Gold as Commodity

In March 1933 President Roosevelt suspended gold payments. In June 1933 Congress adopted joint Resolution No. 10 voiding all contracts to pay in gold. Last week, more than a year later, a Federal court passed for the first time on the legality of the Government's action.

Thirty-one years ago the Iron Mountain Railroad (now part of the Missouri Pacific) floated a 30-year bond issue with the promise to repay the bonds when due in U. S. gold coin "of the present standard of weight and fineness." In May 1933 when the bonds were due, Manhattan's Bankers Trust Co. demanded payment in gold or its equivalent in dollars. When this was refused, the bank took the question into Federal Court in St. Louis. Later Bankers Trust tried to withdraw its suit, but Judge Charles Breckenridge Faris refused permission, on the ground that the question was too important to drop. So it was, for between $90,000,000,000 and $125,000,000,000 of bonds held in the U. S. carried a promise to pay in gold so that their holders should not be cheated in case of currency depreciation. Depreciation came and Congress promptly knocked the gold clause out of every U. S. bond, public and private. Fearful that the court might repudiate the repudiation, the Administration joined Missouri Pacific in fighting Bankers Trust's demand. After long pondering Judge Faris pointed out that: 1) If the gold clause were held binding, 1,693 devalued dollars would have to be paid on each $1,000 bond. 2) "It would bankrupt well nigh every railroad, every municipality . . . and well nigh every State in the union." 3) Congress alone has power to say what shall be used as money. Concluded Judge Faris: "[The Gold Clause] is a promise to pay in gold, not as money, but as a mere commodity. . . . In short, it is a mere agreement of barter or swapping of commodities. If in 1903 the contract had been that 30 years later the maker would pay to the holder of each bond 100 piculs of Chinese opium, how would the case stand? Since 1903 the Congress, having the power to do so, has forbidden the importation of opium . . . and made the possession of it, in ordinary hands, a criminal offense. . . . "And so it follows that Public Resolution No. 10 is in my opinion valid, that the gold clause is therefore unenforceable. . . ."

This decision delighted New Dealers in Washington, but they held no public celebration. The case has yet to go to the Supreme Court. One of the Supreme Court's last decisions before adjourning for the summer carried a disquieting implication. In an opinion written by Justice Brandeis that tribunal declared unconstitutional a section of the Economy Act of 1933 which would have denied veterans the right to sue the Government under their war risk insurance policies. The Court held that Congress has no right to repudiate the Government's contracts with its onetime soldiers. If the Court should hold that Congress has no right to repudiate its contract to pay its bondholders in gold dollars of the old standard, the Government will find that it owes the public not 22,000,000,000 59-c- dollars on its own gold-clause bonds but 37,000,000,000 59-c- dollars.

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