Full text of Diaries of Henry Morgenthau, Jr. : Volume 5 : Part 2

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5
PREASURY

116

May 20th

Had lunch with the President and told him what I was
doing about the Bonus. I was rather rurprised to find a
sort of coolness towards what I was doing. He said, you
know we may have to compromise on this bonus. I said, what
do you mean? He said, well we might have to pay the present
bonus which means about some $500,000,000. and then put the
interest rate back from 1924 to the end of the war to 1918
which he said amounts to some $400,000,000 - or a total of
$900,000,000. I said, Mr. President, there is nothing like
that in your speech. You say definitely that you are against
the bonus. He said, why yes, but how can I tell what kind
of a bill they may pass. He said, Patman asked me point
blank this morning if I was against all bonus legislation
orwhether I had an open mind and I told him that I had an
open mind because how could I know what they might pass.

I had a sort of sinking feeling and found myself sort
of gradually crumpling up and I said, if you want me to go on
please do not talk that way to me because I am building a
bonfire of support for you in your veto message. He said
rather quickly with a smile, lets agree that I will not talk
to you about any compromise if you will not talk to me about
any bonfire. He said, in other words, never let your left
hand know what your right is doing. I said, which hand am I
Mr. President, and he said, my right hand. He said, but I
knep my left hand under the table.
This is the most frank expression of the real F.D.R.

that I ever listened to and that is the real way that he

works - but thank God I understand him.

116A
TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING PAPERS,

Monday, May 20. 1935.

Press Service
No.4-99

5-18-35.

The Secretary of the Treasury, on behalf of the Home Owners' Loan Corporation,
today announced an offering of 4-year 1-1/2 percent bonds of the Home Owners' Loan
Corporation of Series F-1939, in payment of which only Home Owners' Loan Corporation

4 percent bonds of Series of 1933-51 called for redemption on July 1, 1935, may be

tendered. The present offering is strictly on an exchange basis, and will be
limited to the amount of the called 4 percent bonds tendered and accepted. Cash

subscriptions will not be received, but to the extent the called 4 percent bonds
are not exchanged at this time, an additional amount of the 1-1/2 percent bonds
may subsequently be offered for cash.

The bonds now offered will be dated June 1, 1935, and will bear interest
from that date at the rate of 1-1/2 percent per annum, payable semiannually. They

will mature in four years on June 15, 1939, and will not be subject to call for
redemption prior to maturity.

The bonds will be fully and unconditionally guaranteed both as to principal
and interest by the United States, and, as more specifically stated in the offering

circular, they will be exempt both as to principal and interest from all Federal,
State, and local taxation (except surtaxes, estate, inheritance, and gift taxes)
now or hereafter imposed.

Bearer bonds with interest coupons attached will be issued in denominations
of $25, $50, $100, $500, $1,000, $5,000, $10,000 and $100,000; they will not be
issued in registered form.

Applications will be received at the Federal Reserve banks and branches and

at the Treasury Department, Washington, D.C. The right is reserved to close the
books as to any or all subscriptions at any time without notice.
Applications for the 1-1/2 porcent bonds of Sorios F-1939 of the Home Owners
Loan Corporation should be accompanied by a like faco amount of the called 4
porcont bonds tondored in payment. Coupon bonds so tendored should have the

January 1, 1936, and all subsequent coupons attached, and registered bonds should

bo assignod as provided in the official circular.

Subject to the resorvations sot forth in the official circular all subscrip
tions for the 1-1/2 percont bonds, in paymont of which the called:4 percent bonds

are tendorod, will bo allotted in full. Interest on the called 4 percont bonds
tendered and accepted on exchange will bo paid in full on July 1, 1935.
Pursuant to public notice givon today by the Homo Owners Loan Corporation,

all outstanding 4 percent bonds of Sorios of 1933-51 of the Corporation are
called for rodemption on July 1, 1935. About $325,000,000 of these bonds are
outstanding. The offering now announced affords the holders of those called
bonds an opportunity to acquiro a like principal amount of the new bonds on a par
for par oxchango basis, with interest in full on the exchanged 4 percont bonds

for the current half-yoar period.

The text of the official circular follows:

HOME OWNERS' LOAN CORPORATION OF THE UNITED
STATES OF AMERICA

1 1/2 PERCENT BONDS OF SERIES F-1939
Dated and bearing interest from June 1, 1935

Due June 1, 1939

Interest payable June 1 and December 1

OFFERED ONLY IN EXCHANGE FOR HOME OWNERS' LOAN CORPORATION 4 PERCENT BONDS OF SERIES OF 1933-51 CALLED FOR REDEMPTION ON JULY 1, 1935

TREASURY DEPARTMENT,

1935

Department Circular No. 540

OFFICE OF THE SECRETARY,

Washington, May 20, 1935.

Public Debt Service

The Secretary of the Treasury, on behalf of the Home Owners' Loan Corporation, invitee
subscriptions, from the people of the United States, for one and one-half percent bonds of the
Home Owners' Loan Corporation, designated bonds of Series F-1939, in payment of which only
Home Owners' Loan Corporation 4 percent bonds of Series of 1933-51, called for redemption
on July 1, 1935, of an equal principal amount, may be tendered. The amount of the offering
under this circular will be limited to the principal amount of Home Owners' Loan Corporation
4 percent bonds of Series of 1933-51 tendered and accepted. It is the intention to offer for cash
subscription, upon such terms and conditions as may be prescribed by the Home Owners' Loan
Corporation with the approval of the Secretary of the Treasury, an additional amount of bonds
of Series F-1939, approximately equal to the amount of Home Owners' Loan Corporation
4 percent bonds of Series of 1933-51 not tendered and accepted hereunder.
The terms and conditions of the bonds offered under this circular, the manner in which
such bonds shall be issued, and the prices at which they shall be sold are prescribed by the Home
Owners' Loan Corporation, with the approval of the Secretary of the Treasury, as follows:
DESCRIPTION OF BONDS

The bonds will be dated June 1, 1935, and will bear interest from that date at the rate of
one and one-half percent per annum, payable semiannually, on December 1, 1935, and thereafter on June 1 and December 1 in each year. They will mature June 1, 1939, and will not be
subject to call for redemption prior to maturity.
These bonds are issued under the authority of the Home Owners' Loan Act of 1933, as
amended, which provides that these bonds shall be exempt, both 88 to principal and interest,
from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed
by the United States or any District, Territory, dependency, or possession thereof, or by any
bloods
ad
bas
State, county, municipality, or local taxing authority.
138195-34

both

to

MATERIAL

ad

TO

2

The bonds will be acceptable at face value in payment of indebtedness due the Home
Owners' Loan Corporation. They will be acceptable to secure deposits of public moneys, and
will also be acceptable in lieu of surety under the provisions of Section 1126 of the Revenue Act
of 1926, as amended. They will be acceptable to secure 15-day borrowings from the Federal
Reserve banks.

The bonds herein offered come within the following provisions of Section 4 (c) of the Home

Owners' Loan Act of 1933, as amended: Such bonds shall be fully and unconditionelly guaranteed both as to interest and principal by the United States, and such guaranty shall
be expressed on the face thereof, and such bonds shall be lawful investments, and may be accepted
as security, for all fiduciary, trust, and public funds, the investment or deposit of which shall be

under the authority or control of the United States or any officer or officers thereof. In the
event that the Corporation shall be unable to pay upon demand, when due, the principal of, or
interest on, such bonds, the Secretary of the Treasury shall pay to the holder the amount thereof
which is hereby authorized to be appropriated out of any moneys in the Treasury not otherwise
appropriated, and thereupon to the extent of the amount so paid the Secretary of the Treasury
shall succeed to all the rights of the holders of such bonds.
Bearer bonds with interest coupons attached will be issued in denominations of $25, $50,
$100, $500, $1,000, $5,000, $10,000, and $100,000. The bonds will not be issued in registered
form. Provision will be made for the interchange of bonds of different denominations, without
charge by the Corporation, under rules and regulations prescribed by the Corporation.
SUBSCRIPTION AND ALLOTMENT

Subscriptions will be received at the Federal Reserve banks and branches and the Treasury
Department, Washington, D. C. The Secretary of the Treasury reserves the right to close the
books as to any or all subscriptions at any time without notice.
The Secretary of the Treasury reserves the right to reject any subscription, in whole or in
part, to allot less than the amount of bonds applied for, to make allotments in full upon applications for smaller amounts and to make reduced allotments upon, or to reject, applications for
larger amounts, to make classified allotments or to make allotments upon a graduated scale,
or to adopt any or all of said methods or such other methods of allotment and classification of
allotments as shall be deemed by him to be in the public interest; and his action in any or all of
these respects shall be final. Subject to these reservations, all subscriptions will be allotted

in full. Allotment notices will be sent out promptly upon allotment.
TERMS OF PAYMENT

been

Payment for bonds allotted hereunder may be made only in Home Owners' Loan Corporation 4 percent bonds of Series of 1933-51, called for redemption on July 1, 1935, of an equal
principal amount, which should accompany the subscription. Cash payments will not be
accepted. If any subscription is rejected, in whole or in part, the Home Owners' Loan Corporation 4 percent bonds of Series of 1933-51 tendered therewith and not accepted will be returned
to the subscriber. Interest on Home Owners' Loan Corporation 4 percent bonds of Series of
1933-51 tendered and accepted will be paid in full to July 1, 1935.
SURRENDER OF HOME OWNERS' LOAN CORPORATION 4 PERCENT BONDS OF SERIES OF 1933-51

Coupon bonds.-Home Owners' Loan Corporation 4 percent bonds of Series of 1933-51 here
in coupon form tendered in payment for Home Owners' Loan Corporation bonds offered bank
under, should be presented and surrendered with the subscription to a Federal Reserve 1936,

or the Treasurer of the United States, Washington, D. C. Coupons dated January 1,

3

and all coupons bearing subsequent dates should be attached to such coupon bonds when surrendered, and if any such coupons are missing, the subscription must be accompanied by cash
payment equal to the face amount of the missing coupons. Coupons dated July 1, 1935, should
be detached and collected in regular course when due. The bonds must be delivered at the
expense and risk of the holder. Facilities for transportation of bonds by registered mail insured
may be arranged between incorporated banks and trust companies and the Federal Reserve
banks, and holders may take advantage of such arrangements when available, utilizing such
incorporated banks and trust companies as their agents.
Registered bonds.-Home Owners' Loan Corporation 4 percent bonds of Series of 1933-51
in registered form tendered in payment for Home Owners' Loan Corporation 1 1/4 percent bonds
offered hereunder, should be assigned by the registered payee or the assignee thereof to "Home
Owners' Loan Corporation in payment for Home Owners' Loan Corporation 1 1/2 percent bonds
of Series F-1939", and thereafter should be presented and surrendered with the subscription
to a Federal Reserve bank or to the Treasury Department, Division of Loans and Currency,
Washington, D. C. If the 1 1/2 percent bonds are to be delivered for the account of other than
the registered payee or the assignee of the 4 percent bonds surrendered, the assignment should
be to "Home Owners' Loan Corporation in payment for Home Owners' Loan Corporation
The bonds
13/ percent bonds of Series F-1939 to be delivered to
must be delivered at the expense and risk of the holder. Final interest due will be paid on
July 1, 1935, by checks issued in favor of registered payees and for this purpose the persons
entitled by assignment to receive the bonds of Series F-1939 will be considered the registered
"

payees.

GENERAL PROVISIONS

Federal Reserve banks, as fiscal agents of the United States, are authorized and requested
to receive subscriptions, to make allotments as directed by the Secretary of the Treasury, to
issue allotment notices, to receive payment for bonds allotted, to make delivery of bonds on fullpaid subscriptions allotted, to issue interim receipts if required, and to perform such other acts
as may be necessary to carry out the provisions of this circular.

The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering which will be promptly
communicated to the Federal Reserve banks.

HENRY MORGENTHAU, JR.,
Secretary of the Treasury.

GOVERNMENT PRIETISE OFFICE -

117

REP

TELEGRAM SENT
GRAY

May 21, 1935

1p. m.
AMERICAN CONSUL

SAIGON (FRENCH INDO-CHINA)
FROM TREASURY.

You will receive from Banque Franco Chinoise full

set of "on board" bills of lading of the Oceanic and
Oriental Navigation Company covering shipment per
SS GOLDEN DRAGON of about 4,500,000 standard ounces

silver consigned to Federal Reserve Bank of New York

together with U. S. Consular Certificate and Weight List
in triplicate. Cable advice of receipt of documents
indicating amount of silver shipped. Forward documents
direct to Federal Reserve Bank of New York by registered
mail.
HULL

(FL)
EA:DJW

118

MG

GRAY

Saigon

Dated June 1, 1935.
Rec'd 10:50 a.m.

Secretary of State,
Washington.

June 1, 8 p.m.

Referring to your telegram of May 21, 1 p.m.
FOR TREASURY.

Bill of lading, Consular invoice, weight list in
triplicate delivered to this Consulate by Banque Franco
Chinoise. Documents show 4,506,649 standard ounces

silver shipped.
ROBERTS
WWC

Presidents reto message on bone19
May 22', 1935

MR. SPEAKER MEMBERS OF THE HOUSE OF REPRESENTATIVES:

Two days ago a number of gentlemen from the House of Representatives
called upon me and with complete propriety presented their reasons for ask-

ing me to approve the House of Representatives Bill providing for the
immediate payment of adjusted service certificates. In the same spirit of
courtesy I am returning this bill today to the House of Representatives.
As I told the gentlemen who waited upon me, I have never doubted the good
faith lying behind the reasons which have caused them and the majority of

the Congress to advocate this bill. In the same spirit I come before you
dispassionately and in good faith to give you, as simply as I can the
reasons which compel me to give it my disapproval.

And I am glad that the Senate by coming here in joint session gives
me opportunity to give my reasons in person to the other House of the
Congress.

As to the right and the propriety of the President in addressing
the Congress in person, I am very certain that I have never in the past
disagreed, and will never in the future disagree, with the Senate or the
House of Representatives as to the constitutionality of the procedure.
With your permission, I should like to continue from time to time to act
as my own messengers

Eighteen years ago the United States engaged in the World War. A
Nation of one hundred and twenty million people was united in the purpose

of victory. The millions engaged in agriculture toiled to provide the raw

materials and foodstuffs for our armies and for the nations with whom we
were associated. Many other millions employed in industry labored to create
the materials for the active conduct of the War on land and sea.
Out of this vast army consisting of the whole working population
of the Nation, four and three-quarter million men volunteered or were drafted
into the armed forces of the United States. One-half of them remained within
our American continental limits. The other half served over-seas; and of
these, one million four hundred thousand saw service in actual combat.
The people and the Government of the United States have shown a

proper and generous regard for the sacrifices and patriotism of all of the
four and three-quarter million men who were in uniform no matter where they
served.

At the outbreak of the War, the President and the Congress sought
in order to guide the grantand established an entirely new policy

ing of financial aid to soldiers and sailors. Remembering the unfortunate
results that came from the lack of a veterans' policy after the Civil War,
they determined that a prudent and sound principle of insurance should
supplant the uncertainties and unfairness of direct bounties. At the same
time, their policy encompassed the most complete care for those who had

suffered disabilities in service. With respect to the grants made within the
lines of this general policy, the President and the Congress have fully recog-

nized that those who served in uniform deserved certain benefits to which
other citizens of the Republic were not entitled, and in which they could
not participate.

-2-

In line with these sound and fair principles, many benefits

have been provided for veterans.

During the Tar itself provision Fas made for government allowances for the families and other dependents of enlisted men in service.
Disability and death componsation was provided for casualties in line of
duty.

The original provisions for these bonefits have been subsequently changed and liberalized many times by the Congress. Later generous
presumptions for veterons who became ill after the termination of the

War were written into the statute to help veterans in their claims for

disability. As a result of this/legislation for disability and for

death compensation, one million one hundred and forty thousand men and
women have been benefit.c.
During the War the Government started a system of voluntary
insurance at peace-time rates for men and women in the service.

Generous provision has been made for hospitalization, vocation-

al training and rehabilitation of veterans. You are familiar with this
excellent care given to the sick and disabled.

In addition to these direct benefits, Congress has given
recognition to the interest and welfare of veterans in employment matters,
through veteran preference in the United States Civil Service, in the
selection of emp oyees under the Public Works Administration, through
the establishment of a veterans' employment unit in the Department of
Labor, and through provisions favoring veterans in the selection of
those employed in the Civilian Conservation Corps. Many States have
likewise given special bonuses in cash and veterans' preferences in
state and local public employment.
Furthermore unemployed veterans as a group have benefited

more largely than any other group from the expenditure of the great

public works appropriation of three billion three hundred million dollars

made by the Congress in 1933, and under which we are still operating.
In like manner the new four billion dollar Work Relief Act seeks to give
employment to practically every veteran who is receiving relief.
e may measure the benefits extended from the fact that there
has been expended up to the end of tho last fiscal year more then
7,800,000,000 for these items in behalf of the veterans of the World

War, not including sums spent for home or work relief. with our current
annual expenditures of some $450,000,000 and the liquidation of. outstanding obligations under Term insurance and the payment of/service

certificates, it seems safe to predict that by the year 1945 we will have

expended $13,500,000,000. This is a sum equal to more than three-fourths

of the entire cost of our participation in the World War, and ten years
from now most of the veterans of that war will be barely past the half
century mark.

Payments have been and are being made only to veterans of the
World Var and their dependents, and not to civilian workers who helped
to win that War.

In the light of our established principles and policies let us

consider the case of adjusted compensation. Soon after the close of the
War a claim was made by several veterans' organizations that they should
be paid some adjusted compensation for their time in uniform. After a
complete and fair presentation of the whole subject, followed by full
dobate in the Congress of the United States, a settlement was reached
in 1924.

-3-

This settlement provided for adjustment in compensation
during service by an additional allowance per day for actual service
rendered. Because cash payment was not to be made immediately, this
basic allowance was increased by 25% and to this was added compound

interest for twenty years, the whole to be paid in 1945. The result of

this computation was that an amount two and one-half times the original
grant would be paid at maturity.
Taking the average case as an example, the Government acknowl-

edged a claim of $400 to be due. This $400, under the provisions of
the settlement, with the addition of the 25% for deferred payment and
the compound interest from that time until 1945, would amount to the
sum of $1,000 in 1945. The veteran was thereupon given a Certificate
containing an agreement by the government to pay him this $1,000 in

1945 or to pay it to his family if he died at any time before 1945.
In effect, it was a paid-up endorment policy in the average case for
$1,000 payable in 1945, or sooner in the event of death. Under the
provisions of this settlement, the total obligation of 11400000000
in 1924 produced a maturity or face value of 3,500,000,000 .in 1945.

Since 1924, the only major change in the original settlement

was the Act of 1931 under which veterans were authorized to borrow up

to fifty per cent of the face value of their certificates as of 1945.

Three million veterans have already borrowed under this provision an
amount which, with interest charges, totals $1,700,000,000.
The bill before me provides for the immediate payment of the
1945 value of the certificates. It means paying 31,600,000,000 more

than the present value of the certificates. It requires an expenditure
of more than `2,200,000,000 in cash for this purpose. It directs pay-

ment to the veterans of a much larger sum than was contemplated in the

1924 settlement. It is nothing less than a complete abandonment of that
settlement. It is a new straight gratuity or bounty to the amount of
$1,600,000,000. It destroys the insurance protection for the dependents
of the veterans provided in the original plan. For the remaining period
of ten years they will have lost this insurance.

This proposal, I submit, violates the entire principle of

veterans' benefits so carefully formulated at the time of the war and
also

of 1924.

the entire principle of the adjusted certificate settlement

What are the reasons presented in this bill for this fundamental
change in policy? They are set forth with care in a number of "whereas"
clauses at the beginning of the bill.
The first of these states as reasons for the cash payment of

these certificates at this time: that it will increase the purchasing
power of millions of the consuming public; that it will provide relief
for many who are in need because of economic conditions; and that it

will lighten the relief burden of cities, counties and states. The

second states that payment will not create any additional debt. The
third states that payment now will be an effective method of spending

money to hasten recovery.

These are the enacted reasons for the passage of this bill.
Let me briefly analyze them.

First, the spending of this sum, it cannot be denied, would
result in some expension of retail trade. But it must be noted that
retail trade has already expanded to a condition that compares favorably
with conditions before the depression. However, to resort to the kind

-

of financial practice provided in this bill would not improve the con-

ditions necessary to expand those industries in which we have the
greatest unemployment. The Treasury notes issued under the terms of this
bill we know from past experience would return quickly to the banks.
We know, too, that the banks have at this moment more than ample credit
with which to expand the activities of business and industry generally.

The ultimate effect of this bill will not in the long run justify the
expectations that have been raised by those who argue for it.

The next reason in the first "whereas" clause is that present
payment will provide relief for many who are in need because of economic conditions. The Congress has just passed an Act to provide work

relief for such citizens. Some veterans are on the relief rolls,

though relatively not nearly as many as is the case with non-veterans.
Assume, however, that such a veteran served in the United States or
overseas during the war; that he came through in fine physical shape
as most of them did; that he received an honorable discharge; that he

is today thirty eight years old and in full possession of his faculties
and health; that like several million other Americans he is receiving
from his Government relief and assistance in one of many forms -- I
hold that that able bodied citizen should be accorded no treatment
different from that accorded to other citizens who did not wear a
uniform during the World Var.

The third reason given in the first "whereas" clause is that
payment today would lighten the relief burden of municipalities. Why,
I ask, should the Congress lift that burden in respect only to those
who wore the uniform? Is it not better to treat every able-bodied
American alike and to carry out the great relief program adopted by

this Congress in a spirit of equality to all? This applies to every

other unit of Government throughout the nation.

The second "whereas" clause, which states that the payment

of certificates will not create an additional debt, raises a funda-

mental question of sound finance. To meet a claim of one group by
this deceptively easy method of payment will raise similar demands for
the payment of claims of other groups. It is easy to see the ultimate
result of meeting recurring demands by the issuance of Treasury notes.

It invites an ultimate reckoning in uncontrollable prices and in the
destruction of the value of savings, that will strike most cruelly
those like the veterans who seen to be temporarily benefited. The
first person injured by sky-rocketing prices is the man on a fixed
income. Every disabled veteran on pension or allowance is on fixed
income. This bill favors the able bodied veteran at the expense of
the disabled veteran.

Waalth is not created, nor is it more equi tably distributed by
this method. A Government, like an individual, must ultimately meet
legitimate obligations out of the production of wealth by the labor of
human beings applied to the resources of nature. Every country that
has attempted the form of meeting its obligations which is here provided has suffered disastrous consequences.

In the majority of cases printing press money has not been
retired through taxation. Because of increased costs, caused by inflated prices, new issue has followed new issue, ending in the ulti-

mate wiping out of the currency of the afflicted country. In a few
cases, like our own in the period of the Civil Mar, the printing of

Treasury notes to cover an energency has fortunately not resul ted in
actual disaster and collapse but has nevertheless caused this Nation
untold troubles, economic and political, for a whole generation.

The statement in this same second "whereas" clause that
payment will discharge and retire an acknowledged contract obliga-

tion of the Government is, I regret to say, not in accordance with
the fact. It wholly omits and disregards the fact that this contract obligation is due in 1945 and not today.

If I, as an individual, owe you, an individual member
of the Congress, one thousand dollars payable in 1945, it is not
a correct statement for you to tell me that I owe you one thousand

dollars today. As a matter of practical fact, if I put 3750 into

a Government savings bond today and make that bond out in your

name you will get one thousand dollars on the due date, ten years
from now. My debt to you today, therefore, can not under the

remotest possibility be considered more than $750.

The final "whereas" clause, stating that spending the
money is the most effective means of hastening recovery is so
ill considered that little comment is necessary. Every authorization of expenditure by the Seventy-Third Congress in its session
of 1933 and 1934, and every appropriation by the Seventy-Fourth
Congress to date, for recovery purposes, has been predicated not
on the more spending of money to hasten recovery, but on the

sounder principle of preventing the loss of homes and farms, of
saving industry from bankruptcy, of safeguarding bank deposits,

and most important of all - of giving relief and jobs through
public work to individuals and families faced with starvation.
These greater and broader concerns of the American people have

a prior claim for our consideration at this time. They have
the right of way.

There is before this Congress legislation providing
old age benefits and a greater measure of security for all

workers against the hazards of unemployment. We are also mooting the pressing necessities of those who are now unemployed

and in nood of immediate relief. In all of this every veteren
shares.

To argue for this bill as a reliof measure is to
indulge in the fallacy that the welfare of the country can be
generally served by extending relief on sens basis other than
actual deserving need.

The core of the question is that a man who is sick or
under some other special disability because he was a soldier
should certainly be assisted as such. But if a man is suffering
from economic need because of the depression, even though he is

a veteran, he must be placed on a par with all of the other victims
of the depression. The veteran who is di sabled owes his condition
to the war. The healthy veteran who is unemployed owes his troubles

to the depression. Each presents a separate and different problem.
Any attempt to mingle the two problems is to confuso our efforts.

Evon the voterun who is on relief will benefit only
temporarily by this measure, because the payment of this sum to

him will remove him from the group entitled to rolief if the
ordinary rules of relief agencies are followed. For him this

measure would give but it would also take away. In the end he
would be the loser.

The veteran who suffers from this depression can best

be

aided by the rehabilitation of the country as a whole. His

country with honor and gratitude returned him at the end of the

War to the citizenry from which he came. He became once more a

member of the great civilian population. His interests becamo
identified with its fortunos and also with its misfortunes.

-66

Some years ago it was well said by the distinguished Senior
Senator from Idaho that "The soldier of this country cannot be aided except

as the country itself is rehabilitated. The soldier cannot come back

except as the people as a whole come back. The soldier cannot prosper
unless the people prosper. He has now gone back and intermingled and become

a part of the citizenship of the country; he is wrapped up in its welfare
or in its adversity. The handing out to him of a few dollars will not
benefit him under such circumstancer, whereas it will greatly injure the
prospects of the country and the restoration of normal conditions."

It is generally conceded that the settlement by adjusted compensa-

tion certificates made in 1924 was fair and it was accepted as fair by the

overwhelming majority of World War Veterans themselves.

I have much synpathy for the argument that some who remained at
home in civilian employ enjoyed special privilege and unwarranted remunera-

tion. That is true -- bitterly true -- but a recurrence of that type of

war profiteering can and must be prevented in any future war.

1 invite the Congress and the veterans with the great masses of

the American population to join with ne in progressive efforts to root a
recurrence of such injustice out of American life. But we should not destroy
privilege and create new privilege at the same time. Two wrongs do not

x

make a right.

The herculean task of the United States Government today is to take

care that its citizens have the necessities of life. We are seeking honestly
and honorably to do this, irrespective of class or group. Rightly, we give
preferential treatment to those men who were wounded, disabled, or who

became ill as a result of var service. Rightly, ue give care to those who
subsequently have become ill. The others - and they represent the great

majority - are today in the prime of life, are today in full bodily vigor.

They are American citizens who should be accorded equal privileges and equal

rights to enjoy life, liberty and the pursuit of happiness no less and
no more.

It is important to make one more point. In accordance with the
mandate of the Congress, our budget has been set. The public has accepted
it. On that basis this Congress has made and is making its appropriations.
That budget asked for appropriations in excess of receipts to the extent of

four billions of dollars. The whole of that deficit was to be applied for

work relief for the unemployed. That was c alingle minded, definite
purpose. Every unemployed veteran on the relief rolls was included in

that proposed deficit -- he will be taken care of out of it.

I cannot in honesty assert to you that to increase that deficit
this year by two billion, two hundred million dollars will in itself bankrupt the United States. Today the credit of the United States is safe.
But it cannot ultimately be safe if we engage in a policy of yielding to
each and all of the groups that are able to onforce upon the Congress

claims for special consideration. To do so is to abandon the principle

of Government by and for the American people and to put in its place

Government by and for political coercion by minorities. 170 can afford all
that we need; but we cannot afford all that we want.

I_do not need to be a prophet to assert that if these certificates,
due in 1945,are paid in full today, every candidate for election to the
Senate or to the House of Representatives will in the near future be called

upon in the name of patriotism to support general pension legislation for
all veterans, regardless of need or age.

Finally, I invite your attention to the fact that solely from the

point of view of the good credit of the United States, the complete failure
of the Congress to provide additional taxes for an additional expendit ture

of this magnitude would in itself and by itself alone warrant disapproval
of this measure.

I well know the disappointment that the performance of my duty in

this matter will occasion to many thousand of my fellow citizens. I well
realize that some who favor this bill are moved by a true desire to benefit
the veterans of the World War and to contribute to the welfare of the

nation. These citizens will, however, realize that I bear an obligation

-7 as President and as Commander-in-Chief of the Army and Navy, which extends

to all groups, to all citizens, to the present and to the future. I cannot
be true to the office I hold if I do not weigh the claims of all in the
scales of equity. I cannot swerve from this moral obligation.

I am thinking of those who served their country in the Army and
in the Navy during the period which convulsed the entire civilized world.
I saw their service at first-hand at home and overseas. I am thinking of
those millions of men and women who increased crops, who made munitions,

who ran our railroads, who worked in the mines, who loaded our ships during
the War period.

I am thinking of those who died in the cause of America here
and abroad, in uniform and out; I cm thinking of the widows and orphans of

all of them; I am thinking of five millions of Americans who, with their
families, are today in dire need, supported in whole or in part by Federal,
State and local governments who have decreed that they shall not starve.

I am thinking not only of the past, not only of today, but of the years

to come. In this future of ours it is of first importance that we yield

not to the sympathy which we would extend to a single group or class by

special legislation for that group or class, but that we should extend

assistance to all groups and all classes who in an emergency noed the
helping hand of their Government.

I believe the welfare of the Nation, as well as the future
welfare of the veterans, wholly justifies my disapproval of this
measure.

Therefore, Mr. Speaker, I return, without my approval, House
of Representatives Bill No. 3896, providing for the immediate payment

to veterans of the 1945 face value of their adjusted service certificates.

I am returning Bill No.

without my approval. This bill

120

proposes to meet now an obligation that is not due until 1945.
It provides for the immediate payment of the Adjusted Service

Certificates and for the remission of a major portion of the interest
which has accrued on loans made to veterans on their certificates.
It would establish a completely new basis of settlement which in
effect constitutes an additional grant of over $1,600,000,000. It
would require the issuance of currency by the Treasury in an amount
of approximately $2,200,000,000.

I believe that the making of this additional grant at this time
is neither in the interest of the general welfare of the country
nor of the veterans themselves.

During the time of hostilities the veterans of the World War
rendered a service which must ever remain on the pages of history

as a glorious tribute to American manhood. It is my firm belief
that the great majority of our ex-service men are eager to render
the same magnificent assistance in this period of peacetime economic

struggle that they did when the country was at war with a foreign

enemy. I have full confidence that it is their desire to contribute
with all our citizens to bringing about a speedy industrial recovery.
The enactment of this measure would not, in my judgment, contribute

in that direction.
This nation will always deal generously with those who were
disabled in its defense and with the dependents of those who lay

down their lives as protectors of our flag. Payments to veterans
other than the disabled and dependent must ultimately be reflected

in a lessening of benefits to that class.

-2-

121

The Adjusted Service Certificates are endowment insurance

policies intended as a protection to the families of the veterans.
I cannot bring myself to believe that the veterans are willing to
deprive their families of this protection. Experience has shown
that in many cases the proceeds of these certificates have been
upon death of a veteran, the lone barrier standing between the
surviving family and proverty. The advocates of a destruction of
this protection are assuming a very serious responsibility.
The United States Government is today taking care that its
citizens have the necessities of life. We are doing this
irrespective of class or group. In my opinion equity and justice for
all should be our watchwords and no group of any character should

be set apart for special favors or segregated for preferential
treatment.

This method of payment provided in the bill is not in keeping
with our policy of financing Government obligations. Our budget
has been set. The public has accepted it. On that basis our
Securities have been marketed. On that basis our War debt is
being refunded. To upset that budget, to provide for additional
expenditures outside and above it, without provision for additional
revenue with which to meet them, I cannot approve.

We owe a duty to all our people and we are attempting to

fulfill it. We owe a duty to the purchasers of our securities,
and we must respect it. We owe a duty to disabled veterans, and
we are meeting it. We have in the Adjusted Service Certificates
an obligation to all veterans and we shall meet that obligation
when it is due.

CBU - May - 1935

May 22, 1935.
Wednesday.

H.M.Jr:

Hello, Mr. Hoover?

Hoover:

Yes

H.M.Jr:

This is the Secretary of the Treasury speaking.
Yes, Mr. Secretary.

H:

H.M.Jr:

H:

H.M.Jr:
H:

H.M.Jr:

121A

I wanted to ask - I saw in the - on the United Press that it's just released - the Justice Department took up
public
at ten P.M. to protect President
Roosevelt Yes.

Did the President ask you to do that?
No, he did not.
I see.

H:

That was requested by the Capitol Police.

H.M.Jr:

By the Capitol Police.

H:

Yes. Whenever they have any ceremonies at the Capitol
and when the President has appeared

the Chief of the Capitol Police will frequently call and

ask us to send over half a dozen men or more so that they
can be placed in the galleries. That was done yesterday.

H.M.Jr:
H:

called and asked us
Captain, I think his name is
to send over, I think it was six or seven men.
Well, I think the fact that there was publicity given to
it was very unfortunate.
I have not seen that. That, of course, did not emanate

from here.

H.M.Jr:

Yes.

H:

Any information of that kind must have come from the
Capitol; it would not come from here.
I see. Because the Secret Service, who's charged with the

H.M.Jr:

H:

responsibility for protecting the President, don't like
that kind of publicity.
Well, neither do I. I'm very much surprised that anything

was said about it. We have, on many other occasions, had
men at the Capitol, both in the Supreme Court as well as

men in the galleries.
H.M.Jr:

Yes.

