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Holding of Gold "Illegal"?

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SkyTrooper
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Quick question: I've heard it said in Objectivist circles (and I think also written by Ayn Rand herself) that FDR outlawed the holding of gold. Now I know he eliminated the gold standard, but I don't know of any laws that make it illegal to own gold. In fact, I own quite a bit of gold myself. What are people refering to when they say that FDR made the holding of gold illegal?

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The FDR law was rolled back, making it legal to hold gold now. I believe the restrictions were finally lifted in 1974. (The U.S. went off the international gold-exchange standard -- different from the gold-standard -- around 1971. Once it had moved to a fully fiat currency, the government had little motive to restrict gold ownership.

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"On April 5, 1933, Roosevelt ordered all gold coins and gold certificates in denominations of more than $100 turned in for other money. It required all persons to deliver all gold coin, gold bullion and gold certificates owned by them to the Federal Reserve by May 1 for the set price of $20.67 per ounce."

" In 1974, President Gerald Ford signed legislation that permitted Americans again to own gold bullion."

http://www.history.com/this-day-in-history/fdr-takes-united-states-off-gold-standard

(Google's an amazing thing.)

Edited by JeffS
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While it is no longer illegal for American citizens to own gold it is STILL illegal for American citizens to use gold as currency. I believe the Executive Order/Law states that Gold cannot be used as legal tender. Obviously this is done because otherwise many business people would demand gold as their desired form of payment...I know I would!

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While it is no longer illegal for American citizens to own gold it is STILL illegal for American citizens to use gold as currency. I believe the Executive Order/Law states that Gold cannot be used as legal tender. Obviously this is done because otherwise many business people would demand gold as their desired form of payment...I know I would!

All legal tender means is that a business can't refuse payment in it. So, a business couldn't refuse to be paid in dollars. However, you can pay with whatever form of money you wish as long as the business agrees to accept it. So, you can use gold as currency.

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All legal tender means is that a business can't refuse payment in it. So, a business couldn't refuse to be paid in dollars. However, you can pay with whatever form of money you wish as long as the business agrees to accept it. So, you can use gold as currency.

A business CANNOT deny someone that is wanting to pay in dollars. Does it happen? I'm sure it does but if someone ever wanted to make a case out of it the business would not have a legal right to turn it down. As a result, if force dictates that you must accept "legal tender" then someone purchasing something from you will surely want to give you dollars in place of gold(which clearly has more value) for their debts/purchases. That is what "Gresham's Law" identifies, bad money drives away good money. No one is going to trade what they consider to be more valuable when the law dictates otherwise. Eventually, the only thing left in circulation will be the bad money(dollars).

However, if THIS becomes the trend then maybe we can get back to "sound money".

Edited by logicalpath
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Not only is gold not illegal to hold, but the US government actually mints bullion coins (1 oz denominated at $50, 1/2 at $25, 1/4 at $10, and 1/10th ounce at $5) known as "American Gold Eagles" (which is something of a misnomer but that's a dfferent story) and sells them to the public (through wholesalers and retailers). [Also, I know it's inconsistent to denominate the 1/4 ounce as $10 instead of $12.50 but they didn't ask me.]

Certainly at today's prices (approximately $1360/oz) you'd have to be crazy to volunteer to pay full price in gold denominated at only 20.67 per ounce--or even in today's eagle bullion coins at $50 an ounce. But if somone wanted to sell me something with a "sticker price" of 1400 dollars but was willing to accept a $50 AGE in trade, there's no reason not to take that deal (unless you figure the gold will go up considerably and would want to hold onto it for that reason). If the eagle was stampled "1400 dollars" instead of 50 there'd be no reason it couldn't circulate today. It's not simply a matter of good money driving out bad money; it's generally money that has the most intrinsic value relative to its face value that goes away.

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All legal tender means is that a business can't refuse payment in it. So, a business couldn't refuse to be paid in dollars. However, you can pay with whatever form of money you wish as long as the business agrees to accept it. So, you can use gold as currency.

But there´s probably something keeping others from issuing their own monies and along with its price in said private monies, also putting a divergent price on whatever product which is its market value in dollars, right?

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But there´s probably something keeping others from issuing their own monies and along with its price in said private monies, also putting a divergent price on whatever product which is its market value in dollars, right?
What would motivate someone to carry around a form of money that is far less accepted within the places he buys stuff? Widespread acceptance is the very essence to the nature and purpose of money; without that, one slips toward barter. Edited by softwareNerd
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But there´s probably something keeping others from issuing their own monies and along with its price in said private monies, also putting a divergent price on whatever product which is its market value in dollars, right?

Banks, and other businesses, issue their own money all the time in the form of credit cards and checks. Money is simply that which easily facilitates the exchange of value. As sN pointed out, no one would want to issue something that doesn't facilitate that exchange. US dollars must be accepted, but (as evidenced by the businesses which do not accept credit cards and/or checks) other forms of payment can be.

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Banks, and other businesses, issue their own money all the time in the form of credit cards and checks. Money is simply that which easily facilitates the exchange of value. As sN pointed out, no one would want to issue something that doesn't facilitate that exchange. US dollars must be accepted, but (as evidenced by the businesses which do not accept credit cards and/or checks) other forms of payment can be.

