $35 price, sometimes quite significantly, and the dollar actually lost value against most goods, even though it was officially fixed versus gold.”1
This confiscation of gold done to the American people was insidious in nature. People were told (coerced) to give up any gold coins and bullion they may have in exchange for paper money. These paper bills had always been transferable back into gold in the past so the people went along with it, trusting that this needed to occur in order to get themselves out of the depression. What they didn’t understand was that this money would be devalued and they would never get their gold back. Eventually, only central banks would be able to exchange dollars for gold (this was the need for the $35 fixed gold price) and “that link to gold would be severed in 1971.”2
But why did the government need all this gold? Because they were worried about another gold run.3 The value of gold was creeping above the fixed price which meant that trust in the gold-clause notes was waning. Foreign banks holding U.S. gold-clause notes began presenting them in exchange for physical gold. There was not enough gold in reserve at the Federal Reserve and a gold run was not going to be acceptable to the “wise leaders” so they bailed out the Fed by taking the American people’s gold and forcing them to use the notes. Of course this would artificially boost the “trust” in U.S. notes and artificially bring the parity of gold to gold-clause note back to a “desirable” exchange ratio in the eyes of U.S. leaders. Along with that, there would be more gold in reserve should other central banks wish to exchange the notes they held for gold. This meant that the President and those like him could manipulate the dollar to their liking (of course it would be in the interest of you and me right?). “Shortly thereafter he also embraced the Thomas Amendment, giving him open-ended authority to drastically reduce the gold content of the dollar; that is, to trash the nation’s currency.”
This confiscation of gold and coercion in the use of poor and devalued currency was the nail in the coffin for stable money (the first major nail was hammered in 1913 with another big one in 1971 when the U.S. abandoned gold all together in favor of fiat currency).
So “thanks to an executive order from President Franklin D. Roosevelt” as the History Channel puts it, the age of easy credit and idiotic inflation at the expense of you and me started to really take off. Central banking and fiat currency would eventually take off as the new age of monetary policy and wisdom. And this is why history is so important. The cheerleaders of the state will always retell history in two ways. This incident suffers from both ways. They will mention an incident in history and make it out to be a trivial thing. A pivotal point in history becomes an offhand remark, a footnote at the bottom of the page. The average and uninformed reader blithely brushes this aside and blindly accepts the conventional wisdom. When in reality, it was an important misstep and if the average student of history truly understood its implications, would not accept the states presentation of history. The other way is to totally change history. Those are the people that view this point in history and the policies adopted by FDR as important and necessary. They tell a warped version of history devoid of valuable facts and full of rhetoric and misinformation. They cherry pick data and make the mistake of thinking correlation means causation.
And then there is the proper way to do history. That is the way Mises suggested. “History should teach us to recognize causes and to understand driving forces; and when we understand everything, we will forgive everything.”5 History is made up of people pursuing various ends, and to view history apart from this is to scandalously treat it in a disrespectful way. History is understanding motives. Why did this occur? Why did these people want this? What was their endgame? What ends were they trying to accomplish? The state however, looks back at history with it’s own ideas and falsely imposes them on the past in order to justify it at this moment and in the future (historians sympathetic to the state then have the audacity to say they hold no biases). The confiscation of gold by FDR and the state was complicated and deserves more than a footnote of history. If we are wise, we would look back at it and pinpoint it as a pivotal point in history where legislation lead to undesirable ends. Unfortunately, this does not portray government and its economic policies in a favorable light. So history will always be a battle ground between the state and those in opposition to it.
1. Koning, John P. “The Losing Battle to Fix Gold at $35.” Mises Institute. Mises Institute, 18 Feb. 2009. Web. 29 Mar. 2015. <http://mises.org/library/losing-battle-fix-gold-35>.
2. Woods, Thomas E., Jr. “The Great Gold Robbery of 1933.” Mises Institute. Mises Institute, 13 Aug. 2008. Web. 30 Mar. 2015. <http://mises.org/library/great-gold-robbery-1933>.
3. Carr, Daniel. “FDR’s 1933 Gold Confiscation Was a Bailout of the Federal Reserve Bank.” FDR’s 1933 Gold Confiscation Was a Bailout of the Federal Reserve Bank. Moonlight Mint, n.d. Web. 30 Mar. 2015. <http://www.moonlightmint.com/bailout.htm>.
4. Stockman, David Alan. THE GREAT DEFORMATION: THE CORRUPTION OF CAPITALISM IN AMERICA. N.p.: Perseus, 2013. Print.
5. Mises, Ludwig Von. Nation, State, and Economy: Contributions to the Politics and History of Our Time. New York: New York UP, 1983. Print.