H:

And never before has there been any publicity about it, and

-2-

121B

I'm very much surprised that that was given out by the
Capitol, except - the only way that I can explain that
is, I believe that this man who is in charge of the
Capitol
Police is a now man who was recently appointed
them there.
H.M.Jr:
H:

Well, would you mind taking it up with him?

I most certainly will, because those details are naturally
details which we don't like to have anything said about it,
because I think the more secrecy that we can exercise in

those matters the better it is. It only attracts attention

and some public criticism.
H.M.Jr:

Yes.

H:

And I'll certainly be very glad to speak to him about it.

H.M.Jr:

Thank you.

H:

Very glad to.

H.M.Jr:

Goodbye.

H:

Thank you.

May 23, 1935c
Thursday.
H.M.Jr:

121C

Hello.

Operator: He left home; he's on his way to the office.
H.M.Jr:

Hello.

0:

Mr. Jones.

J:

Hello.

H.M.Jr:

Hello, Jesse.

J:

Yes, Henry.

H.M.Jr:

Good morning.

J:

Good morning.

H.M.Jr:
J:

How're you feeling?
Fair.

H.M.Jr:

Jesse, this is absolutely between the two of us, see?

J:

All right.

H.M.Jr:

I just come from the President -

J:

Yes.

H.M.Jr:

And he asked me to look up about Peek's money and when it

J:

Peek?

H.M.Jr:

George Peek.

J:

Yes.

H.M.Jr:

He had $350,000, I think, from N.R.A., I think that's where

expires and all that.

he got it from -

J:

Yes.

H.M.Jr:

And the question was, could he get it out of the four billion eight. Well, the answer is, he can not.

J:

Can not?

H.M.Jr:

No. And the question, can he get it anywhere else, and the
only other place would be out of those banks, and the thought
is that the banks should not finance a statistical organisation of that sise, see?

Jt

Yes.
Mant?

-2
H.M.Jr:

Do you get it?

H.M.Jr:

Should not finance a loss of the three-fifty?
Well, I mean, after -

J:

Did he mention his expense?

J:

H.M.Jr:

He's
got $350,000 which he spent as Trade Advisor to the
President.

J:

I see.

H.M.Jr:

See?

J:

Yes.

H.M.Jr:

Now,
theofquestion
the 16th
June? is, where will he get his money from after

J:

I see.

H.M.Jr:

You see?

J:

Yes.

H.M.Jr:
J:

121D

Now, there is no place, unless he got it out of one of those
import-export things.
Henry, I - at first blush, without discussing it with the
lawyers, I would think it would be a proper function, at
least a defendable one - defensable one - for the export
banks to handle.

H.M.Jr:

Yes, but the President -

J:

You see, it has to do with foreign stuff.
Yes, but wait a minute, the President doesn't want it that

H.M.Jr:

way.

J:

Oh, he doesn't. I see. Well, then I've got to take another
thought.

H.M.Jr:

(Hearty laughter).

J:

All right.

H.M.Jr:

You get me?

J:

I get you.

H.M.Jr: Now, this is absolutely between the President, you and me.
J:

I see. It looks to me like - I see your point.

H.M.Jr: What?

J:

-3I get your point.

121E

H.M.Jr:

Now, you've
banks
financegot
it. to figure that it's outrageous that the

J:

I see. Well, it couldn't be done then.

H.M.Jr:

What?

J:

It couldn't be done, of course.

H.M.Jr:

Well, I mean -

J:

I see the point.

H.M.Jr:

Now, there's no reason why the bank shouldn't pay for
George Peek's salary, -

J:

That's right.

H.M.Jr:

See?

J:

I see.

H.M.Jr:

J:

you,

As President of the bank, but his statistical organization,
that work could be done, if it had to be done, if the Presi-

dent feels it should be done by the Department of Commerce.
I see.

H.M.Jr:

They're doing it anyway.

J:

I see the point and I'll check in on that.

H.M.Jr:

What?

J:

And you -

H.M.Jr:

But, this is absolutely between us.
I appreciate that.

J:

H.M.Jr:

Between the President, you and me.

J:

All right, I'll - it'11 be safe.

H.M.Jr:

All right.

J:

Henry,

H.M.Jr:

Yes.

J:

When do you want to talk with me about

H.M.Jr:

Well, I was waiting for some of the memos from you.

May 16584

-4at

Unmittee

with

J:

From us?

H.M.Jr:

Yes.

J:

Well, I've got them ready.

H.M.Jr:

Well -

office

the
it

sao

A.M.

as

121F

File

PRESENT

the

J:

And I'll send them over or bring them over or do anything
at
all. Suppose
we don't - would it be all right for
Mulligan
to -

H.M.Jr:

Let
Mulligan
it out
with Bell and if they get together,
why,fight
it's all
right.
Fine, I'll turn them loose together.

J:

H.M.Jr:

O.K.

J:

Thank you, Henry.

Reneares

is

Statistics,

read

$150,000,000

octable

Depts

1937
on

it
is

both

Board

breathing spece.

life

air Faeling

whether the market dight

SAID share sounting in
Goolidge rebarked that we haven't ralond a

May 22, 1935.

122

The Open Market Committee met with the Secretary of the

Treasury in his office at 11 A.M. Those present were;
Henry Morgenthau, Jr. Secretary of the Treasury,
T.J. Coolidge, Under Secretary of the Treasury,
Marriner S. Eccles, Governor, Federal Reserve Board,
W.R. Burgess, Deputy Governor, Federal Reserve Bank of New York,

R.A. Young, Governor, Federal Reserve Bank of Boston,
G.J. Seay, Governor, Federal Reserve Bank of Richmond,

D.W. Bell, Bureau of the Budget,
George C. Haas, Bureau of Research & Statistics,
C.B. Upham.

Mr. Coolidge read a memorandum in which he suggested the

selling of bonds on a bid basis, about $100,000,000 each two weeks.

Mr. Morgenthau explained we would continue the sale of bills
with the bonds being used to finance the unbalanced budget.

Mr. Burgess asked when the Social Security legislation would

begin to bring in large amounts.
Mr. Haas and Mr. Bell indicated that it would not be before
1937 and Mr. Coolidge interposed the statement that he was not

placing any reliance on it at this time.
Mr. Morgenthau said he had a sort of a feeling that we have

driven the market pretty hard and that it might be well for both
of as to have a breathing space. He wondered whether his feeling
was personal or whether the market might have a similar weariness.

Mr. Burgess said there was something in the idea.
Mr. Coolidge remarked that we haven't raised much new
and

for the

-2-

123
money and that conversions are after all not so much of a strain.
Mr. Burgess said the market is in good shape.
Mr. Ecoles commented that as Treasury cash runs down someone

else has funds for investment and this tends to make a favorable
market.

Mr. Seay said that the rate of exchange on the 2-7/8 may
indicate some pressure.

Mr. Coolidge said that the 4-1/4's, held by small investors
were not being exchanged as rapidly as the others but the conversion
as a whole is 82 to 83% successful, which he regards as very good.
Moreover, Mr. Coolidge, said, the Government level and corporation

bond level are not out of line.
Mr. Haas explained one of the charts presented by stating that
they had broken down the 30 bonds of Moody's and taken 9 of them

which are uncallable. The Governments had gone up parallel with
these 9.

Mr. Coolidge remarked that former charts had been confused by

the inclusion of callable bonds.
Mr. Morgenthau said that inasmuch as there were maturities in

1939 of only $1,250,000,000 he feels fairly certain we could put
in $700,000,000 or $800,000,000 in June or August of that year and

still have a reasonable maturity of $2,000,000,000 for the year.

He indicated that he is very much interested in trying to sell
$100,000,000, at auction until September -- offer a conversion
of the called Fourths right after Labor Day. Thus the Treasury would
not be in the market from June 15th to Labor Day except for the

regular bill offerings and for the bonds offered at auction.
this would

-3-

124

Mr. Eccles added the information that this would be the

last conversion offer until 1940, which is the first time that
any Treasury bonds become callable.

Mr. Morgenthau said that it would be notice to private
business that the Treasury is out of the market for a period.
Mr. Coolidge said that he would want to see how the two
weeks offerings of bonds went and if the bond market was not good
he would want to try a note.

Mr. Eccles said that he saw advantages to the new program.
At present, he said, everybody waits for the event which comes

once or twice a year and it may hit at a bad time. He said he
thought the banks might not like it.
Mr. Coolidge said he would like to try it now on the bonds
that are at a premium or with a new issue. The amount of two or
three outstanding issues is small and on them the Treasury will
pay less and the banks will make less.
Mr. Eccles said that it would not work so well ona premium
bond -- that the Treasury would have to pay more, but Mr. Coolidge
remarked that the Treasury would have to pay less than on a new
issue.

Mr. Burgess said he was not sure.

Mr. Coolidge said that if it was done at all it must be done
on a premium bond since we can't sell below par. He thought,

however, that a 2-3/4 offering might be sold at 1001. The premium
on the outstanding bonds, and he recommended the offeringsons
of the
time

3tg of 1946-48, would be about st.

Mr. Coolidge said this would make the Government pay a little

125
more interest but would keep the principal at a lower level.
Mr. Morgenthau asked whether a 41 year note would be better
than 41.

Mr. Burgess said that there was little difference but what
there was would be in favor of the 41.
Mr. Morgenthau asked if the rate should be 1-3/8 and Mr.
Burgess thought that was pretty close.
Mr. Morgenthau said he didn't mind squeezing a little now

that he thought we ought to shave the rate occasionally.
Mr. Coolidge thought it a good chance to squeeze and
commented that we ought to get 1/8 better than the HOLC.
Mr. Morgenthau said that we were generous last time because
we needed to be then.

Mr. Coolidge thought there was not so much need to be generous
with small issues.

Mr. Burgess said it was a little early to say but the market
looks now as if it would stand 1-3/8. He agreed with Mr. Haas
that that could not really be regarded as a squeeze.
Mr. Burgess said he would like to see a little more discussion
of whether to offer bonds on a bid basis.
Mr. Young said that as he sees it there are three ways to go.
First, rely on the bill market, second, adopt Mr. Coolidge's suggestion, or, third, put out a 41 year note at 1-3/8. He said that he
inclined toward the second method for a small issue. He thinks
it will be sold and at a close figure. Many people have money to
invest. The Boston Reserve Bank bond man thinks that a long time

bond might be difficult now. In Mr. Young's opinion there is

-5-

126

everything to gain and nothing to lose by trying out the idea
of bonds at auction.

Mr. Coolidge said he was confident that they would sell
close to the market but the market may be forced down a little.
Mr. Morgenthau said we face the alternative of asking for
$1,000,000,000 new money in one lump or using the auction device.

Mr. Bell said we need $1,000,000,000 but it need not all
come from a new issue -- that Baby Bonds, bills and postal savings
will bring in perhaps $200,000,000 or $300,000,000.
Mr. Morgenthau said that we don't know within $1,000,000,000

how much will be spent within the next three months. Bonds at

auction will help us until the Works Relief program gets going.
Mr. Burgess commented that conversely it does create uncertainty
in the market as to how much is coming. If it is all raised on
June 15th there is less uncertainty. On the question of amount, Mr.
Burgess though we would get better bids on the $100,000,000 than
on the $200,000,000.

Mr. Young asked if one firm would get the whole issue.
Mr. Burgess thought not. He agreed that New York dealers and

bankers will get most of it.
Mr. Eccles said small banks might complain about not getting
a look in.

Mr.Coolidge thought the bidding would be close and the profits
small and so complaints not strong.

Mr. Burgess said we mist recognize that this will give New York

a tremendous advantage in getting and distributing at a small profit.
The traditional method gives a wider distribution among banks and
investors.

-8-

127

Mr. Morgenthau commented that the Treasury would get a better

deal and Mr. Burgess agreed "when the market is right".

Mr. Seay said he would like to try the new idea for two
reasons. First, we would get in long terms as cheaply as possible,
and, second, he likes the competitive basis.
Mr. Ecoles said he favors the idea.

Mr. Bell thinks the principle is fine.
Mr. Morgenthau said he would like to try it.
Mr. Burgess said he would try it and that it would go.
It was agreed to make an offer on next Monday of the 3's
1946-48, with the expectation of having bids around 103
Mr. Coolidge said he thought this was the best one to use
and that it would take pressure off of the longer bonds.
Mr. Eccles, Mr. Young, Mr. Burgess and Mr. Seay continued

the discussion of details in Mr. Coolidge's office.

128
May 22nd

I think it was at lunch with the President on May 6th
that he told me in the strictest confidence what his plan
was on the bonus. He said that Jack Garner had told him and
convinced him that it was much better to get the bonus out
of the way this year and not have it as a political issue
staring him in the face next year; that if he acquieWed in
having his bonus overridden that everybody would forget
about it in three or four days and he would have it behind
him. I got the distinct impression from listening to the
President that he had accepted Jack Garner's advice on this
subject. I don't remember any important discussion about
this until Thursday, May 16th.
I called up the White House and wpoke to one of the

unhers and asked him whether the President wanted to have me
work with him on his bonus message that evening. Word came

back that he wanted to see me at 9:15 that night. When I
got to the White House and went up to the oval room, Miss
Lehand was there. The President said I am in a very bad
humor and I said what is the matter and he said, oh, my

sinus hurts me and for a while he acted like a spoiled child

who was in a bad humor.

First he read what Ray Moley had prepared for him which
was not good. He then looked over the notes that had been
given to him by General Hines and then read the two pages
that had been prepared for me for him by Upham. I had told

him previously that this speech must be written by Franklin
D. Roosevelt and nobody else. He started in to dictate
around 9:30 or 9:45 and kept it up steadily without any
interruptions until 11:15. During this time he drank two
long drinks of Canadian Dry Gingerale and Gin. From 11
o'clock on Missy started to figit and said that she could not
take dictation much longer and had to be excused. Finally

she was excused and then came back and continued to take dic-

tation. As the speech went along I made a few suggestions
all of which, as I remember, he took.
Miss Lehand then excused herself and from then until
five minutes to one I argued with him along the lines that he
should make this a fight to the finish; that he should not
acquiesce in having his veto overridden; that this was such
great speech that he ought either to go up and deliver it
himself or go on the air Sunday night. He said he thought
it would be considered discourteous for him to go on the air
Sunday night - that Congress would be hurt. I told him that
I thought he should because he would deliver his message to
an unsympathetic cold group; that the House would immediately
vote to override his veto and that he would not get a good
break on his publicity. I kept pacing up and down in front
a

of him and making one campaign speech after another, and

2

129

urged him to disregard the advice of Jack Garner and make a

powerful appeal not to have his veto overridden. Finally his
face lit up in a great smile, he raised his two fists in the
air and shook them and said, my God, if I win I would be on
the crest of the wave. I saw that I convinced him and I
stopped arguing.

I said, now I want just 60 seconds and I will not have

to

come around to see you and keep the appointment you have

given me for tomorrow morning. I am going to testify before
Carter Glass and I want to say that I think the Government
should buy the stock in the Federal Reserve System. Is it

agreeable to you. He said, yes. I do not believe we

actually discussed it more than just 60 seconds.

I left terribly excited myself and felt as though I

was riding on the crest of the wave because up to that ovening
there was no question that he intended to let Congress override his veto.

Finday, May 17th, a little after 12, I went to his office

and there were present McIntyre, Earley and Moley. The President spoke about to idea of his going on the radio Sunday

night. Earley was opposed to it because he said that he felt
that Congress would take it as an insult that he gave out his
veto message to the public or even discuss it before actually
sending it up. Earley argued for his personally taking it to
Congress as against doing it Sunday night. As I remember
Moley did not contribute anything on the debate. McIntyre
told me very heatedly that I was all wrong, that he guessed
that Jack Garner knew more about politics than I did and implied that I was advising the President badly. I said I do
not give a whoop what Jack Garner said. I thinkover
thatand
this is
the thing for the President to do. Earley came
stood behind my chair and after the President argued back and
forth some more I finally said, well I am convinced that it
would be better for the President to address Congress on Monday than it would be for him to go on the air Sunday night.
Earley slapped me on the back and said, good boy Henry, and

that ended the argument. The President then said, now don't
tell this to anybody I will announce it at my press conference.
We then sat around for about half an hour and the President
read us his speech. Again Moley did not say much. About one
o'clock the President said, I am awfully sorry I cannot have
the two of you for lunch because I am having Dr. Elliot. I

kind
know
where
I will
of well,
made Iadon't
face and
said,
take me
to

go for lunch, and Moley said, well, Henry, you can
lunch and I still made a face and the President said, well
you better all have lunch with me. Moley said he had a
terrible headache and would go and lie down and I asked the
President if he wanted me to come back at 5:30 and he said, I

3

130

will call up and let you know later on. He did not call

up until 6 o'clock at the house and then said, Ray has one
of his terrible headaches and I think you better not come
down because I want to work with him alone. I subsequently
learned that General Hines was there and the President told
me the following story himself a couple of days later. He
said that along the middle of Friday afternoon Moley sent him
word that he was going back to N.Y. because there is no use
of his staying there as the President was going to use
Henry's speech. The President urged him to stay and felt

that it would be better if I would not be there.
I think it was Friday afternoon when the President
telephoned me and said, I wish you would arrange for the two
Elinor's and yourself to join me on the boat Sunday noon. I
will then work on the speech. My Elinor went to the farm
and I arranged for Eleanor Roosevelt that I would fly her
down. I subsequently got word from Captain Brown, the
President's naval aid, that the President wished us to leave
here directly at 11:30 so that we could be along side his
boat at 12. Everything went off as per schedule and on the
boat were Judge and Mrs. Rosenman, the President's military
aid and his wife and his naval aid. It was a beautiful day
and both the President and Mrs. Roosevelt were in a grand
humor. As soon as I got on board the President insisted that
I take his fishing rod and fish a while as he said he wanted
to cut out some stamps. Before lunch I asked him if he was
going to give us a drink and he said, no, not in the middle

of the day - it makes me too sleepy and I can't work.
I asked him before lunch whether sometime in the afternoon I could have 10 or 15 minutes with him absolutely alone
and he said, sure. As soon as lunch was over he announced to
everybody, I want to work with Henry, please everybody leave
us alone. Miss Lehand sat down and he said quite disagreeably,

I want to be alone with Henry. Quick as a flash I said,
what I have to say I would like Missy to hear and please let
her stay - and she did. I then went on to tell the President
that I thought it was most important that after he made his
speech that there must be follow-up work done and I wanted to
know if it was agreeable to him if I contacted various organizations and tried to get them to carry on after his speech.
He said, Henry, I give you carte blanche to do anything that
you want, and I said, fine.
Missy then left us and we then went over his original
copy and General Hines' suggestions. In practically every Hines case
the President's original dictation was better than what for
did. I again made a few suggestions about taxes to pay
the bonus strengthening a little bit his talk against to inflation.
By this time the President was all set and determined go
tight down the line with an honest-to-God veto message.

4

131

We must have worked somewhere around an hour or an

hour and a half together. Before Missy left she said
don't you want Sam Rosenman to help and again the President
very emphatically said, no. Sam walked by us a couple of
times giving the President plenty of chance to see him, but
he didn't. I then went down into one of the cabins and
went to sleep for about an hour and a half. When I came up
I found the President had been working ever since I left
him on his mail with Miss Lehand, and I think Missy did
more actual work in the last three days than she did in the
last three years and she said as much.

I asked the President whether he was going to give us a

drink and he said, yes, let's have "old fashions" and tell

the Colonel to make them doubly strong because each of us
can only have one-and believe me they were double strength.

I drank half of mine and my nose began to tingle and I gave
the rest of it to the Colonel and he drank it. We then had
a cold buffet supper and we drove back from Annapolis to
Washington. The President sat in the front seat and I sat
in the back seat next to Mrs. Roosevelt.

6

132

May 83rd
Saw

the President. He and Dent fintensia life breakfast

Wednesday, May 22nd, over the telephone in the morning
I asked the President how his speech was and whether he made

and

any changes and he said practically none, but he said I want
to read you one line which he did and asked me whether it was

all right. Iissaid
was.said 600ml the Be
ALLit the

TOB

DOE was Father Coughlin said to N.Y. said yes,
said every time I see & Priest validing on the street have
a every Seeling and I can't help but then or Futher Coughbur,

Re said, 11 this keeps an such longer I term to the
file that I have on Father Coughlin where H Bas the
personally and I may send for the three Cardinels kpatolic
delegate sen shop them the attacks that Fakes has
sade on the Sovareign or the United States the Prest
denty and ask them how that jibes with thats Cheery chat the
charch should have 1525 Ambassador in usel equation

I than rest over wy financing with his BUT the bart

Too months and explained 18 to Him and be 102 I

be

said, you know 1£ they sand me the so-called three-beadad

bones bill which will permit you to choose how to finance the
bones in three ways

greenbacks

2

bonds

$ take the monax CALE of the force
Class and Byrd 8YS doing to switch their

this bill on the theory that I should take
the four billion eight. If Glass and Baned
will pass and then, the President said return
I and going to tell the country that I have

make

my choice and I EL going to pay the bottes our all the

billion eight which will leave about will 200 for TOlief purposes and every san who loses his Job an relief you
joots can thank the veterans lobby in Washington - and I added

members of Congress who Book their orders from with
smile of Crdumb he sold, what do you think of that, and I
said oh you devil, and he roared I did sone anick thinking
and £ said, or do not see how anybody can criticize you for
doing this. And, be said. I will particularly drive attention
to the senators who switched their vote. I sale, alter all,
this thing will shift from hour to hour and VH will 1998 to
Match 10 Very closely Be said, of course the will,

133
May 23rd

Saw the President. He had just finished his breakfast
and had not had time to read the newspapers. I pointed out
to him some of the good editorials and he seemed very much
pleased - very calm and quiet. The only thinkg he said was
did you see that General Schall after my address went back
to the Senate and attacked me - but nobody paid any attention. That is all he said about the speech. He said did you
see what Father Coughlin said in N.Y. and I said yes, and I
said every time I see a Priest walking on the street now I have
a funny feeling and I can't help but think of Father Coughlin.
He said, 1f this keeps up much longer I am going to used the
file that I have on Father Coughlin where he has attacked me
personally and I may send for the three Cardinals and Apostolic
delegate and show them the attacks that Father Coughlin has
made on the Sovereign of the United States, namely the President, and ask them how that jibes with their theory that the
church should have an Ambassador in each country.

I then went over my financing with him for the next
few months and explained it to him and he o.k'd it. Then he
said, you know if they send me the so-called three-headed
bonus bill which will permit me to choose how to finance the
bonus in three ways

1 - greenbacks
2 - bonds

3 - take the money out of the four billion eight
Glass and Byrd are going to switch their votes and vote for
this bill on the theory that I should take the money out of
the four billion eight. If Glass and Byrd switch, the bill
will pass and then, the President said rather tremendously,
I am going to tell the country that I have been forced to make
my choice and I am going to pay the bonus out of the four
billion eight which will leave about one billion eight for relief purposes and every man who loses his job on relief projects can thank the veterans lobby in Washington - and I added
members of Congress who took their orders from them. With

a smile of triumph he said, what do you think of that, and I
said, oh you devil, and he roared. I did some quick thinking
and I said, I do not see how anybody can criticize you for
doing this. And, he said, I will particularly draw attention
to the senators who switched their vote. I said, after all,
this thing will shift from hour to hour and we will have to
watch it very closely. He said, of course we will.

133 A
DRAFT

Memorandum of conference held in Secretary Morgenthau's

office at 4:45 Thursday, May 23, 1935.

At today's meeting of the Works Allotment Committee the
question was raised by Mayor La Guardia of New York as to the
policy of the United States Government with respect to making
loans and grants to municipalities for public works in connection with the Work Relief Program.
A resolution was before the committee authorizing loans

and grants on a basis of 50-50, the loans to bear interest at
the rate of 3.80%. The theory behind this resolution was that
by fixing this rate of interest and the Government making a
50% grant, a large part of the municipalities would be in a
position to sell their bonds privately at a rate lower than that
fixed by the Government. This would result in a substantial
part of the Government funds going for grants and would thereby
reduce the amount which the Government could expect to be eventually returned. If all municipal loans could be sold privately
it would result, assuming that the amount of $900,000,000 fixed
in the limitation in the Act was used for this purpose, in the
Government making an outright gift to the States of the full
amount specified and the States borrowing $900,000,000 privately,
the Government getting nothing back.

The Secretary raised the question as to whether the rate
fixed in the resolution was not too high, and also called attention to the President's many statements to the effect that he
expected to get a considerable part of the relief money back.
The Secretary stated that if programs of this character were
approved the Government could expect to get nothing back. The
President asked the Secretary of the Treasury to give the matter
consideration and let him know within the next 24 hours as to the
manner in which grants and loans to States should be handled.
After the allotment committee meeting, the Secretary of
the Treasury called a conference in his office in the Treasury.
There were present besides the Secretary, Under Secretary
Coolidge, Mayor La Guardia, Mr. Frank Walker, Colonel Hackett,
Mr. Foley and others from the Public Works Administration,
Mr. Oliphant and Mr. Bell.
There was a great deal of discussion back and forth as
to whether the policy of the United States Government should be
to make grants and fix the rate of interest on a basis which
would encourage private borrowing or whether the policy should be
on such a basis as to throw the burden on the Federal Government
for both grants and loans. In the first case the Government

would and in the second case the Government

would
stand
back
get nothing
a chance back
getting 50% of the amount of with the
loan. Mr. Coolidge stated ofthat
even in the second case a

rate of 3% the Government might be able to sell a great many of

the municipal bonds at par or slightly less.

133B

-2The Secretary stated that he would prefer a grant of
not more than 50, and possible 40, per cent plus a loan of 50
or 60 per cent at a rate of 3%. Mr. Foley argued rather ex-

tensively for the principle stated in the resolution of the

committee which he contended would put out more money because

the cities would be encouraged to borrow privately if they
could possibly do so, and that under his scheme there was a
possibility of carrying on public works to the extent of

$1,800,000,000 instead of $900,000,000 under the Secretary's

plan. The Secretary stated he realized this, but he thought
principle which the President had declared
he the expected to get large portion publicly should that
accomplished and in order to do this it would be necessary to
have a part of the money in the form of loans rather than all
of it in the form of grants.

a of the funds back be

After a great deal of discussion the Secretary talked
to the President and the President said to have it put up to

him
tion. in the form of a memorandum, which he would give considera-

May 24, 1935.

The Secretary conferred with the President this morning regarding the matter and advised him that after considering
the matter over night he was fully convinced that the Government
was too generous with the grant and that the grant should be 40
percent and the loan 60 per cent, with a rate of interest of
3%. The President asked the Secretary to request Frank Walker
to contact Mayor La Guardia and advise him of the views of the
Secretary of the Treasury.

It was finally agreed that the rate of interest on loans
for projects of States, Territories, etc. would be 3% and that
the amount of the grant for the project would be 45% of the cost
of such project. The attached release explains the decision
arrived at between the President and the Secretary.

RATE

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1935.

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134

FEDERAL RESERVE BANK

135

Of New York

Date May 17, 1935.

OFFICE CORRESPONDENCE

Subject

To CONFIDENTIAL FILES

Telephone conversation

with Banque de France

From L. W. Knoke

Mr. Cariguel called at 11 o'clock this morning.
He stated the purpose of his call was to ask "whether our
people would be likely to buy francs against dollars and
take gold for it". I answered that I would speak to Washington about it and let him know what the decision was. He
then inquired whether I could give him the name of the
French bank to which I had, during my two recent telephone
conversations, referred as the principal seller of francs.
I told him in strictest confidence it was the Societe Generale. To me this question was significant and indicative
of a new feeling of uneasiness on Cariguel's part because
heretofore he had not seemed particularly interested in the
fact that French banks were sellers of francs.
I inquired as to the market activities of the
British fund and Cariguel stated that the fund had operated
moderately this morning, heavily this afternoon, was out at
the moment, but was expected to resume its operations later
in the day.
#

I called Mr. Lochhead and reported to him on this
conversation. Lochhead subsequently called back to say that
he had spoken to the Secretary of the Treasury who was prepared to have the Banque de France sell dollars as offered
by him through Mr. Crane on April 9 (that is $5,000,000 at
658 or better).
#

I called Mr. Cariguel at noon today to let him
know that I was authorized by Washington to say that if
necessary we would buy francs in this market today after
Paris was closed, at 658; also that he might expect to receive an order from us tonight for the sale of dollars at
the same rate, to be in force tomorrow morning in Paris before our opening. I pointed out that this was in line with
the telephone conversation which Mr. Crane had had with him
on April 9, 1935. Mr. Cariguel seemed to be satisfied and
thanked me.

LWK:B

FEDERAL RESERVE BANK
OF NEW YORK

May 17, 1935.

Dear Mr. Secretary:

I enclose copy of a cable sent by us today
to the Banque de France, Paris authorizing them to
sell up to $5,000,000 for prompt delivery at 658 or
better good all day May 18, 1935. This cable was
submitted over the telephone to Mr. Lochhead who
expressed his agreement.

Respectfully yours,
(Signed) L. W. Knoke,
L. W. Knoke,

Assistant Deputy Governor.

Hon. Henry Morgenthau, Jr.

Secretary of the Treasury,

Washington, D. C.
Enc.

136

137
OUTGOING

CABLEGRAM

May 17, 1935.
Banque de France,
Paris
CONFIDENTIAL FOR CARIGUEL

Referring telephone conversation we as fiscal agent of the
United States are authorized to arrange with you for the
purchase of refined gold bars of recognized refiners and
assayers not to exceed about $5,000,000 (about 143,800 fine
ounces) to be earmarked by you in our name. Accordingly

we as fiscal agent of the United States authorize you to
sell up to $5,000,000 for prompt delivery at 658 or better
good all day May 18, 1935 it being understood that as you

sell dollars and francs are delivered to you you will earmark equivalent amount of gold in our name in Account A.

We should be grateful to you to confirm to us our understanding that such earmarked gold shall be free for export
under any circumstances.
KNOKE

MEMORANDUM
To:

The Honorable,

138

The Secretary of the Treasury

From: L. W. Knoke

Subject: The French Franc
May 21, 1935.

A Vice President of one of the New York banks which has

an office in London and a representative in Paris just reported
to me the substance of a telephone conversation which he had

with a member of the French Parliamentary Budgetary Committee
as follows:

It is now a foregone conclusion that Flandin
will resign in the near future. A new Government
will be formed by Laval who will retain the present Minister of Finance Germain-Martin. If this
plan works out, nothing unfavorable will happen to
the French franc in the immediate future as the
chances of a deflationary budget being accepted by
the public will then be brighter. This thought seems
to be based on the belief that the public, thoroughly
scared by the developments during the last few days,
will be more amenable to the Government's wishes.

My informant also stated that their representative in

Paris had recently spoken to Mannheimer of Mendelsohn in
Amsterdam who shared the opinion that if Germain-Martin con-

tinues as Finance Minister, nothing will happen to the franc
at least for three weeks. If, at the end of that period,
Germain-Martin has not been given carte blanche, the situation
will again be serious and devaluation of the franc might then
be a matter of months. Mannheimer, however, added that even

of that he was not so sure. However, he seemed to be satisfied that the franc was not in inmediate danger.

139
May 24, 1935.

Governor, Federal Reserve Bank,
New York, N. Y.

Before you execute any orders to purchase franos in our
behalf you are to have an understanding with the Bank of France,
confirmed by cable that any francs so purchased will be immediately converted into gold and earmarked to be shipped to the
Federal Reserve Bank of New York on the first available steamer.
Should the Bank of France desire to have the francs purchased

in this market after the markets have closed in France so that
francs cannot be promptly deposited and converted into gold un-

til the following morning, the Bank of Franco will need to
make arrangements to obtain the dollars from us before the Bank

of France closes. We are willing to deposit dollars in amounts
to be agreed upon to their account in the Federal Reserve Bank
of New York against gold earmarked as suggested above and they
can instruct the Federal Reserve Bank of New York to make such

disposition of these dollars as they desire.
MORGENTHAU

Federal Reserve Bank
of New York

Date May 23, 1935.

OFFICE CORRESPONDENCE
To

From

CONFIDENTIAL FILES

L. W. Knoke

Subject

140

Telephone Conversation with

Mr. Cariguel of the Bank of France

I called Mr. Cariguel at 12:35 today for a check-up on
the markets in Europe. He stated that they had raised their
rate not only for discounts but also for advances on securities and on gold bullion and added that they would raise it
again any time it were found necessary. The effect of their
action, he thought, had been good. I sounded him as to
whether, in his opinion, the dollar had yesterday and today
been affected by the bonus fight in this country but he very
definitely thought political conditions in Europe were the
upsetting factor. In addition, he thought that credit was
tightening in most European countries. With reference to
the political situation in France, he said, naturally the
Banque de France was not concerned with politics; their
duty was to watch currency and to be prepared to do whatever might be necessary.

I then referred to our cable of May 17 and in particular the last paragraph in which we asked for a confirmation that earmarked gold would be free for export under any
circumstances; I emphasized that I made reference to this
request particularly because I did not know whether our
friends would want us to buy francs here in the absence of
a reply to our inquiry if at any time after the Paris market was closed the franc in this market should drop to our
limit of 6.58. I added that with the increased nervousness
and uneasiness everywhere over the political situation in
Europe and the many disturbing rumors that continued to
emanate from there, it seemed to me quite possible that

some day our friends might feel that conditions no longer
warranted their assuming any risk at all in connection with
support of the franc and with gold purchases in France.
Meanwhile I felt confident that our friends were willing
and anxious to help the Banque de France. Under the circumstances could not he make any suggestions as to how such
help could be furnished without our people assuming any
risk.
Cariguel answered that he fully appreciated the
situation, that he had not replied to the closing paragraph
of our cable of May 17 simply because he had not operated
for our account. He could, however, assure me that gold
earmarked by them for us would be absolutely free for export. This was the policy always followed by the French
with regard to gold owned by foreigners and that even in
1914 at the beginning of the War, it would have been possible even for enemy countries to withdraw their earmarked
gold from France. He added that we could always rely on
him to take proper care of our interests. He then referred

-2-

141

to the agreement* he had just made with the Guaranty Trust
Company under which no risk attached to the purchase of
francs and gold. This arrangement, he said should be kept
very confidential because he could not naturally make the
same arrangement with every shipper of gold; he would, however, be glad to make similar arrangements for our people.
In which case he repeated "I can assure you there is no

risk whatsoever in it. If under our orders he sold

dollars for our account and the situation was not satisfactory, he would ask us to give him immediate credit on
our books for the dollars sold and he would at once give
us francs and immediately convert these francs into gold
to be earmarked in our name for export by first available
steamer. "We wouldn't for the world have you feel uneasy
about it."
I inquired as to what the situation would be in case
we bought francs here in the afternoon (after Paris was
closed.) He answered that he would not be able to let us
have the gold until the following day and he did not quite
know what arrangement he could make to protect that over-

night risk because he would not know until the following
morning what we had done here in the afternoon. He repeated that they would do their best under all circumstances. I replied that we were convinced of that but I
was just thinking of a situation where influences beyond
the Banque de France's control might overrule them. He
replied that after all the Banque de France was a very
powerful factor in France and that they did not want to

let politics interfere.

