The Emergency Banking Act and Gold Confiscation of 1933 (HOM 34-A)

hello everybody welcome to history of money professor barthier history professor at arizona state university all right we are now at lecture 34. after this lecture we only have two more lectures dealing with united states monetary history we're going to go pretty quickly through the second half of the 20th century but uh boy this is going to be a good lecture today we're going to take a look at the 1930s fdr and uh finish our discussion of the great depression all right so fdr wins in a landslide in november 1932 but there's this period of uh you know inauguration day back then was until march 4th so you have a long period where there's a lame duck president herbert hoover and the country is anxious for the incoming administration and boy the economy is bad in january 1933 alone in in that month alone 273 banks have failed so the country really seems to be teetering on the brink of collapse look at that money supply the money supply has fallen by one-third by early 1933 one-third fall into money supply notwithstanding all the stimulus from from the reconstruction finance corporation the lowering of interest rates by the new york fed didn't matter people were are hoarding cash banks are when it when they when they uh borrowed money from the fed or from the reconstruction finance corporation just used it to shore up their reserves they weren't actually spending it or investing it so roosevelt is inaugurated march 4th 1933 there he is in washington dc with the outgoing president and gives a an inauguration speech in in his goal here is to restore confidence or at least to inject a little bit of confidence back into the country and to combat the psychology of depression the psychology of decline which can be just as as harmful if not more harmful than you know the the different data points and numbers that we've been crunching over last couple lectures so there he is being sworn in there's outgoing president herbert hoover and then roosevelt gives his inaugural speech our greatest primary task he says is to put people to work unemployment right now is 25 25 astounding i shall ask the congress for the one remaining instrument to to meet the crisis so this is the instrument that herbert hoover has not used yet is sort of the last the last remaining instrument broad executive power to wage a war against the emergency he calls it elsewhere in a speech a national emergency it says we must treat this task as we would treat the emergency of a war so the moral equivalence of war is is at play here and and well what do wartime presidents do they expand their power look at abraham lincoln during the civil war who's a wartime president who exercised a lot of executive authority that he never could have exercised during time of peace well fdr says we are essentially at war here with a national emergency an economic emergency the money changers he says have fled from their high seats in the temple of our civilization we may now restore that temple to the ancient truce what is he talking about there that's interesting the money changers the banking system this great nation will endure as it has endured he says it will revive and it will prosper the only thing we have to fear is fear itself that famous quotation that our nation today to be quite frank could could uh would do well to to listen to and to follow nameless unreasoning unjustified terror which paralyzes needed efforts to convert retreat into advance all right so a lot of flourish there in his inaugural what's he going to do in office and we're not going to detail it of course he could do an entire class in a new deal at that first hundred days he has the con he has the house he has a senate and they're just rubber stamping whatever he wants to do basically and from march through june of 1933 just an onslaught of new programs new commissions like we've never seen before in us history it changes the country for you know from that point forward the country is never quite the same after that first hundred days of fdr being in office lots of different works project uh works programs so civilian conservation corps the works progress administration to provide jobs to americans all of it but for our purposes we're going to look at the banking the banking acts now march 9th and you look at the date there that's only five days five days after his inaugural fdr declares a bank holiday or he he persuades congress to pass his emergency banking act declaring a a bank holiday now you'll remember from lecture 33 in the year 1932 the us is still on the gold standard britain has left the gold standard europe has left the gold standard the united states is the last remaining one anybody can take a federal reserve note and bring it to the treasury and get gold for it okay the problem is confidence in the dollar is declining and gold is leaving the country and it's leaving very quickly now you have two options here right you can either hike interest rates like to huge levels like paul volcker did in the late 1970s early 1980s which would have led to more deflation than we had already seen prior to 1933 would led to more deflation a severe contraction of loans but the outflow of gold would have been stopped for the time being because the value of the dollar would rise or and by the way nobody wants to do something like that right hike interest rates up to 20 or so um and you know that can spark a revolution that can spark unrest severe unrest hoover didn't want to do that fdr didn't want to do that hoover and fdr share this in common