Credit cards & checks are not "legal tender"(coins or banknotes that must be accepted if offered in payment of a debt). Otherwise it would be ILLEGAL for a business to deny them as payment. Explained Here

The OP was asking about legality with regard to gold and the point is that you CANNOT demand to be paid in gold. The ONLY legal tender in the United States are Federal Reserve Notes, as a result as I pointed out earlier Gresham's Law explains what eventually occurs. When you combine force and bad money, the good money always ceases to be in circulation. In my opinion the two things that are important here, is first that you CANNOT refuse to be paid in dollars and second that no one would pay in gold because they are given the option of paying in dollars. I.E., they have the option to remit payment in something less valuable and the business owner CANNOT legally deny it. So while it is not illegal to accept gold, no one would ever pay you in gold because they would want to keep that which has more value, for themselves.

Edited by logicalpath
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you CANNOT refuse to be paid in dollars

I'm not 100% certain but, as far as I know, there are no laws that require businesses and individuals to accept legal tender (US coins and currency) for goods and services, in the US. It is in fact legal to open up a store and only accept gold, or potatoes, or whatever else you want as payment.

The "legal tender" designation simply means that creditors in the US must accept that currency, and that all public charges and taxes can be payed in it. (obviously, Gresham's Law still applies to the credit markets, I'm not disputing your main point that the government is using force to support the dollar)

If I am wrong, please enlighten me by linking to specific legislation.

Edited by Tanaka
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So while it is not illegal to accept gold, no one would ever pay you in gold because they would want to keep that which has more value, for themselves.

You do not, in fact, fully understand Gresham's law.

Surely if someone will accept an old US gold coin only at face value ($20 for the double eagle), no one will pay him that way. Offer someone an item for $2000 or one ounce of gold, however, and lots of people would pay with gold--at least at today's price. Those that wouldn't would fall into three groups: the completely clueless who have no notion of the price of gold, those who happen not to have any (or don't want to dash home and go get it), and those who are sure the gold will be worth more than 2000 dollars in the near future. Someone who has gold readily available to him, knows the current price ~$1350 (US), and doesn't expect it to skyrocket will happily accept a $650 discount. He might even use the $650 he saved to buy more gold.

(Try this experiment at a coin dealer--offer to buy a $2000 rare coin for an ounce of gold instead of $2000 in Federal Reserve notes. He's perfectly capable of dealing with the gold; he's part of that economy and will have no trouble getting others to accept the gold, so its relative unspendability in today's society is not an issue here. He almost certainly won't take the deal--if he does, the coin is probably overpriced.)

Gold is not simply worth "more than" paper money; it is worth a certain amount of paper money at any given time and if the seller sets up his pricing like I suggested above, giving a substantial discount for gold, the seller he will almost certainly be paid in gold, not paper money. The reason gold and silver do not circulate now at face value is that that certain amount they are worth is greater than face value.

Gresham's law applies only when two items of different value are required to be used at the same value in transactions--e.g., when we transitioned from silver to "clad" coinage. Both the clad quarter and the silver quarter were traded at the same value, and face value may well have exceeded the intrinsic value for both, nonetheless the silver had a higher actual value and vanished from circulation quite quickly. People will keep the stuff of more actual value. In that sort of situation, Gresham's Law is invoilate. [Note: "Intrinsic" earlier in this paragraph simply refers to the market value of the material the coin is made out of, also known as "melt" value, not some sort of philosophically "intrinsic" value which of course would be BS.]

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This raises the question: why doesn't anyone lend and borrow in gold instead of US currency?
People need a single standard for money, to make calculations easy. People living in the U.S. are paid in dollars and buy most things in dollars. So, the dollar is the most convenient unit of measure.

If you want to denominate a contract in gold, your counter-party will compensate for this.

For example, suppose you lend someone $1350 saying he has to pay you back $1350 a year from now plus $135 (10%) as interest.

Now, suppose you want to add a gold clause. Assume that gold is $1350 per ounce today. So, you're lending him 1 oz. of gold. You want him to pay you back 1 oz of gold as principal and 10% (i.e. 0.1 oz.) as interest. Would your counter-party see this as equivalent to the dollar denominated loan? It depends on what the market is pricing in for gold futures. Suppose future gold (1 year from today) is priced at $1400. If the market is "anticipating" the price correctly, your request for payment in gold is going to cost him roughly $50 more when he repays principal, and $5 more when he repays interest. So, he will not agree to paying 10% for a gold-clause loan if he can get a 10% loan without such a clause. You would have to lower the interest rate you charge on the gold-clause loan, to compensate for the expected rise in the price of gold.

One can bet on a changing relationship between gold and the U.S. dollar in the financial markets, without doing so contract-by-contract with counter-parties who are thinking in US dollars.

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You do not, in fact, fully understand Gresham's law.

