March 3, 1934 - Article - Two Chapters In The Story Of Gold, by Garet Garrett
In the last presidential campaign, sound money, though not a premeditated issue, became unexpectedly a subject of violent partisan debate; and the Democratic Party was on the side of sound money, upholding the gold standard. One of the planks of the Democratic Party platform was this:
"We advocate a sound currency to be preserved at all hazards."
In a speech, July 30th, at Albany, Mr. Roosevelt said: "Let us have courage to stop borrowing to meet continuing deficits. Stop the deficits. Let us have equal courage to reverse the policy of the Republican leaders and insist on a sound currency...... This concerns you, my friends, who have managed to lay aside a few dollars for a rainy day."
Then, on October 4th, Mr. Hoover made his Des Moines speech. He told there of the perils through which his party had been steering the nation. One was the peril of vanishing credit, and the cause of its vanishing was the draining away of the gold base. Besides enormous withdrawals of gold by foreigners, there had been at the same time domestic hoarding of it. "These drains," said Mr. Hoover, "had at one moment reduced the amount of gold we could spare for current payments to a point where the Secretary of the Treasury informed me that unless we could put into effect a remedy, we could not hold to the gold standard but two weeks longer, because of inability to meet the demands of foreigners and our own citizens for gold."
One of the singular effects of Mr. Hoover's speech was to produce a fury of indignation in the Democratic breast.
To answer Mr. Hoover as he deserved, the Democratic Party had put forward Senator Carter Glass. He had been Secretary of the Treasury in the Wilson Cabinet and was expected to be Secretary of the Treasury again in the Roosevelt Cabinet if the Democratic Party won the election. Moreover, having written and moved and carried, with acid integrity, more money and banking legislation than any other living man of either party, his words were bound to be deeply respected by the whole country.
Accordingly, on the night of November 1st, over a nation-wide radio hook-up, Senator Glass made the authoritative money speech of the campaign. Did the Hoover Administration save the gold standard? Did it keep the country from going off the gold standard with its emergency banking bill, written by the Treasury and sent to the Capitol to be passed? Carter Glass speaking. Virginia Democrat. Member of the Banking and Currency Committee of the United States Senate. He ought to know. He himself wrote into that Republican banking bill such safeguards as Mr. Hoover's people at the Treasury ought to have thought of, and then, though with some distaste, he had helped to pass it. But as for its saving the gold standard - in the first place, it didn't; in the second place, it couldn't; in the third place, the gold standard did not have to be saved, because it was never in danger. To say otherwise was false in fact and implication.
I assert," said Senator Glass, "that those of us responsible for legislation never had the remotest intimation from the Administration that the gold standard was in danger...... I repeat the assertion that anybody who now says anything to the contrary of what is alleged here is either ignorant of the facts or indifferent to the truth. Anybody who says this country was withing two weeks of being driven off the gold standard actually impeaches the integrity of the President of the United States and the Secretary of the Treasury. The latter official, from January 1 to June 30, 1932, with the approval of the President, sold to the banks and private investors in the United States $3,709,213,450 of Treasury notes and certificates of indebtedness, redeemable in gold at the Treasury. If the President and Secretary of the Treasury had knowledge of the fact that this country was faced with imminent disaster by being driven off the gold standard in two weeks, and failed to so advise the banks and private investors who purchased nearly $4,000,000,000 of these federal securities, they were guilty of amazing dishonesty; they were cheating the investment public; and could not even appropriate to themselves the solace of future oblivion, because their names would have been remembered in terms of anathema for a century to come. Despite this suggested infamy, the authentic figures and facts show that no such situation existed as that which politicians have conjured up in order to exaggerate the executive prowess of a candidate for the presidency."
But he was not yet through with the gold standard. Republicans had been saying the Democratic Party was not at heart true to it. "In this connection," said Senator Glass, "the newspapers report that Secretary Hurley, of the War Department, has openly proclaimed from the public rostrum that should the Democratic Party succeed at the November election, the United States will be driven off the gold standard. For the sake of decency it must be hoped that Secretary Hurley did not say that. If he did say it, he is totally unfit for official responsibility, and the President should have booted him out of office before breakfast time of the following day. Indecency, even in a political campaign, has its limitations. This alleged declaration, if made by this strutting trumpeter of the President, was not far short of treason to the country."