they want to reflate prices back to the 1920s levels okay to the late 1920s levels so the prices that you saw in 1927 1928 early 1929 those are the price price levels they would like to to meet again and so you're not going to see a hiking up of interest rates early in fdr's administration what do you do you declare a bank holiday which shut down the banking system for four days during that four-day period the banks are closed they're not obligated to pay any of their debts during that four-day period federal inspectors visited banks audited their books and then the federal reserve sent additional currency to the banks to shore everything up meanwhile during that four-day period on march 12 1933 fdr explains his actions to the american public via radio and this was his first fireside chat fireside chat he got on radio back in 1933 there's no television but by this point most americans have a radio set and he addresses the nation because you know the federal reserve can send additional currency to the banks but you know when the banks open back up again the runs could continue so fdr needs to reassure the american people of the fundamental soundness of the banking system and this was a big departure from herbert hoover hoover uh was distant from the public he appeared aloof uh lacked much confidence he's remote from the public at this time fdr by contrast is addressing the public directly in an int via an intimate medium he's speaking to them in their own living rooms over their radio set he had a very dignified tone about him reassuring tone i spoke in a uh sort of a grandfatherly uh way about him and and reassured the public hey things are going to be okay and he said this this was important some of our bankers had shown themselves either incompetent or dishonest in their handling of the people's funds they had used the money entrusted to them in speculations and unwise loans this was of course not true in the vast majority of our banks and so this was the key he's saying hey vast majority of our banks none of this is true for some of them they they misuse funds they speculated but the banking system as a whole vast majority of it is sound and this being called it holiday will is uh will restore confidence in that system that's not all banks open up but you still have the problem of gold leaving the country okay so what do you do about that again the choice here you can hike up interest rates or you can or you can just cut the gold link altogether fdr goes with the latter point and in april on april 5th 1933 one month after becoming president he issues an executive order executive order 6102 and and here it is under executive order of the president issued april 5th 1933 all persons are required to deliver on or before may 1st 1933 all gold coin gold bullion and gold certificates now owned by them to a federal reserve bank branch or agency or to any member bank of the federal reserve system criminal penalties for violation of executive order ten thousand dollar fine or ten years imprisonment or both so executive order 6102 6102. you have until may 1st you have less than one month you must sell your gold all of your gold gold bullion gold certificates gold coin to the federal reserve at 20.67 an ounce for gold okay that's the price at which you will sell your gold now the executive order prohibited possessing more than five ounces of gold which amounted to a hundred dollars a hundred dollars so if you have less than five ounces of gold you're not required by law to sell that gold if you have more than five ounces of gold you've got to sell your gold or you're subject to very heavy criminal penalties there were some exceptions here jewelry was exempted so you can have more than five ounces of gold jewelry that doesn't count or rare coins like if you have an old like venetian coin that's hundreds of years old that also does not qualify other than that you've got to sell your gold um again at this price of twenty sixty seven cents an ounce you gotta sell to the federal reserve gold coin will no longer be legal for domestic use no more gold coin cannot use it can't spend it can't trade it all right and and this remains true all the way up until 1974 it wasn't until 1974 that it was legal again in this country to use gold coin to sell or to buy or to trade uh gold coin this executive order also by implication by necessary implication ended the convertibility of federal reserve notes into gold at the treasury so the old you know convertibility of the federal reserve note and took about the treasury is now gone now gone there were people by the way who who violated this order and were refined or thrown into jail right now you know your average american who has you know if they had seven or eight ounces of gold and they didn't sell it and they kept it and you know they're not going to get caught right but you had big players who had a lot of gold who didn't want to sell their gold and ended up being prosecuted eugene meyer who is chair of the federal reserve board in washington dc dc appointed under herbert hoover resigned in protest of this executive order he didn't like it eg meyer was a morgan man big fan of the gold standard as were most of the morgan orbit uh generally supported the gold standard and as a result of this order he leaves and fdr replaces him with a more friendly fed chair then in 1934 a few months later congress codifies this executive order into law in the what was called the gold reserve act the gold reserve act now what did this gold reserve act do first of all again it put into law this this prohibition on gold