Surely if someone will accept an old US gold coin only at face value ($20 for the double eagle), no one will pay him that way. Offer someone an item for $2000 or one ounce of gold, however, and lots of people would pay with gold--at least at today's price. Those that wouldn't would fall into three groups: the completely clueless who have no notion of the price of gold, those who happen not to have any (or don't want to dash home and go get it), and those who are sure the gold will be worth more than 2000 dollars in the near future. Someone who has gold readily available to him, knows the current price ~$1350 (US), and doesn't expect it to skyrocket will happily accept a $650 discount. He might even use the $650 he saved to buy more gold.

(Try this experiment at a coin dealer--offer to buy a $2000 rare coin for an ounce of gold instead of $2000 in Federal Reserve notes. He's perfectly capable of dealing with the gold; he's part of that economy and will have no trouble getting others to accept the gold, so its relative unspendability in today's society is not an issue here. He almost certainly won't take the deal--if he does, the coin is probably overpriced.)

Gold is not simply worth "more than" paper money; it is worth a certain amount of paper money at any given time and if the seller sets up his pricing like I suggested above, giving a substantial discount for gold, the seller he will almost certainly be paid in gold, not paper money. The reason gold and silver do not circulate now at face value is that that certain amount they are worth is greater than face value.

Gresham's law applies only when two items of different value are required to be used at the same value in transactions--e.g., when we transitioned from silver to "clad" coinage. Both the clad quarter and the silver quarter were traded at the same value, and face value may well have exceeded the intrinsic value for both, nonetheless the silver had a higher actual value and vanished from circulation quite quickly. People will keep the stuff of more actual value. In that sort of situation, Gresham's Law is invoilate. [Note: "Intrinsic" earlier in this paragraph simply refers to the market value of the material the coin is made out of, also known as "melt" value, not some sort of philosophically "intrinsic" value which of course would be BS.]

I have a full understanding of what Gresham's Law is, however for many years the Bretton Wood Standard did have 1oz. of gold pegged to 35.00 dollars. During that time paper money expanded in circulation, combine that with the fact that during that same time period(early 70's) it was illegal to hold gold unless you were a collector. So Gresham's law did apply in the strictest sense and the Federal Govt even made it illegal for you to take possession of this other value of exchange.

The reason this is relevant today is that now gold is out of circulation from a monetary stand point. In an earlier post I explained how there are certainly instances where someone may be paid in gold, logic would tell me it is surely very rare. Mainly because of what was forced in this country from the late 30's through the early 70's. So while your example may outline how it is possible, the reality is that in terms of any mainstream activity within the economy the likelihood that someone would be able to take advantage of the discount for a purchase made in gold is unlikely. My argument is that this is a result of Gresham's Law and explicit force on the part of the Govt to stop gold from being circulated for general economic activity.

If states were to tag gold or silver as legal tender then things could change very rapidly, however I'm not very confident that it will occur. I'm posting from my iPad so I can't go back and get the link to the story but I believe it is Utah that is considering passing such laws.

Edited by logicalpath
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If you are arguing that basically we are running on inertia based on what happened in the past with Gresham's Law, then I agree with you, at least partially. I disagree that Gresham's Law is acting today to keep gold out of commerce. The fact of the matter is gold is now a barterable commodity that comes in really big "chunks", valuewise, and those change value with respect to the dollar, and that is the real reason that it doesn't circulate freely. The changing value results in large "spreads" (5-10%) at coin dealers (where you can buy and sell gold, silver, platinum and palladium) as they have to plan for the possibility it could go down in dollar price.

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If you are arguing that basically we are running on inertia based on what happened in the past with Gresham's Law, then I agree with you, at least partially. I disagree that Gresham's Law is acting today to keep gold out of commerce. The fact of the matter is gold is now a barterable commodity that comes in really big "chunks", valuewise, and those change value with respect to the dollar, and that is the real reason that it doesn't circulate freely. The changing value results in large "spreads" (5-10%) at coin dealers (where you can buy and sell gold, silver, platinum and palladium) as they have to plan for the possibility it could go down in dollar price.

That is exactly what I am saying, Gresham's Law in concert with force created the expansion of the dollar.

As for why it is not in circulation today I would say there are several reasons. You have roughly 40 years of the dollar being propped up by artificially pegging it to gold, the expansion of the Federal Gov't into the economy(which pays in Federal Reserve notes) and the virtual disintegration of the concept of "money" with individuals explaining that all they have to do is type numbers into a computer to make more of it(Ben Bernanke). Let's not forget the massive flood of liquidity into the economy which he likes to call QE1 & QE2. In the end I think it is inevitable that there will be a dollar crisis and what I would like to see is a return to the gold standard(not the Bretton Wood standard). However, I think they will find a creative attempt to avoid that because a gold standard would cripple their ability to control the economy(or pretend to).

Edited by logicalpath
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I wonder though, given the context of the world situation where all the world's nations with significant military forces are propped up by this artificial form of currency, that maybe world leaders decide to go along with it anyways as a national defense measure to ensure that the military continues to be supplied.

If the currency of, say the US, was instantly devalued, think about what impact that would have on their ability to supply their military, administration, and economy. Would other nations less friendly to individual rights, like China or Russia, muscle in?

Kind of a strange predicament our world has gotten into if this is true.

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