This was an official party speech, a verbal document; and lest there should be any doubt about it, Mr. Roosevelt, in a speech, November 4th, at the Brooklyn Academy of Music, said: "The business men of this country, battling hard to maintain their financial solvency and integrity, were told in blunt language in Des Moines, Iowa, how close an escape the country had some months ago from going off the gold standard. This, as has been clearly shown since, was a libel on the credit of the United States.
"No adequate answer," said Mr. Roosevelt, "has been made to the philippic of Senator Glass the other night, in which he showed how unsound was this assertion. And I might add Senator Glass made a devastating challenge that no responsible government would have sold to the country securities payable in gold if it knew that the promise, yes, the covenant, embodied in these securities, was as dubious as the President of the United States claimed it was......
"One of the most commonly repeated misrepresentations by Republican speakers," said Mr. Roosevelt, "including the President, has been the claim that the Democratic position with regard to money has not been made sufficiently clear. The President is seeing visions of rubber dollars. This is only part of his campaign fear. I am not going to characterize these statements. I merely present the facts. The Democratic platform specifically declares, We advocate a sound currency to be preserved at all hazards.' That's plain English." (pp. 8-9)
In so far as the popular vote that delivered the Government to the Democratic Party was touched by thought of money or monetary principles, it was a vote for sound money and for the gold standard. That is to say, what followed was without color or suggestion of a mandate from the people.
And what was it that followed?
First, gold payments were suspended. Next, the gold standard was forsaken, though, as it were, temporarily. Then it was flatly repudiated by law, the President referring to it as one of the "old fetishes of so-called international bankers," now to be replaced by an idea of planned currency. "The United States seeks," he said, "the kind of dollar which a generation hence will have the same purchasing power as the dollar value we hope to obtain in the future."
To take the country off the gold standard, certain steps had been necessary.
It did not happen all at one stroke. The time it took altogether was three months; and during these three months the Government sold to banks and investors $1,400,000,000 of securities, all of them bearing the engraved words, "Principal and interest payable in gold coin of the present standard of value." (pg. 9)
On March 9th the Congress enacted an emergency law investing the President and the Secretary of the Treasury with absolute power to control money and banking, including the power, if necessary, to require all private owners of gold to deliver it up to the United States Treasury in exchange for paper money. Then, as the banks began to reopen under strict Treasury regulations, they were forbidden to pay out gold, except by particular permission of the Government. Gold payments, therefore, were suspended by all banks, though not yet by the Government. The country was still on the gold standard. To suspend gold payments in a great emergency is by no means the same as to abandon or repudiate the gold standard.
On March 12th, the United States Treasury sold $800,000,000 short-term bonds, called certificates of indebtedness, and on each bond was engraved the promise of the Government to redeem the principle and pay the interest "in United States gold coin of the present standard of value." On March 15th it sold $100,000,000 Treasury bills, which is a form of IOU, and these also were payable in gold.
On April 5th the President issued an order commanding all private persons and all private banks to deliver, by May 1st, their gold and gold certificates to the nearest Federal Reserve Bank in exchange for paper money, under penalty of fine and imprisonment. After that it was a crime to have more than $100 in gold or gold certificates in one's possession. A gold certificate is, or was, simply a Treasury receipt for gold coin, reading on its face: "This certifies that there have been deposited in the Treasury of the United States ten dollars" [twenty, one hundred or one thousand dollars] "in gold coin, payable to the bearer on demand." This had been, for longer than anyone could remember, the finest money in the world - simply a receipt by the United States Treasury for coin held in trust in its vaults, payable to the bearer on demand. And now suddenly, both as money and as faith, it was broken...... April 5th, parallel to the President's order commanding privately owned gold to be surrendered, the Secretary of the Treasury issued a statement, saying: "Those surrendering gold, receive an equivalent amount of other forms of currency, and other forms of currency may be used for obtaining gold in an equivalent amount when authorized for proper purposes." That is a fairly good statement of what gold-standard money is. It is paper money that may be exchanged for gold, dollar for dollar, when one wants the gold for any purpose for which gold itself may be properly and rationally required. The Secretary of the Treasury added: "Gold held in private hoards serves no useful purpose under present circumstances. When added to the stock of the Federal Reserve Banks, it serves as a basis for credit and currency."
