American Default: The Untold Story of Fdr, the Supreme Court, and the Battle over Gold

Sebastian Edwards, professor of international economics at the University of California, Los Angeles's Anderson School of Management, has written a compelling history of one of the most important macroeconomic and public policy events of the early twentieth century—the decision to depreciate the U.S. dollar in 1933, the subsequent U.S. default on its sovereign debts, and the controversial Supreme Court ruling that upheld both. Edwards, who has written on emerging-market political economy and sovereign debt crises, provides a necessary corrective to the perception that U.S. constitutional protections of property and contracts rights have been absolute, or timeless. Indeed, his study was motivated by the 2014 New York federal district court ruling that forced Argentina to pay its sovereign debts to foreign bondholders after its 2001 default. Argentina cited the American default in its defense, though to no avail. American Default reads with fast-paced action. Based on newspaper accounts, personal papers, and a thorough economic history, the book envelops readers in a political and legal battle, while also distilling monetary policy. Edwards shows how the gold standard hampered domestic policies. For example, although Franklin D. Roosevelt's well-known national “bank holiday” calmed depositors, its companion measure, the Emergency Banking Act (1933), failed to return specie to bank coffers. Lacking gold reserves, banks could not meet their debt obligations, resulting in insolvency, falling prices, and more defaults. The question became: How could the United States—an anchor of the international gold standard—reflate prices and restore market confidence? Congress debated remonetizing silver, price-fixing policies, and eventually abandoning gold altogether.