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Gold confiscation is a subject that divides gold
investors. Some say it won’t happen again and others say it will happen
again. The one thing they tend to agree on is that they don’t want it
to happen again.
One factor that is sometimes quoted against a likelihood of
government seizure of gold is the alleged fact that only a minority of
American citizens turned in their gold after Roosevelt
issued executive order 6102
in April 1933. If that were true, one may be led to
believe that a confiscation decree is something that can be ignored since the
government could not possibly enforce a nationwide search of all suspect
households. Therefore, the deduction is that the government won’t
bother resorting to such coercion.
  
This article is written to suggest that the following statement by
the government of the time was not bluster but largely true:
“White
House Statement on Returning Gold to Federal Reserve Banks. April 5, 1933
In the
past weeks the country has given a remarkable demonstration of confidence.
With the reopening of a majority of the banks of the country, currency in
excess of $1,200,000,000, of which more than $600,000,000 was in the form of
gold and gold certificates, has been returned to the Federal Reserve Banks.
Many
persons throughout the United States have hastened to turn in gold in their
possession as an expression of their faith in the Government and as a result
of their desire to be helpful in the emergency. There are others, however,
who have waited for the Government to issue a formal order for the return of
gold in their possession. Such an order is being issued today.”
The anti-confiscation contention is that the people who were waiting
for the government to issue a formal order were not for turning their gold
in. As can be seen from the above release, $600m or roughly the equivalent of
30 million ounces of gold in coin and certificate had been returned to the
banks prior to the executive order.
Now it can be conceded that the people waiting for an official order
may have ultimately held onto their gold, but a reading of the order suggests
that illegally held gold was probably not going to happen in any great
measure. The relevant section is this one:
“All
persons are hereby required to deliver on or before May 1, 1933, to a Federal
Reserve bank or a branch or agency thereof or to any member bank of the
Federal Reserve System all gold coin, gold bullion, and gold certificates now
owned by them or coming into their ownership on or before April 28, 1933,
except the following:
(b) Gold
coin and gold certificates in an amount not exceeding in the aggregate
$100.00 belonging to any one person; and gold coins having recognized special
value to collectors of rare and unusual coins.”
Now section (b) is the text of interest. Many have focussed on the numismatical
portion, but I have rarely seen much said about the $100 exemption clause. At
that time gold was valued at $20 per ounce. The $20 double eagle coin in
circulation contained just under an ounce of gold and five of them made up
$100.
What is this exemption clause in executive order 6102 saying? It is
saying that each person could keep up to five ounces of gold coin in their
possession without fear of prosecution! At that time, the adult population of
America
was about 90 million. In theory, the population could have held onto 450
million ounces of gold if they had the means and will to do it (in practise, this much gold was never minted into coin).
Now the reason I was motivated to write this was an article I saw by
the respected gold analyst, James Turk at this link http://fgmr.com/confiscation.htm.
In that article he argues that there was a widespread illegal hoarding of
gold by US citizens. To prove this, he cites Milton Friedman and Anna
Schwartz in their book, "A Monetary History
of the United States,
1867-1960".
In that book, statistics are given which suggest that 13.9 million
ounces of gold were still in circulation in January 1934 and that only about
21.9% of the gold in circulation had been handed in.
The trouble with this statement is that it does not seem to take this
5-ounce exemption clause into account. Although we do not believe that 90
million people actually held 5
ounces each, it would only take each adult in America to
legally hold 0.15oz of gold to account for this “missing” 13.9
million ounces. Indeed, even if an attempt was made to take this 5oz
exemption into account, I would consider it nigh impossible to differentiate
legally held coin from illegally held coin.
How much of these 13.9 million ounces was legally held? Of course, we
cannot say definitely, but it seems clear to me that even during the Great
Depression, holding five ounces of gold was not an onerous task for many. How
much was the average wage in America
in 1933? I found a few answers by searching the Internet, but they averaged
out at about $1400 per annum. That means that $100 was less than a
month’s wage and although the savings rate in 1933 was one of the
lowest in recent American history, we suspect many households held more than
$100 in savings.
Indeed, it would only take 2.8 million adults or 3% of the adult
population to hold 5oz and account for the entire 13.9 million ounces of
gold. When we also consider how many probably redistributed their excess gold
coins to wives, sons, daughters, parents and so on to avoid confiscation, I
think we can safely conclude that illegal hoarding was not a major activity.
Now one may say that if Roosevelt had not included this 5oz exemption
then illegal hoarding would have happened. Perhaps it would have but in this
threshold rule we see Roosevelt the
Socialist in action. For you see, democratic socialism has this thing about progressive
taxation and confiscation. Just as people will not start paying tax on their
income until they have crossed their personal “allowance”, so it
was with this gold clause. How do you get the majority of average income
voters on your side on this matter? You simply let them keep a portion of
their gold and then give them the added bonus of a 57% windfall when gold is
revalued to $35!
So how would this arrested form of
confiscation work if it was imposed today? As it happens, five ounces of gold
currently costs about $2800. If the average American wage is $40000 today,
then this 5oz would form 7% of annual income. In 1933, it would have been 7%
($100 into $1400). Who said gold was not a good store of wealth?
When (not if) confiscation comes back to shore up the Western
nations’ failing fiat reserves, would we see something like the 5oz
exemption clause come back? I would say so, but then again government may
assume that individuals hold so little gold today that such a clause would
have no use.
It is a subject I commend to all gold investors as we watch the
present fiat-based economy continue to march towards catastrophe in the years
ahead.
Roland Watson
The Silver Analyst
http://silveranalyst.blogspot.com
Further analysis and comment on the silver market
can be read in the subscriber-only Silver Analyst newsletter described at http://silveranalyst.blogspot.com where readers can
obtain the first issue free. Comments and questions are also invited via
email to silveranalysis@yahoo.co.uk.
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