The Gold Clause Cases are Unconstitutional

“Nero at his Worst”—Dissenting Justice James C. McReynolds

(A short history of the legislation affecting gold clauses is at the end of this article.)

A summary from the Oxford Companion to the U.S. Supreme Court: [1]

“Gold Clause Cases (1935), common collective name for three companion cases of the New Deal era: Norman v. Baltimore & Ohio Railroad Co., 294 U.S. 240 [2]; Nortz v. United States, 294 U.S. 317 [3]; and Perry v. United States, 294 U.S. 330 [4]. All three argued 8–11 Jan. 1935, decided 18 Feb. 1935 by votes of 5 to 4; Hughes for the Court, McReynolds in dissent in each case. As part of the New Deal program to conserve gold reserves during the economic emergency of the Great Depression, Congress in 1933 abrogated the clauses in private and public contracts stipulating payment in gold. Consequently, such obligations could be paid in devalued currency. In these three cases, bondholders challenged this action as a breach of the obligation of contract and a deprivation of property without due process.

Speaking for the Court, Chief Justice Charles Evans Hughes sustained the power of Congress to regulate the monetary system. He ruled that the gold clauses in private contracts were merely provisions for payment in money. Further, Hughes concluded that Congress could override private contracts that conflicted with its constitutional authority over the monetary system. With respect to the gold clauses in government bonds, however, Hughes found that Congress had unconstitutionally impaired its own obligations. However, he determined that the bondholders could only recover nominal damages for breach of contract and thus could not sue in the court of claims. In a bitter dissenting opinion, Justice James C. McReynolds charged that the congressional action portended confiscation of property and financial chaos. He extemporaneously declared that “this is Nero at his worst.” [5]

Although the Supreme Court in effect permitted Congress to impair existing contracts, the Gold Clause Cases reaffirmed comprehensive congressional power over monetary policy. Moreover, as a practical matter, enforcement of the gold clauses would have had a deleterious impact on the depressed national economy.”


Justice McReynolds and his fellow dissenters, Sutherland, Van Devanter, and Butler were right. The 5th Amendment provides in part: “[N]or shall private property be taken [by the U.S.] for public use, without just compensation.”

Essentially what was upheld in the gold clause cases was (1) Congress’s repudiation of clauses in private contracts, such as bonds, that allowed creditors, at their option, to demand repayment in gold rather than devalued paper currency; and (2) Congress’s and the President’s direct confiscation of gold via legislation that required everyone (except those licensed to hold gold) to hand over to the Federal Reserve their gold holdings on or before May 1, 1933; and in “exchange” receive paper currency. [6]

Plaintiff-bondholders rightly argued the purpose of the gold clauses at issue  was to “guard against a depreciated currency. It is pointed out that the words ‘gold coin of the present standard’ show that the parties contemplated that, when the time came to pay, there might be gold dollars of a new standard, and, if so, that ‘gold coin of the present standard’ would pass from circulation; and it is taken to be admitted, by the government’s argument, that, if gold coins of a lesser standard were tendered, they would not have to be accepted unless they were tendered in sufficient amount to make up the ‘gold value’ for which, it is said, the contract called.” [7]

Nonetheless the Supreme Court, overriding the 5th Amendment, upheld the repudiation and confiscation on the grounds that the monetary powers of Congress permitted the legislation, an amazing judicial feat. As dissenting Justice McReynolds put it, “Under the challenged statutes it is said the United States have realized profits amounting to $2,800,000,000. [footnote omitted.] But this assumes that gain may be generated by legislative fiat. To such counterfeit profits there would be no limit; with each new debasement of the dollar they would expand. Two billions might be ballooned indefinitely-to twenty, thirty, or what you will.” [8]

“Loss of reputation for honorable dealing will bring us unending humiliation; the impending legal and moral chaos is appalling.”

Appalling indeed.

[1] Oxford Companion to the U.S. Supreme Court, Second Edition, Hall, Ely, Grossman, Oxford University Press (2005), pp. 396-97, article by James W. Ely, Jr. @




[5] McReynolds apparently made the Nero remark out of court. It does not appear in the opinion.

[6] Omitted. See history below.

[7]  [294 U.S. 240, 299].

[8] See McReynold’s dissent @

“Bills of attainder, ex post facto laws, and laws impairing the obligation of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation. The two former are expressly prohibited by the declarations prefixed to some of the State constitutions, and all of them are prohibited by the spirit and scope of these fundamental charters. Our own experience has taught us, nevertheless, that additional fences against these dangers ought not to be omitted. Very properly, therefore, have the convention added this constitutional bulwark in favor of personal security and private rights; and I am much deceived if they have not, in so doing, as faithfully consulted the genuine sentiments as the undoubted interests of their constituents. The sober people of America are weary of the fluctuating policy which has directed the public councils. They have seen with regret and indignation that sudden changes and legislative interferences, in cases affecting personal rights, become jobs in the hands of enterprising and influential speculators, and snares to the more-industrious and less informed part of the community. They have seen, too, that one legislative interference is but the first link of a long chain of repetitions, every subsequent interference being naturally produced by the effects of the preceding. They very rightly infer, therefore, that some thorough reform is wanting, which will banish speculations on public measures, inspire a general prudence and industry, and give a regular course to the business of society.” Federalist No. 44 @

History of the Gold Clause Legislation:

