March 18, 1933 - Article - Back to Gold, by David Lawrence
The biggest secret of the depression was the decision of the government of Great Britain to suspend the gold standard. Only eight men in all England knew it in advance. Why was it necessary to suppress such an important fact, and it be possible to do likewise in the United States?
The answer to this question has a direct bearing on whether the United States Government could adopt any of the scores of plans and proposals suggested from time to time, ranging all the way from going off the gold standard to devaluating the dollar by reducing its gold content by inflation of currency.
First of all, let it be understood that no nation has ever deliberately gone off the gold standard. Many a country has been forced off the gold basis and has recognized that fact by a law or act ratifying an existing situation - namely, when its gold reserves have already been depeleted. This was the case with Great Britain in 1931 when the gold drain was such that unless the bank of England called a halt, there would have been little of the precious metal left as a nucleus for the maintenance of even a managed currency.
Had the British people known of the intention of their government to suspend the gold standard, they would have gone to the banks and demanded gold redemption for their money. This would have produced a gold panic. If, as is sometimes suggested by those who would tinker with the national currency, America were to seek to alter its gold basis, the mere introduction of a bill in Congress and its report by a committee would start a gold demand that would be impossible to meet in full. Thus the United States has in its banks approximately $42,000,000,000 of deposits, but we hold only about $4,500,000,000 of gold. If everybody wanted gold, there would not be enough to go around, and the suspension of payments would be imperative.
Between the time, however, of the announcement that some such plan was in prospect and the actual passage of a law requiring the change, there would be a panic of such extensive proportions that nobody could visualize its consequences. In Great Britain, where the executive and legislative branches of the government are combined in a single ministry, it is possible to make such decisions and get immediate ratification. In the United States, where the executive may recommend, but the legislative may differ, there is bound to be debate. And while the Congress debated, the people would be demanding gold.
The fundamental truth, however, which is so often overlooked, is that there isn't the slightest reason for America going off the gold standard or even tinkering with the gold content of the dollar. It is just the other way around. America's interest is in seeing that the rest of the world shall go back to the gold standard.
Gold is a symbol of stability. This is because through centuries it has proved a stable medium of exchange. (pg. 21)
English merchants used to deposit their coins in the London Tower. But when the king seized a large quantity of coin for war purposes confidence in the Crown disappeared. This lead to hoarding in the vaults of the merchants. So it came about that coin was deposited with the goldsmiths, who were the earliest bankers. From time to time as the kings were short of funds, they levied upon the goldsmiths for ready money. After thirty years of economic distress and litigation, the Bank of England was finally incorporated in 1694 and a system of government credit was developed with gold as the basis. (pg. 86)
It is interesting to quote from the 1925 Report of the Commission on Gold and Silver Inquiry of the United States Senate, on which Senators Walsh, of Montana, ans Pittman and Oddie, of Nevada, served. In the light of what is happening today, its comment is especially pertinent: "If the gold standard is left to itself without interference, it can stand heavy strains, and there is no case in history of the gold standard breaking down of its own accord. In fact, it is doubtful if the gold standard ever could break down if left to function without any restraint. If gold as money is allowed to retain its complete freedom, it is almost inconceivable that the gold would all be exported any more than all the wheat or any other commodity would be exported due to a high price abroad." (pp. 89-90)
In the case of the United States, we suffered a drain in gold early in 1932, but we have subsequently recovered all the gold we lost. Our gold reserves are almost at the high point of our history. (pg. 90)
Comment: Little did anyone know that Congress, at the time of this article, was rubber stamping massive amounts of legislation written by the Executive without reading or debating the legislation. Part of the Executive legislation empowered the President to repudiate the gold standard, and this is precisely what FDR did, even though there was plenty of gold to back the currency at the time.