Gold Clause Cases
Encyclopedia
The Gold Clause Cases were a series of actions brought before the Supreme Court of the United States
, in which the court narrowly upheld restrictions on the ownership of gold
implemented by the administration of U.S. President
Franklin D. Roosevelt
in order to fight the Great Depression
. The cases were:
quickly ratified Roosevelt's action with the Emergency Banking Act
. The President soon afterward issued Executive Order 6102
, requiring the surrender of all gold coins, gold bullion, and gold certificates to the government by May 1, 1933 in exchange for their value in U.S. dollars at the rate of $20.67. Congress also passed a joint resolution
canceling all gold clause
s in public and private contract
s, stating such clauses interfered with the power of Congress to regulate U.S. currency.
While the Roosevelt administration waited for the court to return its judgment, contingency plans were made for an unfavorable ruling. Ideas floated about the White House
to withdraw the right to sue the government to enforce gold clauses. Attorney General
Homer Cummings
opined the court should be immediately packed to ensure a favorable ruling. Roosevelt himself ordered the Treasury
to manipulate the market as to make it appear in turmoil, though Treasury Secretary
Henry Morgenthau
refused. Roosevelt also drew up executive orders to close all stock exchanges and prepared a radio address to the public.
Charles Evans Hughes
wrote the opinion for each case, finding the government's power to regulate money a plenary power
. As such, the abrogation of contractual gold clauses, both public and private, were within the reach of congressional authority when such clauses presented a threat to Congress's control of the monetary system. Of note was Hughes's opinion in the Perry case: in a judicial tongue-lashing not seen since Marbury v. Madison
, Hughes chided Congress for its immoral—though legal—act. However, Hughes ultimately found the plaintiff had no cause of action
, and thus no standing
to sue the government.
abrogated gold clause
s in government and private contracts and changed the value of the dollar
in gold from $20.67 to $35 per ounce. This price remained until August 15, 1971 when President Richard Nixon
announced that the United States would no longer convert dollars to gold at a fixed value, thus abandoning the gold standard
for foreign exchange (see Nixon Shock
).
The limitation on gold ownership in the U.S. was repealed after President Gerald Ford
signed a bill legalizing private ownership of gold coins, bars and certificates by an act of Congress codified in which went into effect December 31, 1974. Pub.L. 93-373 did not repeal the Gold Clause Resolution of 1933, which made unlawful any contracts which specified payment in a fixed amount of money or a fixed amount of gold. That is, contracts remained unenforceable if they used gold monetarily rather than as a commodity of trade. However, the Act of October 28, 1977, , § 4(c), amended the 1933 Joint Resolution and made it clear that parties could again include so-called gold clauses in contracts formed after 1977.
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
, in which the court narrowly upheld restrictions on the ownership of gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
implemented by the administration of U.S. President
President of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
Franklin D. Roosevelt
Franklin D. Roosevelt
Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...
in order to fight the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
. The cases were:
- Norman v. Baltimore & Ohio Railroad Co.
- United States v. Bankers Trust Co.,
- Nortz v. United States,
- Perry v. United States,
Background
Within the first week of holding office, Roosevelt closed the nation's banks, fearing gold hoarding and international speculation posed a danger to the national monetary system, basing his actions on the Trading with the Enemy Act. CongressUnited States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
quickly ratified Roosevelt's action with the Emergency Banking Act
Emergency Banking Act
The Emergency Banking Act was an act of the United States Congress spearheaded by President Franklin D. Roosevelt during the Great Depression. It was passed on March 9, 1933...
. The President soon afterward issued Executive Order 6102
Executive Order 6102
Executive Order 6102 is an Executive Order signed on April 5, 1933, by U.S. President Franklin D. Roosevelt "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States"...
, requiring the surrender of all gold coins, gold bullion, and gold certificates to the government by May 1, 1933 in exchange for their value in U.S. dollars at the rate of $20.67. Congress also passed a joint resolution
Joint resolution
In the United States Congress, a joint resolution is a legislative measure that requires approval by the Senate and the House and is presented to the President for his/her approval or disapproval, in exactly the same case as a bill....
canceling all gold clause
Gold clause
Gold clauses specified within business contracts allow the creditor the option to receive payment in gold or gold equivalent. A gold clause may prove valuable to the creditor in long term contracts, wherein questions may arise as to whether a currency in use at the time the contract was entered...
s in public and private contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
s, stating such clauses interfered with the power of Congress to regulate U.S. currency.
While the Roosevelt administration waited for the court to return its judgment, contingency plans were made for an unfavorable ruling. Ideas floated about the White House
White House
The White House is the official residence and principal workplace of the president of the United States. Located at 1600 Pennsylvania Avenue NW in Washington, D.C., the house was designed by Irish-born James Hoban, and built between 1792 and 1800 of white-painted Aquia sandstone in the Neoclassical...
to withdraw the right to sue the government to enforce gold clauses. Attorney General
United States Attorney General
The United States Attorney General is the head of the United States Department of Justice concerned with legal affairs and is the chief law enforcement officer of the United States government. The attorney general is considered to be the chief lawyer of the U.S. government...
