Federal law signed by President Franklin D. Roosevelt January 30, 1934, authorizing him to fix the price of gold in the United States after his controversial and ill-conceived gold-buying program failed to raise U.S. commodity prices.
Overproduction during the 1920s and the Great Depression of the 1930s drove farm prices in America to extremely low levels in the 1930s. Realizing that the economic situation facing American farmers in the 1930s had become desperate, President Franklin D. Roosevelt overruled the objections of his more conservative advisers, like Henry Morgenthau Jr., and embraced the highly questionable “commodity dollar” theories of economists Irving Fisher, George Warren, and Frank Pearson that large government purchases of gold would deflate the value of the dollar (because it was tied to the value of gold), which in turn would raise commodity prices and give American farmers a greater share of the world market.
On April 14, 1933, President Roosevelt abandoned the gold standard, and on October 19,1933, he decided that the United States would begin buying gold. Each day the president met with Warren, Jesse Jones, Morgenthau, and other advisers to set the daily price of gold. However, the program was extremely controversial, and some of the president’s closest advisers resigned in protest because of the program’s deflationary effect.
Ultimately, the gold-buying program failed to open markets, and commodity prices continued to fall. In January 1934, the government stopped buying gold and on January 30, 1934, Roosevelt signed the Gold Reserve Act, which authorized the president to fix the price of gold. The next day, he set the price of gold at $35 an ounce, thereby fixing the value of the dollar at 59 percent of its pre-1933 level. Although it failed, the gold-buying program did satisfy farmers’ desires for immediate federal action, emboldened monetary inflationists, and led to the Silver Purchase Act—which authorized the president to buy silver rather than gold to back U.S. currency—the following year.