By Carl Watner (July-August 2020)

I have had a long-standing interest in the national bank holiday of 1933, and the Presidential Executive Orders and Proclamations which mandated the surrender of gold and gold coinage held by American citizens. Over the years I have read of numerous court cases challenging the Treasury’s abrogations of the government’s contractual promise to pay ounce for ounce in the event of a government devaluation of its currency. But never before do I recall reading about Bernard Baruch’s speculative effort to profit from these government antics.

Bernard Baruch (1870-1965) was a highly successful American businessman, financier, stock investor, statesman, philanthropist, and political adviser to Presidents Woodrow Wilson, and Franklin D. Roosevelt. He lived at least partly during an era that had no federal income tax or capital gains tax, in which travel to foreign countries required no American passport, in which people regularly used gold coinage, and during which large commercial transactions were measured by an unchanging gold standard. What we refer to as “the gold standard” was actually a provision in government legislation that limited the issuance of government paper money. For every $ 20 ($20.67 to be exact) of paper money the US Federal Treasury issued it would have to warehouse (subject to fractional reserve provisions) one ounce of gold. Its importance was that it placed a real, actual limit to the issuance of paper money by the government. It insured that the paper money of the United States would never again be decried as “not worth a continental.”

In BERNARD BARUCH, THE ADVENTURES OF A WALL STREET LEGEND (1983), a biography written by James Grant, there are several examples of Baruch’s fascination with gold. Grant refers to him as “a lifelong gold partisan.” (57) By the time he turned twenty-seven, Baruch had parlayed a $300 cash investment in the American Sugar Refining trust into nearly $60,000. During the fall of 1897, Baruch married his wife, Annie (October 20), and shortly thereafter bought his brother, Harty, a seat on the New York stock exchange for $20,000. He also wanted to celebrate his parents’ thirtieth wedding anniversary by giving them $30,000, “one thousand gold dollars for each of his father’s married years, … .” (44) “Thus in the course of a few months, Baruch had earned $60,000, distributed two thirds to the men he idolized and married the woman he loved.” (44) Still attracted to gold, three years later, Baruch presented his father “with a $75,000 retirement trust fund and thereby [hoped to] ease his financial worries.” (72)
Baruch also took an interest in mining concerns, such as the Alaska Juneau Gold Mining Company. Grant describes this as “perhaps the longest-running disappointment of Baruch’s venture-capital experience.” (100) The company was founded during the late 1890s, and was based on a claim outside the city limits of Juneau. Baruch agreed to underwrite the company’s attempt to expand in 1915, but his efforts were futile. The stock price slid from an opening of $ 15 a share to $ 2 in 1917. “Not until 1931 did the mine yield its first dividend. In 1934, when the dollar was devalued against gold, the mine and its shareholders enjoyed a windfall. Baruch reaped an especially large profit, for he had been buying stock and gold bullion in expectation of some such fiddling with the currency.” (102)

By late 1931, Baruch had already “decided that a man might prudently lay in some gold for himself.” (250) In early April 1932, Baruch’s vault in New York began receiving large shipments of gold bullion. Frances Perkins, Roosevelt’s Secretary of Labor, related a Cabinet meeting in which someone accused Baruch of having “a whole vault full of gold bricks.” (260) “By February 1933, the Alaska Juneau Company had sent sixty-six gold bricks (of which Baruch had three melted down to test the company’s assay) while an unknown quantity was received from London.” (252) Although the exact dollar amount of gold purchased from Alaska Juneau is unknown, it is estimated that Baruch purchased close to $1,500,000, or 72,000 ounces of gold. When the president of Alaska Juneau was asked why Baruch had bought, “he replied simply, ‘In anticipation of a higher price for gold’.” (252) The April 1933 Treasury order requiring surrender of gold owned by US citizens applied to Baruch, so he missed out bagging over $1,000,000 in profit.

Other citizens with claims to gold were also thwarted by the government. Many contracts, including long-term bonds, were written with gold clauses requiring payment in gold coin or its equivalent in dollars. Thus a $1000 fifty year bond written in 1883 would call for payment of $1000 in gold coin (the equivalent of 50 ounces of gold at $ 20 per ounce) or its equivalent in paper money. The problem was that after the Presidential Executive Order was issued it would have taken $1750 to buy 50 ounces of gold (50 ounces at the newly declared priced of $ 35 per ounce). Who was to profit by the government’s devaluation – the bondholder or the government? Finally in 1935,a majority of the justices on the Supreme Court decided that since US citizens could not “legally” own gold, they could not claim reimbursement in gold coin or its new value in paper money.

In an article Baruch wrote for FORTUNE in 1933, “ he bemoaned the injustice of going off gold. By going off the gold standard we have become a nation of dishonest people in our relations with the bondholders, … .” (268) He would have agreed with dissenting Chief Justice McReynolds that the Constitution was gone. “The guarantees heretofore supposed to protect against arbitrary action have been swept away.” Nevertheless, he saw a way out for the government to save face. “Baruch suggested that the Treasury should levy a tax on the devaluation premium. For a rate of tax he proposed 100 percent, …” (270) What a cruel kind of tax law: what the government giveth, it soon taketh away. Even Baruch’s “bankful of gold bricks” could not protect him against such a strange kind of justice.