Homer Cummings
Homer Stille Cummings
Homer Stille Cummings was a U.S. political figure who was United States Attorney General from 1933 to 1939. He also was elected mayor of Stamford, Connecticut, three times before, founding the legal firm of Cummings & Lockwood in 1909...
opined the court should be immediately packed to ensure a favorable ruling. Roosevelt himself ordered the Treasury
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...
to manipulate the market as to make it appear in turmoil, though Treasury Secretary
United States Secretary of the Treasury
The Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...
Henry Morgenthau
Henry Morgenthau, Jr.
Henry Morgenthau, Jr. was the U.S. Secretary of the Treasury during the administration of Franklin D. Roosevelt. He played a major role in designing and financing the New Deal...
refused. Roosevelt also drew up executive orders to close all stock exchanges and prepared a radio address to the public.
Opinion of the court
All three cases were announced on February 18, 1935, and all in favor of the government's position by a 5–4 majority. Chief JusticeChief Justice of the United States
The Chief Justice of the United States is the head of the United States federal court system and the chief judge of the Supreme Court of the United States. The Chief Justice is one of nine Supreme Court justices; the other eight are the Associate Justices of the Supreme Court of the United States...
Charles Evans Hughes
Charles Evans Hughes
Charles Evans Hughes, Sr. was an American statesman, lawyer and Republican politician from New York. He served as the 36th Governor of New York , Associate Justice of the Supreme Court of the United States , United States Secretary of State , a judge on the Court of International Justice , and...
wrote the opinion for each case, finding the government's power to regulate money a plenary power
Plenary power
A plenary power or plenary authority is the separate identification, definition, and complete vesting of a power or powers or authority in a governing body or individual, to choose to act on a particular subject matter or area...
. As such, the abrogation of contractual gold clauses, both public and private, were within the reach of congressional authority when such clauses presented a threat to Congress's control of the monetary system. Of note was Hughes's opinion in the Perry case: in a judicial tongue-lashing not seen since Marbury v. Madison
Marbury v. Madison
Marbury v. Madison, is a landmark case in United States law and in the history of law worldwide. It formed the basis for the exercise of judicial review in the United States under Article III of the Constitution. It was also the first time in Western history a court invalidated a law by declaring...
, Hughes chided Congress for its immoral—though legal—act. However, Hughes ultimately found the plaintiff had no cause of action
Cause of action
In the law, a cause of action is a set of facts sufficient to justify a right to sue to obtain money, property, or the enforcement of a right against another party. The term also refers to the legal theory upon which a plaintiff brings suit...
, and thus no standing
Standing (law)
In law, standing or locus standi is the term for the ability of a party to demonstrate to the court sufficient connection to and harm from the law or action challenged to support that party's participation in the case...
to sue the government.
Subsequent events
The Gold Reserve Act of 1934Gold Reserve Act
The United States Gold Reserve Act of January 30, 1934 required that all gold and gold certificates held by the Federal Reserve be surrendered and vested in the sole title of the United States Department of the Treasury....
abrogated gold clause
Gold clause
Gold clauses specified within business contracts allow the creditor the option to receive payment in gold or gold equivalent. A gold clause may prove valuable to the creditor in long term contracts, wherein questions may arise as to whether a currency in use at the time the contract was entered...
s in government and private contracts and changed the value of the dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
in gold from $20.67 to $35 per ounce. This price remained until August 15, 1971 when President Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...
announced that the United States would no longer convert dollars to gold at a fixed value, thus abandoning the gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
for foreign exchange (see Nixon Shock
Nixon Shock
The Nixon Shock was a series of economic measures taken by U.S. President Richard Nixon in 1971 including unilaterally cancelling the direct convertibility of the United States dollar to gold that essentially ended the existing Bretton Woods system of international financial exchange.-Background:By...
).
The limitation on gold ownership in the U.S. was repealed after President Gerald Ford
Gerald Ford
Gerald Rudolph "Jerry" Ford, Jr. was the 38th President of the United States, serving from 1974 to 1977, and the 40th Vice President of the United States serving from 1973 to 1974...
signed a bill legalizing private ownership of gold coins, bars and certificates by an act of Congress codified in which went into effect December 31, 1974. Pub.L. 93-373 did not repeal the Gold Clause Resolution of 1933, which made unlawful any contracts which specified payment in a fixed amount of money or a fixed amount of gold. That is, contracts remained unenforceable if they used gold monetarily rather than as a commodity of trade. However, the Act of October 28, 1977, , § 4(c), amended the 1933 Joint Resolution and made it clear that parties could again include so-called gold clauses in contracts formed after 1977.