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Page 59
of gold for the same reason we accumulated a "surplus" of wheatbecause the government offered to pay a higher price than the market price. More recently, the situation has changed. While the legally fixed price of gold has remained $ 35, prices of other goods have doubled or tripled. Hence $ 35 is now less than what the free market price would be. 1 As a result, we now face a "shortage" rather than a "surplus" for precisely the same reason that rent ceilings inevitably produce a "shortage" of housingbecause the government is trying to hold the price of gold below the market price.
The legal price of gold would long since have been raisedas wheat prices have been raised from time to timeexcept for the accident that the major producers of gold, and hence the major beneficiaries from a rise in its price, are Soviet Russia and South Africa, the two countries with whom the United States has least political sympathy.
Governmental control of the price of gold, no less than the control of any other price, is inconsistent with a free economy. Such a pseudo gold standard must be distinguished sharply from the use of gold as money under a real gold standard which is entirely consistent with a free economy though it may not be feasible. Even more than the price fixing itself, the associated measures taken in 1933 and 1934 by the Roosevelt administration when it raised the price of gold represented a fundamental departure from liberal principles and established precedents that have returned to plague the free world. I refer to the nationalization of the gold stock, the prohibition of private possession of gold for monetary purposes, and the abrogation of gold clauses in public and private contracts.
In 1933 and early 1934, private holders of gold were required by law to turn over their gold to the federal government. They were compensated at a price equal to the prior legal price, which was at the time decidedly below the market price. To make this requirement effective, private ownership of gold within the U.S. was made illegal except for use in the arts. One can hardly imagine a measure more destructive of the princi-
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1 A warning is in order that this is a subtle point that depends on what is held constant in estimating the free market price, particularly with respect to gold's monetary role.

 
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