Gold Clause

Gold Clause

A clause in a contract allowing payment to be made in gold instead of currency. A gold clause is placed in a contract if it is suspected that payment in currency may be rendered impossible due to inflation, war or some other reason. Gold clauses were common at the first part of the 20th century, but were illegal in the United States between 1934 and 1977.
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This harkens once again to the so-called Gold Clause cases decided by the Supreme Court.
Thus, it would probably take many years for Americans on their own to understand how to use gold clause contracts as an alternative to Federal Reserve Notes.
The Federal Reserve rationalized the major reduction of the money supply during the early 1930s as necessary to protect the gold clause.
But since their other titles include such classics as The Gold Clause, The Great Dollar Deception and The Paper Aristocracy, it's probably safe to say that they find most things mysterious and sinister.
Congress undid the final link between the gold standard and the domestic economy when it abrogated the gold clause in government and private contracts.
Timberlake closes with a recount of the Gold Clause Cases, which centered on the Franklin Roosevelt administration's outlawing of private gold holdings.
The issue quickly reached the Supreme Court in 1934 and gave rise to an important and controversial set of decisions known as the Gold Clause Cases (see Holzer 1980).
But I do remember quite vividly the first time I met Henry, which was at a conference devoted to the question of gold clauses, held in November 1973 just at the time when the sale of gold was about to be again made legal in the United States.
Nonetheless, Roosevelt proceeded to promote an exceedingly unsound currency--with the seizure of most Americans' gold, devaluation of gold coinage, removal of domestic redemption of Federal Reserve Notes in gold, and the nullification of gold clauses in both public and private contracts (Vieira 2002: 867-1235).
Second, due to the gold clauses that occurred in most bond indentures, coupon and principal payments were stipulated in gold, which helped to integrate these securities into the international markets.
If the gold clauses had been enforced, the debt burden of borrowers would have increased by the extent of the devaluation, 69 percent.
Gold clauses in contracts might offer some protection for traders.