[swalsh81]

A discussion has come up regarding the gold reserve act of 1934. It was said that, after the act was passed, unemployment fell some, gdp rose and deflation was alleviated. When I come across these kinds of questions, I usually search mises.org, but I didnt come up with much in this case. I see the big problems with private property when it comes to gold confiscation between this act and the preceding executive order, and the problems with giving a pseudo-government entity the power to regulate the value of a commodity and mandate a certain fiat money be the only legal tender.

So, aside from those issues, what were the immediate/short run (pre WWII) effects of the gold reserve act?

[jmherbener]

The gold reserve act allowed FDR to devalue the dollar relative to gold. He did so by 70 percent, from $20.67 an ounce to $35 an ounce. This policy resulted in the “golden avalanche.” The gold stock tripled from 1934 to 1940. The Treasury department monetized the gold by issuing gold certificates, which banks could use as reserves. The Treasury also issued silver certificates from 1934 to 1938. The resulting monetary inflation re-inflated assets price bubbles, e.g., the stock market, but had little effect on the real production. When the monetary expansion slowed in 1937, the malinvestments were revealed and the apparent gains of 1934-1937 were exposed as such.

Robert Higgs’s paper on Regime Uncertainty tells the tale of real production during the Great Depression:

http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf

[Author]

Posts