FDR’s Smashing of America’s Monetary System
by Jacob G. Hornberger
Among President Franklin D. Roosevelt’s notable “achievements” was his smashing of America’s monetary system into oblivion. It is impossible to overstate the significance of what Roosevelt did and the fact that he did it without even the semblance of a constitutional amendment.
The Framers established the most revolutionary monetary system in history. It was a monetary system in which the official money of the American people consisted of gold coins, silver coins, and copper coins. While it wasn’t ideal in libertarian/Austrian terms, which favors a separation of money and the state, it was a second-best.
This monetary system came to be known as the “gold standard.” But the gold standard does not mean what everyone is taught in public schools. That is, the gold standard was not a system of paper money “backed by gold.” The gold standard was a monetary system in which gold coins, silver coins, and copper coins constituted the official money of the United States.
In fact, the Constitution did not authorize the federal government to issue paper money or “bills of credit,”’ which was how paper money was labeled in those days. While the Constitution permitted the federal government to borrow money, through bills, notes, and bonds, everyone understood that those debt instruments were promises to pay money — that is, promises to pay gold or silver — not money themselves.
Here are the constitutional provisions establishing gold coins and silver coins as the official money of the American people:
The Congress shall have Power To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.
No State shall coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts.
The Constitution was the document that called the federal government into existence. When it did that, the federal government necessarily became subject to the provisions of the Constitution. If Americans wished to change or modify a provision of the Constitution, the Constitution itself provided the way to do that. For example, a proposal originating in Congress to amend the Constitution requires the ratification of 3/4 of the states.
The monetary system that our American ancestors brought into existence remained in place for almost 150 years. It came to a sudden end during the Roosevelt administration.
Did FDR seek a constitutional amendment to modify the monetary system that had been in place for a century and a half?
Nope. Exercising what can only be termed dictatorial power, FDR smashed America’s monetary system out of existence. He did that by nationalizing everyone’s gold and decreeing that federal notes, not gold coins, would henceforth be the official money of the United States. The Congress and the federal judiciary submissively went along with it.
What does nationalization mean? It means that FDR did the same thing that, say, Fidel Castro would do many years later to private businesses in Cuba. FDR decreed that everyone’s privately owned gold coins now belonged to the federal government, not the private owners of the gold coins.
To ensure that Americans complied with his order commanding them to turn their privately owned gold over to the federal government, FDR made it a felony offense for Americans to own gold coins. Anyone caught with gold coins would be prosecuted, convicted, and sent to jail for up to 10 years and fined. While some Americans took their chances with a felony conviction and secretly held on to their gold, most Americans dutifully lined up to deliver their money to the government. In exchange, the feds gave them devalued Federal Reserve Notes.
Now, think about that for a moment. The American people had been owning gold coins for some 150 years. That had been the country’s official money, as established by the Constitution, which called the federal government into existence.
There was nothing to prevent Roosevelt from seeking a constitutional amendment to change America’s monetary system from a gold-standard to a paper-money standard. He could have followed the route outlined in the Constitution for seeking constitutional amendments.
He chose not to do that. It was considered too time-consuming and troublesome. And the American people would probably have defeated it at the state level. So, FDR decided that it would be easier to modify the Constitution by executive decree and congressional law. Never mind that it was illegal. By 1937, the Supreme Court had made it clear that it would not interfere with Roosevelt’s dictatorial rule.
Why did Roosevelt do it? To enable the federal government to spend money any amount of money it wanted. It was the greatest gift that FDR could ever give to the welfare-warfare state apparatus that he was grafting onto America’s federal governmental structure.
Why did the American people in the 1930s permit FDR to get by with destroying the monetary system the Framers had established with the Constitution.
By the 1930s, many Americans had become products of America’s public (i.e., government) school system. As such, they had been inculcated with a mindset of passivity, submissiveness, conformity, and deference to the authority of the federal government. On an increasing basis, Americans were losing the spirit of independent thinking and distrust of government power that had characterized the Framers and their fellow Americans.
The Great Depression only amplified people’s blind willingness to accept whatever federal officials did and said. It was also the time in American history when people began looking upon the federal government as their caretaker and provider. That’s why many Americans failed to object when FDR not only took away their gold but also established a paternalistic and socialist program designed to take care of them in their later years.
Few bothered to notice that the idea of Social Security originated in America’s Founding Fathers but instead in socialists living in Germany. For the passive and deferential American, it was a fair trade — the destruction of America’s monetary system in return for being taken care of by Social Security, a socialist system that by which the federal government would plunder the income of young people to give the loot to seniors.
The next time you pay for something with a dollar bill, notice what it says: “Federal Reserve Note.” That’s a reminder of the monetary system established by our American ancestors that President Roosevelt smashed out of existence. For 150 years, a Federal Reserve Note was a promise to pay money. Now it’s nothing more than a promise to pay another note.