Why did Franklin D. Roosevelt confiscate gold from the American people during the Great Depression?

Question

FDR outlawed ownership of gold in 1934 with the Gold Reserve Act. It was a very courageous act by a democratic government because nobody will elect a government which takes money from them. Gold was money then. Why was such a drastic measure taken? It implies that gold ownership by the people was damaging the country's interest. Why was that so during that time and why is ownership of gold allowed today?

Answer 1

Well, we could do a PhD thesis in Economics on this one, but the short answer was in order to break out of the Great Depression, the dollar had to be devalued and gold deposits had to be increased. Your question focuses on only the last act of a grand strategy that began with a long domino chain. The big picture goal here was to raise the U.S. GNP, and history records that the Gold Reserve Act was wildly successful in doing this. The government didn't take money from anyone. However it is well within the purview of any government to decide what is and is not money, and what form that currency should take. Everyone who turned in gold under GRA was paid hard cash for it, and at a higher rate too. Gold had languished at around $20 an ounce for many years, but under GRA folks who turned in gold were paid at a new higher $35 an ounce rate. This rate was so attractive that other nations also exchanged and sold their gold to the U.S. as well. The US gold reserves tripled almost overnight. This lowered interest rates, and stimulated consumption, which of course was good for the economy and started creating jobs. Jewelry, "souvenir" and collector coins were exempted from having to be turned in. A few people tried to milk the "souvenir" clause, and were caught and prosecuted.

Now as to what changed, well In 1973 President Nixon removed the U.S. from the gold standard. This meant that U.S. paper currency was no longer backed by gold reserves. Once you do this, it means the government no longer has to then tightly control gold, and it could be released for public sale and be bought and sold like any other commodity. (A persistent rumor out there by the way - coming from guards who have worked there - is that our Ft. Knox repository is now actually empty, and contains no gold.) Many other industrialized nations also switched from a system of gold-based fixed exchange rates to a system of floating rates. In August 1974, President Ford repealed the prohibition on the public's owning of gold or engaging in gold transactions. Today, no country bans private ownership of gold.