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syrakusos

Gold Was Never Illegal

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syrakusos    0

(Originally written in 1999 for Coin World when I was on the staff there, this shortened version is on several websites and blogs.)

Gold Was Never Illegal by Michael E. Marotta

Despite numerous claims by coin dealers and conservative patriots (sometimes the same people), it was never illegal for Americans to own gold. It is true that ownership of gold was closely defined. It is also true that zealous government agents took gold from people under the guise of law. However, for most people — including coin dealers — there was never any practical limit on the ownership of gold.

Presidential Executive Order 6102, April 5, 1933, made it illegal to “hoard” gold. The order exempted anyone whose “usual and customary” business required gold. (Dentists and jewelers come to mind. Electronic fabricators would come under this once electronics was invented.) Anyone could own up to $100 in gold coin. In 1933, $100 was two or three months wages for the average worker, about $6000 to $10,000 in today’s money.

Numismatic Scrapbook magazine was founded three years after this executive order. In the pages of that publication, the London Spot Price for Gold was often published along with the London fix for Silver. Gold coins such as the U.S. $3, $10, and $20 were offered for sale by dealers to the public in display ads at prices within a few cents of the London fix.

On the other hand, numismatist Tom DeLorey recounts a story told to him by Abe Kosoff. “Abe Kosoff once told me how he had arranged, on behalf of a few wealthy clients, to have bags of U.S. $20s shipped to a European bank PRIOR to the Gold Surrender Act, in anticipation of it and in the expectation that the price of gold would be raised. It was. He was then visited by a U.S. Treasury agent AFTER the Gold Surrender Act who told him that they had been examining bank records to see who had been withdrawing gold coins in the six months prior to the Act, and that according to the records he had withdrawn x number of bags of $20s. He was given a fixed amount of time to return the coins to the Treasury, or face prosecution. He got them back and returned them.”

In addition, another individual (Frederick Barber Campbell) lost a large holding of gold bullion stored in the Chase Manhattan Bank in 1933. It is true that in 1963, federal agents seized gold coins from the Witte Museum in San Antonio.

However, it is also true that the Thomas Elder catalog of April 14-15, 1933, carried a letter from William H. Woodin assuring collectors that they could own gold coins — both rare examples and souvenirs. Furthermore, in 1954, the Federal Reserve Bank of Cleveland sent a letter to its members telling them not accept gold coins from depositors, but to direct people to take their gold coins to coin dealers.

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Brant Gaede    1

I didn't know you were a fan of Roosevelt, but thanks for all the interesting facts in spite of one or two contradictions.

--Brant

I'm here to kick the state in the ass--join me and together we can rule the galaxy kick the state in the ass!

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Mark    0

Interesting article, but doesn't it show that the coin dealers and conservative patriots were for the most part right? You couldn't legally own more than $10,000 (today's $) worth of gold? Not much, really.

As a practical matter you could own any amount clandestinely and, if desired, sell it slowly in different markets so as not to attract attention.

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syrakusos    0

Perhaps I did not make it clear. Numismatists - like dentists and jewelers - were exempt from the restrictions.

The average person, with no special needs, could still keep $100 (face)value in gold coins (or bullion), at time when gold was $20 per ounce, (changed to $32), and when a dollar a day was the pay of an unskilled worker.

While being a "jeweler" might be easier to show than claiming to be a dentist, being a "numismatist" has no legal status that I know of: anyone could claim it.

The purpose of the law was to move gold from the banks to the Federal Reserve to stand behind the dollar in transactions with other central banks.

Except for the case of Campbell and the Witte Museum in San Antonio and the citation by Tom DeLorey from Abe Kosoff, we have very little evidence of actual seizures and absolutely no shortage of US Gold Coins from before 1933. Alcohol Prohibition was enforced much more strictly, and you see how that went. In The Fountainhead, Mike and Howard duck into a speakeasy twice, I believe.

Yes, Presidential Order 6102 said what it did. But that is all that it said. Gold was never illegal. Hoarding it was. Collecting gold coins and buying and selling them in any quantity was perfectly within the law.

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syrakusos    0
From TIME magazine archives:
On Oct. 11, 1932 an elderly Manhattan attorney named Frederick Barber Campbell marched into Chase National Bank followed by an armed guard trundling 13 bars of gold. Mr. Campbell had just drawn this bullion from the Federal Reserve Bank in return for gold certificates. Each bar, worth approximately $5,000, had been cast by the U. S. Treasury and bore its stamp and number. Lawyer Campbell arranged for the Chase Bank to act as hired custodian for his bullion.
On Jan. 25, 1933 Mr. Campbell again appeared at Chase National with 14 more gold bars which were stowed away in the vault with the first batch. By gold standard reckoning his total deposit of metal amounted to $135,000.

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Mark    0

A law and its enforcement are two separate issues.

Regarding the first you say that "hoarding" -- a non-objective term -- more than $10,000 (today's dollars) in gold was illegal. So what are we arguing about?

You point out the law wasn't enforced to speak of, but that's a separate issue.

How many people voluntarily turned their gold in to the government even though they didn't have to, and what was the total quantity?

