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Source link: http://archive.mises.org/9461/the-losing-battle-to-fix-gold-at-35/

The Losing Battle to Fix Gold at $35

February 18, 2009 by

Gold-price history charts denominated in US dollars show a flat line at $35 that runs through most of the 20th century, writes John Paul Koning. The problem with these flat lines is that they imply that monetary authorities were able to keep the actual gold price fixed at the precise level they specified, and conversely, that the purchasing power of the dollar remained constant. This was not the case. FULL ARTICLE

{ 13 comments }

Abhilash Nambiar February 18, 2009 at 12:44 pm

If they had let the pseudo-gold standard persist, our politicians would have had some reason left to act sensibly. Wars would have been less wasteful, victory more properly defined. Bail outs would not even be dreamt of. It would have been a relatively prosperous time. It was a relatively prosperous time, we left.

N. Joseph Potts February 18, 2009 at 7:14 pm

FDR CONFISCATED the gold? I had thought he merely forced all his people to sell him their gold for $20.67 per ounce in paper money (which turned out to have some value, for a while) and then, when he had all the gold, he refused to sell any for less than $35 an ounce (refusing to sell any to his own people at any price whatsoever and further forbidding them to acquire any from anyone else).

P.M.Lawrence February 18, 2009 at 7:18 pm

John Paul Koning wrote “Speculators bought en masse in London through the remainder of 1967 and into March 1968. By March 14, the members of the gold pool, having sold about $2.75 billion worth of gold to protect the $35.20 ceiling, or about 10% of the member’s total reserves since the pound’s devaluation, had had enough.[4] They asked the Queen of England to close the London market the next day and dissolved the once-feared gold pool.”

There hasn’t been a Queen of England since 1707.

ehmoran February 18, 2009 at 9:09 pm

Mr. Lawrence,

Elizabeth II (Elizabeth Alexandra Mary;[N 1] born 21 April 1926) is the CURRENT QUEEN!

http://www.royal.gov.uk/HMTheQueen/HMTheQueen.aspx

“The Queen is the fortieth monarch since William the Conqueror, and is also the great-great-granddaughter of Queen Victoria. The elder daughter of King George VI and Queen Elizabeth, she was born in 1926 and became Queen at the age of 25. She has reigned through more than five decades of enormous social change and development. Her Majesty is married to The Duke of Edinburgh and has four children and eight grandchildren. Find out more about her life and work in this section”.

ehmoran February 18, 2009 at 9:18 pm

I believe U.S. gold went to $42/ounce in the the early 1970′s when Nixon took us off the Gold Standard.

ehmoran February 18, 2009 at 9:24 pm

Mr. Potts,

FDR confiscated the Gold (see Gold Confiscation Act of 1933).

Owners of gold coin, bullion, and/or certificates were required to redeem their gold on a certain date. If you were caught with gold after that date, you were subject to a $10,000 fine and 10 years in prison. If you tried to redeem the gold after this date, you were changed twice the value of the gold.

Be ready for the same THING.

Matthew February 18, 2009 at 11:27 pm

Mr. Lawrence is pointing out that in 1707 the Kingdom of England became part of Great Britain through the Acts of Union. So technically there hasn’t been a Queen of England since that date.

P.M.Lawrence February 18, 2009 at 11:41 pm

Ehmoran, Queen Elizabeth is indeed Queen – but not Queen of England, Queen of the United Kingdom of Great Britain and Northern Ireland. As I pointed out, there hasn’t been a Queen of England since 1707.

Matthew, that is no mere technicality. Subsuming the rest of us under the heading “England” is belittling.

ehmoran February 18, 2009 at 11:42 pm

Matthew,

I’ll buy that, but it seems Mr. Lawrence might be saying that the Article is completely wrong.

I shouldn’t be so anal, but I’ve seen individuals use this strategy with Science Publications and defend their opposing opinion based on it.

But, then again, I could be wrong.

N. Joseph Potts February 19, 2009 at 10:39 am

Ehmoran, I understand “confiscation” to be seizure without compensation or return of the goods in question. While “confiscation” is a keyword in Google and other search engines for finding the Executive Order (not Act) under which this was done, the word does not appear anywhere in the Order (of course, it wouldn’t).

Moreover, the order SPECIFIES that its victims WILL be compensated for their metals (silver was affected, too) at the “official price”(s). The distinction between a forced purchase and a confiscation might strike you as morally subtle, but if you were turning in 1,000 ounces of gold in a confiscation, you would receive nothing. As it went down in 1933, you would have received $20,660.00 in gold certificates, a great difference from nothing particularly then (it would be over $2 million adjusted for inflation).

I am MOST DEFINITELY expecting a reprise of this event, but thanks for the warning anyway.

ehmoran February 19, 2009 at 12:25 pm

Joseph,

Executive Order 6102: Forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates. April 5, 1933

within the Gold Reserve Act of 1934 Documents

David Hillary February 19, 2009 at 12:35 pm

Well written, JP!

I’m a little surprised you have not addressed the question of the use of interest rates to maintain conversion at the fixed rate. I believe maintaining interest rates on a currency at a rate competitive with the world interest rate was key under the system to maintaining convertibility. I.e. if there is an outflow of gold (or US dollar reserves for foreign countries), they just hike the interest rate to bring funds back into their system, and in the same way drop interest rate to reduce excessive reserves. Under the fixed exchange rate system, interest rates should also be the same, as Hong Kong Dollar interest rates track US Dollar interest rates now.

jp February 19, 2009 at 1:20 pm

ehmoran: That’s right, gold hit around $42 after Nixon removed the gold window, then kept on rising to almost $200 by 1975.

David: Yes, playing with the interest rate was an important part of maintaining conversion in the 50s and 60s. That being said, there were many other techniques used by authorities to prevent gold inflows (or dollar outflows) including exchange controls, moral suasion (asking other central banks not to convert), travel limits, limits on US investment overseas, boycotts on gold producers, prohibitions on gold investment etc etc. Often these techniques were more politically feasible than raising interest rates, which could plunge an economy into recesssion.

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