Thus people understood they were surrendering gold in time of emergency only to strengthen the banking system and that the paper money they received for it was, as the Secretary of the Treasury said, the equivalent of gold. There was yet no the slightest suggestion that the Government intended to devalue the standard gold dollar by reducing its gold content, purposely to destroy the equivalent value of that paper money, nor was there even a remote suggestion that it was writing a law to repudiate its gold contracts.
On April 19th the President proclaimed an embargo on exports of gold. That meant that the Government had decided to let the dollar go. Foreign holders of United States Government bonds could no longer expect to receive the principle and interest in gold - at least, not for a while - foreign holders of the United States Treasury receipts, called gold certificates, could no longer convert them into gold at any bank in the world. All over the world the value of the American dollar began to fall. As it turned out, that is precisely what the Government wanted. It wished the value of the dollar to fall in the international money market, thinking that this would cause American commodity prices to rise..... And yet only in a sense of payment were we off the gold standard. We had stopped paying gold, yes, but that is not the same as to repudiate the gold standard. Once before for nearly two decades the American Government had to pay with paper money. That was during and immediately after the Civil War. But it held all the time to the gold standard and ultimately restored all its paper money to gold parity. And now what immediately followed gave many people the idea that such was the case again.
On April 23rd, only four days after the President had proclaimed the embargo on gold exports, thereby serving notice to the world that the American Government would no longer hold its dollar to the gold standard - for that is what the embargo meant, and every banker and speculator in the world so understood it - only four days after this, the United States Treasury offered and sold $500,000,000 short-term bonds, called three-year notes. It made them in small denominations and recommended them to small investors; and in the Treasury circular offering these bond the Government said: "The principle and interest of these notes will be payable in United States gold coin of the present standard of value." People bought them on that representation, unaware that the Government was then writing the law to repudiate the contract.
On April 28th, five days later, the Senate passed the inflation law - namely, the Thomas amendment to the Agricultural Adjustment Act, authorizing the President to debase the gold-standard dollar by reducing its gold content one-half, to print and issue three billions of fiat money, and to exchange three billions of paper currency for outstanding Government bonds. Even that was not final. There was one more step.
On June 5th, responding to the wishes of the Administration, the Congress by joint resolution repudiated the gold clause in every form of public and private contract; as to all existing Government bonds, Treasury notes and certificates of indebtedness, bearing on their face the unqualified promise of the Government to pay them, principle and interest, in gold - including the $900,000,000 sold by the Treasury 12 weeks before and the $500,000,000 sold 6 weeks before - it declared they were payable, not in gold according to the covenant, not in paper money equivalent to gold, but in any kind of paper money the Government might see fit to print.
Thus in three months the Democratic Party had not only thrown the country off the gold standard; it had repudiated the gold standard utterly. More, it had repudiated the contract on every existing obligation of the United States Treasury in the form of a gold bond, a gold note or a gold receipt. The only thing left was the silver certificate, redeemable in silver coin on demand. That had not been repudiated; but the right to repudiate it had been reserved. (pp. 51-52)
In the apologia the first statement will be - it already is - that the Democratic Party did not do it. Necessity did it. There existed a national emergency, in many ways similar to the emergency of war; in time of extreme danger a sovereign government knows one law, is bound by only one, and that is the law of necessity.
Well, in the first place, the emergency was not new. It was present during the campaign, when the Democratic Party was passing upon others the moral judgements that now return to embarrass it. Secondly, if necessity be the justification, then, of course, necessity must be entirely proved. An idea of it will not do, for the idea may be wishful.
What of the alleged necessity, and how was it proved? It was asserted. But it was also denied. And the man who most bitterly denied it was the one who during the campaign had been the Democratic Party's chosen authority on the morals, principles and facts of money.
This is the most dramatic part of the story. The senior senator from Virginia, Carter Glass, did not become Secretary of the Treasury in the Roosevelt Cabinet. He declined the office, saying he could be more useful in the Senate, where he was. (pg. 52)
On the day, April 27th, when the inflation law came before the Senate as an amendment to the Agricultural Adjustment Act, Mr. Glass appeared, not to oppose it, for that was hopeless, but to characterize it. He was ill and very weak. In a low voice he said:
"The newspapers of yesterday and today have stated that the senior senator from Virginia has created a sensation by disagreeing with the President. The implication is, of course, that any senator who now preserves his intellectual integrity and consistently maintains the views which he has privately and publicly expressed for many years is creating a sensation.
"I have not deserted my party.