In the Norman case noted above, the court described the legislation that brought on the Gold Clause Cases:

On March 9, 1933, the Congress passed the Emergency Banking Relief Act, 48 Stat. 1. All orders issued by the President or the Secretary of the Treasury since March 4, 1933, under the authority conferred by section 5(b) of the Act of October 6, 1917, were confirmed. That section was amended (12 USCA 95a) so as to provide that, during any period of national emergency declared by the President, he might ‘investigate, regulate, or prohibit,’ by means of licenses or otherwise, ‘any transactions in foreign exchange, transfers of credit between or payments by banking institutions as defined by the President, and export, hoarding, melting, or earmarking of gold or silver coin or bullion or currency, by any person within the United States or any place subject to the jurisdiction thereof.’ The act also amended section 11 of the Federal Reserve Act (39 Stat. 752, 12 USCA 248(n) so as to authorize the Secretary of the Treasury to [294 U.S. 240, 296]  require all persons to deliver to the Treasurer of the United States ‘any or all gold coin, gold bullion, and gold certificates’ owned by them, and that the Secretary should pay therefor ‘an equivalent amount of any other form of coin or currency coined or issued under the laws of the United States.’ By Executive Order of March 10, 1933 (No. 6073), 12 USCA 95 note, the President authorized banks to be reopened, as stated, but prohibited the removal from the United States, or any place subject to its jurisdiction, of ‘any gold coin, gold bullion, or gold certificates, except in accordance with regulations prescribed by or under license issued by the Secretary of the Treasury.’ By further Executive Order of April 5, 1933 (No. 6102), 12 USCA 248 note, forbidding hoarding, all persons were required to deliver, on or before May 1, 1933, to stated banks, ‘all gold coin, gold bullion, and gold certificates,’ with certain exceptions, the holder to receive ‘an equivalent amount of any other form of coin or currency coined or issued under the laws of the United States.’ Another Order of April 20, 1933 (No. 6111), 12 USCA 95 note, contained further requirements with respect to the acquisition and export of gold and to transactions in foreign exchange.  [294 U.S. 240, 296]

By section 43 of the Agricultural Adjustment Act of May 12, 1933 (48 Stat. 51 (31 USCA 821)), it was provided that the President should have authority, upon the making of prescribed findings and in the circumstances stated, ‘to fix the weight of the gold dollar in grains nine tenths fine and also to fix the weight of the silver dollar in grains nine tenths fine at a definite fixed ratio in relation to the gold dollar at such amounts as he finds necessary from his investigation to stabilize domestic prices or to protect the foreign commerce against the adverse effect of depreciated foreign currencies,’ and it was further provided that the ‘gold dollar, the weight of which is so fixed, shall be the standard unit of value,’ and that ‘all forms of money … shall be maintained at a parity with this standard,’ but [294 U.S. 240, 297]   that ‘in no event shall the weight of the gold dollar be fixed so as to reduce its present weight by more than 50 per centum.’

* * *

Joint Resolution of Congress June 5, 1933

‘To assure uniform value to the coins and currencies of the United States.

‘Whereas the holding of or dealing in gold affect the public interest, and are therefore subject to proper regulation and restriction; and

‘Whereas the existing emergency has disclosed that provisions of obligations which purport to give the obligee a right to require payment in gold or a particular kind of coin or currency of the United States, or in an amount in money of the United States measured thereby, obstruct the power of the Congress to regulate the value of the money of the United States, and are inconsistent with the declared policy of the Congress to maintain at all times the equal power of every dollar, coined or issued by the United States, in the markets and in the payment of debts.

Now, therefore, be it ‘Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) every provision contained in or made with respect to any obligation which purports to give the obligee a right to require payment in gold or a particular kind of coin or currency, or in an amount in money of the United States measured thereby, is declared to be against public policy; and no such provision shall be contained in or made with respect to any obligation hereafter incurred. Every obligation, heretofore or hereafter incurred, whether or not any such provision is contained therein or made with respect thereto, shall be discharged upon payment, dollar for dollar, in any coin or currency which at the time of payment is legal tender for public and private debts. Any such provision contained in any law authorizing obligations to be issued by or under authority of the United States, is hereby repealed, but the repeal of any such provision shall not invalidate any other provision or authority contained in such law.

‘(b) As used in this resolution, the term ‘obligation’ means an obligation (including every obligation of and to the United States, excepting currency) payable in money of the United States; and the term ‘coin or currency’ means coin or currency of the United States, including Federal Reserve notes and circulating notes of Federal Reserve banks and national banking associations.

On January 30, 1934, the Congress passed the ‘Gold Reserve Act of 1934’ (48 Stat. 337) which, by section 13 (12 USCA 212) ratified and confirmed all the actions, regulations and orders taken or made by the President and the Secretary of the Treasury under the Act of March 9, 1933, or under section 43 of the Act of May 12, 1933, and, by section 12 (31 USCA 821) with respect to the authority of the President to fix the weight of the gold dollar, provided that it should not be fixed ‘in any event at more than 60 per centum of its present weight.’ On January 31, 1934, the President issued his proclamation declaring that he fixed ‘the weight of the gold dollar to be 15 5/21 grains nine tenths fine,’ from and after that date (No. 2072), 31 USCA 821 note.”

Published in: on July 12, 2011 at 1:12 pm  Leave a Comment  

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