Until 1933, the U. S. dollar was the among the strongest and most stable currencies in the world. With the stroke of a pen, President Franklin Roosevelt torpedoed it. We are still plagued with the resulting inflation.
All governments lust for taxpayers' money. The ability to direct the expenditure of large sums of money confers great power upon political leaders. But the spending requirements that President Franklin Roosevelt had in mind upon taking office in 1933 were of extraordinary dimensions. Inflating the currency, in socialist theory, was a way to create more money for that end.
In the 1920s, after the disillusionment of World War I, socialism enjoyed great vogue in the United States. Social Gospel ministers extolled it, intellectuals lauded it, and popular magazines ran many favorable articles about it. In that period, the general public had no awareness of the horrors then being effected in the name of socialism in the USSR, and Hitler's National Socialism was still in the future.
It was against that background that Franklin Roosevelt campaigned for the presidency in 1932 with the promise to give state-planning a try. Described in that way, it seemed to be no more than a proposal to coordinate government spending more effectively.
FDR's ideas, however, went much further than that, as demonstrated by the barrage of government take-over programs enacted immediately after his inauguration. His "brain trusters," socialistic Ivy League professors, were proposing to nationalize the private banks and agriculture, and to regulate industrial production, prices, and wages on the model of Mussolini's Fascist state-corporatism.
The tenor of the times was flippantly described in The New Dealers, an admiring book written in 1934, the second year of the New Deal. The author wrote:
Today, as the New Deal moves slowly towards the nationalization of the banking system through the social control of credit policies, there is lamentation in the tents of . . . the Wall Street group . . . For the monetary controversies of the first year of the Roosevelt Administration can be understood only an the assumption that there is a profound struggle between the Government and the bankers for the control of the American credit system . . .
The President knew that financing the imposition of socialism and collectivization of power in Washington would require a huge expansion of Federal spending power. Along with that, his "brain trusters" proposed to inflate prices with the theoretical intention of giving farmers and workers more spending power. Inflation, they assumed, would enable easier debt repayment, force higher wages, and reduce unemployment. In practice the results were quite disappointing.
Throughout the history of the world, the one universal measure of value has been gold. In times of war and economic weakness, people owning gold have always been able to buy what they needed in exchange for gold. Paper currencies, like the present-day U.S. dollar, have no intrinsic value. Their worth changes daily with inflation and foreign exchange dealers' transactions.
OPEC, for example, came into existence in large measure because oil-producing countries were being paid fixed prices in dollars, but the exchange value of the dollar was declining rapidly. OPEC pushed oil prices from around $5 to more than $90 per barrel, adjusted for today's inflation, in the 1970s.
To the consternation of everyone outside the New Deal government cohort, President Roosevelt almost immediately abandoned the gold standard in order deliberately to produce overnight inflation.
In April, 1933, the President issued an executive order that abrogated gold payment clauses in government and private contracts and made it illegal for private citizens to keep their gold coins or to own gold for any purpose other than industrial applications. He completed the destruction of the dollar by arbitrarily reducing the dollar's gold content.
Before FDR's executive orders, Federal Reserve currency could be exchanged at the Federal Reserve banks for gold at a price of $20.67 per ounce. President Roosevelt ordered that the dollar be devalued almost 41% by raising the price per ounce of gold to $35.00. At the $20.67 gold ratio, one dollar would buy 0.048 ounces of gold. At the $35 ratio, one dollar would buy only 0.0286 ounces of gold.
The inflation set in motion by FDR's actions has continued without end. The London gold price was $664.95 on February 16, 2007, a de facto 96.9% devaluation of the dollar vs. the price before President Roosevelt began the devaluation process. The Consumer Price Index is now approximately 905% higher than in 1932.
Before FDR's inauguration, gold coins minted by the Treasury were in common use, Federal Reserve paper currency was exchangeable for gold, and U. S. Treasury debt gave holders the option to take payment in currency or gold, at a fixed rate. Moreover, most corporate debt similarly provided for payment in currency or gold. This gave the dollar a fixed value and made it one of the world's strongest currencies, "as good as gold."
