The Gold Clause Cases


Seal of the Supreme Court of the United States


The gold standard has an extraordinarily rich constitutional history.  Issues associated with it have appeared before the United States Supreme Court on several occasions.  One of the most memorable of such appearances was a suite of cases known, collective, as “the gold clause cases.”  These comprise:

  • Norman v. Baltimore & Ohio Railroad Co.
  • United States v. Bankers Trust Co.
  • Nortz v. United States
  • Perry v. United States

As summarized in the Wikipedia:

Within the first week of holding office, (Franklin) 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. Congress 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 clauses in public and private contracts, 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.

All three cases were announced on February 18, 1935, and all in favor of the government's position by a 5–4 majority. Chief Justice 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.

One of the most memorable aspects of these cases is the ringing and eloquent dissent in Perry. The dissent was written by Justice McReynolds, joined by Van Devanter, Sutherland and Butler.  Some observations:

Just men regard repudiation and spoliation of citizens by their sovereign with abhorrence; but we are asked to affirm that the Constitution has granted power to accomplish both. No definite delegation of such a power exists, and we cannot believe the far-seeing framers, who labored with hope of establishing justice and securing the blessings of liberty, intended that the expected government should have authority to annihilate its own obligations and destroy the very rights which they were endeavoring to protect. Not only is there no permission for such actions, they are inhibited. And no plenitude of words can conform them to our charter.

The federal government is one of delegated and limited powers which derive from the Constitution. "It can exercise only the powers granted to it." Powers claimed must be denied unless granted. and, as with other writings, the whole of the Constitution is for consideration when one seeks to ascertain the meaning of any part.


By the so-called gold clause -- promise to pay in "United States gold coin of the present standard of value," or "of or equal to the present standard of weight and fineness" -- found in very many private and public obligations, the creditor agrees to accept and the debtor undertakes to return the thing loaned or its equivalent. Thereby each secures protection, one against decrease in value of the currency, the other against an increase.

The clause is not new or obscure or discolored by any sinister purpose. For more than 100 years, our citizens have employed a like agreement. During the War between the States, its equivalent "payable in coin" aided in surmounting financial difficulties. From the housetop men proclaimed its merits while bonds for billions were sold to support the World War. The Treaty of Versailles recognized it as appropriate and just. It appears in the obligations which have rendered possible our great undertakings -- public works, railroads, buildings.

It is true to say that the gold clauses "were intended to afford a definite standard or measure of value, and thus to protect against a depreciation of the currency and against the discharge of the obligation by payment of less than that prescribed."

The fundamental problem now presented is whether recent statutes passed by Congress in respect of money and credits were designed to attain a legitimate end. Or whether, under the guise of pursuing a monetary policy, Congress really has inaugurated a plan primarily designed to destroy private obligations, repudiate national debts, and drive into the Treasury all gold within the country is exchange for inconvertible promises to pay, of much less value.

Considering all the circumstances, we must conclude they show that the plan disclosed is of the latter description, and its enforcement would deprive the parties before us of their rights under the Constitution. Consequently the Court should do what it can to afford adequate relief.

Congress has power to coin money, but this cannot be exercised without the possession of metal. Can Congress authorize appropriation without compensation of the necessary gold? Congress has power to regulate commerce, to establish post roads, etc. Some approved plan may involve the use or destruction of A's land or a private way. May Congress authorize the appropriation or destruction of these things without adequate payment? Of course not. The limitations prescribed by the Constitution restrict the exercise of all power.

FDR’s devaluation of the dollar from $20.67 an ounce to $35 an ounce was necessitated by the adoption of the gold exchange standard, a severe devolution from the gold standard, after World War I.  As Liaquat Ahamed notes about the New Deal in Lords of Finance (The Penguin Press, 2009, p. 457)

The string of measures was a strange mixture of well-meaning steps at social reform, half-baked schemes for quasi-socialist industrial planning, regulation to protect consumers, welfare programs to help the hardest hit, government support for the cartelization of industry, higher wages for some, lower wages for others, on the one hand government pump priming, on the other public economy.  Few elements were well thought out, some were contradictory, large parts were ineffectual.  While much of the legislation was very laudable, aimed as it was at improving social justice and bringing a modicum of economic security to people who had none, it had little to do with boosting the economy.   Tucked away, however, in this whole motley baggage, as a last-minute amendment to the Agricultural Adjustment Act, was one step that succeeded beyond anyone’s wildest expectations in getting the economy moving again.  This was the temporary abandonment of the gold standard and the devaluation of the dollar.

It was a long temporary.  The prohibitions on American citizens remained in effect until December 31, 1974.   At the insistence of Sen. Jesse Helms private ownership of gold coins, bars and certificates was reestablished.  The 1933 Joint Resolution prohibiting gold clauses was amended in 1977 by Pub.L 95-137, section 4(c) to permit gold clauses in contracts.   The federal income tax treatment of fluctuations in the value of the dollar, as reflected in the unhinged dollar price of gold, however, keeps this provision moot.  Full restoration of gold as money, rather than as a no-longer-contraband commodity, awaits.

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