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The Gold Clause Cases and Constitutional Necessity


Thanks to Henry Manne for passing along this fascinating analysis by Gerard N. Magliocca of the Roosevelt Administration’s attempt to outlaw private payments in gold.

This Article presents a case study of how constitutional actors respond when the rule of law and necessity are sharply at odds.

In 1935, the Supreme Court heard constitutional challenge to the abrogation of “gold clauses” in contracts and Treasury bonds. Gold clauses guaranteed that creditors would receive payment in gold dollars as valued at the time a contract was made. Due to the deflation that followed the Great Depression, this meant that debtors were being forced to pay back much more than they owed originally. To stop a looming wave of bankruptcies, Congress passed a Joint Resolution declaring all gold clauses null and void.

Following oral argument, President Franklin D. Roosevelt was concerned that the Court would invalidate the Joint Resolution. He concluded that he could not accept this result, and thus drafted a Fireside Chat announcing that he would not comply such a decision. This unprecedented statement, which invoked the New Testament and necessity as the grounds for rejecting the Court’s decision, has never been closely analyzed until now.

In the end, the Court did not hold that the gold clauses must be enforced. With respect to Treasury Bonds, however, a plurality of the Justices concluded that the Joint Resolution was unconstitutional but that the bondholders were not entitled to relief. This slippery reasoning (in Perry v. United States) harkened back to Chief Justice Marshall’s approach in Marbury v. Madison – another case in which the Court was confronted with presidential defiance.

By recounting how President Roosevelt and Chief Justice Hughes – the author of Perry – sought to defuse (or, in some cases, exacerbate) the gold crisis, the dark arts of constitutional are exposed.

Adds Manne: “If you ever entertained the ridiculous notion that the SEC was just a benign regulatory agency and not an instrument of harsh political abuse, read this.”


Contact Peter G. Klein

Peter G. Klein is Carl Menger Research Fellow of the Mises Institute and W. W. Caruth Chair and Professor of Entrepreneurship at Baylor University's Hankamer School of Business.