On March 4, 1933, Franklin Delano Roosevelt became President of a crumbling nation. Amidst the torrent of changes in his recovery plan�his New Deal�he oversaw a strange reversal. Alcohol, long stigmatized and outlawed under Prohibition, was suddenly legal again. And gold, with which Dollars were supposedly interchangeable, became an illegal substance.
This is how it happened.
When Roosevelt was sworn in, banks across the nation were failing. Panicked people withdrew from the remaining banks, and some of those banks failed in turn. In Chicago alone, this vicious cycle claimed over 170 of the 228 banks. People demanded their money in gold where possible, worried that the dollar might soon lose much of its value. (As it happens, this is precisely what Roosevelt had in mind.)
In his inaugural speech, Roosevelt said "...the only thing we have to fear is fear itself," by which he meant, in large part, "fear of bank failure." The cycle of withdrawal and collapse was choking the already battered economy. Forty eight hours later, Roosevelt's response was bold�and illegal.
He began on March 6 by closing the nation's banks. He called this "bank holiday" on the authority of an expired wartime trade act, and relied on a docile Congress to legitimize his actions after the fact. In the process, he declared "hoarding" (possessing one's own gold) to be a reckless, unpatriotic act.
When he reopened the banks on March 10, they were instructed to refuse all requests for gold. With all bank holdings under his control, Roosevelt set his sights on all the rest�the gold held by United States citizens. Through the Treasury Department he acquired records of all gold withdrawals from banks in the last two years, thus revealing which citizens and organizations might be "hoarding" gold.
Then, on April 5, he issued Executive Order 6102: all "individuals, partnerships, associations and corporations" in the nation were to deliver their gold to the federal government. In exchange, they would receive paper money. The penalty for defying this order was $10,000, 10 years in prison, or both.
In the following months this confiscation was aggressively implemented. People were indicted for refusing to turn over their gold�among them the daughter of a former U.S. Senator. Others were arrested at the Canadian border for attempting to smuggle gold out of the country. But the vast majority of Americans obeyed, and the Treasury's gold stockpile grew steadily into 1934.
It was during these months that Roosevelt repealed Prohibition. Thirsty crowds lined up outside bars, counting down the seconds to 4:32pm, December 5, 1933. Roosevelt famously remarked "I think this would be a good time for a beer." Millions of Americans agreed, and Roosevelt's popularity soared. He was showered with gifts and well-wishes on his first birthday in office: January 30, 1934.
The very next day, Roosevelt finally cashed in on the confiscation. By fiat, he increased the dollar cost of an ounce of gold from $20 to $35. This effectively devalued the dollar (which people had been forced to accept instead of gold) by 40 percent. On the strength of the gold stockpile, this yielded a profit of 2.7 billion dollars for the Treasury.
Roosevelt hoped that the devaluation would stabilize the dollar against certain foreign currencies and create a more favorable environment for export. But doing so had required an unprecedented, and possibly unconstitutional, confiscation and wealth transfer.
By this time Roosevelt had been in office for eleven months.