I suggested to Cariguel that we both give further
thought to the problem which confronted us in connection
with franc purchases in this market after Paris was closed.
*The Guaranty Trust Company in New York informed us today

very confidentially that the Banque de France had agreed
to the following arrangement:
The Guaranty Trust Company deposits dollars with Federal Reserve Bank of New York for the credit of Banque de
France, Paris. As soon as Banque de France is advised by
us by cable of the receipt of such dollars Banque de
France is prepared to advance equivalent in francs to
Guaranty Trust Company in Paris and Guaranty Trust Company

in Paris may immediately convert such francs into gold
which Banque de France will earmark in the name of
Guaranty Trust Company of New York "for export by first
available steamer to Federal Reserve Bank of New York."
LWK:KMC

May 24, 1935.

142

From L. W. Knoke, Federal Reserve Bank of New York.

In accordance with the Governor's suggestion I called
Cariguel at about 1 P. M. I told him I was hopeful of being
authorized by our people to give him an order for the sale of
dollars in Paris tomorrow; just now I was waiting for definite
instructions.

I then referred to that part of our telephone conver-

sation of yesterday discussing operations here in the market
after Paris was closed and reminded him that we had agreed,
both of us, to give the matter a little more thought. I was
calling now to inquire whether he had hit upon any suggestion
to overcome the risk which our people would assume if they

operated in this market after Paris was closed. Mr. Cariguel

got off the telephone and after about two minutes explained
that he had tried to get hold of the Governor, who, however,
had left the Bank. He promised that he would call me back a

little later.

Mr. Cariguel called again at 2 P. M. and said that he
had put the question to the Governor, who said it was "absolutely
0. K." Both the Governor and the First Deputy Governor had
authorized him to inform us that if we purchased francs in our
market the Bank of France would give us gold whatever happen.
He added "nothing would happen but whatever happens we will give

you the gold." I inquired first how this would work out if for

instance we bought today francs for Monday's delivery; when
would we get the gold? He replied "on Monday." I told Cariguel
that I would immediately get in touch with our people and submit to them what he had told me. I emphasized that of course
as regards sales of dollars tomorrow morning in Paris, against
any such sales he would give us gold tomorrow and we would make
the dollars available to him tomorrow. I told him that it was
along these lines that I had prepared a cable to him as follows:
(I then read the attached draft of a message) and asked him
"is that correct Mr. Cariguel?" and he answered "Yes." After
that I reverted to operations in this market after Paris was
closed saying that I would at once talk to Washington. Cariguel
answered "tell Washington that there is absolutely no cause for
them to worry. You will get the gold all right." I promised
him I would, but pointed out that as a practical proposition I
rather anticipated Washington would ask me whether this assurance
was in the form of a written agreement or what. "If they do,"
I asked Cariguel, "what can I tell Washington? That this is your
assurance over the telephone?", to which Cariguel (noticeably
annoyed) replied: "We have only one word and when we give our
word we stick to it." I assured Cariguel that I knew that and
that the only reason that I brought the question up was that I
wanted to be in a position to answer if our people asked the
question. I repeated that I would get in touch with our people
and then call him back later on.

May 24, 1935.

143

From L. W. Knoke, Federal Reserve Bank of New York.

Mr. Cariguel called me at noon today. He said they
were having a very busy day, the Guaranty Trust having so far
sold $10,000,000 and was likely to do more. He added that
the Bank of France was absolutely prepared to do all that was
necessary, also that he was confident that France would stay
on the gold and nobody would be hurt. I told him that I hoped,
after discussing this matter with our people, to get authority
to give him an order along the lines discussed with him yesterday over the telephone. He thought this would be all right;
if we sent an order he would give us gold at once, dealing for
instance tomorrow value tomorrow. To make sure I did not misunderstand him I inquired whether that meant that if he sold
dollars for our account on the 25th we would get francs from
him on the 25th which franca he would on the 25th convert
into gold to be earmarked in our name for export; we in turn
would make the dollars available to him here on the 25th.
Cariguel confirmed my understanding and added that he would

be quite happy to do so. He requested that I tell our people
that Bank of France wanted them to feel quite comfortable.
I asked him whether, in case I was authorized to give him an
order, it would be all right for me to refer to our telephone
conversations of yesterday and today and his reply was
"absolutely."

He then stated very confidentially and only for the
Governor's ears that the Bank of France might raise their
discount rate again next Monday.

1956,
FEDERAL RESERVE BANK

144

OF NEW YORK

FFICE CORRESPONDENCE

CONFIDENTIAL FILES
from

L. W. Knoke

Date May 24, 1935.

Sub ject Telephone Conversation with

Mr. Cariguel of the Bank of France.

I called Cariguel at 7:45 p. m. I told him I had

had further conversations with the Treasury which had authorized me to discuss with him the following proposition:

"The Secretary of the Treasury is willing to buy
from you on May 25 up to $5,000,000 gold earmarked in your
vaults in our name, such gold to be guaranteed free for ex-

port under any circumstances and to be shipped to United
States Assay Office in New York at your risk and expense on

first available direct steamer and to be settled for with
the Treasury on the basis of the final outturn of the United

States Assay Office at $35 per fine troy ounce less customary
mint charges and usual 1/4 per cent handling charges, and
immediately upon receipt of your cable advice that you have
earmarked gold as above to deposit the dollar equivalent to
your account on our books for such disposition as you desire."
I pointed out that this arrangement was more advantageous to him because he made the full exchange profit.

Cariguel replied he understood the details of the transaction
but could not of course give us immediately an answer. I replied that I did not expect an answer tonight but had wanted
to let him know what we were working on. I added that I
would send them a cable tonight repeating the above proposition and also one giving the usual order for execution in the
Paris market modified, however, along the lines discussed with
him yesterday and today. I added that it was my understanding
that the total of $10,000,000 could be applied by him as he
saw fit; for instance, if he only sold $2,000,000 in Paris and
wanted to do $8,000,000 under the proposition outlined above,
that would be satisfactory to our people.
Cariguel seemed pleased and promised to let me know

during the night if anything unusual happened prior to our
opening.

LWK:KMC

May 24, 1935.
Friday.

144 A

Harrison: Hello.
H.M.Jr:

George?

H:

Good morning, Henry.

H.M.Jr:

How are you?

H:

First rate, thank you.

H.M.Jr:

I have Lockhead here with me -

H:

Yes.

H.M.Jr:

H:

And he's been telling me about his conversations with
Knoke -

Yes.

H.m.Jr:

- in regard to our taking gold -

H:

Yes.

H.M.Jr:

Now, I consider this so important that I'd like you to
look into it yourself, if you have not already done so,

H:

Yes.

H.M.Jr:

Satisfy your self that everything's in order and then

H:

Yes.

H.M.Jr:

Because,-after
all, I'm officially asking you to do this
without

call me back.

See what I mean?

H:

H.M.Jr:

Yes, of course.

Now, but - I mean, we can't afford to take - make any

mistakes.
H:

Yes, well, I've been following it and I assume that they've
told Lockhead I directed

H.M.Jr:

Well, I didn't know that you were in on it.

H:

Yes.

H.M.Jr:

Well, now is it all right?

H:

I'm in Washington now.

H.M.Jr:

Oh, I didn't know that.
I came down last night.
H.M.Jr: Oh.
H:

-2
H:

And I'd like to check up - I'll call him back and then

I'll call you.

H:

Well, I'd like to see you.
All right. Well, I'll come down there.

H.M.Jr:

How about 11 o'clock.

H:

All right.

H.M.Jr:

11 o'clock?

H:

Yes

H.M.Jr:

All right. Now, will you check up on it before?

H.M.Jr:

H:

H.M.Jr:

144B

Yes, I'll do that and then come down and see you.
Because I'm - I'm - this week-end may be a bad one.

H:

Yes, I think it will.

H.M.Jr:

And I'd like to know where you're going to be this

H:

Yes.

H.M.Jr:

I mean, if you can let my Treasury switch board operator

week-end.

know where you can be reached over the week-end -

H:

H.M.Jr:

Yes, I'll get in touch with you, Henry.
I mean, just so that we have your - we can get you within an hour.

H:

Yes. All right.

H.M.Jr:

And then I'll see you at 111

H:

Sure thing.

FEDERAL RESERVE BANK

145

OF NEW YORK
OFFICE CORRESPONDENCE
To

From

CONFIDENTIAL FILES

L. W. Knoke

Date

May 25, 1935.

Subject: Telephone Conversation with

Mr. Cariguel of the Bank of France.

Cariguel called me at 11:30 a. m. He asked whether had
received
we had and
about his the cables. market I for told him gave him some inform- we

ation
francs
and
sterling
here
this
morning.
Cariguel then referred to their raising the discount rate which,

he said, was done to make a good impression. I replied that in
our market the sudden improvement in the franc rate was ascribed
to their rate change. I added that it seemed at the moment as
though everything had passed and Cariguel agreed.

I asked whether the British control had been in the market today. He replied he had worked for them in Paris and in
addition he understood they had been active in London too.
Yesterday, he said, they did 150,000,000 francs. An estimate
for today of 125,000,000 francs was probably correct. The Banque
de France is giving the British on Monday 200,000,000 francs of
gold. When mentioning this, Cariguel chuckled and said, "You
see, the British are not as nervous over the weekend as your
friends are," but immediately continued, that of course there

was a difference since geographically London was so much closer
to Paris than we were.

Cariguel then referred to the $5,000,000 worth of gold
which he had sold us this morning and stated that they would send
it by the first available steamer, that they would make the
necessary inquiries about shipping facilities on Monday, that
they would send it to us and we could then take it to the Assay
Office, acting as their agent. He also repeated a statement made
in his cable that any adjustments would be made after the gold was
assayed. In this connection I pointed out to him that it was our
understanding that he would want us to debit the melting charges
and the usual 1/4 per cent to his account here, which he confirmed.
I took this opportunity to ask him when he thought he would cable
us the actual weight of the gold earmarked and he replied on Monday, adding that the gold movement both ways had been so gigantic
that they were absolutely overwhelmed with work. Today, for instance, they had handled close to a billion francs in gold and
their losses for the day were about 700,000,000 francs.
In reverting to the present status of the franc, Cariguel
again expressed the opinion that if the storm had not actually
passed it was about to pass. At the Bank of France, he said, they
were absolutely confident about the francs and felt strongly that

nothing could the end of our conversation, Cariguel
order

askedhim
told Iwhether
happen.
we would
would Athave
send them
another
Monday and I
thought
so but
to get
finalforinstructions

first. I asked him whether the arrangement worked out yesterday
was to their satisfaction and he answered, "Quite."
LWK:KMC

FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To

From

CONFIDENTIAL FILES

L. W. Knoke

Date

May 27, 1935.

146

Subject Telephone Conversation with
Mr. Cariguel of the Bank of France

I called Mr. Cariguel at 6:25 p. m. I told him that we had
not operated in this market at his limit of 658 1/4, francs being
available here in the market only at 658 3/8. I added that I understood the Guaranty Trust under their order had purchased a few

million francs which they evidently picked up directly from some of
their customers. I then told Cariguel that we had been authorized
by the Secretary of the Treasury to inform the Banque de France that

he would take a further $25,000,000 of gold in Paris at $35 and that
we were going to cable him tonight. I wanted him, however, to know
that our people would wish him to consider this offer as a reserve
offer to be used only in case the operations of the commercial banks

were not sufficient to meet the demand for dollars. This, I explained was in line with the general policy of our people not to
interfere with the ordinary transactions of commercial banks. I
asked Cariguel whether I had made myself quite clear and whether it
was agreeable to him to have this order. He answered in the affirmative but added he was afraid the commercial banks might not do

enough but was hopeful that a way would be found out of the difficulty. Cariguel repeated that he understood the offer and appreciated
it.
LWKWKMC

FEDERAL RESERVE BANK

of New York

OFFICE CORRESPONDENCE
To

CONFIDENTIAL FILES

From L. W. Knoke

147

Date May 27, 1935.
Subject Telephone Conversation with
Mr. Cariguel of the Bank of France.

Mr. Cariguel called at 12:45 p. m. He said they had
been having a bad time again today and that they gladly
accepted the second $5,000,000 against gold in Paris offered
them in our cable of May 25. He added that he could have
used more today. He then said the total done today so far
was $27,000,000 - $22,000,000 by Guaranty Trust Company and
$5,000,000 by Banque de France. I inquired whether he intended to use the dollars credited to his account by the
Treasury, for the purchase of francs in this market this
afternoon and whether he planned to give us an order.
Cariguel replied that he might want us to buy francs in
New York and that he would give us the gold in Paris
tomorrow and that he had again obtained the First Deputy
Governor's approval. He repeated that under this arrangement we would be absolutely protected. I replied that I
was afraid I would not get anywhere with our friends with
that proposition and pointed out that the way to handle
this situation would be for him to authorize us to buy
francs for his account against his balance with us. Cariguel replied he thought that would be all right; I suggested
that possibly we would be in a position to make him another
offer of dollars against gold in Paris tonight. Cariguel
thought he would give us an order without limit as to the
amount to be purchased for his account but I discouraged him
and suggested that he instruct us to purchase, say 10,000,000
francs and that he also limit us as to the price he wished us
to pay. He replied that he would talk the matter over with
the Governor and possibly send us a cable later in the day.
Before going off the wire I repeated "so that we understand each other" that he would instruct us to buy francs
against his balancesin this market for his account.
LWK:KMC

148
Copy of cable forwarded to Bank of France Paris. France.

by Federal Reserve Bank of New York.

May 27, 1935.

BANQUE DE FRANCE
PARIS

CONFIDENTIAL FOR CARIGUEL

Confirming tonight's telephone conversation we are authorized

by the Secretary of the Treasury to inform you firstly that
he will buy from you on May 28 up to $25,000,000 gold earmarked in your vaults in our name, such gold to be guaranteed free for export under any circumstances and to be
shipped to U. S. Assay Office in New York at your risk and

expense on first available direct steamer and to be settled

for with the Treasury on the basis of the final outturn of
the U. S. Assay Office at $35 per fone troy ounce less customary mint charges and usual 1/4% handling charge;

secondly that immediately upon receipt of your cable advice
that you have earmarked gold as above be will deposit the

dollar equivalent to your account on our books for such
disposition as you desire.
KNOKE

FEDERAL RESERVE BANK

149

OF NEW YORK
OFFICE CORRESPONDENCE

To CONFIDENTIAL FILES

L. W. Knoke

From

Date May 28, 1935.
Subject Telephone Conversation with

Mr. Cariguel of the Bank of France

Cariguel called me at 1:15 p. m. He stated that they had
had a heavy day, total dollar amount done, $32,500,000 of which

$7,500,000 against our offer of last night of $25,000,000; details
to follow by cable. He said that he would earmark the $7,500,000
gold today and would expect us to credit him the dollar amount value
today. I asked how he was fixed for this afternoon and he said
everything was all right. He had asked the Guaranty Trust Company
to support the franc market in New York. He wanted to know whether

we would like to have an order also but I suggested that it would
be better if this business were all concentrated at a commercial
bank since we would have to do it anyhow through one of our banks in

the street. Cariguel replied this was satisfactory and inquired
whether he might expect another order from us for tomorrow. I told
him I could not of course tell him definitely now but that I had
reasonable hopes to get one for him. If he got one, he said, it
would make them feel quite good. Cariguel again emphasized how

anxious they were to make our friends in Washington feel comfortable
and happy.

I inquired how things looked to him now and he said that
after another day or two they might hope to have the worst behind

them. He left no doubt, however, that they would feel very grateful
if they received another offer of dollars for tomorrow.
Juaranty in There York
LWK:KMC

FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE

To CONFIDENTIAL FILES
From

L. W. Knoke

150

Date May 29, 1935.
Subject Telephone Conversation with
Mr. Cariguel of Bank of France.

Mr. Cariguel called me at 11:40 a. m. He stated they had
last night by the Secretary.

again had a bad day today and had taken the $17,500,000 offered them

Cariguel continued that through our mutual friend at the
American Embassay in Paris he was going to ask Mr. Morgenthau to let
him have a very large amount, something like $200,000,000. Mr. Coch-

ran was scheduled to speak to Mr. Morgenthau at 6:30 French time,
when he would submit Mr. Cariguel's request to Mr. Morgenthau.
Cariguel added that if his request were granted he would operate on

the same basis as during the last two or three days, that is he would
give us the gold free for export as he sells dollars and the Treasury
would place the dollars to the credit of his account on our books.
He suggested that I prepare the Treasury for the request coming
through the Embassy and point out to Washington that they (in Paris)
would be finished if they had to quit selling dollars because their
supply had run out. That was one thing, he said, they would not
want to happen for anything in the world. I promised him to advise
the Treasury what was coming and Cariguel wanted to know whether
Washington's reply would come through us or through Mr. Cochran. I

told him I did not know how the Secretary intended to handle it. I

then told Cariguel that we understood from the steamship company
that the Banque de France was shipping $5,000,000 worth of gold to

us on the President Roosevelt. Was this correct? Cariguel said he
thought it was although he was not quite sure. I mentioned, in order
to avoid a misunderstanding, that we left the insurance to him which

we assumed would be for dollars. He confirmed.

I inquired what the total amount of dollars was done today
in his market and he gave me the figure of $22,000,000, including
the $17,500,000 taken from us. Cariguel pointed out that tomorrow
was a holiday in Paris but that he would operate in London. I in-

I a with
quired whether he had made the necessary arrangements and he said,
"Yes."

######

Cariguel called again at 12:30 p. m. He referred to the

credit of $65,000,000 which the Guaranty Trust had given him under
which there were about $25,000,000 on the water to New York. They
if we could buy the gold ex steamer.
(Guaranty replied Trust, that we Paris) were discussing wondered somewhat similar proposition

Guaranty Trust Company in New York; that I could not give him an
answer at the moment but that we would take this matter up with the

Guaranty in New York.

-2- -

151

I referred to the $200,000,000 that he had asked of the
Secretary and mentioned that I assumed these were for Friday since

he could not use anything tomorrow except in London where, I understood, he had made arrangements. Cariguel confirmed that he needed
the $200,000,000 "from Friday on" and that if he had our cable on
Friday morning that would be satisfactory.

I inquired, if we bought the $25,000,000 on the water referred to above, would the Guaranty place additional dollars at his
disposal? In order to be sure I had not misunderstood him I inquired further, "To the extent that we buy gold on the water the
credit of $65,000,000 would become free again; 1.0. if we bought
$20,000,000 on the water there would be available to him from the
Guaranty additional $20,000,000." He confirmed.
P. S. Upon speaking to Mr. Loree about such purchases of gold on

the water, Loree stated that Cariguel was not quite correct
because of these $68,000,000 gold now on the water, $43,000,000
the Guaranty had done for their own account and therefore no
new dollars would be available to the Treasury if the Guaranty
sold the greater part of the gold now on the water. In this
connection he gave me the following figures:

$9,000,000
Acquitania, sailed today for New York.
9,000,000 aboard S.S.Normandie
"

If

If

14,000,000 ready for shipment on President Roosevelt sailing
tomorrow for New York.

9,000,000 ready for shipment on Hamburg sailing Saturday
for New York.
9,000,000 now in Southhampton, there to be put aboard

S. S.York.
Georgic,
New

sailing on May 31, Saturday for
9,000,000 on the way to Liverpool, there to be placed aboard
S. S.York.
Samaria, scheduled to sail on Saturday for
New
9,000,000 now on the way to Dieppe for shipment to Southampton,
there to be placed aboard S. S. Europa, sailing
on June 1, Saturday, for New York.
Loreee explained that his Paris Office had acted on his general
instructions to get the gold out of France and had on their
own initiative, made these bookings per Georgic, Samaria and
Europa. He added that he had inquired of his London Office
whether in case of need the booking on the Georgic and Samaria
could be cancelled and the gold be made available in London and,
was
advised
his London Office manager that the latter thought
this could
be by
done.

LWK:KMC

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

CONFIDENTIAL FILES

From L. W. Knoke

152

Date May 29, 1935.
Subject Telephone conversation with
Mr. Cariguel of the Bank of France

I called Mr. Cariguel at 3:40 p. m. this afternoon at

Governor Harrison's suggestion. Cariguel spoke to

American said that he had received from

Washington Embassy indicating
in Paris that
and me
from a reply
thehim
Washington
would
be willing
to offer

$150,000,000 if the British would give $50,000,000. He said he
would refer the matter to his governor and with the latter's approval
discuss it tomorrow with the Bank of England. I told him I did not
know that Washington had made this proposition and that the purpose
of my calling up was to ask a few questions so that I would be prepared if the matter were discussed with us later on. The first
question was: What effect would the action of the Finance Committee
have, which turned Flandin down this afternoon?

was
to facetomorrow.
the Chamber
that Flandin
determined
Cariguel replied My second

question was: If Flandin should unexpectedly resign who would be the
next man? He said, "Laval, Marques or Mandel." The next question
(I again emphasized that this was asked simply to put me in a position
to have an answer in case it were asked of me): About how much gold
did he think our friends across the channel had under earmark in

Paris? and his reply was, "I think not less than 640,000,000." The
bulk of this, Cariguel said, was shipped by the British from London
to Paris in March or April. He then pointed out that in previous
years their own holdings in New York had been very substantial, running higher than $400,000,000.

Cariguel laid great stress on the fact that they did not
intend that the Treasury should keep any of the gold in Paris, that
they would ship every ounce just as soon as it could be moved and
that any delay in shipment was due solely to their inability to get
the necessary space.

LWK:KMC

May 29, 1935.

153

The Federal Reserve Bank of New York was advised by the
Guaranty Trust Company that they had operated in francs against

dollars in the London market to the extent of $22,500,000 this
morning and that as they secured gold from the Bank of France
they were forwarding it to England if no direct steamers to the
United States were available. The Guaranty suggested that if
the Treasury bought gold from them in London they could extend
their operations in francs by the amount of gold purchased from
them as their line was now fixed to 65 million dollars (their
legal limit) for these operations. The Bank of France telephoned
the Federal Reserve Bank and stated they had availed themselves
of the 7,500,000 dollars remaining out of the 25 million dollar
commitment granted by the Treasury on March 27 and that they were
earmarking gold for this amount in their vaults in the name of
the Federal Reserve Bank to be shipped on first available steamers
to New York. Cariguel stated they had a bad day in the exchange
market and were fearful of what might happen tomorrow in the
event that the commercial banks were no longer able OI willing
to engage gold against purchases of francs. He stated that he
had requested Cochran to approach the Treasury by telephone at
1:30 P. M. (our time) and request further facilities of about
200 million dollars for Friday as they were very anxious to
maintain the working of the gold standard and would be seriously
embarrassed if they did not have sufficient facilities to operate.
As Governor Harrison was to see the President, I suggested that
he mention the proposition advanced by the Bank of France during
his call so that the President would be familiar with it when I
talked to him about it after receiving Cochran's call. In the
meantime discussed the advisability of extending this credit
with Harrison, Coolidge, Oliphant and Lochhead. Governor Harrison stated that he thought it would be a very desirable thing
to do and that he personally did not feel that the Treasury was
taking any real risk. Governor Harrison also stated that if
this request had been made by the Bank of France to the Federal
Reserve Bank when they were free to operate in gold, he would
without qualification recommend it to his Board of Directors.
He stated, however, that he thought at this time that an operation of this kind should not be handled by the Federal Reserve
Bank but rather by the Stabilization Fund which had been set up
for just such purposes. I told Governor Harrison I did not think
that the Federal Reserve Bank should be called upon to undertake
this operation at present because of the political opposition
which might develop against the Federal Reserve Bank just at
this time. Mr. Oliphant suggested that if we were to consider
an operation of this nature it should be arranged as a joint
undertaking by both the United States and England as in this
manner we would have more protection should any developments
arise on the other side, as England is in a position to bring
greater political pressure on the Continent than we would, acting alone. After conferring with the President, talked to
Cochran over the telephone and he conveyed the request of the
Bank of France for this accomodation and went into detail as to
the reason for their need for it. Asked him to ascertain from

154

-2the Bank of France how much gold the British Equalization Fund
had earmarked with the Bank of France and call me back again.
Later, Cochran telephoned again at 2:17 P. M. and stated that
Cariguel was with him while he was making this call. Cariguel
stated the British Equalization Fund had a minimum of 30 million pounds of gold earmarked with the Bank of France. I then
suggested that the Bank of France approach the British and ask
them whether, in the event we made the amount of 200 million
dollars available to the Bank of France against earmarked gold,

they would engage in this credit jointly with us to the extent
of one quarter of the amount, that is to say, 150 million dollars for the United States and 50 million dollars for the
British. Cariguel stated that he would take this question up
with the Governor of the Bank of France but repeated that they
were mainly interested in securing dollars as the British
Equalization Fund was operating heavily against francs and earmarking the gold in Paris so that there was really no need for
a credit from England. Cariguel stated that he would immediately take the question up with the officials of the Bank of
France and advise us of the result tomorrow, stating that they
would not need their answer until tomorrow night as it was not

until May 31 that they really needed these facilities.

Part No. 1

that

May 29, 1935.
Wednesday.

Cochran:

And ha said that he had talked the situation
over with Governor Tannery after I was there
and that they would consider it helpful if
you would be willing to give them a big
authorization, say up to 200 million dollars.

H.M.Jr:

Yes.

C:

And they

H.M.Jr:

Wait a minute - Cochran talk a little slower

C:

They consider the

H.M.Jr:

C:

H.M.Jr:

C:

H.M.Jr:
C:

H.M.Jr:
C:

the

Iunderstand
don't understand - say it again - I don't
I say you understand that they want a big
authorization
Yes I understand they want 200 million dollars
over Friday.
That's right.
That's what they want.

They say that with only a small allotment they
may be unable to meet the situation.
Yes.

And the Guaranty is physically unable to carry
on much over 30 million dollars a day after
Saturday.

H.M.Jr:

Well we get the Guaranty picture direct here.
We know what their picture is - hello - hello

C:

Hello

H.M.Jr:

I say we know what the Guaranty's picture is.

They keep us informed.
C:

Yes.

H.M.Jr:

Can you hear me all right?

155

156
C:

But I didn't hear what you said. This morning

Flandin appeared and made a very good impression.
H.M.Jr:

He made a very good what?

C:

Impression.

H.M.Jr:

Impression.

C:

Yes I mean the thing was fairly well received.

H.M.Jr:

Flandin appeared himself?

C:

Yes, and they went to his house.

H.M.Jr:

on yes.

C:

The 40 members of the Finance Committee went

there and Germain-Martin talked to them. I
have not heard from Cariguel as to what happened
there but I have just seen on the ticker that
they had turned the proposition down 25 to 15.
H.M.Jr:

Rejected what proposition?

C:

That the Finance Committee voted against
Germain-Martin's proposals which would be
submitted tomorrow.

H.M.Jr:

I see - hello.

C:

I've been talking to Cariguel just now. My

Secretary has talked to the Bank of France
but the Bank of France did not know what
action the Finance Committee had taken.
H.M.Jr:
C:

H.M.Jr:

Oh.

So I can't give it to you as a picture yet.
But the news ticker says that the Finance
Committee has voted 25 to 15 against Flandin's
proposition?

C:

H.M.Jr:

That's right - yes.
Well what's the use of our giving them that credit?

What?
C:

I say I cannot confirm that officially. I just

talked to the Minister of Finance and he said he
could not give me any definite information.

157
H.M.Jr:
C:

H.M.Jr:
C:

Well let's say its so - then what?
Well this morning when I talked with him he
said that he hoped to get full powers from
the Committee but if he did not he would
resign tonight and the government would fall.
I see.

Flandin had first intended to resign immediately
if the Committee did not vote to give him the
powers asked for but when I talked with him at
6 o'clock he told me that he had decided not to
resign immediately but that in any event they

would appear as a whole before the Chamber
tomorrow.

H.M.Jr:

C:

H.M.Jr:

C:

Well now let me see if I understand this thing
correctly. Flandin appeared before the Committee
this morning. He made his plea. Since then
they've met and they voted 25 to 15 to reject
his proposition.
That's what the thing says - what the ticker says.
Well let's says its so for the moment and if its

so Flandin will resign to-night - is that right?
I'm not positive on that. This morning at 12 o'clock
at the Ministry of Finance they told me that if

Flandin didn't get the powers he would resign
to-day. My Secretary just got word again and
confirmed the vote of 25 to 15 rejecting the
project but that the government will not resign

tonight; that they will appear for a vote

before the Chambers tomorrow as planned.
H.M.Jr:

Now - well now listen - wait a minute Cochran.
What is the last minute that they can have
their answer on this? How late can I postpone
giving them an answer?

C:

H.M.Jr:

Well
tomorrow both Paris and New York will be
closed.
Yes.

C:

And they've already made arrangements in London

to take care of the market there.

H.M.Jr:

They have made arrangements?

-4-

158

Yes.

C:

H.M.Jr:

With who - with whom did they make those arrangements?

C:

With the Bank of England.

H.M.Jr:

Well how much credit is the Bank of England giving

C:

H.M.Jr:
C:

H.M.Jr:
C:

them?

I can't tell you.
Well they ought to tell us that.
Well I can find out from Cariguel yet this evening.
Well I wish you'd ask Cariguel how muchhas the
Bank of England given them.

All right. Shall I get it on my other phone now and

you hold?
H.M.Jr:

Yes you get it on the other phone. I want to know
how much credit have they got from the Bank of
England.

C:

All right - just a second.

H.M.Jr:

O.K.

that

Wall
They

How

the
Yes,

Back

Part No. 2

May 29, 1935.

159

Wednesday
H.M.Jr:

C:

H.M.Jr:

The Guaranty now find they have only got

17 million dollars gold in Lond because
the French have been putting the gold
right on the boats for New York and the
Guaranty doesn't seem to know exactly
how much gold they've got in London.

They're getting swamped with their operations.
They're getting what?

C:

Swamped.

H.M.Jr:

Swamped.

C:

They're not keeping up with their operations.
Yes, well they don't seem to know here but
they'11 have to know and they've asked us to
relieve them of their gold in London so that
they can buy more in Paris.

H.M.Jr:

C:

H.M.Jr:
C:

They, the Guaranty, withdrew gold instead of
holding it for later shipment and have sent
it over to Southampton and some to Liverpool
and load it there on vessels rather than wait
the next ship from French ports.
I see.
To-day Cariguel told me Tannery gave assurance
that should an embargo be imposed our gold

would not be touched but he said if we are
bothered on that source they would ship it
immediately to England for us, if we wanted that.
H.M.Jr:

Well I didn't know that.

C:

They made that offer to the Federal - what the
Guaranty is doing you see. I mean they're sending some to England to-day. Just one second please.
Cariguel is in the bank but they haven't found him
yet for me.
Well what I want to know are two things:

H.M.Jr:

1. How much has England offered to give them

through to Friday, see? That's No. 1.

C:

H.M.Jr:

How much -

How much has England given them. How much has

the Bank of England given them, see? Hello
C:

Yes.

160
H.M.Jr:

That's No. 1. And No. 2. When is the deadline that they want an answer from us?

C:

I see.

H.M.Jr:

You see.

C:

Yes.

H.M.Jr:

Now supposing you find that out and then call me

C:

H.M.Jr:

back - you can - I'll call you back. I can do it
better. I'll call you back in oh about an hour.
All right.
I'll call you back in an hour. In the meantime

you find out (1) How much has the Bank of England
given
them and (2) How late can we give them
an answer.
C:

H.M.Jr:
C:

H.M.Jr:
C:

I see. One second - I think my Secretary has
Cariguel - one minute.

All right.
I just talked to Cariguel Yes.

And he said that the support in London will not
be by the Bank of France but by the Guaranty.

H.M.Jr:

By the Guaranty?

C:

Yes, and that he would earmark gold here for
them just the same as on previous occasions.

H.M.Jr:

Well then the Bank of England is not helping them?

C:

No - absolutely not, he said.
Oh. Then it all gets back to United States

H.M.Jr:

government.

C:

And - right.

H.M.Jr:

What?

C:

H.M.Jr:

That's it.
10.
All right. Well then --

161
C:

I asked him what hour - what the deadline is.
He said if he could have a reply in the morning
itforwould
help him very much in formulating a plan
the day.

this

H.M.Jr:

A reply when?

C:

Tomorrow morning.

H.M.Jr:

Tomorrow morning.

C:

H.M.Jr:
C:

H.M.Jr:
C:

He said Friday morning early at the very latest.
Friday morning early. Well now just hold on a
minute. Just stand by please. Hello
Hello

Is the British Equalization Fund doing anything?
The British are taking Francs - taking gold from

here you see.
H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

Well are they doing it in cooperation with the
Bank of France or are they doing it independently?
No they buy directly from the Bank of France here.
The Equalization Fund?

That's right. Well they buy through the Bank of
England but the gold is earmarked here for the
Bank of England but the Federal / operates for you.
But to what extent?

Well to-day for instance they shipped 355 million
Francs.