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syrakusos    0

"Terrorizing People into Handing Over Their Gold " website here might be more to your liking. They quote in its entirely the Time magazine article referenced above. MSK dislikes it when we cut and paste whole works because that violates "fair use."

According to that article, Treasury agents seized from "known hoarders" $38,901,009 in gold. Unknown hoarders gave up $300 million more. That left about $560,201,000.unaccounted for.

I point out that you cannot drive a car without a government license. If you buy or sell one, you pay a tax on the transfer of title. Cars are not illegal. Driving is not illegal. Gold was never illegal. Anyone could own it and many people did. Again, if you check the prices today of pre-1933 US gold coins, it is demand, not supply that drives the price. For many years the $3 golds traded as common items like $5, $10, and $20, until collectors reduced the available inventories.

The idea that the government could "seize all the gold like they did in 1933" is just baloney.

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syrakusos    0

I found an article that also might help. David Ganz is a practicing attorney in New York. He also was president of the American Numismatic Association 1995-1997. He wrote this for NumisMaster, an online publication of Krause (now an F&W Company).

Protect Your Gold Against Seizure

By David L. Ganz, Numismatic News
September 09, 2010


A Florida reader has asked about whether possible gold seizure actions by the U.S. government, which some say is in the offing, make out a case for investing in gold coins of foreign countries, and asks as an ancillary question whether or not those who strongly believe in gold ought to consider holding some (or all) of their gold outside the United States.
[ . . . ]

Here’s what these statistics mean: the government’s “voluntary” gold coin retirement program actually took in and melted 125 million gold coins of 351 million gold coins ever produced by the United States from 1795-1933. That constitutes melting 39 percent of all the double eagles struck, 47 percent of all the $10 coins manufactured, and about a third of the $5 gold coins that were produced by the U.S. Mints. Most of this took place 1933-1939 under the “voluntary” recall.

[ . . . ]

The regulations promulgated by the Treasury allowed collectors to retain up to five coins of each date and mintmark.

Ganz's figures come from the Annual Reports of the Mint.

As he said in that article, there will be no "one of by land, two if by sea" midnight rider to warn us. It will happen over night. Indeed, this executive order followed on the the overnight closure of the banks. It started in Michgan. Detroit was then what Silicon Valley was to our time.


From "Michigan in Three Panics" by Michael E. Marotta

No mythology faces fewer challenges than the folktale of The Great Depression. The Austrian economist, Ludwig von Mises, pointed out in Human Action that capitalists and socialists usually agree on the raw data, but then disagree on what the facts mean. In 1929, the New York Stock Exchange recorded dramatic price collapses on October 24 ("Black Thursday") and October 29 ("Black Tuesday"). What is missing is a connection between the NYSE of October 1929 and the banks of Detroit in February 1933. It was there, in Detroit, on February 14, 1933, 40 months later, and 600 miles away, that the bank failures of the Great Depression began.

To be sure, bank failures were common in the years before 1929-1933 – and so were bank openings. From 1884 to 1921, the number of banks had sextupled from 5000 to 30,000. Not only were these generally small banks – some capitalized near the minimum $25,000 – but after 1921, the new operations were often branches. The federal Comptroller of the Currency had opened the door to allow city banks to compete in towns and villages. From that point, bank failures increased, as is to be expected from increased competition. In January 1933, it seemed that the summer of 1931 had been the lowest point possible and that a recovery was unfolding.

Speaking to a United Press reporter in Dearborn, on February 1, 1933, Henry Ford called the period 1923-1929 “the real depression.”

At that time, two holding companies dominated finance in Detroit. One was the Detroit Bankers Company Group. The other was the Union Guardian Group, colloquially called “The Ford Group.” When the Union Guardian Group experienced pressure from withdrawals, it turned to the federal government for a loan. However, the Reconstruction Finance Corporation required that the Fords subordinate $7 million that the banks owed to them, which Henry Ford refused to do. [by "subordinate" they meant that Ford would let the bank take care of everyone else first, and Ford last. In other words, it was an interest free loan of all his money as long as they needed it. -- MEM.]

President Herbert Hoover set up a meeting with Ford, Arthur Ballantine (Under Secretary of Treasury) and Roy D. Chapin (Secretary of Commerce). Chapin was a former Olds executive and co-founder of the Hudson Motor Car Company. He appealed to Ford as a fellow manufacturer. Ford replied that Hudson stock was traded on the NYSE, which Ford’s was not, and that a washout of the banking industry seemed inevitable. Chapin replied that if people do not have money to buy cars, Ford was in for hard times himself. Ford said that he felt young enough to start over from scratch. Ford said that everyone else ought to be prepared to get up a little earlier and work a little harder. He also said that he would withdraw his $25 million from the banks in the morning. He did not get to do that.

The next morning, February 14, 1933, Michigan’s governor, William Comstock, declared a banking holiday. The proclamation had been signed at 1:00 AM, published, and delivered to bankers when they arrived for the start of the business day. Two weeks later, outgoing President Hoover hesitated to declare a national bank holiday, so the newly-inaugurated President Roosevelt did just that.