In effect, President Roosevelt confiscated 40% of assets in the hands of individuals, corporations, and banks, without offering any compensation to them.
Needless to say, the President's action was profoundly unsettling to private individuals, corporations, and to the international banking community, particularly to central banks which held dollars as part of their currency reserves.
Senator Carter Glass was one of the most financially knowledgeable and most highly respected figures in Washington (and a Democrat). He had sponsored the legislation that created the Federal Reserve in 1913 and later served as Secretary of the Treasury. Outraged at the President's actions in 1933, he said,
It's dishonor, sir. This great government, strong in gold, is breaking its promises to pay gold to widows and orphans to whom it has sold government bonds with a pledge to pay gold coin of the present standard of value. It is breaking its promise to redeem its paper money in gold coin of the present standard of value. It's dishonor, sir.
Oklahoma's Senator Thomas P. Gore put it more bluntly: "Why, that's just plain stealing, isn't it, Mr. President?" At the next election, FDR financed a rival candidate in the Democratic primary and defeated Senator Gore.
To make FDR's perfidy even clearer, he had pledged to support the Democratic Party's 1932 presidential campaign platform, which explicitly promised to uphold the existing gold standard for maintenance of a sound currency.
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It amazes me how Thomas E. Brewton chooses to strike out at FDR with no mention of the great depression? In doing this, he indeed, “strikes out.” One might agree with the “new neo conservative’s “view of the great depression,” only by deliberately omitting the existential nature of the economic chaos, —FDR was elected to solve.
“We are going to keep on providing relief—probably permanently.” Robert Moley said in 1934! The baby industrial revolution,—long stuck in the mud and mire of unlimited and immoral investor profits at the cost of maintaining slave labor, was still —in 1935—”relegated to horse and buggy definition of interstate commerce.” (FDR.)
I would further point out that the “New Dealers” did not want “inflation” as a method of returning prices to 1929 levels. It was in fact a Congress, over which Roosevelt had no control, —who at least, contemplated inflationary measures to stop the avalance of falling commodity prices. Bank drafts were all but worthless as a few “Americans” horded gold (and much of it appeared on the world markets). Yes Roosevelt was in opposition to reducing the gold standard but—Congress was out to get inflation one way or another. Including printing “Greenbacks.” Roosevelt’s only option was to try to CONTROL this inflationary movement by moving the notes off the gold standard.
So–in context, — in farming communities all through the middle west, as many as 90% of the population was on relief. A quarter of a million families lost their homes in 1932. Why in 2007 do writers ignore the historical facts in their writing? Roosevelt was apposed to public works of all kinds. He believed in what was called “retrenchment.” Never mind the best of what a president might want—-existential realities always overrule. Conservatives were gnashing their teeth and saying it was “the end of Western Civilization.” We are still here and doing quite well and the buck did stop on FDR’s desk. Roosevelt,– the real conservitive adjusted to the tasks at hand.
Comment by royj | February 25, 2007
Apparently royj enjoys a view of history that never actually happened.
In context, we could say that devaluing the dollar and forcing a new slew of federal regulation on commerce and business, and an exponential upsurge in taxes to create a massive welfare state, effectively stifling the only group of people in the country with enough capital to possibly cause any resurgence in the recessed economy, was a colossal failure executed by Roosevelt personally as president immediately upon his election. Roosevelt was 100% in favor of inflationary monetary policy and public works. If he were simply going along as a lame duck with an overbearing congress, as you say, then he had a funny way of showing it. The order to remove all gold currency from the economy was an executive order, not an act of Congress. He personally stamped approval on all of the ridiculous, socialist, collectivist, stagnating policies in his record 4 terms as president. For a guy who was getting bullied by Congress, he surely didn't put up much protest. Oddly enough, the very same Congress that pressured him into socializing America, by your account, repealed most of his policies upon his most fortunate demise. And true conservative that he was, he usurped federal authority he didn't have, convinced congress to grant him temporary authorities that the constitution does not specify and was responsible for the creation of a governmental organization that was later determined unconstitutional by the U.S. Supreme Court (that being the National Recovery Administration). Roosevelt's policies would have made the communist parties blush 10 years earlier. Put into the context of the "Great Depression", Roosevelt manipulated Americans who were scared after the stock market collapse into giving him trust and authority he did not deserve to impose a social agenda popular among leftist academics. The "Great Depression", as it were, would have been a "Great Recession" had it not been prolonged for a decade by government intervention. So much for the conservative savior of the economy.