H.M.Jr:

Well that's nothing.

C:

No it's not very big.

H.M.Jr:

I mean. What I'm trying to find out is New York and

C:

Yes.

H.M.Jr:

will the Bank of England say they'11 give them
10, 15 or 20 million pounds credit tomorrow?

Paris are closed tomorrow.

162
C:

No,
there's no question of any credit by the Bank
of England.

H.M.Jr:

But purely what the Guaranty does?

C:

That's right.

H.M.Jr:

And the absolute deadline for Cariguel would be
Friday morning - now that would mean - is that
Friday morning in Paris or Friday morning in
Washington.

C:

Well Friday morning here.

H.M.Jr:
C:

H.M.Jr:

C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

Oh well that would mean then Thursday night - hello
Hello.

Now if - let me ask you this - if the French
government should fall between now and Thursday
night, would they still want that?
Would they still want it?
Yes.

I presume they would but do you want me to ask

him now? I still have him on my other phone.
Well ask him if the government fell between now and
Thursday night would they still want it.
Just one second. Hello
Hello.

They would absolutely.
They would want it?

Yes they would want it just the same.
Now let me ask you this question. They want 200

million dollars.
Yes.

Do you suppose if we took 100 million England would
take 100 million?

163
C:

I haven't any idea on that. See they haven't
dollars

H.M.Jr:

No but they're selling Sterling.

C:

I - I don't know what they'11 do.

H.M.Jr:

You don't. Well let me find out. I've got the

picture now and the latest that they'd want to
know would be - they'd want - the latest we'd
have to let you know tomorrow night.
C:

They would have to have it very early Friday morning.

H.M.Jr:

Yes well I'd let you know Thursday night. Now I'll
call you back within an hour or an hour and a half.

C:

H.M.Jr:
C:

H.M.Jr:
C:

All right.
And tell Cariguel to be around so you can talk to
him will you please?
Tell him in this office?
Yes.

gold

All right I'll have him come to my office here in
one hour from now.

H.M.Jr:
C:

H.M.Jr:

Yes do that.

All right - fine.
Good - thank you.
Bow

C:

Thank you.

Roughty
Yes.

Parts

speaking.

Part No. 3

May 29, 1935.

164

Wednesday.
C:

He'll take care of the dollar-Franc trans-

actions for the London market tomorrow.
H.M.Jr:

Well now the Guaranty is to take care of
the London market tomorrow.

C:

I sent a correction to them changing the
words "the Bank of England" to "Guaranty".

H.M.Jr:

on well that correction hasn't come through.
That I sent this afternoon when I read it over.

C:

H.M.Jr:

Well now - let - I want to ask - I - we want
some more information.

C:

Yes.

H.M.Jr:

Will you ask Mr. Cariguel this. If he will
tell us this. How much gold have they got

earmarked in Paris for the Bank of England?
a

How much gold -

H.M.Jr:

Have they got earmarked in Paris

C:

Have they got earmarked in Paris

H.M.Jr:

For the Bank of England - hello
30 million pounds roughly speaking.

C:

H.M.Jr:

How much?

C:

30 million pounds.

H.M.Jr:

30 million pounds.

C:

That's right.

H.M.Jr:

Roughly speaking.

C:

Yes.

H.M.Jr:

All right. Now let me get this straight. With

Mr. Cariguel sitting there with you, what arrangements have they to take care of the Franc in
London tomorrow?

-2C:

H.M.Jr:
C:

He says that the arrangements depend somewhat on
what agreement he comes to with you.

Well have they any arrangements for tomorrow?

He says that he will be in touch with the Guaranty
tomorrow morning and is looking to them to operate
on dollar Franc transaction.

H.M.Jr:

In London.

C: 17

Yes.

H.M.Jr:

But have they any agreement now?

C:

H.M.Jr:
C:

H.M.Jr:

165

Can't say that he has an agreement now.
What's that?

And he looks to the Bank of England's own account

to get ready to buy a certain number of Francs.
Well what - what is his arrangement with the Bank
of England?

H.M.Jr:

To-day they bought 365 - own account - not acting
as Agent of the Bank of France.
I see. Well now Mr. Cochran.

C:

Yes.

H.M.Jr:

This is what we have in mind. We might be
interested in going joint account.
What's that?

C:

C:

H.M.Jr:

We might be interested in going joint account with
England - with the Bank of England to the amount
of 200 million dollars provided that the Bank of
England would take one quarter interest.

C:

I'll put it up to him in that way.

H.M.Jr:

Hello

C:

Hello
Yes.

-3H.M.Jr:

I don't expect an answer right away and I'm not
prepared to give an answer but what I want to know I want you to ask Car

C:

Just one minute.

H.M.Jr:

What's that?

C:

Just one minute.

H.M.Jr:

Hello

C:

Hello

H.M.Jr:

Why don't you put Cariguel right on the wire -

C:

Yes.

H.M.Jr:

Well put Cariguel right on.

C:

I should prefer it if you're willing.

H.M.Jr:

What's that?

C:

H.M.Jr:
C:

he speaks English doesn't he?

I should prefer it if you're willing.
All right let me talk to him direct.
All right.

Cariguel:

Good evening Mr. Morgenthau.

H.M.Jr:

Good evening.

H.M.Jr:

Mr. Cariguel

Cariguel:

Yes.

H.M.Jr:

Can you understand me?

Cariguel:

I hope so.

H.M.Jr:

Well I will try - if not I will talk again to

Mr. Cochran. What I'm suggesting is this; that
the Bank of England join the United States
Treasury in - hello

Cariguel:

166

Yes.

-4-

H.M.Jr:

Cariguel:

167

In what we call joint account.
A joint account?

H.M.Jr:

Yes.

Cariguel:

Yes,

H.M.Jr:

Mr. Cariguel I'm sorry I do not understand very
well. I'11 have to talk to Mr. Cochran. May I
talk to Mr. Cochran.

Cochran:

Hello

H.M.Jr:

Cochran, I couldn't understand very well. Now
let me say it again because this is very important
from our standpoint. The United States Treasury
Just a minute - yes.

C:

H.M.Jr:

The United States Treasury

C:

Yes

H.M.Jr:

Would take under consideration

C:

Yes

H.M.Jr:

going joint account

C:

What?

C:

Joint or joined?
No - joint account
joint account.

H.M.Jr:
C:

H.M.Jr:

With the Bank of England to the amount of 200

C:

Yes.

million dollars.

168
5-

H.M.Jr:
C:

H.M.Jr:
C:

Provided that the Bank of England take a one

quarter interest - hello - hello

Hello

Did you get that?
Yes.

H.M.Jr:

I'll repeat it once more.

C:

Yes.

H.M.Jr:

I am suggesting that we would be interested in
learning if the Bank of England would join us

in a joint account operation to the amount of
200 million dollars.

C:

Yes.

H.M.Jr:

The Bank of England taking a one quarter interest

C:

Yes.

H.M.Jr:

Now is that - will you repeat that please?

C:

That the United States government would be

interested in learning whether the Bank of England

H.M.Jr:
C:

would be willing to go in a joint account the
latter to take one fourth interest therein.
Yes. To the extent of 200 million dollars.
To the extent of 200 million dollars.

H.M.Jr:

Yes.

C:

May I speak to Cariguel now?

H.M.Jr:

Surely. Hello - you speak to Cariguel.

C:

Yes.

C:

Hello

H.M.Jr:

Hello.

-6C:

He said the point is that he thinks France needs
only dollars.

C:

Well we'll lend them the dollars.
You will lend them the dollars?

H.M.Jr:

Yes. is

C:

One second.

H.M.Jr:

C:

169

Cariguel said why not lend the dollars to France
against gold instead of lending to England
against pounds.

H.M.Jr:

Well for the very obvious reason that this is a
three-cornered affair and we want to know that
The Bank of England is as much interested as

we are.
C:

H.M.Jr:

But as a matter of fact they are not interested
in preserving the stability of the Franc.
Well before I can make any commitments I want

this proposition put up to the Bank of England.

C:

I see.

H.M.Jr:

And after the Bank of England says whether they

are or they are not interested then we will give
to the Bank of France our answer but we first
want the Bank of France to put - hello

C:

Yes sir.

H.M.Jr:

We want the Bank of France to put this up to
the Bank of England.

C:

You want the Bank of France to put it up to the
Bank of England and you reserve your answer until
you get the reply?
York

H.M.Jr:

That's right.
I see. Mr. Cariguel will have to think this over.

C:

lerd
Yes.

-H.M.Jr:

170

What's that?

I say Mr. Cariguel says before the Bank can
make that stipulation he will have to take
it up with his Governor and the Bank of

C:

France. If the Governor approves they will
approach the Bank of England.

H.M.Jr:
C:

H.M.Jr:
C:

Well we lay great stress on this.
You lay great stress on the British.
On the British joining us.
On the British joing you.

H.M.Jr:

Yes.

C:

Yes. I see.

H.M.Jr:

And if, during the conversation and until they
come to a decision, there are any technical
foreign exchange questions that they want to
ask I wish they would ask them directly of the

Federal Reserve in New York.
C:

H.M.Jr:

If they wanted to No no - there undoubtedly will be technical and

C:

legal foreign exchange questions.
function:
Yes.

H.M.Jr:

That both France and England may wish to ask.

C:

Yes.

H.M.Jr:

If they have any technical questions that they
wish to ask in order to help them come to a
decision let them ask them directly of the
Federal Reserve of New York.

C:

Yes. I understand. The only thing - is Cariguel
to tell the Bank of England that we will lend
them dollars?

H.M.Jr:
C:

Well he can tell the Bank of England that we will
lend them the dollars.
Yes.

171

-8

H.M.Jr:

I mean if they don't want to use pounds - if
they don't want to use pounds - if pounds are
no use we'll lend the Bank of England the dollar.

C:

You would lend the Bank the dollar?

H.M.Jr:

Right.

C:

If pounds are no use.

H.M.Jr:

If the - we'd rather not lend them the dollar
but if pounds are of no use then we'll lend
them dollars.

C:

Yes.

H.M.Jr:

That is the Bank of England.

C:

The Bank of England.

H.M.Jr:

Yes.

C:

That would be through our Federal Reserve.

H.M.Jr:

C:

you,

Through the - wait a minute. Well we'll loan
them the - we'll provide them one way or the
other through the Federal Reserve. I mean we'll I don't know what the legal machinery is so we'll
provide them the dollars -You'll provide them the dollars if pounds are
not chosen to function.

H.M.Jr:

That's right. That's right - hello

C:

Yes.

H.M.Jr:

That's right.
Yes that's straight now..
Is there anything he wants to ask us? Hello
Cariguel says that you just explained to me
that they would give us gold to get the dollar.

C:

H.M.Jr:
C:

172
-9
H.M.Jr:
C:

I don't think I understand that.
Just one minute. The next point is that the

joint action with the Bank of France would be

the same as under the previous arrangements;

that they would give us gold against the credit

as used.
H.M.Jr:

That's right. That's right.

C:

That's right.
It would be just the same as it is now.
As it is now.

H.M.Jr:

Yes.

C:

H.M.Jr:

C:

And Cariguel will get his government authorization and get in touch with the Bank of England
tomorrow and they will communicate to you communicate with you, me or how?

H.M.Jr:

The best way to have him do is to have him do
just the way he is doing it now; let him come
to your office and then you telephone me.

C:

Come to my office and then I'll telephone you.
There's no use doing it by cable - it takes
too long.

H.M.Jr:
C:

H.M.Jr:

Takes too long - yes the whole thing.
Let him come to your office and telephone me.

H.M.Jr:

All right - you'll be in the Treasury tomorrow?
Well they'11 know where I am. No I won't be at
the Treasury but you call up the Treasury and
they '11 arrange the call.

C:

I see.

H.M.Jr:

You call up the Treasury and they'11 arrange it.
Fine. I'11 keep in touch with Cariguel then and
when he's ready to talk he'11 come here to my
office and call your Treasury.

C:

C:

173
- 10 H.M.Jr:

That's right.

C:

I get it.

H.M.Jr:

Thank you.

C:

They gave me the information for a brief to-day.

H.M.Jr:

For what?

C:

Don't you remember that New York

information.

S.M.Jr:

Yes.

C:

I got that to-day and turned it over to Waite.

H.M.Jr:

Was it good?

C:

Everything that was necessary.

H.M.Jr:

Everything what?

C:

Everything that was requested.

H.M.Jr:

Was there.

C:

Yes.

H.M.Jr:

That's nice work.

C:

And I was over and

H.M.Jr:

All right. My regards to Ambassador Straus.

C:

All right. Thank you.

H.M.Jr:

Thank you.

173 A
TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING PAPERS,

Monday, May 27, 1935.

Press Service
No.5-2

5-25-35.

Secretary of the Treasury Morgenthau is today offering to the people of the
United States an additional issue of 3 percent Treasury bonds of 1946-48, in the
amount of $100,000,000, or thereabouts, and is inviting tenders therefor at not

less than par and accrued interest. The bonds will be sold to the highest bidders.
Tenders will be received at the Federal Reserve banks and branches thereof up to
three o'clock p.m., Eastern Standard time, on Wednesday, May 29,1935 . Tenders

will not be received at the Treasury Department, Washington.

The bonds for which tenders are now invited will be an addition to and will
form a part of the series of 3 percent Treasury bonds of 1946-48, issued pursuant
to Department Circular No. 512, dated June 4, 1934; they will carry the same tax

exemptions, and otherwise will be identical in all respects therewith except that
interest on the additional bonds issued will accrue only from December 15, 1934.
The bonds will mature June 15, 1948, but may be redeemed at the option of the United

States on and after June 15, 1946. Interest will be payable semiannually on June
15 and December 15.

Each tender must state the face amount of bonds bid for, which must be $1,000

or any even multiple thereof, and the price offered, which must be stated exclusive
of accrued interest and must be expressed on the basis of 100, with fractions expressed as 32ds of 1 percent in accordance with the usual practice - for example,
103-29/32. Tenders at less than par will not be considered, and tenders not
received at a Federal Reserve Bank or branch before three o'clock peme, Eastern
Standard time, Wednesday, May 29, 1935, will be disregarded. Tenders will be
accepted without deposit from incorporated banks and trust companies and from

responsible and recognized dealers in investment securities. Tenders from others

must be accompanied in every case by a deposit of 5 percent of the amount of
bonds bid for, except where the tender is accompanied by an express guaranty

of payment by an incorporated bank or trust company. If the tender is accepted,

in whole or in part, the deposit will be applied toward payment for the bonds,

and if the tendor is rejected the deposit will be returned to the bidder.
Tendore should be made on the printed formu and forwarded in special
envolopes, which will be supplied by the Federal Reserve banks. Incorporated
banks and trust companies not located in a city where a Federal Reserve bank or

branch is located, may, in their discretion, submit tenders by telegram.
Immediately after the closing hour for the receipt of tenders on Wednesday,
May 29, 1935, all tenders received at the Federal Reserve Banks and branches

up to the closing hour will be opened, and public announcement of the acceptable

prices will follow as soon as possible thereafter. In considering the acceptance of tenders, the highest prices offered will be accepted in full down to
the amount required, and if the same price appears in two or more tenders,

and it is necessary to accept only a part of the amount offored at such price,
tendors for smallor amounts may be accorded preference and tenders for larger

amounts prorated to the extent necessary in accordance with the respective

amounts bid for. The Secretary of the Treasury expressly reserves the right,

however, to reject any or all tenders or parts of tenders and to award less
than the amount bid for, and any action he may take in any such respect or

respects shall be final.
Payment for any bonds allotted on accepted touders must be made or comple-

ted in cash or other immediately available funds on or before June 3, 1935, and
must include the face amount and the premium, if any, which the biddor has
arreed to pay, together with accrued interest on the face amount from December
15, 1934, to Juno 3, 1935.

The text of the official circular follows:

UNITED STATES OF AMERICA
3 PERCENT TREASURY BONDS OF 1946-48

Dated June 15, 1934, with interest from December 15, 1934.

Due June 15, 1948,

Redeemable at the Option of the United States at Par and Accrued Interest
on and after June 15, 1946
Interest payable June 15 and December 15
ADDITIONAL ISSUE

1935

TREASURY DEPARTMENT,

Office of the Secretary,

Department Circular No. 541

Washington, May 27, 1935.

Public Debt Service

The Secretary of the Treasury, pursuant to the authority of the Second Liberty
Bond Act, approved September 24, 1917, as amended, offers to the people of the
United States $100,000,000, or thereabouts, 3 percent Treasury Bonds of 1946-48,

and invites tenders therefor at not less than par and accrued interest from December 15, 1934, to June 3, 1935.

Description of Bonds

The bonds now offered will be an addition to and will form a part of the series
of 3 percent Treasury Bonds of 1946-48 issued pursuant to Department Circular No.

512, dated June 4, 1934; are identical in all respects therewith (except that
interest on the bonds issued under this circular will accrue from December 15,

1934); will be freely interchangeable; and are described (except as to interest
payable December 15, 1934) in the following quotation from said Circular No. 512:

"The bonds will be dated June 15, 1934, and will bear interest
from that date at the rate of three percent per annum, payable semiannually, on December 15, 1934, and thereafter on June 15 and Decem-

ber 15 in each year until the principal amount becomes payable. They
will mature June 15, 1948, but may be redeemed at the option of the
United States on and after Juno 15, 1946, in whole or in part, at par
and accrued interest, on any interest day or days, on 4 months' notice
of redemption given in such manner as the Secretary of the Treasury

shall prescribe. In case of partial redemption the bonds to be re-

deemed will be determined by such method as may be prescribed by the

Secretary of the Treasury. From the date of redemption designated in
any such notice, interest on the bonds called for redemption shall coase.

- -2 -

"The bonds shall be except, both as to principal and interest, from
all taxation now or hereafter imposed by the United States, any State,
or any of the possessions of the United States, or by any local taxing
authority, except (a) ostato or inheritance taxes, and (b) graduated

additional income taxes, couronly known as surtaxos, and excess-profits
and war-profits taxes, now or hereafter imposed by the United Statos,
upon the incame or profits of individuals, partnerships, associations,
or corporations. The intorest on an amount of bonds authorized by the
Second Liberty Bond Act, approved September 24, 1917, as amended, the

principal of which does not exceed $5,000, owned by any individual,
partnership, association, or corporation, shall be exempt from the
taxes provided for in clause (b) above.

"The bonds will be acceptable to secure deposits of public moneys,

and will bear the circulation privilege only to the extent provided in

the act approved July 22, 1932, as amended. They will not be entitled
to any privilege of conversion.
"Bearer bonds with interest coupons attached, and bonds registered

as to principal and interest, will be issued in donominations of $50,

$100, $500, $1,000, $5,000, $10,000 and $100,000. Provision will be
cade for the interchange of bonds of different denominations and of
coupon and registered bonds, and for the transfer of registered bonds
under rules and regulations prescribed by the Secretary of the Treasury.

"The bonds will be subject to the general regulations of the

Treasury Department, now or hereafter prescribed, governing United
States bonds."

As interest on the bonds issued under this circular will accrue from December
15, 1934, coupon bonds will be delivered herounder with coupon No. 1, dated December 15, 1934, detached.

Tenders and Allotments

Tenders will bo received at the Federal Reserve banks and the branchos thereof up to 3 o'clock p. n., Eastern Standard time, Wednesday, May 29, 1935, and un-

less received by that time will be disregarded. Tenders will not be received at
the Treasury Department, Washington. Each tender must state the face amount of

bonds big for, which must be $1,000 or any even multiple thereof, and the
price offered. The price offered must be stated exclusive of accrued interest from
December 15, 1934, to June 3, 1935; and rust be expressed on the basis of 100, with

fractions expressed as 32ds of 1 percent, in accordance with usual practice, e.g.,
103-29/32. Tenders at less than par will not be considered.

-Tenders will be received without deposit fra incorporated banks and trust
companies and from: responsible and recognized dealers in investment securities.
Tenders from others must be accommanied in every case by a deposit of 5 percent

of the face amount of bonds bid for, except where the tender is accompanied by

an express guaranty of payment by an incorporated bank or trust company. If the

tender is accepted, in whole or in part, the deposit will be applied toward pay-

pent for the bonds, the balance to be paid as hereinafter provided. If the tender is rejected, the deposit will be returned to the bidder.
Tonders must be enclosed in envelopes, securely sealed, addressed to the

Federal Reserve bank, or branch, of the district, and plainly marked "Tender for
3 percent Treasury Bonds of 1946-48" The Federal Reserve banks will supply

printed forms and special envelopes for submitting tenders. Incorporated banks
and trust companies not located in a city where a Federal Reserve bank or branch

is located may, in their discretion, submit tenders by telegram, but such telegrans must be received at the Federal Reserve bank or branch before the time
fixed for closing.

Incediately after the closing hour for the receipt of tenders on May 29,
1935, all tenders received in writing or by telegraph at the Federal Reserve banks
or branches thereof up to the closing hour (3 o'clock p. 11., Eastern Standard time)

will be opened. The Secretary of the Treasury will determine the acceptable prices
offered and will nake public announcement thereof as soon as possible after the
opening of tenders. Those submitting tenders will be advised by the Federal Reserve banks of the acceptance or rejection thereof, and payment on accepted ten-

ders must be made as hereinafter provided. In considering the acceptance of ten-

ders, the highest prices offered will be accepted in full down to the amount required; and if the same price appears in two or more tenders and it is necessary to
accept only a part of the amount offered at such price, tenders for smaller amounts
may be accorded preference and tenders for larger amounts prorated to the extent

-4necessary in accordance with the respective amounts bid for. The Secretary of the

Treasury expressly reserves the right, however, to reject any or all tendors or
parts of tenders, and to award less than the amount bid for, and any action he may
take in any such respect or respects shall be final.
Payment

Payment for any bonds allotted on accepted tenders must be made or completed

on or before June 3, 1935, in cash or other immediately available funds, and must
include the face amount and the premium, if any, which the bidder has agreed to
pay, together with accrued interest on the face amount from December 15, 1934, to
1

June 3, 1935.

In every case where payment is not so completed, the 5 percent

deposit with application shall, upon declaration cade by the Secretary of the
Treasury in his discretion, be forfeited to the United States.
General Provisions

Federal Reserve banks, as fiscal agents of the United States, are authorized
and requested to receive tenders, to cake allotments as indicated by the Secretary

of the Treasury to the Federal Reserve banks of the respective districts, to issue
allotment notices, to receive payment for bonds allotted, to rake delivery of bonds
en full-paid allotments, and to perform such other acts as may be necessary to

carry out the provisions of this circular. Pending delivery of the definitive
bonds, Federal Reserve banks may issue interir receipts.

The Secretary of the Treasury may at any time, or from: time to time, proscribe
supplemental or atendatory rules and regulations governing the receipt of tenders

and the sale of bonds under this circular, which will be corumicated promptly to
the Federal Reserve banks.
HENRY MORGENTHAU, JR.,

Secretary of the Treasury.
1 Accrued interest from December 15, 1934, to June 3, 1935, on $1,000 face

amount is $14.010989.

173B
TREASURY DEPARTMENT

Washington

Press Service
FOR RELEASE MORNING NEWSPAPERS,

No.5-3

Monday, May 27, 1935.
5-25-35.

Secretary of the Treasury Morgenthau announced today that the subscription.
books for the 1-1/2 percent Bonds of Series 7-1939 of the Home Owners' Loan

Corporation will close at the close of business Wednesday, May 29, 1935.
Subscriptions placed in the mail before 12 o'clock midnight, Wednesday, May 29,

will be considered as having been entered before the close of the subscription
books. This offering was announced last Monday by the Secretary, on behalf of
the Home Owners' Loan Corporation, and the Series F-1939 bonds may be obtained

at this time only through payment in Home Owners' Loan Corporation 4 percent
Bonds of Series of 1933-51. The 4 percent bonds have been called for redemption
on July 1, 1935.

The Secretary further stated that approximately $136,000,000 of the new
bonds had been subscribed for through Friday, May 24.

May 30, 1935

Cochran telephoned from Paris and stated he had visited

174

Cariguel at the Bank of France in the afternoon. Cariguel
advised that after consultation with other bank officials it
was their opinion that the Bank of France should not approach
the Bank of England with a view to securing agreement from them
to enter into joint account operations with America to buy gold
from Bank of France up to a total of 200 million dollars, of
which it had been suggested that the British should provide 25%
The Bank of France felt that Britain has cooperated fully in
the past few days by buying large amount of francs on their own
account against which they were earmarking gold with the Bank
of France. As sterling is not linked to gold the Bank of France
did not feel that they were warranted in approaching the Bank of
England. The Bank of France again asked us to consider making
dollars available to them, against gold which they would earmark
for our account in Paris, stating that if we wished they would
be even willing to store it in the American Embassy at Paris
pending shipment by first available boats. Governor Harrison,
Undersecretary Coolidge and Mr. Lochhead were at the Treasury
Department and I informed them of this conversation and also
requested Mr. Coolidge to obtain the cable from the State
Department which confirmed Cochran's conversation and see that
it reached the President promptly. After talking with the
President, Governor Harrison, Mr. Coolidge and Mr. Lochhead,
decided to tell the Bank of France that the Treasury would be
willing to purchase up to 150 million dollars of gold in Paris
against dollars to be made available to them in New York. This
action was taken as a financial measure to give accomodations
to the Bank of France in order that they might protect the franc
and show the Treasury's desire to cooperate with the Bank of
France. Instructed Governor Harrison to have the Federal Reserve
Bank send the necessary cable of authority to the Bank of France
and also suggested that he call the Bank of France by telephone
and advise them that the authority was being cabled. Instructed
Governor Harrison to tell the Bank of France that the Treasury
would not give any publicity to this transaction but if the
Bank of France wished to make any reference to it on their side
they were perfectly free to do so. The Bank of France was to
understand, however, that our agreement to any publicity which
they might care to give this arrangement did not indicate any
desire on our part that such publicity should be given. As the
Guaranty Trust Company is operating heavily in the French market
in cooperation with the Bank of France, agreed to purchase gold
from them up to 50 million dollars in London at 35 dollars an
ounce less all the usual shipping and handling charges. By
doing this the Guaranty would be left free to operate to a
greater extent in the French market as they cannot exceed their
legal limit of 65 million dollars outstanding at any one time.
By taking gold from the Guaranty in London it will give the
Treasury a stock of gold at that point which may be very convenient at a later date. As there is a good demand for gold on

-2-

175

the London Market at the present time and practically all the
gold we were holding in the Bank of England has been sold to
take advantage of the premium prevailing at present, any aoquisitions of gold in London may be profitable in the course
of the next few days.

Little

letter in the sorring
had

rary

Strains
ought

than
because
o'clock

they

teac

and

or

the

that

Wy

the Columber.
List

his

Harrison

and

allowed
Coolidge thought

the
give the Guaranta
agreed that thint

take

160

million

to

and

They

sat Lis President at 4:15 strapged
to Paris we 6:30 I could interrupt ay
I

got Cochran

4:30
Check

bad

fee

Book
him

thew
de

could

that

whoul
a

said,

DOE

I
have
the
and
got
Paras
wold
was to Than Stonus got with
he

ought

to

sell

perspapers.

E told his that Dro should tale them bothing
should be given auc by unibudge except

and

I then called back the President with Drize
thos to get out the necessary calle

Were simply overjoyed at white I bad copes
it My suggestion and with hise
President E told Dochran to tell Cariguel this
one United States End the Secretary of the Season

in the Bank of France to lost the

176
June 3d

Thursday morning, May 30th, I spoke to the

President at 9:20 and told him the conditions were fairly critical
in France. A little later in the morning I spoke to Cochran and
Straus. Straus said things look very bad and thought I ought to
go easy and I ought not to give them credit of more than 25 million
dollars because I would be taking too much of a chance if I gave
them any more than that. I arranged to telephone to Cochran again
at 5 o'clock because they told me by that time Flandin will have
spoken before the Chamber.

I spoke to the President five minutes to one and
asked him whether I could call him at sharp 4:15 and check with
him again before talking to France. at 4 o'clock I talked to
Coolidge, Harrison and Lochhead. At that time Harrison said he
would be satisfied if I allowed them a credit of 100 million
dollars. Coolidge thought I ought to give them a credit of 200
million. I told him, the President being willing, I would advance
them 150 million and give the Guaranty Trust a revolving fund of
50 million. They all agreed that that would be wonderful. I
got the President at 4:15 and arranged with him that when I talked
to Paris at 4:30 I could interrupt my call and get him immediately.
I got Cochran at 4:30 promptly. He told me what
had happened in the Chamber. He said that Flandin had made his

speech, fainted and made a bad impression. I told him that I
would call him back in a few minutes. Within 20 seconds I had

the President, told him what had happened and said "I recommend

to you that we give them a credit of 150 million and 50 million
to the Guaranty". He said, "all right". My whole conversation

with him could not have been more than two minutes. He made no
suggestions.

I hung up and got Paris back immediately, told
Cochran what I was willing to do. Then Straus got on the wire
and asked what he ought to tell the newspapers. In no uncertain
language
told him
except
the and Bank that of
informationI should
bethat
given
out bynothing
anybody
France. I then called back the President and also our own people
and told them to get out the necessary cable. Harrison and
Coolidge were simply overjoyed at what I had done.
At my suggestion and with the approval of the
President I told Cochran to tell Cariguel that the President of
the United States and the Secretary of the Treasury had sufficient
confidence in the Bank of France to loan them 150 million dollars.

he should tell them no

177
Friday I talked to the President again and he
seemed very much pleased with what we had done.

Coolidge told me that Friday at Cabinet the
President made a little speech on what we had done and seemed
very much pleased over the whole transaction.

Saturday morning I talked to Cochran and he

told me that the situation is the same and that Cariguel gives

us the entire credit for it.

See

York,

The

Secretaint

the

Uppediatoly
gold in

ascerlance

will deposit

the

AA you

Copy of cable forwarded to Bank of France. Paris, France,

178

by Federal Reserva Bank of New York

May 30, 1935

We are authorized by the Secretary of the Treasury to inform
you that he will buy from you on May 31st up to $150,000,000 gold
earmarked in your vaults in our name, such gold to be guaranteed by
you as heretofore free for export under any circumstances at our

option to New York or to London at your risk and your expense. If
shipment to New York is elected settlement is to be made with the

Treasury on the basis of the final turnout of the U. S. Assay Office
at New York at $35 per fine troy ounce, less customary Mint charges

and the usual one quarter per cent handling charges. If shipment
to London is elected settlement is to be made at $35 per fine troy
ounce, less our customary Mint charges and the usual one quarter per

cent handling charge, and less the usual cost of transhipment from
London to New York.

In the event that the Treasury should decide temporarily to

hold the gold in Paris settlement is to be made at $35 per fine troy
ounce less our customary Mint charges and the usual one quarter per

cent handling charges and less the usual cost of shipment from Paris.
The Secretary of the Treasury has requested us also to inform
you that immediately upon receipt of your advice that you have
earmarked gold in accordance with the understandings recited in this

cable he will deposit the dollar equivalent to your account on our
books for disposition as you desire.
Watersally,
KNOKE

FEDERAL RESERVE BANK
OF NEW YORK

179

To CONFIDENTIAL FILES

Date May 31, 1935.
Subject Telephone Conversation with

From L. W. Knoke

Mr. Cariguel of the Bank of France.

OFFICE CORRESPONDENCE

Mr. Cariguel called me at 1:30 p. m. and stated that the
total amount of dollars sold today in Paris was $33,625,000. He
added that he thought it would be very helpful if the total amount

were applied to the Treasury credit. His reason for this suggestion
was that the clerical staff of the Guaranty Trust as a result of the
tremendous operations undertaken during the week was so overwhelmed

with work that it would help them considerably if no gold had to be
handled tomorrow. Mr. Cariguel asked whether I saw any objection
to it but I answered that he must decide how the day's sales were
to be allotted. Cariguel said he would then do as he had planned

to do, that is apply the total to the Treasury credit and cable us
accordingly. If the Guaranty in New York is called upon this afternoon to support the franc market here such operations will of course
be financed under the credit placed at the disposal of the Banque
de France by Guaranty Trust Company.

I inquired as to the operations of the Equalization Fund in
London and Cariguel said that up to 5 o'clock London time they had

done 210,000,000 francs. There were no political new out; Parliament was still talking.

In order to ease his mind I hinted that I had a feeling that
the balance of the $150,000,000 would be renewed for tomorrow.

Cariguel seemed to take that for granted, at least he answered
"Naturally, yes."
LWK:KMC

180

-

2-10

THE WORKS PROGRAM
Division of Applications and Information---FOR IMMEDIATE RELEASE

May 24, 1935.

The President has approved a recommondation of the Advisory Com-

mittee on Allotments providing for liboralization of the loan and grant
torms on non-Federal projects carried on by the P.W.A. under the Emergency

Reliof Appropriation Act of 1935.

With the purpose of seeking to reduce the share of the cost borne
by the Federal Government of re-employing men in the Works Relief Program
by making it possible to loan more money instead of making 100 percent
Federal grants to achieve the re-employment objectives, the Advisory Com-

mittoe on Allotmonts adopted a resolution as follows:

"Be it resolved, that the Advisory Committee on Allotments recommond to the President

(1) "that the rate of interest on loans for 'projects of
States, Territories, Possessions, including subdivisions and agencies thereof, municipalities, and

the District of Columbia, and self-liquidating projects of public bodies thereof! be fixed at three
(3) per centum per annum; and

180 A

2-10

(2) "that the amount of the grant for the normally acceptable

project be fixed at 45 percent of the cost of such project;
provided, however, that the Federal Emergency Administrator

of Public Works shall have authority, after careful investigation of the financial condition of any applicant in the
foregoing classification and the nature and work-producing
character of the project, to recommend to this committee a

variation in the amount of the grant."
Non-Federal P.W.A. projects under the old P.W.A. procedure were of-

fered an outright grant to the local authority undertaking the project
of approximately 30 percent of the cost and a loan of the balance of the

cost at the rate of 4 percent per annum. Falling interest rates sub-

sequently made it possible for P.W.A. to sell, at a substantial profit,
$85,000,000 worth of bonds it received as security for the loans made
by it, and more such bonds will be sold as they become available.

