The Gold Clause Cases were a series of actions brought before the Supreme Court of the United States, in which the court narrowly upheld the Roosevelt administration's adjustment of the gold standard in response to the Great Depression.
Background Until the 1930s, business contracts in the United States regularly included gold clauses that allowed creditors to demand payment in gold or gold equivalents. The tightening of Federal Reserve policy from 1928 onward prompted a global unwinding of credit later dubbed the Great Contraction. Waves of bank failures occurred, aggravated by reliance on single-location banks (unit banks) that could not survive a run. A final bank panic in February 1933 saw widespread hoarding of gold and currency as well as international drains on gold reserves. Roosevelt started his term with banking suspended in most states and domestic gold reserves seriously depleted. With support from Congress, Roosevelt enacted a series of banking and currency reforms that effectively nationalized monetary gold. These included the Emergency Banking Act which authorized the President to prohibit international gold payments, Executive Order 6102 which required the surrender of all privately held monetary gold in exchange for currency, and the Gold Clause Resolution (Pub. Res. 73–10) which voided all gold clauses within the United States. The following year, under the Gold Reserve Act, the government took ownership of the Federal Reserve's gold stocks and devalued the dollar. Multiple cases were filed in response and made their way to the Supreme Court.
Cases Norman v. Baltimore & Ohio Railroad Co. with United States v. Bankers Trust Co. 294 U.S. 240 (1935): The bearer of a $22.50 bond coupon of the Baltimore & Ohio Railroad demanded payment of $38.10, the value of the coupon's gold obligation based on the statutory price of gold. Separately, the federal government and the Reconstruction Finance Corporation, as creditors of the Iron Mountain Railway, intervened in a case brought by the Missouri Pacific Railroad for additional payment on Iron Mountain bonds. Nortz v. United States 294 U.S. 317 (1935): The owner of $106,300 in federal gold certificates surrendered them as required by Executive Order 6102, receiving only their face value in currency. He sued in the United States Court of Claims for an additional $64,000 representing the loss of the dollar against gold. That court submitted three certified questions to the Supreme Court, the first of which asked whether the plaintiff could demand the value of gold given that he had no right to possess the gold itself. Perry v. United States 294 U.S. 330 (1935): The owner of a $10,000 Liberty Bond sued in the Court of Claims for an additional $7,000 representing the dollar's devaluation. Again, the Court of Claims submitted a question of whether it could consider a claim beyond the face value of the bond.
Ruling While the Roosevelt administration waited for the Court to return its judgment, contingency plans were made for an unfavorable ruling. Roosevelt drew up executive orders to close all stock exchanges and prepared a radio address to the public. "If the policy of the government ... is to be irrevocably fixed by decisions of the Supreme Court", he wrote, then "the people would have ceased to be their own rulers". Weighing the possibility of a constitutional crisis against the prospect of economic and political instability, he wrote that "legislative and executive officers of the Government must look beyond the narrow letter" of the matter. 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 directed Treasury Secretary Henry Morgenthau to step back from regulating exchange and interest rates to provoke a public outcry for federal action, but Morgenthau refused. All three cases were announced on February 18, 1935, each 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. Only in the Perry case the Court reached the question of the Gold Clause Resolution's constitutionality. It concluded that Congress acted unconstitutionally in voiding the government's prior obligations but not in restricting transactions in gold. As a result, it held that the bond holder had no cause of action because, in receiving currency that he could lawfully possess rather than gold coin which he could not, he had suffered no monetary loss. Justice James Clark McReynolds wrote the dissenting opinion. He protested that gold clauses were binding contracts, and that allowing the administration's policies to stand would permanently damage faith in the government to uphold its own contracts and those of private parties. McReynolds distinguished the cases at hand from the Legal Tender Cases, arguing that in the earlier cases the government sought to continue operating until it could meet its obligations, while the Roosevelt administration apparently sought to nullify them.
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