The Great Depression

Essay two · The monetary case

Roosevelt and Gold

On Murray N. Rothbard  (1926–1995)

Rothbard did not write one essay on this. He returned to it across thirty years, and his account sharpened each time. What follows is a summary of that argument, with his own words at each stage.

Higgs’s central claim is that Roosevelt reversed cause and effect, and treated falling prices as the disease rather than the symptom. Rothbard supplied the monetary mechanism that made the reversal possible, and he is far blunter about it than Higgs is. He did not regard the gold order as a policy that failed. He regarded it as a taking.

The shackle on the Fed

Before 1933 the Federal Reserve could expand, but not without limit. Federal Reserve Notes were payable in gold, and the government could not conjure more gold into existence. That was the entire constraint, and it was a real one.

Before 1933, there was an important shackle upon the Fed’s ability to inflate and expand the money supply: Federal Reserve Notes themselves were payable in the equivalent weight of gold. … The government cannot create new gold at will. But Federal Reserve Notes can be issued at will, at virtually zero cost in resources. In 1933, the United States government removed the gold restraint on its inflationary potential by shifting to fiat money: to making the paper dollar itself the standard of money, with government the monopoly supplier of dollars.

Murray N. Rothbard, For a New Liberty (1973)

Rothbard’s point is structural rather than moral. Nothing about fractional-reserve banking required that the money supply be constrained by a pile of metal — the constraint was a choice, written into the notes. Remove it and nothing else about the system becomes safer. The capacity to create money is unchanged; the only thing lost is the accounting that revealed it.

The taking

Twelve years later he used less abstract language, and the change in tone is itself part of the argument — what had been described in 1973 as a removal of a restraint was by 1994 an account of theft.

In addition to cancelling the redemption of dollars into gold, Roosevelt in 1933 committed another criminal act: literally confiscating all gold and bullion held by Americans, exchanging them for arbitrarily valued “dollars.”

Murray N. Rothbard, “Taking Money Back” (1994); reprinted as “The Solution,” Free Inquiry / FEE, November 1995

The substance he described is not in dispute. Under Executive Order 6102 of 5 April 1933, Americans were required to surrender all monetary gold to the Treasury and received non-gold-bearing certificates in exchange, retaining nothing beyond a small allowance for industrial and collectible use. A joint resolution of 5 June 1933 then voided contractual promises to pay in gold, whether public or private.

An emergency that never ended

What Rothbard found most remarkable was not the confiscation itself but its duration. Every measure was justified by an emergency, and the emergency was never formally declared over.

All these measures, supposedly drafted for the Depression emergency, have continued as part of the great heritage of the New Deal ever since. For four decades, any gold flowing into private American hands had to be deposited in the banks, which in turn had to deposit it at the Fed.

Murray N. Rothbard, “Taking Money Back” (1994)

Private gold ownership only became legal again in the 1970s, and not until Ron Paul’s congressional work. The gold the government took stayed at Fort Knox.

The deeper target

Gold was the means, not the end. Rothbard’s target was the privatisation of money: ending the state’s monopoly on issuing it. Having concluded that the Fed had been in technical default of its promise to redeem in gold since 1933, he argued it should be liquidated as any insolvent firm is — assets distributed pro rata to creditors — and the gold made the basis of 100 percent reserve banking. That is a far larger programme than the New Deal, and it is the reason his essays on 1933 keep returning to it.

On the attribution

The passages above are quoted from Rothbard’s published work. The surrounding text is written by this site and is not his. He held these views consistently, but he also changed his mind about some things; where his later conclusions differ from his 1970s ones, both are cited rather than silently merged.

Works cited