Liberalization of the grant from approximately 30 percent to 45

percent of the project cost and reduction of the annual interest from
4 percent to 3 percent is designed to open the way for non-Federal bodies
to cooperate in the Works Relief Program with the Federal Government on
a more generous basis.

Such action is designed to make it easier for communities to borrow

funds on collateral security from P.W.A. instead of requesting outright

all-Federal grants, thus helping to carry out the President's objective
of seeing as large a portion as possible of the funds returned to the
Treasury.

-2-

180B
2-10

The change in terms recommended opens the way for

communities to obtain projects of the type that are permanent

assets for their localities which otherwise they would have difficulty in obtaining unless they would undertake to share with the
Federal Government the financial burden.

Localities with plans completed for construation of
schools, hospitals, waterworks, buildings, sewers and similar types
of projects of permanent value, thus would be encouraged to proceed
with such reemploying construction at once.
The terms recommended by the Advisory Committee on
k

Allotments would apply to non-Federal projects carried on by PWA
with funds from those provided by Emergency Relief Appropriation
Act of 1935 as part of the Works Program and permits no changes of
allotments made from the original PWA fund.

-0000oo-

-3-

181
May 24th

H. M. Jr. called the President to-day and told
him that the condition in France is getting worse and that

we were negotiating on purchasing Francs with an understanding with the Bank of France that any Francs so purchased
will be immediately converted into gold and earmarked to be
shipped to the Federal Reserve Bank of New York on the first

available steamer.

Mr. Morgenthau told the President that he had
sent for George Harrison and was going to work very closely
with him on this French situation. The President said he
was delighted that Mr. Morgenthau was sending for George
Harrison because he was in very low spirits to which
Mr. Morgenthau replied that since the President's speech
he was riding on top of the clouds. The President was
quite pleased with what Mr. Morgenthau told him.

182
May 27th

Oliphant came to my house last night for
tax message. He felt it would be defeated and that it
was too late in the year to do it. I joked with him
about his trying to test me out but I am convinced that
he was in earnest in recommending to me that we pull our
punches on the tax program. I gave him a long talk as to
why I thought the President should send it up and make his
record clear on his tax program and this was a subject that
he could well afford to be defeated on and was not at all
like the bonus - where he had to win. I would be very much
supper and advised me against sending the President the

interested in knowing why Oliphant recommended my laying off

on the taxes that have to do with social reform. In talking
to the President this morning I asked him about the taxes.
I told him that I thought we ought to send it up a week from
this Monday; that Joe Robinson and Pat Harrison would be
opposed to it and he said, "I know that". I urged him
strongly
to send it up and he said that he absolutely intended to do so.
Senator Walsh called me up this morning and
asked me to get in touch with the White House and have them

hold up for another ten days the sending up the name of the

man whom he recommended for Collector of Internal Revenue

at Boston. It might look as though he were being paid for
his vote on the bonus. The name of his man should have
been sent up quite a while ago but through neglect was held
up by the White House.

183
May 28th

I called the President to-day and told him
that we have a very excited market, commodities are off and
cotton is off and if he agreed with me I would like him GO
tell Steve Early to tell the various Members of the Cabinet
not to interpret why the market is off. If anyone should do
any interpreting it should be he. The President agreed with
me and said that he would issue orders not to do any talking
for 48 hours. I called particular attention to Wallace, Davis
and Roper.

I also told the President I spoke to Cochran
in Paris this morning - that he told me that Parliament meets
at 3 o'clock their time and then they will ask for a report
from the Premier. The Premier being ill at home the Finance
Committee will call on him at his home and then they will report
back to Parliament. Cochran thinks this may drag on until
Monday. I will call Cochran again in five hours.
Bulkley came in to see me about the Banking
Bill and wanted to know what we really wanted done about Title

No. 2. Did we want it dropped? I said, "by no means" so he
said, "it is sort of confusing on the Hill. The difference is
between Eccles and myself", so I told him that we had re-drawn
Title No. 2 and quick as a flash he said, "can I have a copy of
it?" There was nothing for me to do but say yes and I made him
promise that he would keep it absolutely confidential. He said,
"do you want to introduce it personally or would you like to

have me do it"? I said, "of course I want you to do it if it is
to be done at all". We left it this way - that he was to read

over the draft then call me back and let me know whether he liked
it.

184
May 28th

Last night at 7 o'clock I got worried that

the new method of offering bonds at auction was not going well.
I called up Coolidge and suggested that he go to New York. He
said he would check with Harrison and call me back which he did
and told me that Harrison was non-committal but that he (Coolidge)
agreed with me that he ought to go to New York. I was very much
surprised to find that not only were the 12 Governors here in
Washington but Burgess was also here. Coolidge took Burgess
back with him to New York and I gather from what he said that
they had not explained to the New York bond dealers what we are

trying to do and consequently they are sore. I had a hunch that
something was wrong and evidently my hunch was right.

H. M. Jr. called the President to-day and told
him that the French had raised their discount rate up to B% but
what effect it would have he did not know. The Franc is 6.57
which is considerably down. The Guarantee Trust has done 15
million this morning and we are back of them for 25 million in case
they want to fall back on us. George Harrison thought we ought
to give them 50. The French ought to feel very kindly disposed
to us.

H. M. Jr. also told the President that we got
our 1 million ounces of silver from Mexico yesterday and told
him that he had been trying to get Paris on the wire and there

was some delay and he, therefore, had no news for him as yet.

H. M. Jr. told the President that he had sent

Coolidge to New York because of the hunch he had last night.
He said that he was not going to stand for any nonsense. He
believed the dealers were sore because they were going to lose

a little profit but that if they did not cooperate he would take
an ad in every paper and advertise these bonds and in that way
not give them the business at all.
H. M. Jr. asked the President whether he was
upset about the NRA and the President said no that he thought

he was going to get something out of it. The President told
wanted him to talk with his people about it.

H.M.Jr. that he was worried about Federal Alcohol Control and

185
May 29th

Senator Walsh came in to see H.M.Jr. to-day and said

that our present silver buying policy is hurting the silver

manufacturers.

I.M.Jr. told him that as long as the present silver
law is on the books it is impossible for him to do anything.
It simply gets down to what he could do with his brother
Senators about it; that H.M.Jr. had a direct mandate from Congress which he had to carry out.

Senator Walsh said that the Administration should
not stand by and see the silver manufacturers injured. H.M.Jr.
then told him that the silver law was started by the Senators
and not by the Administration.
Senator Walsh asked H.M.Jr. if he brought up legislation to help the silver manufacturers and inasmuch as H.M.Jr.
said he had to carry out the present mandate of Congress would
he support him privately. H.M.Jr. answered that he could not
make any private promises; that anything the Treasury said
would be of such a nature that it could be "shouted from the
roof tops". However, he promised Senator Walsh that if he
went up on legislation for the silver manufacturers he would
be absolutely neutral.

186
May 29th

The Canadian Minister came in to see me to-day.
I read two thirds of the enclosed memorandum to him leaving
out that part which related to the criminal evidence which we
have. He wanted to know whether some of the representatives
of the Canadian liquor fellows could come down and talk to

Frank. I told him that the person to talk to was Oliphant.
He said that I convinced him that the Canadian
government has no financial interest in this and I told him
not to let these gangsters like Bronfman and Reifel use his

government and mine to play one off against the other. "There

is nothing in it for you and I will prove it". He said, "you

are quite right and I agree with you absolutely". He said,
"now some of our lawyers questioned the legal right of your
having this evidence but leave that to me. This thing is a
big moral issue". I said, "are you not pleased with the way
we cleaned up the rum row between the United States and Canada"
and he said, "I am simply delighted". I then said, "I am going
to make a suggestion which I have not discussed with my Legal
Advisors and they may turn me down but what would you say if
the Canadian government took over the 20 million gallons of

liquor - you get the tax on it and then sell us the liquor
but in no way will that affect our pending cases but it gives
the Canadian government the money and we get the liquor and
we can consider that removed from the picture and then we can

sit down and discuss the legal issue.

I said, "we are under a terrific political pressure

here and it does not affect me because I have a farm to go back
to but we want to get this thing cleaned up" and he said, "so
do we".

PARAPHRASE OF TELEGRAM RECEIVED

187

FROM: American Embassy, London, England

DATE: May 30, 1935, 6 p.m.

NO.: 247
STRICTLY CONFIDENTIAL FOR THE TREASURY.

A few days ago Leith-Ross made occasion to tell me

there was no ground in fact for the belief on the part
of the Treasury of the United States that the activities
of the United States equalization fund were being made

known to either the Bank of England or the British Treasury. Leith-Ross added that it had been hoped that
Bewley, who was attached to the British Embassy, Wash-

ington, might have been able to furnish such information
to London, but that to date no such contact with the U.S.
Treasury had been established by Bewley.

Leith-Ross made it plain that he was making the

above statement deliberately. In view of this fact, the
Embassy asked him whether, in transmitting his observa-

tions, Leith-Ross desired to suggest a reciprocal exchange
of information with Washington through this Embassy as to

any or all of the British equalization fund activities.
The answer to this by Leith-Ross was that this was a matter which had to be taken under official advisement. He
said he would inform me later if I would agree to post-

pone action. I am submitting this preliminary statement

to you for your information since up to the present I
have had no further communication from Leith-Ross. I

will report again when I hear from him.
BINGHAM
EA:LEW

188
PARAPHRASE OF TELEGRAM SENT

TO: American Embassy, London, England
DATE:

June 3, 1935, 7 p.m.

NO.:

130

PERSONAL FOR THE AMBASSADOR FROM THE SECRETARY

Reference is made to telegram No. 247 of May 30,
6 p.m., from you.

I was interested to receive your Leith-Ross
despatch. I am in agreement with your view that at this
stage we should not approach them first.
HULL

EA:LEW

PARAPHRASE OF TELEGRAM RECEIVED

189

FROM: American Embassy, London, England.

DATE: June 6, 1935, 1 p.m.

NO.: 256
STRICTLY CONFIDENTIAL AND PERSONAL FOR THE SECRETARY.

Re my telegram No. 247 of May 30, 6 p.m. to you.
I have been requested by Leith-Ross to consider the matter

as "washed out". He told me that the question of supplying
information as to the activities of the British Fund had
been finally considered by the Chancellor of the Exchequer
himself. The Chancellor said that because the activities
of the British fund were somewhat under fire in Parliament
and because he was in no position to give any information

to Parliament, it was not possible for him to give any information of any nature to any other source no matter what
his desires might be.

I wish to express full support of your judgment as
stated in your 130 of June 3, 7 p.m., the last sentence.
The Honorable,
Harrier

Secretary of the
EA:LEW

BINGHAM.

DEPARTMENT OF STATE

190

Washington
STRICTLY CONFIDENTIAL

My dear Mr. Secretary:

I enclose paraphrase of my cable to Ambresador

Bingham No. 130 of June 3, 1935, dealing with the conversation he had with Leith-Ross, and also paraphrase
of cable No. 256 of June 6, 1935, just received from
the Ambassador, giving Leith-Ross's further comment

and the opinion of the Chancellor of the Exchequer.
Sincerely yours,
(Signed) Cordell Hull
Enclosures:

To London, No. 130,
June 3, 1935.

From London, No. 256,
June 6, 1935.
The Honorable,

Henry Morgenthau, Jr.,

Secretary of the Treasury.

191

TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NEWSPAPERS,

Friday, May 31, 1935.

Press Service
No.5-6

5/29/35.

Socretary of the Treasury Morgenthau today announced the result of the
offering by the Treasury on Monday of $100,000,000, or thereabouts of 3
percent Treasury Bonds of 1946-48, tenders for which were received at the
Federal Reserve banks up to 3 o'clock Peme, on Wednesday, May 29.

Tenders for $270,077,000 face amount of bonds were received, of which
$98,779,000 was accepted at prices ranging from 103-26/32 down to 103-1/32,
and accrued interest from December 15, 1934, to June 3, 1935. Tenders
were received for more than $22,000,000 at 103, and it was deemed

inadvisable to allot a small percentage. The average price of the bonds
to be issued is about 103-4/32, and a total premium of $3,085,207 will be
received. Based on the average price at which the bonds are to be issued

on June 3, 1935, the yield is about 2.67 percent to the earliest call date,
June 15, 1946, and about 2.71 percent to maturity, June 15, 1948.

Specialise

DTARY

Complaint
us

The

Book 5 - Part 2
April 23 - May 30, 1935

OF THE RADIO ADDRESS
STANDARD TIME

Fit. ex The
Speeches by HMJr

Complete history of radio address
on "The American Dollar," 5/13/35,
as described by Chester T. Crowell,
in nine chapters.
- INTRODUCTION 100 MACK COUPON V -

as CERTIFICATE -

1

COMPLETE HISTORY OF THE RADIO ADDRESS DELIVERED AT TEN OCLOCK,
EASTERN STANDARD TIME . MONDAY NIGHT MAY,15, 1935

BY

HENRY MORGENTHAU, . JR. SECRETARY OF THE TREASURY

interviow in what be innovently thought would to

move. (If Instiud one days In a frenzy of the
Limited member of IN NINE CHAPTERS radio 603
Crowell, unitied entirely TOO
WITH AN INTRODUCTION TO EACH CHAPTER BY CHESTER T.CROWELL

WHO WASHPRESENT AS OFFICIAL OBSERVER

2

The first draft . by the brash and budding, young economist,
Chester T.Crowell, who, inspired by the wisdom and prophetic

vision of the Secretary of the Treasury, dashed off the
interview in what he innocently thought would be imperishable

prose. (It lasted one day.) In a frenzy of anxiety about the
limited number of words possible for a radio address, the said

Crowell, omitted entirely too much.

3

To explain the gold policy of this administration, it is necessary
tell, first I of all, where happened in Europe in the Spring of 1931, Beginning

Vienna, credit and currency difficulties spread panic. On Spetember 21
N
reat Britain was forced to suspend gold payments. Noway Sweden and Denmark, followed
N
)

thin a week. Japan went off gold in December. The val ue of their currencies
in international exchange dropped sharply. Other nations either went off gold

ir took equivalent action to control their exchange rates. In this procession
is

were not the first to act; we were the thirty-first. Some of those countries

are forced to act because they could see the bottom of their gold bins; that was
condition

not our then nor is it now. We had more than one-third of all the
onetary gold in the world. Our ******** trouble grew out aff of the fact
that our foreign customers could no longer afford to buy dollars with
thich to pay for American products. They could trade with each other to some

extent *********** but our exports which had been above five billion dollars
1928 dropped to a billion and a half in 1932. when conditions were at
their worst in 1932

the entire

world's export business had declined

one. third, compared with 1929 but our part had declined more than half. To

say that we merely shared in K world-wide misfortune isn't entirely accurate,
because

our

share NEE included en additional penalty for remaining on the
calamity of

cold standard. The falling commodity prices, loss of
trade, and the consequent unemployment swept over our country with the force and

2

4

sudden fury of a NY hurricane. Unless all of the other important trading nations
would go back to gold, our only alternative was to join them and seek a fair
reasonable parity with their Roosevelt currencies.

President/ promptly began this operation in the Spring of
1933 when he suspended gold payments, and let the dollar
in find a lower level
in international exchange exchange. The operation was completed January of 1938

when the/value of the dollar was definitely fixed at sixty cents. Since
that date we have continued steadily to regain that part of our lost foreign trade
which is recoverable; and at the same time we enjoy the steadiest
currency
in IN
including
gold,

the world. It is, in fact, so steady that large amounts of ********* capital,/

to find safety in our reliable dollar.

are flowing into this country for

But let us see what happened to our foreign trade. Some of it was no
longer recoverable. Various nations which had formerly imparted depended upon

American wheat had decided, for reasons of public policy, in
which price had no part, to raise their own. Obviously we couldn't strike down their
embargoes when they preferred home-grown wheat at twice our price.

We might

in relation to foreign trade.

take cotton as a better test of the gold policy/ In 1934 we got eight percent
more money for our cotton than we received in 1932; and we shipped one-third less

cotton. This was a remarkable increase in the price but, unfortunately, the
cotton producers want not only a higher price, but at the same time to sell more

cotton. They got the price but XXXXDX2X
they sell in a world-wide competitive market, and
other producers

relatively

I offered cotton for less sold more. So cotton is not the best test of
the gold policy.

The best test would be presented by some product that had formerly

this enjoyed a large export sale, and lost it almost entirely because of the
depreciation of foreign currencies, then regained it almost entirely because

3

5

country went off the gold standard, fixed a reasonable exchange value for

the dollar, and restored the parity. *********************** Is there such
product? Yes, we find various examples among our manufactured goods; the

automobile will
serve as well as any. This is a field
with the world on the gold standard
is which we have always been dominant. In 1930/ we exported 238,000 cars.

1932 only 66,000 cars. The world still wanted American automobiles; nothing
startling had happened
in were
the way
of competition;
prices
were
But we
on gold
and the others
were
off. about the same
or a little less; quality was just as good of better./ So here you have a perfect
test
totodetermine whether this administration's gold policy might EXEINE
assist

- restore that lost market. XXXXXXXXXXXX The dollar became cheaper
in 1933 and exports of cars
shot up from 66,000 to 108,000. Maxixum In
efforts

the following year at 1934oour
, came right back to where they *************

had been in 193o. This year *** exports are still rising. In 1929 this
country alone sold in foreign markets eight and a half percent of all the automobiles

produced in the world. In 1932 that percentage dropped to a fraction over three.

In 1934 it rose again to more than six. In short, the manufacturers needed

only a reasonable parity in exchange rates to sell their goods.
inzusting we can examine these figures with MARKE assurance that

they prove something because no drouth swept away our automobile productionnor did
the

manufacturers have to raise the price. All they wanted was to regain what

they had lost. The exchange rate had killed their foreign market; we removed
that obstacle and their market is being restored to them
with

already

such rapidity that the benefits ZERNEX are/nation-wide.

4

6

This country went off the gold standard
xenta

acute

crimarily to meet in/ennance emergency but we had at the same time
a panic in our own country. During February 1933, and until

two days after taking office
the President/issued his proclamation closing akizet the banks, about half a

billion dollars in gold was withdrawn,
and nearly two billion dollars in currency.
were headed toward financial chaos unless
We

Our banking system was being destroyed./ we could stop the run on the
banks, and reassemble our gold reserve,

Both of these necessary objectives were promptly achieved.
the banking holiday ended the runs, and

the gold was ordered back into the custody of Uncle Sam under

Until confidence could be completed restored it was futile to

penalties.

permit *** withdrawal of gold on any pretext. However, we have in
one hundred billion dollars

this country about $XXXXXXXXXXXX of bonds and other obligations containing the

provision that payment must be made in gold. It Such payments Mark seldom have

become

been

made

in

gold

provision

but it had born custom to write that/into the bond. With

our gold stock safely TEKEX reassembled so that our currency was absolutely sound

there was every reason to go on using current
instead of gold, and the law now made this mandatory.

Next came the gold

of the dollar

reserve act of Jersery 1934 which authorized the President to fix the value /
between fifty and sixty percent of its pre-war gold content. He

did that; and the
YES monetary value of the gold reserve now became greater by $2,800,000,000
Some

seem to be

of our critics/ under the impression that that sum was
promptly expended in e riotous extravagance. Nothing of the sort happened.

Two billion dollars was promptly locked up in the stabilization fund, and
nearly all of the rest ear-marked for redemption of interest-bearing public debt.
I find learned dissertations on the similarity between what we did and what
"Abeen done in remote ages by bankrupt monarchs who restamped the coin of the

5

7

than to acquire the fictitous profit.

realm, raising its value for no other

purpose

This government was not bankrupt. We had siezed the gold to save our financial

xxxxxxxx structure from collapse. We changed the value of the dollar to meet

national and international emergencies, not to fill an empty
the government current expenditures

/

needed for ************ we -

treasury. Whatever additional funds

borrowed in the open market in the traditional manner.

If all of the other countries, want

the United States Treasury is
ready. For us it
to go back to the gold standard tomorrow morning

notmuchmouethona
is

- bookkeeping operation. We haven't dissipated our $2,800,000,000.
So far as the United States Treasury is concerned we can simply rub out

that item we are on the other
and ninetenthight - the back way gold
N are-war standard. Some of the

countries that didn't call in their gold but permitted speculation in it
as the price rose are ** not so favorably situated. If we had handled this
possess a twenty dollar

transaction as they did the man who happened to gold
certificate in January of 1936/ six would have taken a profit on it He

wouldn't have worked any harder for it than his neighbor who had been paid in a

twrnty dollar federal reserve note, but he would have been luckier. By this

much

time all of those profits would have been dissipated and the road back
to stabilization would be

exactly

to

harder

than

it

is.

severest critics tell you that we virtually stole that $2,800,000,000.

Our

Our

in
the
stabilization
fund;
answer is that we/ locked up all of the gold; we locked up be $2,860,00,000
rescued and

able

we gave everybody the same kind of a dollar ; and nobody was abake to get

TARK rich by sharp-shooting ************** for his private profit while the

he President

- preserved the financial structure of the nation. Everything we took
into
custody is still there, held as a sacred trust. Behind every dollar of
coin and

-

/currency in circulation today is $1.55 cents in gold and

about 26 cents in silver. It is quite true that you can't get the gold but

6

B

rate atnot
which
it was
disappearing
gingbyifthe
it had
been
locked
up. in February 1933 you wouldn't
en know where it is by this time

silver of your dell
That was no time for faint hearts or weak measures.

These

not only ended panic but launched recovery, and

beneficial effects still surge throughout the nation.

long

What this administration did

9

In estimating the future of our foreign trade, especially in
relation to our gold policy, we may as well begin by facing the fact that we KEEK

Annot hope to sell abroad more than the buyers can pay for. A brief review
if the developments that have brought us to our present position as the world's

reatest creditor nation will clarify that statement. Beginning in 1896 there
as an extraordinary expansion of our world trade. In the succeeding eighteen
ears our merchandise exports exceeded thirty-two billion dollars. Nevertheless

1914 we owed the world three billion dollars net on capital account. Then
legan *** an outpouring of goods such as ********* no nation had ever
efore experienced. From 1914 through 1922 we exported forty-seven billion
dollars in worth of merchandise, and our net credit at the end of that year
as more than sixteen billion dollars. However we continued to export goods

in vast quantities. The end of 1929 found the United States net creditor on
capital account, in round numbers, nineteen billion dollars. At the close of 1934

one

the total had reached twenty- billion dollars. About half of this is
represented
also

citizine

by war-debt obligations with their accumulated interest a. American

old about six billion dollars in bonds and shares of foreign governments and
corporations of which about one-third are in partial or complete default. In

citizens

addition, Americans have made direct investments abroad of nearly seven billion

ollars, the exact status of which cannot readily be ascertained. However it
/

is certain that seventy percent of our net foreign capital investments, covering
the entire period since 1896 are at present in default.

As long as we assupint could regard those loans and investments as

ound assets we were rich,and much of the prosperity of the booming

of

10

nineteen-twenties, rested on that assumption. Now we know better.

Our bitterest lesson came in 1932 when we witnessed the remarkable
spectacle of the greatest gold movement in the history of the world: three

quarters of a billion dollars worth of the yellow metal left
this country in a few months, most of it bound for debtor nations. They had
That out-flow did not stop
gone off the gold standard and we had not. ,
until President Roosevelt

the Spring 1000

payments
came officesuspended
. andgoldpromptly

Since then we have recovered all of that gold and gained

considerably more.

However, the statement so often repeated, that we have stripped the world
of gold, is not true. Gold production has been greatly stimulated, and now proceeds

at an estimated rate of about one billion dollars annually, at present value.
The percentage of the world's montary gold which we hold is lower today than
although in ounces it is much larger.

it was in 1922, ********** But we are endeavoring to restore silver also

to greater usefulness as a monetary metal, partly by bringing its price closer

to its intrinsic worth. It is already the money of a large part of the world's
population. Moreover the average annual production of silver outside of the

United States is in round numbers a ten billion dollars at present prices.

silver

A substantial pp portion of this is available fax to pay for merchandise
1

moving in international trade.

The alternatives to these monetary measures are: first,to reduce
ariffs sharply. Second, the to accept payment in paper, that is to say loans.
Both alternatives have sharp limitations, ********* Many objections would be
our again extending
raised against drastic tariff reductions; as for

large foreign loans to cover payment for our exports, I think the subject may
dismissed without discussion.

The present program which aims at payment of international balances in gold
and silver is certainly sound,and probably the only feasible course.

9
In conclusion, 300 MIX I should like to
sumarize this statement by saying:

First, you have an absolutely sound dollar that is today the steadiest
currency on earth, and has been . for more than a year.

Second, the gold policy of this administration held the fort through
the

the most trying period of our recovery program, and is still/ spear-head
afzsarzazagrexx as we advance steadily toward our goal.

Third, we were the last of the great trading nations to go off the
gold standard, and when the others are realy willing to go back to it, we are

can

ready. We a prospere under the gold standard and we are only technically off of
However, if

it.

If/the great trading nations want to continue under the present rules, we

Our hands are untied, and the contest is now fair.
are no longer at a disadvantage. / There is much to be said for complete stabilization

of world currencies, but nothing to be said in favor of our launching out alone
practically alone,
to encounter the same hurricane that swept over us in 1932. We were caught//

and

in that one, but we have% learned our lesson. The next time we set sail under

INX the gold standard it will be with a full crew. They must all come on
board and sign the articles. We want to see the whites of their eyes.
I thank you.

12

The second draft, which represents the restoration of the material
about the record of payments of international balances beginning

with 1896, and also includes the inspiration to settle the
inspiration born in this draft and died promptly.

war debts

nleer

it
whom

we

Asone

bundrights

craditor.

is

Lette

informational
our
Bogan

for

$2,000,000,000
world
Two

-

imported,

viaw,
not

Insurance,
only took age

capital however,

mind

the

shound - oning Sariups
Gold shipments for White period WAZE
our Favor was $176,000,000.

13

you

of

back

to

ties

to

apply

011

For a clear understanding of the monetary policy of this

administration, it is important that we go back to that period
?

when we were a debtor nation and trace the developments which

have brought us to our present position as the world's largest
creditor. Let's see what the record shows on the payment of
international balances.

Our rise to a position of great importance in world trade Geried
Transition
began in 1896. We were then the world's debtor in the sum of
$2,000,000,000. From that time until the outbreak of the
world war we exported thirty-one billion dollars worth of merchandise. Two thirds of it was paid for with merchandise that
we imported. Tourist and immigrant remittances, shipping service, insurance, dividends, interest, and miscellaneous items

not only took care of all of the rest but increased our debt.

development

of free head

European capital was flowing into this country for investment,
however, and the net balance for the eighteen year period

showed us owing Europe three billions of dollars instead of two.

Gold shipments for that period were relatively small; the net in
our favor was $174,000,000.

) sulser
as chac
uni

14
-2-

week

We some next to the war period. From 1914 through 1922

we exported forty-seven billion dollars worth of goods. Most much
of this was paid for with merchandise that we imported but there

was a balance in our favor of twenty-one billions. Europe sent

back to us two and a half billion dollars worth of our seouri-

a belon and 3/4m

ties to apply on account. Europe also sent us one and three said

what in Silen)

quarters of a billion dollars in gold. But the largest items
received in payment were paper. Under this head come the war

loans of about ten billions of dollars and private loans of

hancy

more than six and a half billion dollars. We were net creditor

at the end of 1922 in round numbers nineteen billions of dollars
of which nearly seventeen billions were represented by promises
to pay.

From 1922 through 1929, the so-called golden era, we oontinued to export more goods than we imported. We had ooming

to us now considerable sums in interest on our loans. Presumably

there should have been a great inpouring of gold, but nothing of
that sort happened. Europe sent us $175,000,000 in gold and

(sew

$210,000,000 of our currency. We exported two and a half billions
?

of dollars, net, in loans of one sort and another, receiving more
promises to pay.
and

Coming down to 1934 we find Americans owning six billion

dollars of the bonds and shares of foreign governments and cor-

porations. of these about two and a third billions are in partial
or complete default. Virtually all of the war debts and accumulated

15
-3-

interest are in default American oitizens also have direct

her plauts factories

investments abroad amounting to seven billion dollars; the

exact status of all of these cannot be stated with certainty.
But it would be conservative to say that of our net capital
investment abroad, more than seventy percent is represented

by paper in default.
There, briefly, you have the background. Now, let us
consider what happened in Europe in 1931. Beginning in Vienna,

oredit and currency difficulties spread panic. On September
21, Great Britain was foreed to suspend gold payments. Norway,
Sweden, and Denmark followed within a week. Japan aoted in

December. Other nations either went off gold or took equivalent

action to control their exchange rates. In this procession, we

were not the first; we were the thirty-first.
As the nations went off gold the value of their ourrencies
in international exchange dropped sharply, and our customers

found it difficult to buy dollars with which to pay for American
products. They could trade with each other to some extent as
their various currencies approached parity, but they bought from
us only what they couldn't do without. Our exports, which had

been more than five billion dollars in 1928 dropped to a billion
and a half in 1932. To say that we morely shared in world-wide
misfortune isn't entirely accurate because our share included an

additional penalty for remaining on the gold standard. While
added to the oulent ty of that

16

total world export trade declined, those countries which

promptly went off gold increased their share. Inevitably
the increases were largely at our expense. In this sort of
riot we offer such a large target that no matter what any
nation's immediate objective might be it could not avoid

hitting us.

withdram

from

our

use

2

figures?

At its worst, in 1932, the total volume of world trade
had declined about one-third compared with 1929. But in

the midst of that deoline Great Britain's share, after she
went off gold, increased seventeen percent, and Japan's

make
planner
fire date

share increased thirty percent. Our share decreased about
forty percent, measured in volume.
Some of the countries engaged in this soramble were

alarmed because they could see the bottoms of their gold

bins. They began to call in foreign oredits, among which

were about a billion dollars in short term loans in this
country. We couldn't use paper in default as an offset to
those calls. We were on the gold standard; we had not suspended gold payments, and if they demanded the gold they

were entitled to it. Thus it happened that in the winter of

4 meredite

1932, we witnessed the remarkable spectacle of the greatest
gold going out of the
gold movement in history
INSURE

change

world's greatest creditor nation on every ship, nearly all

of it to nations that were in our debt. This loss was
added to the calamity of our falling commodity prices, loss

put story

17
-5-

of trade, and consequent unemployment. The disaster swept

over our country with the force and fury of a hurricane.

Our financial structure was in a state of collapse. In the
month of February 1933 and up to the time President Roosevelt

(silver)

took office, half a billion dollars in gold and two billion
dollars in currency were withdrawn from our banks. They

were closing, not individually, but by whole states at a
time. That was the situation when this administration came
into office. On taking his oath, Mr. Roosevelt assumed both
the duties of President and receiver for a bankrupt concern.
We were headed for disaster unless the run on the banks
could be stopped, and our gold reserves reassembled. Both

objectives were promptly achieved. The President's proclamation closed the banks, ending the run, and the gold was ordered
into the oustody of Uncle Sam under penalties. Those two acts
met the domestic emergency. Gold payments were then suspended

and that ended the outward flow which had finally attained a

total of three quarters of a billion dollars. This effectively
took us off the gold standard and the dollar began to find a
lower level in international exchange. The operation was completed in January of 1934 when the exchange value of the

dollar was definitely fixed at 59.06. Since that time we have

enjoyed the steadiest currency in the world. It is, in fact, so
steady that this year we find hundreds of millions in gold flow-

ing back into this country to take refuge in our reliable dollar.

18

-62
the

And now let us see what the cheaper dollar did to our

foreign trade. Measured in volume or tomage the foreign

trade of the whole world was still declining in 1934. We
reached our low, however, in the first quarter of 1933 when
we caught the full cumulative effects of European devalua-

tion, so the proper basis of comparison for us is the first
quarter of 1933 against the average for 1934, and that shows

an increase of 22 percent in our share of the world's volume.
Measured in terms of value, the increase during the same

period was 57 percent. This striking difference between

tomage and value is due to the fact that our exports of
such heavy commodities as cotton and wheat did not increase.
Most of the increase was in manufactured goods which are

back
lighter in weight but bring
moremoney.

company time 3

In 1934 we shipped one-third less cotton than in 1932

and got eight per cent more money for it.
We also got more money for our wheat but that was partly

due to the drought. Our foreign market for wheat has been
suffering from quotas and embargoes. Some of our former ous-

tomors prefer, for reasons of public policy, to grow their
own wheat, regardless of price.

The real test of our monetary policy in relation to
foreign trade is offered by manufactured goods because they

were not affected by drought and the consequent rise in prices.

Let us take the automobile as a perfect example. In 1930 with

-7-

:

the world on the gold standard, we exported 238,000 cars.
In 1932 with our country almost alone on the gold standard

we exported 66,000 cars. But in 1933 we went off the gold
standard and our exports shot up to 108,000 cars. Last year
they game right back to 238,000, the 1930 figure.
This is a field in which we have always been dominant.