Comment by Patrick Mulligan | February 27, 2007
Mr. Mulligan cooks up a strange stew.
It has become quite the thing, in these days of Orwellian “double think” and neo conservatives “news speak”, to ignore the existential facts of the systematic collapse of our “welfare capitalist state.” Called the Great Depression.
I want to state for the record here, that I am, — in no way, — a “leftist”. I am a historian and a “teacher.” The Orwellian need to re write history is very much alive today.
Now—the facts. From about 1920 to 1929 unionism had been overcome by the capitalist systems of “open shops” through “yellow dog contracts and very expensive welfare programs, — across whole industries.
First, inflation was championed by all “movers” in the early years of the Depression. And those pols, who spoke out, moved a reluctant Roosevelt to act. What
I am at a loss as to how to answer Mr. Milligan’s “non intellectual” tirade—…”ridiculous, socialist, collectivist, stagnating,” and on. I would as a teacher, suggest some reading for Mr. Mulligan.
I would note for the record that we have had many stock market crashes before and since the “Great Depression. The “crash of 1929 was but the first cause, of a total banking failure! …“an emergency more serious than war.” Said Justice Brandeis. Justice Hughes said…” emergency may furnish the occasion for the use of power.” Only two months later this same “conservative court” sustained a New York law that began price controls!
Yes an ultra conservative court shot down the “New Deal. At that time a “bewildered FDR. was attacked from both the left and the right. Wall Street begged him to “take charge!”
Is Mr. Mulligan suggesting we go back to the “good old days of the 1920’s? If so please do some reading. And we can talk.
Roy J Chambers RoyJ
Comment by royj | February 27, 2007
Way to talk in circles and not address any of the actual points raised by me or the article.
Your sentence and thought structure is very difficult to follow, and you refuse to actually address any of the points brought up or provide any information to refute it, so a response will be difficult (and futile besides). But what the heck:
First, tell me what books or information you suggest I read that will bring me to your level of enlightenment? You twice suggested that I need "further reading". Educate me, "teacher". As long as we're making recommendations, I have some reading suggestions for you: try http://www.google.com and http://www.wikipedia.org and type in "New Deal". You might just learn something that your professor's didn't teach you in 1966 when you got your BA in history. Also, since English and economics don't seem to have been especially well taught subjects in your university, you might want to pick up some used textbooks from Amazon, or Half.com. It probably wouldn't be a bad idea to re-read 1984 too, because I'm not sure you came away with the message that was intended.
Talk about an "Orwellian need to rewrite history". I don't even know where to begin. I haven't heard this kind of historical reconstruction in regards to New Deal policy and the Roosevelt presidency by even the most loony leftist socialists. By your account Roosevelt was essentially coerced at knife point into giving control of economic planning over to his "Brain Trust" of socialist academics and exponentially expanding federal spending and regulation of business, commerce, wages and prices. Or he was responsible for it, and was a "true conservative" because of it. Hmmmm.
You asked, "Is Mr. Mulligan suggesting we go back to the “good old days of the 1920’s?"
If by that you mean, do I think we should go back to a metals backed currency system, do away with price and wage controls, farm subsidies, Social Security, wealth redistribution systems, exorbitant income taxes, government works projects, and about 80% of the current federal register, then I would have to say: Absolutely! Chalk it up to each of us operating under very different assumptions. See, I don't think that a command economy and centralized, all-powerful federal government is a good thing. And you don't think that a free market economy and limited federal government is a good thing. Consequently, we probably won't ever see eye to eye on the issue.
P.S.
You stated for the record that "I am, — in no way, — a “leftist”. I am a historian and a “teacher.”"
I was just wondering if you're the same Roy J. Chambers who identified himself as "a pacifist a liberal, and agnostic on God." in a internet group with a different audience?
Comment by Patrick Mulligan | February 27, 2007