"I wrote with my own hand that provision of the national Democratic platform which declared for a sound currency to be maintained at all hazards.
"I was unable, because of illness, to make one speech during the entire presidential campaign. And in that one speech, with all the righteous indignation I could summon, and in terms, perhaps, of some bitterness, I reproached the then President of the United States and Secretary of the Treasury for saying that this country was withing two weeks of going off the gold standard.
"The reaction to that speech - and I do not say it in any boastful way - was that I now have bound in excess of 5000 telegrams and letters from people, mostly strangers to me, commending that utterance.. The first telegram in the first bound volume is one from Franklin D. Roosevelt, now President of the United States, who said the speech was to him an inspiration. In his public utterances at Brooklyn and at other places he textually commended that part of the speech which so bitterly criticized his political adversary and competitor for suggesting that this country was in imminent danger of going off the gold standard.
"This simple recital will indicate that I have not deserted anybody or any party by opposing the bill. I am simply consistently maintaining an attitude of earnest conviction on public questions which is more important to me than the favor of any party or potentate.....
"We are proceeding upon the assumption that nobody hereafter will desire credit; that farmers hereafter will not want credit or need it, because we are destroying credit and largely have done so. No man outside of a lunatic asylum will loan his money today on farm mortgages, because we have destroyed the market for farm mortgages and for almost all types of mortgage.
"I cannot in any circumstances, painful as it is to me to differ from the occupant of the White House and from my party colleagues, support the second provision of this bill, relating to the devaluation of the gold dollar. England went off the gold standard because she was compelled to do so, and not from choice. She had less than $1,000,000 in gold left after paying her indebtedness to the United States. Of course she went off the gold standard; and going off has not resulted in increasing the prices of commodities. There was a temporary flurry then, as there has been in this country now; but the inevitable reaction came.
"Why are we going off the gold standard? With nearly 40% of the entire gold supply of the world, why are we going off the gold standard? With all the earmarked gold, with all of the securities of ours they hold, foreign governments could withdraw in total less than $700,000,000 of our gold, which would leave us an ample fund of gold, in the extremest case, to maintain gold payments both at home and abroad.
"To me the suggestion that we may devalue the gold dollar 50% means national repudiation. To me it means dishonor. In my conception of it, it is immoral.
"All the legalistic arguments which the lawyers of the Senate, men of eminent ability and refinement, may make here, or have made here, have not dislodged from my mind the irrevokable conviction that it is immoral, and that it means not only a contravention of my party's platform in that respect but of the promises of party spokesmen during the campaign.
"Mr. President, there was never any necessity of a gold embargo. There is no necessity for making statutory criminals of citizens of the United States who may please to take their property in the shape of gold or currency out of the banks and use it for their own purposes as they may please.
"As I remarked to the senator from Pennsylvania the other day, we have gone beyond the cruel extremities of the French, and they made it a capital crime, punishable at the guillotine, for any tradesman or individual citizen of the realm to discriminate in favor of gold and against their printing-press currency. We have gone beyond that. We have said that no man may have his gold, under penalty of ten years in prison or $10,000 fine.....
"If there were need to go off the gold standard, very well, I would say let us go off the gold standard; but there has been no need for that. If there were need for currency expansion, I would say let us expand, though I fail to comprehend how much better off one is with two dollars which will purchase no more than the one dollar which he had yesterday.
"My colleagues talk about serving the public. What public? The men who work for wages, the neediest of all classes of the public, the clerks and the stenographers and the professional men, constituting in the aggregate half, yea, more than half of our laboring population, will be the people to suffer under this unbridled expansion. That is what it is. The rein is so loose that the steed will never stop until he goes over the precipice and kills his rider at the bottom thereof.
"Mr. President, I find that I must desist."
Inflation is not rare. It is the common course of nations at war and governments in financial distress. But premeditated inflation for political ends is rare. That is the kind of inflation Senator Glass was talking about. (pg. 53)
Comments: This article sums up the way this country went off the gold standard. I shall quote no more articles on this subject, for it is not necessary. Needless to say, the repudiation of the gold standard was accompanied by massive theft. Remember though, that the people robbed were in the minority, and that the ones who benefitted from the theft were in the majority. This also proves that it is not necessary for politicians to keep campaign promises to get re-elected. The same is true with a party platform, for even though the Democratic platform of 1932 turned out to be a lie, the people re-elected them anyway.