The world still wanted American automobiles, but it couldn't

buy the dollars to pay for them. During that disastrous
period of declining sales, nothing startling in the way of
foreign competition developed; our prices didn't go up;
quality of our goods did not deoline. We simply had an interim during which we couldn't sell because the dollar was

too high; this administration lowered the gold content of the
dollar, and the foreign automobile market is being restored
to our manufacturers with such rapidity that the benefits are
nation-wide. off gold in 1983 the had
The volume of all our finished manufactures exported in
1934 increased 37 percent compared with 1932. Volume of export of semi-manufactures increased 47 percent in the same
period. monstary poliera
whether
the

we

was

(Here the figures on employment and profit)

There are many indications that world trade will increase

this year. Our motor gold policy is not intended to (grab)all of

it, but merely to protect our normal share. The gold content

of the dollar is still higher than that of most of the units of

20
-8-

currency now in use. So far from engaging in a competitive
devaluation race with the other nations we hold out to them
a currency of such steadiness that the normal tendency may

very well be for the world to move gradually toward stabiliza-

tion in the form of parity with our dollar. Unless somebody
rocks the boat that would be the natural course.
Neither are we stripping the world of gold. We have
more gold than ever before, but the world supply of monetary

gold is also increasing rapidly. Production now proceeds at

the rate of about one billion dollars annually, and will increase. The great nations are restoring their reserves.
Meanwhile, percentages of the total held by the various nations
show no alarming changes. We had 41.7 percent of all the
monetary gold in 1922 and now we have 38.8 percent. France
had 8.4 percent in 1922 and now she has 24.8. When Great

Britain went off gold in 1931 she had 5.2 percent; now she has

7.2 percent. And all of them have more in ounces, just as we
have.

jection to our course 1.0 sometimes

In estimating the future of our foreign trade in relation
to our monetary policy, we may as well face the question of

whether we wish to sell abroad vast quantities of goods that
the buyers cannot pay for, unless we lend them the money. of

course, if we want more paper there are plenty of international

bankers to arrange the details. We felt rich on that paper

would be for everyone. Lossos in default are good book

ing for indood they

21
-9-

during the roaring twenties. Now we know better. The remaining question is whether or not we have learned our lesson.
Certainly, some of us have, but others apparently have not.
The normal course of international trade is payment for
goods and services mainly with goods and services in exchange -

the balance in gold and silver. The policy of this administration leads directly back to that fundamentally just basis.
With increasing gold production, and hundreds of millions of

dollars worth of the yellow metal being brought out of hiding,
some of it can be used to pay balances. We are also endeavor-

ing to restore silver to greater usefulness as a monetary metal,

partly by bringing its price closer to its intrinsic worth. It
is already the money of a large part of the world's population.
Moreover the average annual production of silver outside the

United States is in round numbers ten billions of dollars at

present prices. A substantial portion of this silver is available to pay for merchandise moving in international trade.
Objection to our course is sometimes based upon the asser-

tion that we would bring vast quantities of the world's gold
here, only to be looked up in the United States treasury
N

the phrase commonly used is that the gold thus becomes steile.

At least, however, it goes to back your dollar. You now have

$1.55 in gold and about 26 cents in silver back of every dollar

in circulation. That is a comfort to me; I should think it
would be for everyone. Loans in default are not very good backing for currency; indeed they might, without undue asperity, be

22

-10-

referred to as also sterile. We must choose between the two,

and facing the decision, this administration elects payment in
monetary metal.

This course naturally adds to the difficulties of the international bankers who floated loans in this country. It becomes harder to pay off those loans, and virtually impossible
to pay them with new loans. Such a situation causes interna-

tional bankers acute distress. They don't like our monetary
policy, and they are not backward about saying so. You oan

get fairly complete details of their point of view by reading
after H. Parker Willis, Colonel Leonard P. Ayes, Dr. E.W.
Kennezer, Benjamin Anderson, and several others.

You will find the newspapers flooded with pleas for us to
return promptly to the gold standard. Some of the propagandists

even go so far as to say that the other nations would follow if

we took the lead. As a matter of fact if we took the lead, that
would put us right back where we were in 1932 and furnish the

soundest reason of all for them not to follow, but again to take
advantage of our disadvantage. Moreover, some of them are not in

a position to return to the gold standard immediately for other
reasons. We realize the importance of world prosperity and will

evade no opportunity to assist in that direction

except the

ever-present opportunity to donate prosperity at our own expense.

If the nations of Europe, groaning under debt and more expecially
under the appalling burden of their armanents, were to agree upon

a five year holiday in all armanents, and them come to this country

-11-

23

and offer just half what the present generous debt settlements

call for, they would almost certainly receive a cordial reception and respectful consideration, because if we gave up half
of what is due annually from them on interest and principal we
could save that much by reducing the cost of our own purely desaid

in

faxor

of

fensive armaments. Meanwhile, they could balance their budgets
and give such an impulse to world trade that recovery would come

to all of us together. Moreover, that course would probably
avert impending war. As long as the war clouds hang over Europe
it seems idle to ask Uncle Sam again to carry the whole burden.
More especially when we can go on indefinitely on our present
course.

In conclusion, I should like to summarize this statement
by saying:

First, you have an absolutely sound dollar that is today
the steadiest currency on earth, and has been for more than a
year.

monston

Second, the gold policy of this administration held the
fort through the most trying period of our recovery program,
and is still the spear-head as we advance steadily toward our
goal.

Third, we were the last of the great trading nations to go
off the gold standard, and when the others are willing to go
back to it, we are ready. We can prosper under the gold standard

and we are only technically off of it. However, if the great

24
-12-

trading nations want to continue under the present rules,
we are no longer at a disadvantage. Our hands are untied,

and the contest is now fair. There is much to be said for

125

complete stabilisation of world currencies, but nothing to
be said in favor of our launching out alone to encounter the
same hurricane that swept over us in 1932. We were caught,

practically alone, in that one, and I hope we have learned
our lesson. (The next time we set sail under the gold stand-

ard it will be with a full crew. They must all come on

]

board and sign the articles. We want to see the whites of
their eyes.

I thank you.

it

25
186

For a clour sanding of the moustady
it is
administra
1816
it comprised all of the excellent suggestions from all

The third draft, which represents the speech at a period when
that perios when we

castor

sources, and was in fairly complete
of

the

world.

in

shape

except for the

and

fact that it was about twelve hundred words too long.
118 to otre present position as the

Let's see what the record shives on the - of Laternational balances.

Our ries to a position of great

and continued standing One yours

trets begin in 1896: prescription we half

protents of and
Sagas As passe

goods to be gretted - missing

Crees spool / Subtotal

this was the transition person String will pepule-

tion firms equalled. and Mastin our ranit
ulation.

In 1896, when this tremendose change we with the

world two billion dollars. Da the following years
- exported salply-one billion dollard - of
the thirds of so see paid for with goods this w imported

Tourist and confittances, shipping service, Insurance,
dividends, interest, and miscellaneous item not only took cara
of the other shirt but incressed our dabe.

26

For a clear understanding of the monetary policy of

this administration, it is important that we go back to
that period when we, as a nation, were in debt to the rest
of the world, and trace the developments which have brought

us to our present position as the world's largest creditor.
Let's see what the record shows on the payment of international balances.

Our rise to a position of great importance in world

and continued steadily for eighteen years
trade began in 1896; previously we had exported mainly the

products of the farm and ranch and forest: nom Institute in
dustry began to pour out a ati-adily increasing volume of
goods to be proved with wonder and admiration in eager world

markets. Our great office were growing up around new factories."
This was the transition period during which our urban popula-

tion first equalled, and finally out-numbered, our rural population.
In 1896, when this tremendous change began, we owed the

world two billion dollars. In the following eighteen years
we exported thirty-one billion dollars worth of merchandise.
Two thirds of it was paid for with goods that we imported.
Tourist and immigrant remittances, shipping service, insurance,

dividends, interest, and miscellaneous items not only took care

of the other third but increased our debt.

27.

-2- all

so

In the previous eighteen year period with our country one

of the world's most attractive fields for capital investment
we drew in about three billions of dollars from abroad but when
to

we became a credit nation we loaned nearly seventeen billions of

dollars in eight years. Nor did we stop there. We continued to
export more than we imported right on through 1929, accumulating

an additional two and a third billions of dollars in promises to
to

pay.
Chesse

If we deduct from the grand total of our loans abroad, all
of the loans and credits that foreigners have here, and then
examine the status of our not foreign investment, we find that

about seventy percent of it is in partial or complete default.
There you have the background, from an American point of

view, when the crisis developed in Europe in 1931. Beginning is

Home the spring of that year Gredit and currency difficulties

which had

been
comets
a
hind
in
the
spring
a spread, quate throughout Europe with increasing fear as to the
ung
stability
oz European purpencies, a rush for gold began, with

the inexitable result that gold went up - commodity prices der
abless Houstoonly. On September 21, 1931, Great Britain suspended gold payments. Norway, Sweden, and Denmark followed within

a week. Japan acted in December. Other nations either went off
gold or took equivalent action to control their exchange rates.

In this procession, we were not the first; we were the thirty-

first. We did nothing until the spring
of 1933.
2026
ties Good

the

basics

adidas

ofthat

year

28

-5all of it to nations that were in our debt. Still nothing was
done to avert the disaster.
Stupendous as the gold movement was, we couldn't ship fast
enough to meet the demand, and speculators took advantage of the

situation to sell the dollar short. They were not all foreigners,
either. However, the citizenship of these snipers is of no
importance since their dominant trait is an utter lack of

patriotism or loyalty to any nation. They would sell civiligation
itself short if them loss could; of and added for to the all day know of at that time they

gold, calamity declining trade, might

falling commodity prices, and wide-spread unemployment, caused

bewilderment and then panic. The disaster swept over our

country with the fury of a hurricane. Our financial structure
was in a state of collapse. In the month of February 1933 and

up to the time President Roosevelt took office, half a billion
dollars in gold and two billion dollars in currency were withdrawn from our banks. They were closing, not individually, but
by whole states at a time. That was the situation when this

administration came into office. On taking his oath, Mr.
Roosevelt assumed both the duties of President and receiver

for an insolvent concern. The richest on earth but on
that tragic day insolvent.
We were headed for disaster unless the run on the banks
could be stopped, and our gold reserves reassembled. Both

objectives were promptly achieved. The President's proclamation closed the banks, ending the run, and the gold was ordered
these

credite

have

been

doing
so.

29
-6-

offer such a large target that no matter what any nation's
immediate objective might be it could not avoid hitting us.

physical

In 1932 the total volume of the whole world's export
trade had declined about one-third compared with 1929. But
All the innocent by-standers fared badly but I shall recount

in the midst of that decline the nations that went off gold

only what happened to us,
otherwise controlled

Clease those share of whoteven would trade remained. We are

not penticularly Interested in the details of what happened
Our

to the other Innocent by standors but will containly be
to examine carefully the record of what happened
to 118, The storm clouds were coming our way from the time

Great Britain went off gold in September of 1931; the hurricane

struck with full force in the first three months of 1933,

our on

Lit us fasten attention that period.

that period) Great

Britain increased her share of world trade seventeen percent
Japan took action in December 01 1951 and from then until the

-pering of 1955 her share / trade increased thirty per-

same
our share
cent. You that
period
decreased forty percent.
These percentages are based on volume. Monet was doing

things during those turbulent times, it would be

so many funny - value that

difficult to give world export figures in money

would
any
meaning
Somehave
of the countries
engaged
in this scramble were alarmed

because they could see the bottomsof their gold bins. They and

others exerted pressure to have foreign credits called home. Sometimes
these credits responded by going in the other direction just as

30

6 1/2
fast as they could travel. Gold was stampeding from country to country, always

a

leaving the place where it was needed, and ********** rarely doing its new host
any good. Considerable amounts of it came here. But in 1932 it began to
leave more rapidly than it had come. This was fair notice to all concerned
Europeans

that our turn was next. The panic was knocking at our door. Basspa/ knew

that we couldn't maintain our currency at a level fifty percent above
the average for the rest of the world. The effect of it was just the same
as though the level of the Atlantic ocean drappet had dropped

fast fifty yards. Our ports would then be high and dry with tide-water
miles away. We were in just as bad a *** predicament with our currency
world

sticking up fifty percent above the Facing that orisis, the previous administration stubbornly refused to take
action, evidently under the impression that that sticking to the old gold
standard was a proud achievement when it was obviously economic suicide, and

so recognized by all Europe.

31
-7-

fast as they could travel. Gold WAS stampeding from country to
country, spreading four and now remove with every flight
Out of the loans

our

floated in this country, Europe had left here more than a

billion dollars to enjoy high interest rates

Knowingwhat was bound to happen they correctly judged that it was
generated by our rumba dance to the stock market
High time to take this money home.
was over in 1932 and this seemed an appropriate

be Shores was one last profit the

howayan All they had to de was
was on.
in beeter They did so and the panic had some

We couldn't offer them their defaulted paper when they

called for their money. We couldn't even offer them their paper
let them have the money on

that wasn't in default. We had long
term loans in Europe, and
A
they had short term loans here. They had got this money from us
but Our long term paper wasn't due while their short term paper
could be called. Moreover we were on the gold standard; they

dollar

could demand the yellow metal for every GOODS due, and that is

precisely what they did. Thus it happened that in the winter
of 1932 we witnessed the incredible spectacle of the greatest

milk movement in history gold going out of the world's

greatest creditor nation on every ship, nearly all of it to
nations that were in our de it. The movement WAB 80 stupen-

adium declined aurual and speculators
either.
Among

eniposa

but

32

7 1/2
Stupendous as the movement was, we still couldn't ship gold fast
enough to meet the demands, and speculators took advantage of that situation

to sell the dollar short, thus adding to our lesses. They were not

all foreigners,either. The citimenship of these snipers ==== is
of no importance,however, since the one trait they have in common

an utter lack of patriotism or loyalty to any nation,
back

in

into

is

33

-9move

took us off the gold standard and the dollar began to
nearer the world level of
Lovelade international exchange. The operation was completed in January of 1934 when the exchange value of the

dollar was fixed at 59.06. Since that time we have enjoyed

the steadiest currency in the world. It is, in fact, so

steady that this year we find 266 gold flowing
back into this country to take refuge in our reliable dollar;
not to pay balances but to find safety. Some of the same
sharpshooters who personally conducted the flight of gold

from this country during 1932 and the first two months of

1933 are now bringing it back. I deplore their existence
but I am willing, however reluctantly, to admit their shrewdness.

think of them whon been about ainoore and

our new
But let us return to the record, and see what President
1028 dollar did to our foreign trade. Measured
in volume or tonnage the foreign trade of the whole world was

still declining. We had reached our low, however, in the first
quarter of 1933 when we caught the full cumulative effects of
European devaluation, so the proper basis of comparison for us is

our
share then one share in
the finat of 10%8 against MAY average the 1934, and that
shows an increase of 22 percent in

34
lo

Measured in terms of value, the increase, during the same period was 57
percent.

In 1934 we shipped one-third less cotton than in 1932, and got eight
percent more money for it.

We also got a higher price for our wheat but the drought accounts for
most of the increase. Due to weather conditions alone, we harvested in 1933
the smallest wheat crop in forty years; and in 1934 the smallest wheat crop
in forty-one years.

Because of these over factorsy

effect of our monetary policy upon agricultural exporter

better tast is by goods

Our wheat exports have also been affected by quotas and embargoes. Some
of our former customers

prefer, for reasons of

national policy, to grow their own wheat regardless of price.
/

Because of these factors, I cannot trace with accuracy and fairness
the effect of our monetary policy upon agricultural exports.
A better test is offered by manufactured goods.

10 1/2
in terms of value, the increase during the same
period was 57 percent.

In 1934 e shipped one-third less cotton than in 1932
and got eight percent more money for it.

We also got a higher price for our wheat but that partly due to the drought. Our foreign market for wheat
has been suffering from quotas and embergoes. Some of our

former customers prefer, for reasons of public policy, to
grow their own wheat, regardless of price.

The real test of our monetary policy in relation to
foreign trade is offered by manufactured goods because they
were not affected by drought and box

The volume of all our finished manufactures exported in
1934 increased 37 per cent compared with 1932; semi-mamufactures

increased 47 percent in the same period.

But the best test is to take a specific article, such as
the automobile. In 1930, with the world on the gold standard,
the

we exported 238,000 cars. In 1932, with our country one of
the very few remaining on the gold standard, we exported 66,000
of

I

cars. In 1933 we went off the gold standard and our exports
shot up to 108,000 cars. Last year they more than doubled:
they came right back to where they had been in 1930 238,000
care.
under

2000

35

11'th

36

Some people will tell you that there simply couldn't be any justif
benefit in restoring trade by bringing our money into reasonable relation

with the other moneys of the world. I decided to get the
answer to that
best.
question from the exporters, themselves. They ought to know 1 beek
I asked
manufacturing

the known executive representative
heads of twenty-eight large /
firms whose products are cross-section of our export
a

trade to tell mo: dollars

DO

First: **** whether they are getting any more foreign trade,
Second: whether ******************** they are making any profit out of it.
Third: whether it has affected employment in their plantsgin short,
whether it is doing the public any good.
Their reports have been tabulated, and here are the combined answers.

To the first question: whether they are getting any more foreign
trade

they answer yes; in 1934, which is the first full year under the

Roosevelt monetary program, their export sales increased in round numbers
one hundred million dollars above 1932; in fact they are now ten percent

above 1931/
To the second question: whether this trade is doing them any good
they answer yes

they bet earned $117,200,000 in 1934 against

a install loss of $126,400,000 in 1932. These figures include their earnings
on domestic sales also; but their report showy that thereoursement domestic

sales followed state exactly the same course as their foreign sales
when foreign sales hit rock bottam so did domestic sales; and when foreign
sales recovered under the Roosevelt monetary program, domestic sales recovered

with them. Since the percentages are the same they didn't -

whether employment

a separate the two items and neither do I.
To the third question

in their plants attacket increased

agains

they/skeex answer

yes.......

12

37

one hundred and ninety-sight thousand more mon and women were working is

their plants during 1934 than in 1932

an increase of thirty-one

there
percent.

answers

So there you have the/ - of the best qualified *** witnesses.
They say that under the monetary pregnancing policy of this administration
they got more business; they lifted themselves out of a defieit in excess of
one hundred million dollars to earnings in excess ofbyone hundred million

dollars; and judge
employment increased/ nearly 200,000.
So I everybody from the stockholders to the office boys
and night-watchmen benefitted.

long

goods

and

amount banis.

38
-15-

firms in

1904

bean

bondholdere the
There are many indications that world trade will increase

this year. Our monetary policy is not intended to capture all

of it, but merely to protect our normal share. So far from
engaging in a competitive devaluation race with the other nations we hold out to them a currency of such steadiness that
the normal tendency may very well be for the rest of the world

to move gradually toward practical stabilisation. If we oan

should come easily and almost of its own accord.
achieve that, the final step be www.detail. Unless somebody

rooks the boat that would be the natural course.

In estimating the future of our foreign trade in relation
to our monetary policy, we may as well face the question of

whether we wish to sell abroad vast quantities of goods that
the buyers cannot pay for, unless we lend then the money. of

course, if we want more paper there are plenty of international

bankers to arrange the details. We felt rich on that paper
during the roaring twenties. Now we know better. The remaining question is whether or not we have learned our lesson.
Certainly, some of us have, but others apparently have not.
The normal course of international trade is payment for
goods and services mainly with goods and services in exchange -

temporary or seasonal balances in gold and silver. The policy

of this administration leads directly back to that fundamentally
sound basis.
CHU

the settlement of international balances

gord prayou

11

14
I have called attention to the nature of the loans Europe made in
this country between 1896 and 1914; they were for productive purposes, self-

liquidating, and in reasonable proportion to
the security.

Now that we are able to export capital, those Sake rules should be our guide>
Only in that way can we avoid damage to both lender and borrower.

Settlement of international balances in gold and silver restores
world's

to the^ monetary reserve its normal function which is simply to act
traffic policeman for international trade, warning each nation promptly
when it INK buys more goods than it can pay for with goods.

39

-14-

between

40

14'L2

1800 and 1917. No are moving back to

that basis again; moving in about the only way that is
readily and easily available. We have no desire to gather

in all the world's gold and silver. Like everything else
that humans have ever usedias money, even gold and silver

have their limitations. The only settlement of international
Balances that has no limitation is payment for goods and
services with goods and services. The normal function

of

gold and silver is simply to apt as a policeman. to tell you
than you have bought more goods than you can pay for

agendan If you don't use gold and silver in that way, you run

into the difficulty that engulfed us...paper.
it

in

savings
dors

No

paper

you

pay

policy
Some economists will tell you that this would end our

foreign trade that, first, we strip the world of gold and
then our foreign trade dies. But we are not stripping the
world of gold. We have more gold than ever before, but the

world supply of monetary gold is also increasing rapidly.
Production now proceeds at the rate of about one billion

dollars annually, and will increase. The great nations are
restoring their reserves. Meanwhile, percentages of the
total held by the various nations show no alarming changes.
We had 41.7 percent of all the monetary gold in 1922 and now

41
-15-

have 38.8 percent. France had 8.4 percent in 1922 and

now she has 24.8. When Great Britain went off gold in
1931 she had 5.2 percent; now she has 7.2 percent. With

increasing gold production, and hundreds of millions of
dollars worth of the yellow metal being brought out of
hiding, some of it can be used to pay balances. We are

also endeavoring to restore silver to greater usefulness
as a monetary metal. It is already the money of a large
part of the world's population. Moreover the average annual

production of silver outside the United States is in round
numbers 115 millions of dollars at present prices. A sub-

stantial portion of this silver is available to finance merchandise moving in international trade.
Objection to our course is sometimes based upon the

assertion that we would bring vast quantities of the world's
gold here, only to be locked up in the United States

treasury the phrase commonly used is that the gold thus
becomes sterile. At least, however, it goes to swell our
monetary reserves. You now have $1.55 in gold and about

26 cents in silver back of every dollar actually in circulation. That is a comfort to me; I should think it would be
for everyone. Loans in default are not very good backing for

described

currency; indeed they might, without undue asperity, be referred

be as also sterile.

of we

K

must choose between the two,

this administration elects payment in monetary
metals.

42
-16-

You will find the newspapers flooded with pleas for us
to return promptly to the old gold standard. Some of the
propagandists even go so far as to say that the other nations

would follow if we took the lead. As a matter of fact if we
took the lead that would put us right back where we were in

1932 and furnish the soundest reason of all for them not to
follow, but again to take advantage of our disadvantage.

We realize the importance of world prosperity and will

evade no opportunity to assist in that direction except
the ever-present opportunity to donate prosperity at our own
expense. It seems idle to ask Uncle Sam again to carry the
whole burden. More especially when we can go on indefinitely
on our present course.

In conclusion, I should like to summarize this statement
by saying:
V
First: you
have an absolutely sound dollar that is today

the steadiest currency on earth, and has been for more them
a year

The
Second:
the monetary policy of this administration held
the fort through the most trying period of our recovery pro-

gram, and is / the spear-head as we advance steadily toward
our goal.

re-valued - their currencies

Third; f the great trading nations that sent off the
we were the last until Belgium joined us reWhen the others are

cently. ready essay willing to stabilize currencies,

43 :
-17-

we are ready. However, if the great trading nations want
to continue under the present rules, we are no longer at
a disadvantage. Our hands are untied.

There is much to be said in favor of complete stabiliza-

tion of world currencies, but nothing to be said in favor of
our launching out alone. Before we make any commitments we

ought to be sure that we won't lose what we have just regained.

A conference on stabilization must grow out of a sincere desire

for fairness and co-operation; the nations must be willing to
consider each other's individual difficulties. We are ready
for that kind of a conference, and could go with full freedom
to advocate a sound and adequate, world-wide monetary standard,

probably including a broader and better use of silver.
One lesson I have learned from the study of American

history is that we have generally fared best when we stood

our ground. If the world wants stabilization, it seems
appropriate that those who led in the other direction
should about-face, march up, and say 80. There will be no

stabilization until we - see the whites of their eyes.

44

The fourth, and saddest draft of all, which represents Crowell,
bewildered by the Peek statement, and groggy after his first
encounter with the eminent and scintillating Dr. Viner, who
smilingly blew Mr. Crowell's slender stock of economic lore

plumb to hell. In that feeble condition, Mr. Crowell tottered
off to his typewriter and produced this. On reading it to
the editorial board, he was humiliated by discovering Mr.
Gaston and Mr. Haas, in acute agony, holding their pained heads

in their twitching fingers. The session was brief. A high-ball
was ordered. The day ended, for Crowell, in disorderly retreat.

45

During recent weeks, you have doubtless seen, in your

newspapers, various pleas for stabilization of world currencies.
Some of these pleas appear to be based on the assumption that

the United States is in a position to bring about stabilization

whenever it wills to do so. Even if that were true ...... and
it is not ...... the responsibility would be so tremendous that
for any one nation, however well-meaning, to undertake it, would

be presumptious. The peculiar problems and difficulties of every
nation affected must be given the most thoughtful consideration

before world currencies can be stabilized. The only objectives
worth seeking in such an endeavor are justice and the general

welfare of the whole world. That assignment is not only too

great for any single nation, but for any small group as well.
My purpose tonight is to throw as much light as I can on

this difficult problem. Its solution will eventually be found
in the light of understanding, and as we approach it with the
,

will to understand, we shall find that its terrors diminish.
My contribution to friendly understanding I shall make
tonight beginning with a frank explanation of the monetary
)

policy of this administration. First of all, it is necessary
to review, briefly, what happened in Europe in the Spring of
1931 for these were the events that led up to our crisis.
Beginning in Vienna, credit and currency difficulties spread

-2-

46

panic throughout Europe. On September 21st Great Britain
suspended gold payments. Norway, Sweden and Denmark

followed within a week. Japan acted in December. Other
nations either went off the gold standard or took equivalent action

to control their foreign exchange rates. In this procession,
we were not the first; we were the thirty-first.
As the nations went off gold the value of their currencies in international exchange dropped sharply, and our foreign

customers found it difficult to buy dollars with which to pay
for American products. They could trade with each other, to
some extent, if their various currencies approached equal
devaluation, but they bought from us only what they couldn't do

without. Our exports, which had been more than five billion
dollars in 1928, dropped to a billion and a half in 1932. To
say that we merely shared in world-wide misfortune isn't entirely accurate because our share included an additional
total
penalty for remaining on the gold standard. While
world export trade declined, those countries which promptly

went off gold increased their share of what remained. In,

evitably the increases were largely at our expense. In this

sort of riot we offer such a large target that, even if no
nation were aiming at us, we could not avoid being hit.
to

In 1932 the total physical volume of the whole world's

export trade had decly ned about one-third compared with 1929.

47
-3-

All the innocent by-standers fared badly but I shall recount
only what happened to us. The storm clouds were coming our

way from the time Great Britain went off gold in September of

1931; the hurricane struck with full force in the first three
months of 1933. Let us, therefore, fasten our attention on

that period. In those months Great Britain increased her
share of world trade seventeen percent. Japan let her exin December, 1931,

change be depreciated and from then until the spring of

1933 her share of world trade increased thirty percent. In
about the same period our share decreased forty percent. All
of these percentages are based on physical volume. Foreign
exchange was doing so many queer things during those turbulent

times that it would be difficult to give world export figures
in terms of money value that would have any meaning.

Some of the countries engaged in this scramble for trade
were alarmed because they could see the bottoms of their gold

bins. The countries remaining on the gold standard exerted
pressure to have foreign credits called home. Sometimes these

credits responded by going in the other direction just as fast
as they could travel. Gold was stampeding from country to

country, spreading fear and new rumors with every flight. Con-

siderable amounts of it came to our country. And finally,
to our amazement, it began to leave much faster than it had come;

that The

4B

but the reason for this departure should have been obvious.
After other countries had completed the operation of depreci-

ating their currencies, this gold could find a profit by
returning to them. Our country, on the other hand, would
eventually have to suspend gold payments and depreciate

its currency, just as the others had done. The frightened
owners of gold and credits knew this because they had followed

the course of depreciation in Europe. They knew that our
country, which had not yet depreciated its currency, was not
as safe for them as the nations which had already finished the
or

job. Our country, however, stubbornly refused to take any
action, evidently under the impression that that was a proud
achievement, when, as a matter of fact, it was economic suicide.
We were certain to be bled of our gold just as the others had
been. Our experience was more sensational, however, because,

in addition to the gold that had fled in panic from Europe,

there was more than a billion dollars in foreign credits in

this country. Of the six and a half billions of dollars in

that had been

private loansn floated in this country Europe had left here

upwards of a billion dollars to enjoy our high interest rates.
The money had been
raised by long term loans. Now it was
to

being loaned back
to us as call money in the stock market, or
gold
sm

on short term paper, or it was invested in listed securities
that could be sold immediately.
ROAM

5
49

This money as well as the gold that had taken refuge here began to

leave. The departure of the visiting gold caused no great strain,

but the billion dollars in credits were something entirely different.
The foreigners had a right to demand American gold for their dollar

credits. of the loans that had established these credits one-third
were then in default but that made no difference. They could demand

gold and they did. Our banks couldn't offer them their paper in
payment. Our's were long term loans and their's were short term loans.
Thus it happened that in the winter of 1932 we witnessed the in-

credible spectacle of the greatest gold movement in history gold
going out of the world's greatest creditor nation on every ship, nearly

all of it to nations that were in our debt.
Stupendous as the movement was, we still couldn't ship gold fast
enough to keep up with the demands and speculators took advantage of

that situation to sell the dollar short, thus adding to our losses and

difficulties. These speculators were not all foreigners either. So
grave was the situation that for all they knew , they might have been

selling civilization itself short but that did not deter them.
/

Our loss of gold, added to the calamity of declining trade, falling
commodity prices, and wide-spread unemployment, caused bewilderment, and

then penic. The disaster swept over our country with the force and fury

of a hurricane. Our financial structure was in a state of collapse.
From February 1, 1933 to the time President Roosevelt took office, half a

billion dollars in gold and two billion dollars in currency were withdrawn from our banks. They were closing, not individually, but by whole

states at a time. That was the situation when this administration came
share 08 the warld's exals

6

50

into office. On taking his oath, Mr. Roosevelt assumed the duties
both of President and of receiver for an insolvent concern. The
richest on earth

but on that tragic day insolvent.

We were headed for disaster unless the run on the banks could
be stopped, and our gold reserves reassembled. Both objectives were

promptly achieved. The President's proclamation closed the banks, ending the run, and the gold was ordered into the custody of Uncle Sam
under penalties. Those two acts met the domestic emergency. Gold
payments were suspended and that ended the outward flow which had

attained an aggregate total of three quarters of a billion dollars.
This effectively took us off the gold standard and the dollar began to

approach the common level of other world currencies.

find Informational exchange. The operation was completed in January of 1934 when the foreign exchange value of the dollar
was fixed at 59.06. Since that time we have enjoyed the steadiest

currency in the world. It is, in fact, so steady that this year we find
gold flowing back into this country to take refuge in our now dollar.
not to pay balances but to find safety. Some of the same sharpshooters
who personally conducted the flight of gold from this country during 1932

and the first two months of 1933 are now bringing it back. I deplore

their existence but I am willing, however reluctantly, to admit their shrewdness. They wouldn't come here if they knew of a safer place. Sincere and
patriotic American citizens who are honestly uneasy about our monetary

policy might be reassured by noting this return of capital.
But let us return to the record, and see what President Roosevelt's
1933 dollar did to our foreign trade. Measured in physical volume or

tonnage the foreign trade of the whole world was still declining. Our
share of the world's trade reached its low, however, in the first quarter

51

7
of 1933 against the average IOF 1934, and that shows an increase of 6:
5

percent in our share of the world's valum
,

1933, so the proper basis of comparison for us,is the first

quarter of

33 against the average for 1934, and that shows an increase of twenty-two
reent in our share of the world's volume.

as

the
In
had

52
-8-

This is the more remarkable in view of the fact that our exports
of agricultural products, which have always been such a large propor-

tion of our total, were still declining. World competition, higher
prices, drought, and other developments introduced so many new factors

into this situation that I cannot trace with accuracy and fairness
the effect of our monetary policy upon agricultural products.
Our wheat exports, for example, have been suffering from quotas
and embargoes. Some of our former customers prefer, for reasons of

public policy, to grow their own wheat regardless of price.
)

Due to the drought alone, we harvested in 1933 the smallest

wheat crop in forty years; and in 1934 the smallest wheat crop in
forty-one years.

The real test of our monetary policy in relation to foreign
1

trade, is therefore offered by manufactured goods because they were not

affected by drought and the consequent rise in prices.
The physical volume of all our finished manufactures, exported
in 1934, increased 37 percent, compared with 1932; semi-manufactures

increased 47 percent in the same period.

But the best test of all is to take a specific article, such as
the automobile. In 1930, with the world on the gold standard, we exported 238,000 cars. In 1932, with our country one of the very few remaining on the gold standard, we exported 66,000 cars. In 1933, under
the Roosevelt monetary program, our exports shot up to 108,000 cars.
In 1934 they more than doubled; they came right back to where they
STRAR

had been in 1930 238,000 cars.

Thig

53

9
In 1929 our share of the whole world's export trade in
automobiles was seventy percent, In 1931 the grand march
away from the gold standard began and our share dropped from

seventy to fifty-eight, In 1932 our share dropped to fortyone percent. We started to climb again in 1933 and our share

rose to forty-seven percent. But it takes a little time to
recover lost foreign trade. The 1934 figure is therefore
more important. In that year our percentage of the whole
world's export trade in automobiles rose to a fraction above

sixty and it is still climbing steadily back toward the peak.
During the disastrous period of declining sales the
world still wanted American automobiles but it couldn't buy the

dollars to pay for them. Nothing startling developed in the
way of foreign competition; our prices didn't go up; and
quality remained just as good or improved
We simply had an interim during which we couldn't sell

because the dollar was too high in relation to other world
currencies; this administration lowered the gold content of the
dollar, and the foreign market is being restored to our automobile

manufacturers
nation-wide.

with such rapidity that the benefits are already

Some people will tell you that there simply couldn't be any
benefit in restoring trade by bringing our money into reasonable
relation with the other moneys of the world But let's see

what the manifacturers testify on that point. They ought to

54
-10-

know best. I asked the heads of twenty-six companies that have

large and diversified export trade to tell me, first, whether
they are getting any more foreign trade; next whether it is
doing them any good, and next whether it has affected employ-

ment in their plants; in short, whether it is doing the public
any good.

These reports have been tabulated. We began with 1931 because that was the year when other nations began to depreciate

their currencies. The value of the combined exports of these
representative firms in 1932 dropped forty percent below 1931.
A
In 1933, under the Roosevelt monetary program, they started to

come back; and in 1934 they were eight and a half percent above
the 1931 figure.

