Prisoners of Gold — The Great Depression and the Gold Seizure

In the earlier episodes, we saw how the nineteenth-century world was bound together under a single system known as the gold standard. Each nation’s currency was tied to a fixed quantity of gold, and gold itself became the final anchor of international trade. That stability supported prosperity, and gold stood as the symbol of trust in the world economy.

But in 1929, that brilliant system suddenly changed its form into a chain that bound people. The American stock market collapsed, and the world sank to the bottom of a long depression. At this moment, the very gold that had been the anchor of trust ended up binding the hands and feet of nations instead. In Episode 7, we trace calmly the bitter relationship woven between the Great Depression and the gold standard, and the event in which a state took away the gold of its own people.

The golden chain tightens deflation

In October 1929, the New York stock market crashed, and the long, deep depression known as the Great Depression began. Banks failed one after another, and people rushed to the counters to withdraw their savings. Credit shrank, prices kept falling, and the streets overflowed with those who had lost their work. In the United States, gross national product is said to have fallen sharply within just a few years, and prices overall to have dropped by about thirty percent.

Here, the gold standard that had until then been a symbol of stability played an ironic role. Under the gold standard, a government can only issue currency in proportion to the amount of gold it holds. To revive the economy during a depression, it would want to put more money into circulation to support demand. But a government bound by the chain of gold could not increase its currency as it wished.

Worse still, in order to prevent gold from flowing out of their own countries, nations were forced instead to raise interest rates and tighten their currencies. In a depression, this was counterproductive. Money grew even scarcer, and a vicious circle deepened in which prices and wages fell further still — the so-called deflationary spiral. The golden anchor that was supposed to bring stability had, in a time of crisis, turned into a weight that sank the ship.

Nations cut the golden anchor one by one

As the crisis deepened, the first to break free of the golden chain was none other than what might be called the very headquarters of the gold standard. In September 1931, Britain suspended the convertibility of the pound into gold — the exchange of currency for gold — and left the gold standard. Overseas investors had rushed all at once to convert pounds into gold, and the government’s gold flowed out until it could no longer hold.

The departure of Britain, the country of the key currency, set off a chain reaction across the world. Within that same year, more than twenty countries are said to have abandoned the gold standard, and the international gold-standard system built in the nineteenth century effectively collapsed. By cutting the golden chain, nations at last regained the room to increase their currencies and support their economies.

Here a fundamental question of the modern age over gold emerged. Gold gives currency an unshakable backing, yet in a crisis it ties the hands and feet of a government. Stability and rigidity were the front and back of the same system. And the United States, too, would arrive at its own answer to this question. It was a forceful measure: taking gold out of the hands of its citizens.

In 1933, the state seizes the people’s gold

Franklin Roosevelt, who took office as president in March 1933, took a bold step in his policy on gold as one of the pillars of his fight against the depression. On April 5 of that year, he issued Executive Order 6102, which in principle forbade individuals and companies from holding gold coins, gold bullion, and gold certificates.

Citizens were ordered to hand over the gold in their possession to the government by an appointed date. In return for surrendering it, they were paid banknotes equivalent to the official price of the time — 20.67 dollars per ounce. Ornaments, collectors’ gold coins, gold needed for occupational purposes such as dentistry, and small amounts of gold coin were treated as exceptions, but it is said that heavy penalties were set for holding gold beyond those limits.

Why was such a forceful measure taken? The aim was to make it possible for the government to move gold freely, and to create room to devalue the dollar against gold. If the people’s gold was gathered and placed under government control, then even without additional gold, policy could push prices upward — or so it was thought. Gold was no longer an asset that individuals could freely store away; it came to be seen as a tool for driving the economic policy of the state.

The following year, 1934, the Gold Reserve Act was enacted. By this, the nation’s monetary gold was consolidated under the control of the Treasury, and the official price of gold was raised from 20.67 dollars per ounce to 35 dollars. In other words, gold gathered from citizens at 20.67 dollars was revalued by policy to 35 dollars. The dollar was greatly devalued against gold, and a margin of leeway arising from the difference in valuation appeared in the government’s hands.

How to view this series of measures is split depending on one’s standpoint. There is the assessment that it was a practical move that stopped deflation and helped the recovery, while there also remains strong criticism that it was an excess that forcibly took the property of the people. How far may a state control gold? That question was left behind without a settled answer.

Gold turns into a symbol of state power

As the world passed through the Great Depression, the meaning of gold changed quietly but greatly. Gold had once been private wealth that kings and individuals stored at hand and relied upon in times of need. But in this era, gold transformed into a strategic material that the state gripped and managed as the foundation of currency and economic policy.

As nations left the gold standard, or, like the United States, gathered their citizens’ gold, the world’s gold gathered into the vaults of governments. The more gold a country held, the more it could support trust in its own currency and prepare for crises. Gold became wealth and, at the same time, a measure of a nation’s strength.

It was also a process by which gold moved away from people’s daily lives. The age in which individuals clutched gold coins came to an end, and gold became something that moved only between governments and central banks, as bars piled up in underground vaults. ‘Prisoners of gold’ was a phrase that referred both to people bound by gold and, now, to gold itself, enclosed within the vaults of the state.

The storm of the Great Depression laid bare the rigidity of the gold standard and drew gold into the hands of the state. Before long, the world would rush toward another great war. When that war ended, nations would once again entrust gold with a final role in order to rebuild their ruined economies. After the great war, gold gives off its final glow.