On March 21, 1933, the Michigan Legislature passed the McNitt-Green bill, granting the governor “dictatorial powers” over banks. Unlike Hitler, Mussolini, and Stalin – to whom he was favorably compared by newspapers in those troubled times – Gov. Comstock had modest goals and eventually declined further powers to control the insurance industry as well.

"The regulations promulgated by the Treasury allowed collectors to retain up to five coins of each date and mintmark." That's a lot of gold... Realize that until the 1909-S VDB cent became popular with collectors, no one even cared about Mint marks. Secretary of the Treasury Woodin created a massive loophole.

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Mark    0

Mike,

It distresses me to be arguing with you like this as you're one of the OL members whose posts are always interesting. I usually agree with you too (not that I always post yea or nay about it) but in this case ...

"According to [the Times] article, Treasury agents seized from 'known hoarders' $38,901,009 in gold. Unknown hoarders gave up $300 million more. That left about $560,201,000.unaccounted for."

So by hook or by crook the Treasury received, in round millions, 339 M out of a total of 899 M. That's about 38% -- a massive seizure of gold. It was a seizure even in the case of the voluntary sellers because they were cheated out of the full value of their gold when the government in effect devalued the dollars it paid them.

"Driving is not illegal. Gold was never illegal." -- This is sophistry and equivocation. Driving without a license is in fact illegal. "Hoarding" gold was (I gather from what you've written) in fact illegal.

This subject is not in my field and I haven't thought about it much. Maybe I'm all wet. You can have the last word if you want to comment.

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drhougen    0

Mike,

Gold may not have been illegal, but it was certainly very limited. According to what you wrote above, the average person couldn't have more than five gold eagles --- five ounces of gold. And, I doubt the numismatic loophole was as big as you seem to think it was. Although it would allow a numismatist to hold a great deal of gold, I doubt the Treasury would have bought the argument that a person suddenly became one a few months before the order went into effect. Also, if one wasn't already a numismatist, he might have a lot of gold coins of one type with one mint date and very few of other types with other dates and would have had to scramble to trade with others in order to try to hold on to as much gold as possible.

Another thing that is being overlooked is the lack of any currency for conducting commerce. People in some parts of the country were so desperate that they invented their own currencies or resorted to barter in order to trade. If gold coins had been readily available, such desperate measures wouldn't have been necessary.

At any rate, executive order 6102 was a massive violation of individual rights. If it wasn't backup up by legislation (and I'm a little fuzzy on the history), it was also an unlawful and unconstitutional order, similar in character to some of Obama's unlawful orders, though arguably worse in some respects.

Darrell

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Michael said: "The idea that the government could "seize all the gold like they did in 1933" is just baloney"

Not very deep thinking (to use your word selection in a reply to me a while back).

If the government is determined, they can seize it.....they have the guns & the manpower.

Hell, they seized & used hundreds of thousands of lives with the draft...under the threat of Federal prison..and to the outrage of a significant amount of the population.

-Joe

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syrakusos    0

Mike,

Gold may not have been illegal, but it was certainly very limited. According to what you wrote above, the average person couldn't have more than five gold eagles --- five ounces of gold. And, I doubt the numismatic loophole ... I doubt the Treasury would... if one wasn't already a numismatist, he might ... had to scramble ...

Another thing that is being overlooked is the lack of any currency for conducting commerce. People in some parts of the country were so desperate that they invented their own currencies ...

it was also an unlawful and unconstitutional order, similar in character to some of Obama's unlawful orders, though arguably worse in some respects.

Darrell

To take the second point first, yes, indeed, people in a thousand towns did launch their own ad hoc currencies when the banks were closed. See the Depression Scrip website here. Money does not have to be gold to work. In Lansing, Michigan, the city power utility, the Board of Water and Light issued its own scrip. You could pay your light and water bill with it. School boards issued money against future taxes. There were many ways to solve the problem. F. A. Hayek said that when banking is freed from the government we have no way to know what forms money will take. History validates his claim.

But note that those National banks that failed - First National Bank of Hometown; Hometown National Bank; Second National Bank of Center City; etc. - all were gold-backed banks. To be a National bank, you had to deposit at least $25,000 in gold with the US Treasury. The Treasury gave you bonds that paid interest. Against 90% of the face value (principle) of the bonds, the bank could issue its own notes. Despite this guarantee of success, banks failed, just like any business can. Gold is not magic.

Contrary to your surmises, hassles were few and far between. They did happen. I cite those. Largely, if you kept your gold coins, no one cared. The law was directed at banks.

Also, the presidential order was lawful. It was based on a presidential order authorized by Congress from World War I, the "Trading With the Enemy Act."

I agree with you that it was egregious. It was not what the doomsayers and panic-sellers claim.

I agree also with Las Vegas that the draft did show how far the government can and will go. it is important, though, that the draft and the war in Vietnam were supported by a "moral majority" of self-identified political conservatives. Self-identified "conservatives" are not beating people up for resisting the government the way that Nixon's Hard Hats did. In fact... well... it's obvious....

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