Domestic sales of these corporations followed almost the
same course.

And now let's see what these changes did to profits. In
1931 the combined earnings of these firms had been $86,800,000.

In 1932 they had a deficit of $114,500,000. In 1933, under the
Roosevelt monetary program, they came out of the red and earned

$9,400,000. And in 1934 they earned $84,400,000, which is almost
what they had earned in 1931.

These representative firms report that

/employment dropped fourteen percent in 1932 compared with

their 1931 figures. In 1933 it rose twenty-two percent above 1932
employment; and in 1934 it rose again to thirty-one percent above
1932 employment. One hundred and seventy-nine thousand more men and

women were working for these firms in 1934 than in 1932.

1° 1-2
55

Saxte There you have the answers to my three questions.
d they get any more foreign trade? Yes. Did it do them any good?
8

it turned a loss of more than one hundred million

llars into a profit of eighty-four million dollars. Did
hey employ any more people? Yes, they employed 178,000
ore men and women. So I should say that everyone from the
tockholders to the office boys and night watchmen were benefitted.

11

There are many indications that world trade will increase this
year. Our monetary policy is not intended to capture an unfair part
of it but merely to protect our normal share. Winning trade on any
other basis than the quality and desirability of the goods is a shortsighted policy. So far from engaging in a competitive devaluation
race with the other nations, we hold out to them the lively prospect of
an American currency 80 steady and working so well that the rest of the

world shall find in our policy a weighty inducement for practical and

actual stabilization If that can be achieved, the ultimate step to

come and of

definitive
definite, A stabilized world currencies will easily almost its
own accord. Unless somebody rocks the boat that would be the natural
course.

Foreign trade is normally a simple matter of exchanging goods and

services for goods and services the small seasonal or temporary

to be paid

balances in gold or silver. The policy of this administration leads
directly back to that fundamentally sound basis. Homever,There
should be no objection GO reasonable movements of capital for foreign

investment but these loans should be for productive purposes, selfliquidating, and extended with every reasonable prospect of the full
payment of interest and principal. We have, in the past, burdened
ourselves with ill-advised foreign loans some of which were more

profitable to the firms underwriting them than to anybody else

Their part in our foreign trade is now history. We have learned our
lesson. We have also learned much about the dangers of fear money that

dashes in panic flight from country to country, always leaving the

rarchy

new
lawy

place where it is needed and
n doing its host - good. So far

as

our

country is concerned these mysterious movements will never again be

invisible. We keep ourselves informed on this subject. and if ever
/

56

57

13

again the time comes when action is imperatively necessary we will know
what action to take.

But let us return to the record of our new dollar. Some economists

will tell you that we are stripping the world of gold

We have more

gold than ever before, but the world supply of monetary gold is also
increasing rapidly. Production now proceeds at the rate of about one

billion dollars annually, and will increase. The great nations are
restoring their reserves. Meanwhile, percentages of the total held by
the various nations show no alarming changes. We had 41.7 percent of
all the monetary gold in 1922 and now we have 38.8 percent. France
had 8.4 percent in 1922 and now she has 24.8. When Great Britain went

off gold in 1931 she had 5.2 percent; now she has 7.2 percent. With
increasing gold production, and hundreds of millions of dollars worth
of the yellow metal being brought out of hiding, some of it can be
used to pay balances. We are also endeavoring to restore silver to greater
usefulness as a monetary metal. It is already the money of a large
part of the world's population. Moreover the average annual production
of silver outside the United States is in round numbers 115 millions of

dollars at present prices. A substantial portion of this silver is avail=
able to finance merchandise moving in international trade.
Objection to our course is sometimes based upon the assertion that

we would bring vast quantities of the world's gold here, only to be
locked up in the United States treasury the phrase commonly used

is

that the gold thus becomes sterile. At least, however, it goes to swell
our monetary reserves. You now have $1.55 in gold and about 26 cents in

silver back of every dollar actually in circulation. That is a comfort
to me; I should think it would be for everyone

58

The fifith draft, which represents, restoration of the speech to
that is, nearly the form of the fourth
nearly its original form
draft. Whereupon, it became necessary to attack the problem of
length again; and decide which of the paragraphs (all having been
voted essential) should come out.

The markings and substitutions in this draft are by Mr. Gaston and
Mr. Crowell.

59

of

It is my purpose, tonight, to state a few simple facts which I hope
will contribute to a clearer understanding of the monetary policy of this

administration. I shall not enter into complicated discussion of the ******
theory of money. I shall merely tell you what was done why

and the

effect.

For an orderly presentation of the facts it is important that we go
back to that period when goods and capital flowed freely from ***** continent

to continent wherever profit beckoned enterprise, and see what the record
shows on the payment of international balances.
a

We may begin with 1028 the eighteen year/ between 1096 and
1914. In that period we exported
that were

thirty-one billion dollars worth of goods ********* paid for with goods
and services.

fit the end of that period, Europe had invested in the

about

United States, three billion dollars in pretasis in

was
loans for productive purposes. The gold movement

had been smaller than the silver movement. We exported a billion ***
dollars worth of silver; and imported two-thirds of a billion dollars walk
worth.

******* With the beginning of the orld War a tremendous change took

place. From July 1914 to July 1928 we exported
forty-seven billion dollars worth of goods. Must of this was paid for ***
with goods that we imported but in ********* balancing the account we
received nearly seventeen billions of dollars worth of promises to pay.
In the previous eighteenmost
year attractive
period withfields
our country
one of
the world's
for capital
investment
Wa drew in about three billions of dollars from abroad, in eighteen mara

2

ut when we became a credit nation we loaned nearly seventeen billions of

ollars in eight years. Nor did we stop there. We continued to export
ore than we imported right on through 1929, accumulating an additional

wo and a third billions of dollars in promises to pay.
If we deduct from the grand total of our loans abroad, all of the
status

Loans and credits that foreigners have here, and then examine the takes/of

our net foreign investment, we find that about seventy percent of it is
in partial or complete default.

from an American point of view

There you have the background/

in Vienna

when the crisis developed in Europe in 1931, Beginning/in the spring of

that year taxYings credit and currency difficulties spread panie throughout
Europe. With increasing fear as to the all stability of European currencies,

a rush for gold began with the inevitable result that gold went up and
,

commodity prices declined time disastrously.

60

July

the

not

counts.

After

off est

been

allowed-end

ve get right down to the rock bottom sum we find that seventy

percent of it is represented by paper in default.
There, briefly you have the background, and now let us

take a closer View of the events that led to the crisis. Beginning in Vionna in the spring of 1931, credit and current
difficulties spread penic through Europe. On September 21,1931,
Great Britain suspended gold payments. Norway, Sweden, and

Denmark followed within a week. Japan acted in December.

Other nations either went off gold or took equivalent action
to control their exchange rates. / In this procession, we were

not the first: we were the thirty-first.

we did miltine until

the spring ofAs1933.
the nations went off gold the value of the currencies
in international exchange dropped sharply, and our customers

found it difficult to buy dollars with which to pay for American
They could trade with each other to some extent if
equal devaluation
products. their various currencies approached
trate but about they

The physical volume of world one-third from

bought from us only what they couldn't do without. Our exports,

1929 to 1932,
but
which had been more than five billion dollars in 1928, dropped to

a loss of nure than Two-Thirds & our business

a billion and a half in 1932 IN To say that we merely shared in

world-wide misfortune isn't accurate because our share
included an additional penalty for remaining on the gold standard.
While total world export trade declined, those countries which

of what-remained

promptly went off gold increased their share. A Inevitably the

Increases were largely wb our expense In this sort of riot we

61

-6-

offer such a large target that no matter what any nation's
immediate objective might be it could not avoid hitting us.
In 1932 the physical volume of the whole world' export
trade had declined about one-third compared with 1929

All

the innocent by-standers fared badly, but I shall recount

only what happened be - The store clouds egming -

From September, 19 31, where

way from the time Great Buitain went OF gold September
the

of to 1931; the the end hurricane of stough the first with full quarter force in 71953 first Great

Britain

three months of 1983

abbonhton on that

period. Great Britain increased her share of world trade
seventeen percent in that period. Japan's share increased
Our share

thirty
percent.are
physical
mothonery
These values,
percentages
based decreased
on volume. forty
Bordan
exchangepercent.
ma.doing
so many Lunny things during those tunbulent times, it would

be difficult to give world export figures An money values
that would have any meaning.

Some of the countries engaged in this soramble were

alarmed because they could see the bottoms of their gold

bins. They and others exerted pressure to have foreign
credits called home. Sometimes these credits responded by

going in the other direction just as fast as they could
travel. Gold was stampeding from country to country, always

leaving the place where it was needed, and rarely doing its
new hosts any good. Considerable amounts of it name here.

But in 1932 it began to leave more rapidly than it had come.

62
-7-

This was fair notice to all concerned that our turn was next.

but southing elective was
done

The panic was knooking at our door Europeans know that we

Javer

couldn't maintain our currency at a level fifty percent above
the average for the rest of the world.
just the same as though the level a the Atlantic ocean had

dropped fifty vania would biron be high and dry with

tide-water ALL Just as bad K predicament
with our outruncy lating up fifty persent above
level Facing that orisis, the previous administration stubbornly refused to take action, evidently under the impression

that

that respiring the old gold standard was a proud achievement
when it was obviously economic suicide, and so recognized by
all Europe.

Out of the loans floated in this country, Europe had

left here more than a billion dollars to enjoy our high interest
rates. Knowing what was bound to happen they correctly judged

that it was high time to take this money home. They did so, and
the panic was on. We couldn't offer them their defaulted paper
when they called for their money. We couldn't even offer them

their paper that wasn't in default. We had let them have the
money on long term loans, and they had short term loans here.

Our long term paper wasn't due while their short term paper could
be called. Moreover we were on the gold standards they could de-

gold

mand motal for every dollar due, and that is procisely
what they did. Thus it happened that in the winter of 1932 we

63

7/12
witnessed the incredible spectacle of gold going out GRESTERS
R

of the world's greatest creditor nation on every ship nearly all of

to nations that were in our debt. Still nothing

was

le to avert the disaster.
Stupendous NK as the gold movement was, we couldn't ship
enough to meet the demand, and speculators took advantage of the situation

sell the dollar short. They were not all fore igners, either. However,
citizenship of these snipers is of no importance since their dominent

it is an utter lack of patriciism or loyalty to any nation.

The

-8-

one thing they have in

patriation

They would 6011 civilisation itself

short if they could, and for A11 they knew at that time they
night have been doing so.

Our loss of gold, added to the calamity of declining
trade, falling commodity prices, and wide-spread unemploy-

ment caused bewilderment and then panic. The disaster swept
,

over our country with the - fury of a hurricane.
Our financial structure was in a state of collapse. In the
month of February 1933 and up to the time President Roosevelt

took office, half a billion dollars in gold and two billion
dollars in currency were withdrawn from our banks. They

were closing, not individually, but by whole states at a time.
That was the situation when this administration same into
office. On taking his oath, Mr. Roosevelt assumed both the

duties of President and receiver for an insolvent concern.

The richest on earth but on that tragic day insolvent.
We were headed for disaster unless the run on the banks
could be stopped, and our gold reserves reassembled. Both

objectives were promptly achieved. The President's proolamation closed the banks, ending the run, and the gold was ordered
into the custody of Unole Sam under penalties. Those two acts
met the domestic emergency. Gold payments were then suspended

and that ended the outward flow which had finally attained a

total of three quarters of a billion dollars. This effectively

64

65
-9-

adjust
itel
took us off the gold standard and the dollar began to -

a but passes a open
to the realities
of world
The world situation. Great daman The
nearer the
ation was completed in January of 1934 when the exchange

XX

keeatCut
of itsSince
former
oldtime
measure.
value of the dollar wasset
fixed
59.06
that
we Temporary

have enjoyed the steadiest currency in the world. It is, in
fact, so steady that this year we find gold flowing back into

this country to take refuge in our dollar; not to

the

pay balances but to find safety. Some of the same sharpshooters who personally conducted the flight of gold from
this country during 1932 and the first two months of 1933

are now bringing it back. I deplore their existence but I
am willing, however/reluctantly, to admit their shrewdness.
But let us return to the record, and see what our now

dollar did to our foreign trade. Measured in volume or
tonnage the foreign trade of the whole world was still
declining but We had reached from our low, the nowaver spering the of 1933

of 1633 when - the full cumulative ffeeter of

devaluation
toEuropean
the close
so the proper of of 1934
that
C.

to our share then against

our

in

1934

and

SHOWS

increase of 22 percent. Measured in terms of value, the
increase

was 57 percent.

66
-10-

In 1934 we shipped one-third less gotton than in 1932,
and got eight percent more money for it.

We also got a higher price for our wheat but the drought can
account / for most of the increase. Due to weather conditions
alone, we harvested in 1933 the smallest wheat crop in forty
years; and in 1934 the smallest wheat crop in forty-one years.
Our wheat exports have also been affected by quotas and

embargoes. Some of our former customers prefer, for reasons of

national policy, to grow their own wheat, regardless of price.
Because of these factors, I cannot trace with accuracy and

fairness the effect of our monetary policy upon agricultural
exports.

A better test is offered by manufactured goods.
The volume of all our finished manufactures exported in
1934 increased 37 per cent compared with 1932, semi-manufactures

increased 47 percent in the same period.

But the best test is to take a specific article, such as
the automobile. In 1930, with the world on the gold standard,
we exported 238,000 oars. In 1932, with our country one of
the very few remaining on the gold standard, we exported 66,000

cars. In 1933

our exports program

shot up to 108,000 oars. Last year they more than doubled;
they game right back to where they had been in 1930
oars.

238,000

67
-11-

In 1929 our share of the whole world's export treatment
automobiles was seventy percent. In 1931 the grand march

yardsticks

former

away from the gold shandard^ began and our share dropped from
^

seventy to fifty-eight. In 1932 one share dropped to fortyone

percent. We started to climb again in 1933 and our share

rose to forty-seven percent. But it takes a little time to
recover lost foreign trade. The 1934 figure is therefore
more important. In that year our percentage of the whole
wo 1d' export trade in automobiles rose to a fraction above

sixty and to still
During the disastrous period of declining sales, the
world still wanted American automobiles but it couldn't buy the

dollars to pay for them. Nothing startling developed in the
way of foreign competition; our prices didn't go up: and
quality remained just as good or improved.

We simply had an interim during which we couldn't sell

because the dollar was too high in relation to other world
currencies; this administration lowered the gold content of the
dollar and the foreign market is being restored to our automobile manufacturers with such rapidity that the benefits are already
nation-wide.
#111

1

the

other

these

you

be

of

testily on that point. They ought-w

any

68
-12-

Some people will tell you that there simply couldn't be any
benefit in restoring trade by bringing our money into reasonable

relation with the other moneys of the world. I decided to get

manufectures

the answer to that question from the expertages themselves.

They ought to know best. I asked the executive heads of twentyeight large manufacturing firms whose products are a representa-

tive cross-section of our export trade to tell me:
First: whether they are getting any more foreign trade.
Seconds whether they are making any profit out of it.
Third: whether it has affected employment in their plants;

in short, whether it is doing the public any good.
Their reports have been tabulated, and here are the combined
answers.

To the first question: whether they are getting any more foreign

they answer yes in 1934, which is the first full year

trade.

IN

under the Roosevelt monetary program, their export sales increased

in round numbers one hundred million dollars above 1932 is fact they

are now ten passent 1001
To the second question, whether this trade is doing them any
good

they answer you they earned $117,200,000 in 1934
against a loss of $126,400,000 in 1932. These figures include

lossevared

I-

theirx earnings on domestic sales alsox reports snow that
domestic sales followed exactly the same course as their foreign
sales

when foreign sales hit rock bottom so did domestic

sales; and when foreign sales recovered under the Roosevelt monetary
program, domestic sales recovered with them.

69
-13-

are the same they didn't separate the two &bomo and neither do I.

To the third question, - whether employment in their plants

increased - they again answer yes one hundred and ninetyeight thousand more men and women were working in their plants
during 1934 than in 1932

an increase of thirty-one percent.

>

So there you have the answers of the best qualified witnesses.
They eary that under the monetary policy of this administration

they got more business; they lifted themselves out of a deficit in
excess of one hundred million dollars to earnings in excess of
one hundred million dollars; and employment increased by nearly
200,000.

toyo and night watonmen beneritted

There are many indications that world trade will increase

this year. Our monetary policy is not intended to capture trade
in but merely to protect our normal share. So far from
engaging in a competitive devaluation race with the other nations
we hold out to them a currency of such steadiness that the normal
tendency may very well be for the rest of the world to move

that can be
Exchange
1
gradually toward practical
stabilization. If - age achieve and,
the final step should come easily and almost of its own accord.
Unless somebody rocks the boat that would be the natural course.

In estimating the future of our foreign trade in relation
to our monetary policy, we may as well face the question of

whether we wish to sell abroad vast quantities of goods that the
buyers cannot pay for, unless we lend them the money. Of course,

14 - insert

70

In place of haper under the quatem

me new mmetam policy we have been
receiving large shipments of gold and
silver. Some of it came to lettle trade
balances, butnument
mine a it is of the class
0

mentimed a it refirements agro; capital
A

seeking refuge in our send currency. Some economicts will tell you that this
price is likely to end our fneigh trade,
23
23

20
25
24

2184
t

2

35

182
to V 4

2

8

71

-14-

if we want more paper there are plenty of international bankers

to arrange the details. We felt rich on that paper during the
roaring twenties. Now we know better. The emaining question

is whether or we have learned our lesso
of us have but others apparently have not.

Certainly,

(Ement)

The normal source of international trade 18 payment for

goods and services mainly with goods and services in exchange

temporary or seasonal balances in gold and silver. The polioy

of this administration leads directly back to that fundamentally
sound basia.

I have attention to the water AT the loans Europe
Europeans made vans in large amount

made in this country between 1896 and 1914 they were for produc-

to the american heople

tive purposes, self-liquidating, and in reasonable proportion
largely
to the security. Now that we Lare able to export capital, those
same rules should be our guide. only in that way oan we avoid
damage to both lender and borrower.

Settlement of international balances in gold and silver
restores to the world's monetary reserve its normal function

which is simply to act as a traffic policeman for invernational
trade, warning each nation promptly when it buys more goods than

it cart pay for with goods. If you don't use gold and silver in
that my you This into the difficulty that engulfed us 466 paper.
Some economists will tell you that this policy would end our

foreign trade ... that first we strip the world of gold and
then our foreign trade dies. But we are not stripping the

72

-15-

world of gold. We have more gold than ever before, but the

world supply of monetary gold is also increasing rapidly.
Production now proceeds at the rate of about one billion

dollars annually, and will increase. The great nations are
restoring their reserves. Meanwhile, percentages of the
total held by the various nations show no alarming changes.
We had 41.7 percent of all the monetary gold in 1922 and now
we have 38.8 percent. France had 8.4 percent in 1922 and
now
be

she has 24.8. When Great Britain lost ment off gold heavly - before

suspended gild payments in 19315 mt and then has increased

her

to may 7.2 percent. With
1081 she had 5.2 percent -now she
shareincreasing
from gold production, and hundreds of millions of
dollars worth of the yellow metal being brought out of
hiding, some of it can be used to pay billances. We are also

endeavoring to restore silver to greater usefulness as a
monetary metal. It is already the money of a large part of
the world's population. Moreover the average annual produe

cion of silyer outside the United States is in round numbers

115 millions of dollars at present prices. A substantial por
tion of this silver is available to finance merchandise moving
in Informational trades
Objection to our course is sometimes based upon the

assertion that we would bring vast quantities of the world's
gold here, only to be looked up in the United States

treasury II the phrase commonly used is that the gold thus

becomes sterile. At least, however, it goes to swell our

73
-16-

monetary reserves. You now have $1.55 in gold and about

26 cents in silver back of every dollar actually in circulation. That is a comfort be me I should think " would DO
for everyone. Loans in default are not very good backing for
courrency; indeed they might, without undue asperity, be described

as also sterile. If we must choose between the two, this
administration elects payment in monetary metals.

You will find the newspapers flooded with pleas for us

to return promptly to the old gold standard. Some of the
propagandists even go so far as to say that the other nations

would follow if we took the lead. As a matter of fact if we
took the lead that would put us right back where we were in

1932 and furnish the soundest reason of all for them not to
follow, but again to take advantage of our disadvantage.

We realize the importance of world prosperity and will

evade no opportunity to assist in that direction except
the ever-present opportunity to donate prosperity at our own
expense. It seems idle to ask Uncle Sam again to carry the
whole burden. More especially when we can go on indefinitely
on our present course.

In conclusion, I should like to summarize this statement
by saying:

First: You have an absolutely sound dollar that is today
the steadiest currency on earth.

balled a

Second: The monetary policy of this administration hold

disastrous deflation, turned the current of depression and remains
the fort through the most trying period of our recovery program,

a however factor in -

74
-13-

The world should know that when it is ready to seek

exchange stabilization, Washington will not be an obstaole.

Our position was that of one who suffered terrific loss in
disaster for which he was not responsible. Why should
we be singled out and admonished that the moral duty to
restore order is primarily ours? Before we make any oommitments we must be sure that we will not lose what we have

just regained. We have never been unwilling to stabilize.
However, if the great trading nations elect to continue
without any monetary agreements, we are no longer at a

disadvantage. Our hands are untied.

a

75

The sixth draft which took a ride to Baltimore and came back
improved by the outing.

with -

of

-

as

costs

has

- have the 100% miss 89
yours Dis - Los
popillation -

one call -

-

- Sand the
some

billier

ohio

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sun - in be
stade

a 006 other Tell

75

For a clear understanding of the monetary policy of

this administration, it is important that we go back to
that period when wo, as a nation, were in debt to the rest
of the world, and trace the developments which have brought

us to our present position as the world's largest creditor.

us

Lotk see what the record shows on the payment of international balances.

Our rise to a position of great importance in world
trade began in 1896, and continued steadily for eighteen

years. This was the transition period during which our
urban population first equalled, and finally out-numbered,
our rural population.
In 1896, when this tremendous change began, we owed the

world two billion dollars. In the following eightsen years
we exported thirty-one billion dollars worth of merchandise.

was paid for with
the ota%
Tourist and immigrant remittances, shipping service, insurance,
Two thirds of it you with goods that mt. imported.
dividends, interest, and miscellaneous items,not-only

of the other third but increased our debt.

7

1

as the balance of trade w would have oved Europe about

four Million dollars, instead of the two w ound at the w
ginning of this period. Another item appears on the Ledger.

houstor, to wipe off one of those four billions. is is the
investment of foreign capital in our country. To were build
ing Failroads and some of them were financed in Europet eattle
other loans for productive purposes

loans and farm loans and astimated foreign
capital by offering very profitable tems.

Them, in finding a world market, and at the sas time w
casing a market for the world, we found ourselves at the close

of that busy eighteen years, owing the world three billions of

dollars. It is interesting to observe what a small part gold
shipments played in the sessionent of international balances

during that period. Instead of shipping were your, - received
$174,000,000 worth, mainly for investment. Silver was a

larger item in our world trade. We exported more than a billion

dollars worth and imported too-shirts of a Million dollars worth.

This is - interesting period of our history because -

participated in and contributed to the great - of world
Synds. Capital and goods flowed easily from continent to -

since shorther profit beckuned enterprise. But the - of
that eighteen years brings us to 1914 and the beginning of the

world All former ackievements - com mile Instigutions - exceded the - with our exporte. From July of 1924 to

July of 1922 w shipped one Millions dollars with

77

78

of merchandise. Muth of this was paid for with goods that we
imported but there remained a balance in our favor of twenty-

one billions of dollars. Europe sent back to us two and a

half billions of dollars worth of our securities to apply on
account. Europe also sent us $1,750,000,000 in gold. But the
largest items received in payment were paper. Under this head

come the war loans,
of about ten billion dollars, and, private
X

loans of NOTE them wix and a half billion dollars. At the and
of 1932 we had wiped out our indebtedness abroads we had brought

back nearly all of our stocks and bonds and other securities
held there and the ledger was balanced-sith a 750, 000.000 in

gold and sixteen and a half billions of dollars in Idans. Dur-

ing this period we were still exporting silver. A little less
than a billion dollars went out, and a little more than half a
billion dollars worth came in.
to case now to the so-called golden era....1923 to July of
1929. During this period we continued to export more goods
than we imported but the balance in our favor was much smaller.

each year

However, we had coming to us now. considerable STEED in interest

on our loans. Pressuably there should have been a great in-

pouring of gold or silver or goods but nothing of that sort
happened. Europe sent back to us $210,000,000 of our currency

and $175,000,000 in gold which was far short of balancing so-

counts. We shipped out more than half a billion dollars worth
of silver and received somewhat less, the net export being

79

$150,000,000. worth, so that didn't help balance the books.
The way they were balanced was with en additional two and a

half billion dollars in, loans. The actual total of these
loans was more than two and a half billion dollars, but at
the same time some European capital came into this country

so we have to subtract that before we arrive at the net balance. We closed this booming period with a net gain of a

little more than three hundred million dollars in money and

two and a half billions of dollars worth of promises to pay.
Coming down to 1934 we find American citizens owning six

billion dollars forth of the bonds and shares of foreign governments and corporations* of these about two and a third billion

dollars worth are in partial or complete default. Virtually
all of the war debts and accumulated interest are in default.
American citizens have direct investments abroad amounting

to about seven billions of dollars. These are represented
by industrial plants, leads, and buildings, as distinguished
from paper The exect status of all of these cannot be
stated with certainty. There have been some losses but at

least a direct investment is not subject to default. Let's
return to the paper because the record is clear on that point.

Let's also get down to our net capital investment abroad. i e
can do this by subtracting from the grand total of our loans any
loans that foreigners had made here. In international balances

3

80

-5-

only the net counts. After every off-set has been allowed and
we get right down to the tock bottom sum we find that seventy
percent of

xx

R

represented by paper in default. -

There, briefly, you have the background, and now let us

take a closer view of the events that led to the crisis. Beginning in Vienna in the spring of 1931, credit and currency
difficulties spread panic through Europe. On September 21,
Great Britain suspended gold payments. Norway, Sweden, and

Denmark followed within a week. Japan acted in December.

Other nations either went off gold or took equivalent action
to control their exchange rates. In this procession, we were

not the first; we were the thirty-first.

in

As the nations went off gold the value of the currencies
in international exchange dropped sharply, and our/customers

found it difficult to buy dollars with which to pay for American
products. They could trade with each other to some extent if
their verious currencies approached equal devaluation, but they
bought from us only what they couldn't do without. Our exports,
which had been more than five billion dollars in 1928 ,dropped to

a billion and a half in 1952. To say that are merely shared in
world-wide misfortune isn't entirely accurate because our share
included an additional penalty for remaining on the gold standard.

While total world export trade declined, those countries which

of
what
remained
promptly went off gold increased their share Inevitably the
increases were largely at our expense. In this sort of riot we

81

offer such a large target that no matter what any nation's
immediate objective might be it could not avoid hitting us.
In 1932 the physical volume of the whole world's export
trade had declined about one-third compared with 1929. All

the innocent by-standers fared badly, but I shall recount
only what happened to us. The storm clouds were coming our

way from the time Great Britain went off gold in September

of 1931; the hurricane struck with full force in the first
three months of 1933. Let us fasten our attention on that
period. Great Britain increased her share of world trade
seventeen percent in that period. Japan's share increased

thirty percent. Our share decreased forty percent. These
percentages are based on volume. Foreign exchange was doing

so many funny things during those turbulent times, it would

be difficult to give world export figures in money values
that would have any meaning.
Some of the countries engaged in this soramble were

alarmed because they could see the bottoms of their gold

bins. They and others exerted pressure to have foreign
oredits called home. Sometimes these credits responded by

going in the other direction just as fast as they could
travel. Gold was stampading from country to country, always
leaving the place where it was needed, and rarely doing its
new hosts any good. Considerable amounts of it came here.

But in 1932 it began to leave more rapidly than it had oomo.

82
-7-

This was fair notice to all concerned that our turn was next.
The panic was knooking at our door. Europeans knew that we

couldn't maintain our currency at 2 level fifty percent above

the average for the rest of the world. The effect of it was
just the same as though the level of the Atlantic ocean had
dropped fifty yards. Our ports would then be high and dry with
tide-eater miles away. We were in just as bad a predicament

with our currency sticking up fifty percent above the world

level. Facing that orisis, the previous administration stubbornly refused to take action, evidently under the impression
that sticking to the old gold standard was a proud achievement
when it was obviously economic suicide, and so recognized by

all Europe.

Out of the loans floated in this country, Europe had

left here more than a billion dollars to enjoy our high interest
rates. Knowing what was bound to happen they correctly judged

that it was high time to take this money home. They did so, and
the panic was on. We couldn't offer them their defaulted paper
when they called for their money. We couldn't even offer them

their paper that wasn't in default. We had let them have the
money on long term loans, and they had short term loans here.

Our long term paper wasn't due while their short term paper could
be called. Moreover we were on the gold standard, they could do-

mand the yellow metal for every dollar due, and that is procisely
what they did. Thus it happened that in the winter of 1932 we

83

witnessed the incredible spectaole of gold going out of the

world's greatest creditor nation on every ship, nearly all
of it to nations that were in our debt.
Stupendous as the movement was, - still couldn't ship
gold fast enough to meet the demands, and speculators took

advantage of that situation to sell the dollar short, thus
adding to our losses. They were not all foreigners, either.
The eitisenship of these snipers is of no importance, however,
since the one trait they have in common is an utter lack of

patrictism or loyalty to any nation.

1

-8think they

84

1

They would sell civilization itself
short if they could, and for all they knew at that t ine they
might have been doing so.

Our loss of gold, added to the calamity of deolining
trade, falling commodity prices, and wide-spread unemployment caused bewilderment, and then panic. The disaster swept
/

over our country with the force and fury of a hurricane.

Our financial structure was in a state of collapse. In the

Time

I

month of February 1933 and-up to the time President Roosevelt

took office, half a billion dollars in gold and two billion
dollars in currency were withdrawn from our banks. They

were closing, not individually, but by whole states at a time.

1

That was the situation when this administration came into

office. On taking his oath, Mr. Roosevelt assumed both the
duties, of President and receiver for an insolvent concern.

The richest on earth....but on that tragic day insolvent.
We were headed for disaster unless the run on the banks
could be stopped, and our gold reserves reassembled. Both

objectives were promptly achieved. The President's proclamation closed the banks, ending the run, and the gold was ordered
into the oustody of Unole Sam under penalties. Those two acts
met the domestic emergency. Gold payments were then suspended

and that ended the outward flow which had attained am

total of three quarters of a billion dollars. This effectively

85
-8-

took us off the gold standard and the dollar began to move

nearer the world level of international exchange. The operation was completed in January of 1934 when the exchange

value of the dollar was fixed at 59.06. Since that time we

have enjoyed the steadiest currency in the world. It is, in
fact, so steady that this year we find gold flowing back into

this country to take refuge in our reliable dollar; not to
pay balances but to find safety. Some of the same sharpshooters who personally conducted the flight of gold from
this country during 1932 and the first two months of 1933

are now bringing it back. I deplore their existence but I
am willing, however, reluctantly, to admit their shrewiness.
But let us return to the record, and see what our now

dollar did to our foreign trade. Measured in volume or
tonnage the foreign trade of the whole world was still
declining. We had reached our low, however, in the first
quarter of 1933 when we oaught the full cumulative effects of
European devaluation, so the proper basis of comparison for

us is our share then against our share in 1934, and that shows
an increase of 22 percent. Measured in terms of value, the
increase, during the same period was 57 percent.

88
-10-

In 1934 we shipped one-third less cotton than in 1932,
and got eight percent more money for it.
We also got a higher price for our wheat but the drought
accounts for most of the increase. Due to weather conditions
alone, we harvested in 1933 the smallest wheat crop in forty
years; and in 1934 the smallest wheat crop in forty-one years.
Our wheat exports have also been affected by quotas and

embargoes. Some of our former customers prefer, for reasons of

national policy, to grow their own wheat, regardless of price.
Because of these factors, I cannot trace with accuracy and

fairness the effect of our monetary policy upon agricultural
exports.

A better test is offered by manufactured goods.
The volume of all our finished manufactures exported in
1934 increased 37 per cent compared with 1932, semi-manufactures

increased 47 percent in the same period.

But the best test is to take a specific article, such as
the automobile. In 1930, with the world on the gold standard,
we exported 238,000 oars. In 1932, with our country one of
the very few remaining on the gold standard, we exported 66,000

cars. In 1933 we went off the gold standard and our exports
shot up to 106,000 cars. Last year they more than doubled,
they came right back to where they had been in 1930......238,000
care.

87
-12-

Some people will tell you that there simply couldn't be any
benefit in restoring trade by bringing our money into reasonable

mant.

relation with the other moneys of the world. I decided to get
the answer to that question from the exporters themselves.

They ought to know best. I asked the executive heads of twentyeight large manufacturing firms whose products are a representa-

tive cross-section of our export trade to tell mo:
First: whether they are getting any more foreign trade.
Second whether they are making any profit out of it.
Third: whether it has affected employment in their plants;

in short, whether it is doing the public any good.
Their reports have been tabulated, and here are the combined
answers.

To the first question: whether they are getting any more foreign

trade.... they answer yes, in 1934, which is the first full year
under the Roosevelt monetary program, their export sales increased

in round numbers one hundred million dollars above 1932, in fast they
are now ten personb above 1051.

To the second question: whether this trade is doing them any
good ..... they answer yes ..... they earned $117,800,000 in 1934

batter
foreign
and
their earnings on domestic sales / Hall reports show

-

against a loss, of $126,000,000 in 1932. These figures include
followed exectly the same course as their foreign

...... when foreign sales hit rock bottom so did domestic

sales; and when foreign sales recovered under the Roosevelt monetary

program, domestic sales recovered with them, bines the paragetages.

