Gold Clause Cases Norman v. Baltimore & Ohio Railroad Co. 294 U.S. 240 (1935) Nortz v. United States 294 U.S. 317 (1935) Perry v. United States 294 U.S. 330 (1935)

• Author: David Gordon
• Pages: 1201-1202

Page 1201

The decisions in these cases were virtually the only Supreme Court opinions upholding congressional NEW DEAL legislation before the judicial "revolution" of 1937. The Depression had caused an emergency in which contracts calling for payment in gold, rather than paper, "obstruct[ed] the power of Congress." So declaring, Congress passed the JOINT RESOLUTION of June 5, 1933, which asserted its regulatory power over gold as an item that "affect[ed] the public interest." Such gold clauses were "against public policy," and henceforth debtors could legally discharge their obligations in any other legal tender. Creditors resisted this action because, in conjunction with earlier legislation that had reduced the gold value of the dollar, it effectively devalued debts by allowing paper to be substituted for gold. Even though these suits involved relatively small amounts, they represented one hundred billion dollars in outstanding gold obligations (threefourths of which were private debts) at a time when the Treasury had only some four billion dollars in gold reserves.

In Norman v. Baltimore & Ohio Railroad Company, the plaintiffs sought to enforce payment of $38.10 in currency, the equivalent of the value of the gold ($22.50) specified in the contract, a sixty-nine percent markup. Chief Justice CHARLES EVANS HUGHES, for a 5?4 Court, reviewed the MONETARY POWER and, resting on Knox v. Lee (1871), insisted on the government's power to void any private OBLIGATION OF CONTRACTS that interfered with the exercise of Congress's power to regulate currency. The majority said that requiring debtors to pay sixty-nine percent more in currency to match the gold value of their debts would cause "dislocation of the domestic economy." The majority opinion, while reaching perhaps the only possible satisfactory result for the stability of the economy, was, in the conventional constitutional wisdom of the time, tenuous. In a spiteful dissent, Justice JAMES MCREYNOLDS attacked Hughes's purely pragmatic approach as a monstrous miscarriage of justice. Delivering his opinion orally, he exclaimed, "This is Nero at his worst. The Constitution is gone!"

In cases involving public obligations, the majority rested on sturdier constitutional ground. In accordance with the EMERGENCY BANK ACT, E. C. Nortz had surrendered his gold certificates after the government refused his demand for payment in gold. He sued for the difference between the currency he...