coin right but it transferred all gold in the country and at the federal reserve banks so remember 1933 you had to sell your gold to the federal reserve seven months later that gold that was at the federal reserve from that confiscation was then transferred to the treasury okay and now the treasury will hold all that gold in reserve this the treasury will use that gold reserve in order to stabilize the dollar all right in different currency markets so for example if a foreign central bank has federal reserve notes or owns u.s debt and they go to a treasury and they say hey look we need gold for this debt or for these notes the treasury at their discretion may give them that gold because now they have this gold reserve again to use at their discretion in order to stabilize markets so treasury has has this uh instrument here of monetary policy that was actually independent of the federal reserve system and and could occasionally redeem dollars with gold but not for ordinary americans this would be for big big players right big international players foreign central banks major bondholders etc moreover the gold reserve act gave the president of the united states authority to change the value of gold okay to change the value of gold immediately upon passage of this act fdr through executive order changes the price of an ounce of gold from 20.67 to 35 all right all this time all the you know for decades and decades before 1933 gold was 20 and 67 cents an ounce now it will be 35 an ounce this represented a devaluation of the dollar of 40 40 devaluation in the value of the dollar relative to gold not a bad deal for a treasury the american people sold their gold at this price now just through the president's signature gold is worth that price not a bad deal a lot profit was made there by the way and if you've been watching all of these lectures through this the course of the semester you may remember seniorage remember seniorage and uh and uh devaluation that princes from the medieval ages and even before that would would engage in and they would buy the public's gold or silver and then devalue the goal devalue it and pocket the difference and this has some major there's a major parallels to that action here and and the trader makes quite a profit actually and and afterwards because gold was now 35 an ounce instead of 20.67 cents an ounce actually a lot of gold came into the treasury a lot of foreigners brought their gold and sold it to the u.s treasury at 35 an ounce and the treasury's gold reserve was very very large and eventually the treasury stored most of that gold in the united states bullion depository at fort knox at fort knox and uh and there it is fort knox kentucky this was built in the late 30s it's a little bit after but today at fort knox fort knox the official number is for knox today has 147 million ounces of gold this is a picture from the late 30s of fort knox the bullion depository there today has 147 million ounces of gold which represents 56 of the treasury's stock of gold the u.s treasury has gold elsewhere as well by much of gold that resulted from from all these acts and from the the incoming flow of gold into the united states made its way here so very very interesting stuff and of course quite controversial this was the final u.s gold coin 1933 double eagle 20 gold coin and because it was only coined for a couple months and even then there weren't that many coined in those few months in 1933 it's a very very rare coin extraordinarily rare has tremendous numismatic value if you ever have an opportunity to get one it's one of the more valuable coins in the united states so that is done now the language on the federal reserve note changes formerly for 20 years federal reserve note said that this note is redeemable in gold on demand at the treasury department in the city of washington or in gold or lawful money at any federal reserve bank now the language was revised to say that this note is redeemable in lawful money at the united states or at the federal reserve bank now what does that mean exactly um you know you could take it to a treasury and it will be legal tender or a fellow reserve bank it's a legal tender and if you want lawful money for it change for example they'll change it out for you but you're no longer they are no longer obligated to pay gold for for that note so that's the language after 1933 and here's a 1934 20 federal reserve no and you will not see any reference at all to gold on this note ten dollar note grover cleveland was demoted to the thousand dollar note or you could say the uh he was promoted to the thousand dollar note he was on a 20 but not many people use a thousand dollar note so i think that's a demotion wow remember this cartoon after uh the gold standard act of 1900 seem gold is victorious survival to fittest well now look gold's banned gold is just banned in the united states after 1933 at least for the public the treasury has a lot of it treasury has a whole lot of gold after 1933 but for the public no more so that's quite a big change all right actually i was going to include the banking acts in this this part of the lecture i'm going to say that for a different part because we cover a lot of information here so for part b we'll take a look at the banking acts of the new deal see you there

Channel: Professor Barth

Views: 17,180

Keywords: Herbert Hoover, Fireside chat, Eugene Meyer, Federal Reserve, Federal Reserve Board, Federal Reserve System, Fort Knox, United States Bullion Depository

Id: gcmfaX--Pu8

Length: 22min 18sec (1338 seconds)

Published: Tue Nov 24 2020