88
-15-

are
two they
Items
and do I)
thethe
TRUST
1 Separate
To the third question. ..whether employment in their plants
increased ..... they again answer yes ..... one hundred and ninetyeight thousand more men and women were working in their plants

the year

I

during 1934 than in 1932 ..... an increase of thirty-one percent.
So there you have the answers of the best qualified witnesses.

- say that under the monstary policy of this administration
they got more business; they lifted themselves out of a deficit in
excess of one hundred million dollars to earnings in excess of
one hundred million dollars, and employment increased by nearly

L

200,000.

so judge.that everybody from the stockholders to the office

boys and

There are many indications that world trade will increase

this
isOurnot
intended
to capture. trade
year.
monetary
policy
we but morely to protect our normal share. So far from
engaging in a competitive devaluation race with the other nations

- hold out to them a currency of such steadiness that the normal

that

tendency may very well be for the rest of the world to move

gradually toward practical stabilization. If

d

the final step should come easily and almost of its own accord.
Unless somebody rooks the boat that would be the natural course.

In estimating the future of our foreign trade in relation
to our monetary policy, we may as well face the question of

whether we wish to will abroad vast quantities of goods that the
buyers cannot pay for, unless we lend them the maney. of course,

X
OK.
-14-

if we want more paper there are plenty of international bankers

to arrange the details. We felt rich on that paper during the
roaring twenties. ( Now we know better. # The remaining question

is whether or not wo have learned our lesson. Certainly, some

of us have, but others apparently have not.
The normal course of international trade is payment for
goods and services mainly with goods and services in exchange -

temporary or seasonal balances in gold and silver. The policy

of this administration leads directly back to that fundamentally
sound basis.

I have called attention to the nature of the loans Europe
made in this country between 1896 and 1914, they were for produc-

tive purposes, self-liquidating, and in reasonable proportion

to the security. Now that we are able to export capital, those
same rules should be our guide. Only in that way can we avoid
damage to both lender and borrower.

Settlement of international balances in gold and silver
restores to the world's monetary reserve its normal function

which is simply to act as a traffic policeman for international
trade, warning each nation promptly when it buys more goods than

it can pay for with goods. If you don't use gold and silver in
that way, you run into the difficulty that engulfed us ... paper.
Some economists will tell you that this policy would end our

foreign trade ... that, first, we strip the world of gold and
then our foreign trade dies. But we are not stripping the

89

90

-15-

world of gold. We have more gold than ever before, but the

world supply of monetary gold is also increasing rapidly.
Production now proceeds at the rate of about one billion

dollars annually, and will increase. The great nations are
restoring their reserves. Meanwhile, percentages of the
total held by the various nations show no alarming changes.
The had 41.7 percent of all the monetary gold in 1922 and now
we have 38.8 percent. France had 8.4 percent in 1922 and

now she has 24.8. When Great Britain went off gold in
1931 she had 5.2 percent; now she has 7.2 percent. With

increasing gold production, and hundreds of millions of

dollars worth of the yellow metal being brought out of
hiding, some of it can be used to pay billances. We are also
endeavoring to restore silver to greater usefulness as a

monetary metal. It is already the money of a large part of
the world's population. Moreover the average annual produc-

tion of silver outside the United States is in round numbers

115 millions of dollars at present prices. A substantial portion of this silver is available to finance merchandise moving

in international trade.
Objection to our course is sometimes based upon the

assertion that we would bring vast quantities of the world's
gold here, only to be looked up in the United States
treasury corothe phrase commonly used is that the gold thus

becomes sterile. At least, however, it goes to swell our

91

-16-

monstary reserves. You now have $1.55 in gold and about

26 cents in silver back of every dollar actually in circulation. That is a comfort to me; I should think it would be
for everyone. Loans in default are not very good backing for
currency; indeed they might, without undue asperity, be described

as also sterile. If we must choose between the two, this
administration elects payment in monetary metals.

You will find the newspapers flooded with pleas for us

to return promptly to the old gold standard. Some of the
propagandists even go so far as to say that the other nations

would follow if we took the lead. As a matter of fact if we
took the lead that would put us right beek where we were in
1932 and furnish the soundest reason of all for them not to
follow, but again to take advantage of our disadvantage.
We realise the importance of world prosperity and will

evade no opportunity to assist in that direction....except
the ever-present opportunity to donate prosperity at our own
expense. It seems idle to ask Uncle Sam again to carry the
whole burden. More especially when we can go on indefinitely
on our present course.

In conclusion, I shouls like to summarize this statement
by saying:

First: You have an absolutely sound dollar that is today
the steadiest currency on earth.
Seconds The monetary policy of this administration held
the fort through the most trying period of our recovery program,

92

alone

( We can move in either direction) Our hands are untied. That fact /
Saz

such a

constitutes HE /powerful a bulwark against any competitive devaluation

race that the danger is diminishing.

"

That fact alone is today the sushits most powerful presenters
reason for not starting a devaluation race.

Upon that fact, a large part of the world is

"

basing its hope and confidence that there will be no competitive devaluation
race.

From the day this administration untied them ,
world-wide

the danger of a /competitive devaluation racehas been diminishing
And from the day we untied them the world currencies have been

a little steadeer; alarmist rumors are no longer shouted; another year,
even

and/ the whispering

Substitute ending

find the newspapers flooded for W

to return promptly to the old gold standard. Some of the
propagandists even go so far as to say that the other nations

would follow if we took the lead. As a matter of fact if we
took the lead that would put us right back where we were in

1932 and furnish the soundest couson of all for them not to
follow, but again to take advantage of our disadvantage.

We realize the importance of world prosperity and will

evade no opportunity to assist in that direction

except

the ever-present opportunity to donate prosperity at our own
expense. It seems idle to ask Uncle Sam again to carry the
whole burden. More especially when we can go on indefinitely
ox our present COUNOON

In conclusion, I should like to summarize this statement
by saying:

First, Y YOU have an absolutely sound dollar that is today

the steadiest currency on earth / /
a year.

Second;The monetary poliey of this administration resoued
us from impending ohaos and held the fort through the most trying
period of our recovery program.

Third: of the great trading nations that depreciated their
currencies we were the last until quite recently when Belgium joined
us.

The world should know that when it sincerely desires stabil-

isation, Washington will not be an obstacle. Our - moderation
in depreciating the foreign exchange value of the dollar is

sufficient proof of this.

93

H

v/

94

Our position is simply that of an innocent by-stander who

suffered untold loss in a fight that he didn't start but from
which he could not escape. Now that we have laboriously barrioaded our corner, it seems strange that we should be singled out

that the

and admonished about our ,moral duty to restore order is primarily ours.
We have never been unwilling or unprepared to stabilize.

enter into world-wide
However, if the great trading nations want to continue under the
present absence of rules, we are no longer at a disadvantage.

We depreciated our currency just barely to the absolutely necessary
level and we can go either way. Our hands are untied.

There is much to said in favor of complete stabilisation
of world currencies, but nothing to be said in favor of our
launching out alone. Before leg make any commitments - ought to

be sure that we won't lose what we have just regained. A conference on stabilization must grow out of a sincere desire for
fairness and co-operation; the nations must be widling to consider

it

each other's individual difficulties. We have Long been ready for
that kind of a conference, and now could enter with full freedom to
advocate a sound and adequate, world-wide monetary standard,

representation
probably including a broader and better use of silver.

#

95
-17-

and is the spear-head as we advance steadily toward our goal.

Thirds of the great trading nations that revalued their
currencies, we were the last until Belgium joined us recently.
When the others are ready to stabilize currencies, we are
ready. However, if the great trading nations want to continue
under the present rules, we are no longer at a disadvantage.
Our hands are untied.

There is much to be said in favor of complete stabiliza-

tion of world currencies, but nothing to be said in favor of
our launching out alone. Before we make any commitments we

ought to be sure that we won't lose what we have just regained.

4 conference on stabilisation must grow out of a sincere desire
for fairness and co-operations the nations must be willing to

consider each other's individual difficulties. We are ready
for that kind of a conference, and could go with full freedom
to advocate a sound and adequate, world-wide monetary standard,

probably including a broader and better use of silver.
One lesson I have learned from the study of American

history is that we have generally fared best when we stood

our ground. If the world wants stabilization, it seems
appropriate that those who led in the other direction
should about-face, march up, and say so. There will be no

stabilisation until we see the whites of their eyes.

96
-11-

In 199 our share of the whole world's export trude in
automobiles was seventy percent. In 1931 the grand march
away from the gold standard began and our share dropped from

seventy to fifty-eight. In 1932 our share dropped to fortyone percent. We started to climb again in 1933 and our share

rose to forty-seven percent. That it takes a little time to
recover lost foreign trade. The 1934 figure is therefore
more important. In that year our percentage of the whole

world's export trade in autonobiles rose to a fraction above

pre debr

sixty and it is still climbing steadily back toward the peak
During the disastrous period of declining sales, the
world still wanted American automobiles but it couldn't buy the

dollars to pay for them. Nothing startling developed in the
way of foreign competitions our prices didn't go up: and

quality June - improved.
We simply had an interin during which we couldn't sell

because the dollar was too high in relation to other world

currencies; this additionation lovered the gold content of the
dollar and the foreign market is being restored to our autorobile
nationwide. nunufacturers with such rapidity ^ that the benefits are already

spous-people will tell - white extracty or Any
by our money into remonnale
19R

to

SUBSTITUTE ENDING

ST

In conclusion, I should like to surmarize this statement
by sayings

Firsts You have an absolutely sound dollar that is today
the steadiest currency on earth.
Seconds The monetary policy of this administration rescued
us from impending chaos and held the fort through the most trying
period of our recovery program.

Thirds Of the great trading nations that depreciated their
currencies, we were the last until quite recently when Belgium joined
us.

The world should know that when it sincerely desires stabil-

isation, Washington will not be an obstacle. Our moderation in

depreciating the foreign exchange value of the dollar is sufficient

proof of this.
Our position is simply that of an innocent by-stander who

suffered untold loss in a fight that he didn't start, but from
which be could not escape. Now that we have laboriously barricaded our corner, it seems strange that we should be singled out
and admonished that the moral duty to restore order is primarily
ours.

We have never been unwilling or unprepared to stabilise.

However, if the great trading nations want to continue under the
present absence of rules, we are no longer at a disadvantage.
We depreciated our currency just barely to the absolutely nodessary level and we can go either way. Our hands are united.

98

The seventh draft which represents additional fruits of the
excursion to Baltimore,and some wholesome work by Mr.

Gaston in the interest of brevity.

99

It is my purpose, tonight, to state a few simple facts
which I hope will contribute to a clearer understanding of

the monetary policy of the United States. I shall not enter
into complicated discussion of the theory of money. I shall

merely tell you what was done why and the effect.
For an orderly presentation of the facts it is important
that we go back to that period when goods and capital flowed

freely from continent to continent, wherever profit beckoned
enterprise, and see what the record shows on the payment of

international balances.
We may begin with the eighteen years between 1896 and

1914 -- the pre-war period. In that period we exported

thirty-one billion dollars worth of goods that were paid for
with goods and services. The gold movement was smaller than

the silver movement. We exported a billion dollars worth of

silver; and imported two-thirds of a billion dollars worth.
At the end of that period, Europe had invested in the United

States, about three billion dollars in loans for productive
purposes.

With the beginning of the World War a tremendous change

took place. From July 1914 to July 1922 we exported forty-

seven billion dollars worth of goods. Much of this was paid

100
-2-

for with goods that we imported, but in balancing the account
we received nearly seventeen billions of dollars worth of
promises to pay.

In the previous eighteen year period, with our country

one of the world's most attractive fields for capital investment, we drew in about three billions of dollars from abroad,
but when we became a creditor nation we loaned nearly seventeen

billions of dollars in eight years. Nor did we stop there. We
continued to export more than we imported right on through

1929, accumulating an additional two and a third billions of
dollars in promises to pay.
If we deduct from the grand total of our loans abroad, all
of the loans and credits that foreigners have here, and then
examine the status of our net foreign investment, we find that

about seventy percent of it is in partial or complete default.
There you have the background, from an American point of

view, when in 1931 things headed towards a orisis all over the

world. Credit and currency difficulties which had been
spreading throughout Europe came to a head in the spring of

that year. On September 21, 1931, Great Britain suspended gold
payments. Norway, Sweden, and Denmark followed within a week.

Japan acted in December. Other nations either went off gold

or took equivalent action to control their exchange rates. In

101

-3this procession, we were not the first; we were the thirty-first.
We did nothing until the spring of 1933.

As the nations went off gold, the value of their currencies
in international exchange dropped sharply, and our oustomers

found it difficult to buy dollars with which to pay for American
products. They could trade with each other, to some extent, if
their various currencies approached equal devaluation, but they

bought from us only what they couldn't do without. The physical
volume of world export trade dropped about one-third from 1929

to 1932, but our exports, which had been more than five billion

dollars in 1928, dropped to a billion and a half in 1932, a loss
of more than two-thirds of our business. To say that we merely
shared in world-wide misfortune is not entirely accurate because

our share included an additional penalty for remaining on the

gold standard. While total world export trade declined, those
countries which promptly went off gold increased their share of
what remained.

From September 1931, to the end of the first quarter of
1933, Great Britain increased her share of world trade seventeen

percent. Japan's share increased thirty percent. Our share
decreased forty percent. These percentages are based on physical
volume, not money values.

102

-4Some of the countries engaged in this soramble were

alarmed because they could see the bottoms of their gold

bins. They and others exerted pressure to have foreign
credits called home. Sometimes these credits responded by

going in the other direction just as fast as they could
travel. Gold was stampeding from country to country, always

leaving the place where it was needed, and rarely doing its
new hosts any good. Considerable amounts of it came here.

But in 1932 it began to leave more rapidly than it had come.

This was fair notice to all concerned that our turn was next.
The Panic was knooking at our door, but nothing effective was

done to avert it. Europeans know that we couldn't maintain

our currency at a level fifty percent above the average for

the rest of the world. Facing that orisis, the previous
administration stubbornly refused to take action, evidently
under the impression that that was a proud achievement when

it was obviously economic suioide.

Out of the loans floated in this country, Europe had

left here more than a billion dollars to enjoy our high
interest rates. Knowing what was bound to happen they

correctly judged that it was high time to take this money
home. They did so, and the panic was on. We couldn't offer

103

-5them their defaulted paper when they called for their money.

We couldn't even offer them their paper that wasn't in default.
We had let them have the money on long term loans, and they had

short term loans here. Our long term paper wasn't due, while
their short term paper could be called. They could demand gold

for every dollar due, and that is what they did. Thus it
happened that in the winter of 1932 we witnesses the incredible

spectacle of gold going out of the world's greatest creditor

nation on every ship nearly all of it to nations that were
in our debt. Still nothing was done to avert the disaster.
Stupendous as the gold movement was, we couldn't ship
fast enough to meet the demand, and speculators took advantage

of the situation to sell the dollar short. They were not all
foreigners, either. However, the citizenship of these snipers
is of no importance since their dominant trait is an utter lack

of patriotism or loyalty to any nation. They would sell

civilization, itself, short if they could; and for all they
knew at that time they might have been doing so.

Our loss of gold, added to the calamity of declining trade,
falling commodity prices, and wide-spread unemployment, caused

bewilderment and then panic. The disaster swept over our

IS

country with the fury of a hurricane. Our financial structure
was in a state of collapse. In the month of February 1933 and

104

-6up to the time President Roosevelt took office, half a billion
dollars in gold and two billion dollars in currency were withdrawn from our banks. They were closing, not individually,
but by whole states at a time. That was the situation when

this administration came into office. On taking his oath,
Mr. Roosevelt assumed both the duties of President and receiver

for an insolvent concern. The richest on earth .... but on
that tragio day insolvent.
We were headed for disaster unless the run on the banks
could be stopped, and our gold reserves reassembled. Both

objectives were promptly achieved. The President's proclamation
closed the banks, ending the run, and the gold was ordered into
the oustody of Unole Sam under penalties. Those two acts met
the domestic emergency. Gold payments were then suspended and that

ended the outward flow which had finally attained a total of

three quarters of a billion dollars. This effectively took us
off the gold standard and the dollar began to adjust itself to
the realities of the world situation. The operation was completed
in January of 1934 when the exchange value of the dollar was

set at 59.06 percent of its former gold measure. Since that
time we have enjoyed the steadiest currency in the world. It

is, in fact, so steady that this year we find gold flowing back
into this country to take refuge in our dollar; not to pay

105

-balances but to find safety. Some of the same sharp-shooters

who personally conducted the flight of gold from this country
during 1932 and the first two months of 1933 are now bringing

it back. I deplore their existence but I admit their shrewdness.

But let us return to the record, and see what our new

dollar did to our foreign trade. Measured in volume or
tonnage the foreign trade of the whole world was still
declining, but from the spring of 1933 to the close of 1934
our share increased 22 per cent. Measured in terms of value,
the increase was 57 percent.

In 1934 we shipped one-third less cotton than in 1932,

but we got eight percent more money for it.
We also got a higher price for our wheat but the drought
can account for most of the increase. Due to weather
conditions alone, we harvested in 1933 the smallest wheat

crop in forty years; and in 1934 the smallest wheat crop in
forty-one years.
Our wheat exports have also been affected by quotas and

embargoes. Some of our former customers prefer, for reasons

of national policy, to grow their own wheat, regardless of
price.

106

-Because of these factors, I cannot trace with accuracy

and fairness the effect of our monetary policy upon agricul-

tural exports.
A better test is offered by manufactured goods.
any

The volume of all our finished manufactures exported

in 1934 increased 37 percent compared with 1932; semimanufactures increased 47 percent in the same period.

But the best test is to take a specific article, such
as the automobile. In 1930, with the world on the gold
standard, we exported 238,000 cars. In 1932, with our country
one of the very few remaining on the gold standard, we
exported 66,000 cars. In 1933, under the Roosevelt monetary

program, our exports shot up to 108,000 oars. Last year they
more than doubled; in fact they game right back to where they

had been in 1930 238,000 oars.
During the disastrous period of deolining sales, the
world still wanted American automobiles but it couldn't buy

the dollars to pay for them. Nothing startling developed in
the way of foreign competition; our prices didn't go up; and
quality improved.

We simply had an interim during which we couldn't sell

because the dollar was too high in relation to other world

107

-9currencies; this administration lowered the gold content of
the dollar and the foreign market is being restored to our
automobile manufacturers with such rapidity that the benefits
are already nation-wide.

Some people will tell you that there simply couldn't be
any benefit in restoring trade by bringing our money into

reasonable relation with the other moneys of the world. I
decided to get the answer to that question from the manu-

facturers themselves. They ought to know best. I asked
the executive heads of twenty-eight representative large
firms, whose products are a cross-section of our export trade,

to tell me:
First: Whether they are getting any more foreign trade.
Second: Whether they are making any profit out of it.
Third: Whether it has affected employment in their
plants.

Their reports have been tabulated, and here are the
combined answers.

To the first question, whether they are getting any more

foreign trade, they answer yes. In 1934, which is the first
full year under the Roosevelt monetary program, their export
sales increased in round numbers one hundred million dollars
above 1952.

108

- 10 -

To the second question, whether this trade is doing them
any good, they answer yes; they earned $117,200,000 in 1934

against a loss of $126,400,000 in 1932. These figures include
their losses and earnings on domestic sales also. Domestic
sales followed exactly the same course as their foreign sales -when foreign sales hit rook bottom so did domestic sales; and
when foreign sales recovered under the Roosevelt monetary
program, domestic sales recovered with them.

To the third question, whether employment in their plants
increased, they again answer yes; one hundred and ninety-eight
thousand more men and women were working in their plants during

1934 than in 1932, an increase of thirty-one percent.
So there you have the answers of the best qualified witnesses.

Under the monetary poliey of this administration they got more

business; they lifted themselves out of a deficit in excess of
one hundred million dollars to earnings in excess of one hundred
million dollars; and employment increased by nearly 200,000.

There are many indications that world trade will increase

this year. Our monetary policy is not intended to capture trade,
but merely to protect our normal share. So far from engaging in
a competitive devaluation race with the other nations we hold out
to them a currency of such steadiness that the normal tendency may

very well be for the rest of the world to move gradually toward

109
- 11 -

practical exchange stabilisation. If that oan be achieved,
the final step should come easily and almost of its own accord.
Unless somebody rooks the boat that would be the natural
course.

In estimating the future of our foreign trade in relation
to our monetary policy, we may as well face the question of
whether we wish to sell abroad vast quantities of goods that
the buyers cannot pay for, unless we lend them the money. of

course, if we want more paper there are plenty of international

bankers to arrange the details. We felt rich on that paper
during the roaring twenties. Now we know better.
In place of paper under the operation of our new monetary
policy we have been receiving large shipments of gold and

silver. Some of it game to settle trade balances, and some
represents capital seeking refuge in our sound currency.

Various economists will tell you that this policy is likely to
end our foreign trade; that first we strip the world of gold
and then our foreign trade dies. But we are not stripping the
world of gold. We have more gold than ever before, but the
world supply of monetary gold is also increasing rapidly.
Production now proceeds at the rate of about one billion dollars

annually, and will continue to increase. The great nations
are restoring their reserves. Meanwhile, percentages of the total

1

- 12 -

held by the various nations show no alarming changes. We had
41.7 percent of all the monetary gold in 1922 and now we have
38.8 percent. France had 8.4 percent in 1922 and now she has

24.8. Great Britain lost gold heavily before she suspended
gold payments in 1931, but since then has increased her share

from 5.2 percent to 7.2 percent.
With increasing gold production, and hundreds of

millions of dollars worth of the yellow metal being brought
out of hiding, surely some of it can be used to pay balances.
We are also endeavoring to restore silver to greater usefulness as a monetary metal. It is already the money of a

large part of the world's population.
Objection to our course is sometimes based upon the

assertion that we would bring vast quantities of the world's
gold here, only to be looked up in the United States Treasury
-- the phrase commonly used is that the gold thus becomes

aterile. At least, however, it goes to swell our monetary
reserves. You now have $1.55 in gold and about 26 cents in

silver back of every dollar actually in circulation. Loans
in default are not very good backing for currency; indeed
they might, without undue asperity, be described as also

sterile. If we must choose between the two, this administration elects payment in monetary metals.

110

111

- 13 -

Settlement of international balances in gold and silver
restores to the world's monetary reserves their normal function

which is to act as a traffic policeman, warning each nation
promptly, when it buys more goods than it can pay for with

goods. If we don't use gold and silver in that way, we run

into the difficulty that engulfed us .... paper.
Sales

You will find the newspapers flooded with pleas for us

to return promptly to the old gold standard. Some of the
propagandists even go so far as to say that the other nations

would follow if we took the lead. As a matter of fact, if
we took the lead, that would put us right back where we were

in 1932, and furnish the soundest reason of all for them not
to follow, but again to take advantage of our disadvantage.
We realize the importance of world prosperity and will

evade no opportunity to assist in that direction .... except
the ever-present opportunity to donate prosperity at our own
expense.
of

ru In conclusion, I should like to summarize this statement

by saying:
can

First: You have an absolutely sound dollar that is,

today, the steadiest currency on earth.

112
- 14 -

Seconds The monetary policy of this administration

rescued us from chaos; held the fort through the most trying
period of our recovery program; and is now the spearhead as
we advance steadily toward our goal.

Third: Of the great trading nations that revalued their
currencies, we were the last, until quite recently, when
Belgium joined us.

The world should know that when it is ready to seek

foreign exchange stabilization, Washington will not be an
obstacle. Our position was that of an innocent by-stander

who suffered untold loss in a fight that he did not start,
and from which he could not escape. Why should we be singled.

out and admonished that the moral duty to restore order is
primarily ours? Before we make any commitments, we must be

sure that we will not lose what we have just regained. We

have never been unwilling to stabilize. However, if the great
trading nations elect to continue under the present absence
of rules we are no longer at a disadvantage. We revalued our

currency just barely to the absolutely necessary level, and we
can go either way. Our hands are untied.

113

The eighth draft which represents Mr. Haas and Mr. Seltser and

Collando, correcting both the figures and the text. This draft came
close to causing the death of Mr. Crowell who feared, for a tragic
hour, that the corrections in a previous draft (in the hand-writing
the President) had been lost. He restored them from memory, and on checking,

them correct. If they had not been found correct, he planned to order
mpt delivery of a nice, clean,grave.
The Secretary had no knowledge of this draft.

The hen-scratches represent Mr. Crowell, saving his child.

114
It is my purpose, tonight, to state a few simple facts
which I hope will contribute to a clearer understanding of

the monetary policy of this Administration. I shall not
enter into complicated discussion of the theory of money.

I shall merely tell you what was done

why

and the

effect.

Let us first look at the background. At the outbreak
of the World War, Europeans had a net capital investment in

the United States of about 3 billion dollars. In the 18
years preceding the World War, we had exported 31 billion

dollars worth of merchandise, - all of which was paid for
with goods and services. Micros & parted during which

capital and goods flowed fucely continent to continent
wherever profit bockoned enterprises The net gold movement

for that entire period was only 174 million dollars which we
received. / With the beginning of the World War, a tremendous

change took place. From July 1914 to the end of 1922, we

exported 47 billion dollars worth of merchandise. Much of

there remained

this was paid for with goods and services, but expires flower

1
took
which we mostly w promises to pay. This

out due of this us country a to 1 not amount balance of 19 billion of dollars, for

made us International Breattors to a net amount billion

dollarer (Dmsat)

(Empert)

Nor did we stop there. We continued to export more than

we and continued to take premises in partial

right imported, on through 1929 this

commuting
an
additional
and a half billions of dollars

fromIn thenote
the
twent
contrasts.
115
previous 18-year period, with our country one of the
world's - attractive fields for capital investment,
we drew in about $1 billion net from abroad, but when we became

a creditor nation, the outflow of capital reached $19 billions

-

net in the eight years between the beginning of the World War
and the end of 1922.
view,

when

Dredts

and

polar of

340.

throughout Barage
as

Septualize

Norway,

to

21,

Sandon,

and

sated La Duscenter. other

oguivalons salian to emairal
As the nations

to international exchange

difficult
Than

to

hay

dellage

trade with

sende

from call only whos they

-

of well expenses trade
has

course droping

During 1938

great yours and Japan in
stared

to

statumen

included an additional - Mults total mercal

nut
-2freign investment.
payment

our

through

19-90

Ray

...

116

that

year. we had added another e-1/e billion dollars to our not
capital investment abroad.of

wededuct from the graud total

lvaus
and investments abroad all of the train and
position today, - 2nd that is the foreign - bokdyan
its thatamount
freigners
their examine
the
email tohave
about here
- thindsand
of devoltments
above

me

we find that an
of
most equal
two
of from
it is
an today in lartial or
Thereto
you
havethirds
the background,
American point of complete

tus

our
netcomplete
foreign
investment
to
in OF
default.

view, when the monetary crisis developed in Europe in 1931.

despends.

Credit and currency difficulties which had been spreading
throughout Europe came to a head in the spring of that year.
On September 21, 1931, Great Britain suspended gold payments.
Norway, Sweden, and Denmark followed within a week. Japan

adted in December. Other nations either went off gold or took

foreign

equivalent action to control their
^ exchange ,
As the nations went off gold, the value of their currencies

surcustomers

in international exchange dropped sharply, and - found it
difficult to buy dollars with which to pay for American products.
They could trade with each other to some extent, but they bought

from us only what they couldn't do without. The physical volume
of world export trade dropped about one-fourth from 1929 to 1932,
but our exports dropped almost one-half in the same period.
During 1932, England increased her share by 16 percent over the

previous year; and Japan by 29 percent. To say that we merely
shared in world-wide misfortune isn't accurate because our share

included an additional penalty for remaining on the old gold
standard.

While total world export trade declined, those

117

-3countries which promptly went off gold increased their share
of what remained, while our share continued to decline.
Some of the countries engaged in this scremble were

alarmed because they could see the bottoms of their gold bins.
They and others exerted pressure to have foreign credits called
home. Sometimes these credits responded by going in the other

direction just as fast as they could travel. Gold was
stampeding from country to country, always leaving the place

to was

where it was needed, and rarely doing its new hosts any

amounts.

1932, gold began leave the United States in alarming This fair

notice to all concerned that our turn was next. The panic was
knocking at our door, but nothing effective was done to avert

not

it. Europeans knew that we couldn't maintain our currency at
the old gold level without a further ruinous deflation of our

prices, trade, and industrial activity. Facing that crisis,
the previous Administration stubbornly refused to take action,

proud
evidently under the impression that that was a powerful achieve-

ment when it was obviously economic suicide.

Europeans had left here more than a billion dollars to enjoy

our high interest rates and prospects of quick profits. Seeing
what was happening, they judged that it was high time to take
this money home. They did so, and the panic was on. We couldn't

offer them their defaulted paper when they called for their money.
dollars

118
We couldn't even offer them their paper that wasn't in default.
We had let them have the money on long-term loans; and they

had short-term loans here. Our long-term paper wasn't due,

while their short-term paper could be called and their stocks
sold. They could demand gold for every dollar due, and that is

first six months of

what they did. Time it happened that in the sinter of 1932 we
witnessed the incredible spectacle of gold going out of the

world's greatest creditor nation on every ship nearly all
of it to nations that were in our debt. Still nothing was done
to avert the disaster.
Stupendous as the gold movement was, we couldn't ship fast
enough to meet the demand, and speculators took advantage of

the situation to sell the dollar short. They were not all
foreigners, either. However, the citizenship of these snipers

is not important since their dominant trait is an utter lack of

or loyalty
patriotism
to any nation. They would sell civilization itself
short if they could, and for all they know at that time, they
might have been doing so.

Our loss of gold, added to the calamity of declining trade,
falling commodity prices, and wide-spread unemployment, caused

bewilderment and then panic. The isaster swept over our country

with the fury of a hurricane. Our
financial structure was in a
1
state of collapse. In the month of February 1933. and up to
time President Roosevelt took office, about one-half billion

dollars in gold and nearly 2 billion dollars in currency was

the

5

119

Stupendous as the gold movement was, you couldn't ship fast
enough to meet the demand, and speculators took advantage of

the situation to sell the dollar short. They were not all

foreigners, either. insert sell surlington etc
Our loss of gold, added to the calamity of decliping trade,
falling commodity prices, and wide-spread unemployment, caused

bewilderment and then panic. The disaster swept over our country

with the fury of a hurricane. Our financial structure was in a
state of collapse. In the month of February 1933 and up to the

time President Roosevelt took office, about two billion dollars
withdrawn from our banks. They

were closing, not individually, but by whole states at a time.
That was the situation when this administration came into office.
On taking his oath, Mr. Roosevelt assumed both the duties of

President and receiver for an insolvent concern. The richest
on earth

but on that tragic day insolvent.

We were headed for disaster unless the run on the banks
could be stopped, and our gold reserves reassembled. Both

objectives were promptly achieved. The President's proclamation closed the banks, ending the run, and the gold was ordered
into the custody of Uncle Sam under penalties. Those two acts
met the domestic emergency. An embargo on gold exports was

declared and that ended the outward flow. This effectively

-6-

120
took us off the old gold standard and the dollar began to adjust

itself to the realities of the world situation. In going
off gold, we were not the first, we were the 31st. The operation
was completed in January of 1934 when the dollar was revalued and set

at 59.06 per cent of its former gold content. Since that time we
have enjoyed the steadiest currency in the world. It is, in fact,
so steady that this year we find gold flowing back into this country

to take refuge in our dollar; not to pay balance but to find safety.
Some of the same sharp-shooters who personally conducted the flight

of gold from this country during 1932 and the first two months of

1933 are now bringing it back. I deplore their existence but I am
willing to admit their shrewiness.
But let us return to the record and see what our new dollar

did to our foreign trade.

Measured in physical volume tonnage

the United States increased its export trade during 1934 as compared
with both 1932 and 1933.

Mensured in dollar value it increased its

trade in 1934 as compared with 1932 and 1933.

foreign

Measured by percentage

share in the physical volume of total world trade, we again show an
increased over both 1932 and 1933.

In 1934 we shipped one-third less cotton than in 1932,
and got seven percent more money for it.
to

year

thing

more

them

had been 50 1980

doubled:

Last

7.

121

We also got a higher price for our wheat but the drought
can account for most of the increase. Due to weather conditions alone, we harvested in 1933 the smallest wheat crop in

thirty nerve

forty years; and in 1954 the smallest wheat crop in forty-one

years.

Our wheat exports have also been affected by quotas and

embargoes. Some of our former customers prefer, for reasons

of national policy, to grow their own wheat, regardless of
price.

Because of these factors, I cannot trace with accuracy
and fairness the effect of our monetary policy upon agricul-

tural exports.
A better test is offered by manufactured goods.
The physical
volume of all our finished manufactures exported in
1954 increased 57 percent compared with 1932; semi-manufactures

increased 47 percent in the same period.

But the best test is to take a specific article, such as
the automobile. In 1950, with the most of the world on the
old gold standard, we exported 258,000 cars. In 1952, with
our country one of the very few remaining on the old gold
5

standard, we exported 66,000 cars. In 19557 under the Roosevelt
monetary program our exports shot up to 108,000 cars. Last
year they more than doubled; they came right back to where they
6

had been in 1950 ..... 23$,000 cars.

an

&

first

122

During the disastrous period of declining sales, the
world still wanted American automobiles but it couldn't buy

the dollars to pay for them. Nothing startling developed
in the way of foreign competition; our dollar prices didn't
go up: and quality remained just as good or improved.
We simply had an interim during which we couldn't sell

because the dollar was too high in relation to other world
currencies; this Administration lowered the gold content of
the dollar and the foreign market is being restored to our
automobile manufacturers with such rapidity that the benefits

Mine

are already nation-wile.

Some people will tell you that there simply couldn't be
any benefit in restoring trade by bringing our monty into

reasonable relation with the other moneys of the world. I
decided to get the answer to that question from the manufao

turers themselves. They ought to know best. I asked the
executive heads of twenty-eight large firms whose products

are a representative cross-section of our trade to tell met
First: Whether they are getting any more foreign trade,

well - trader

of

to find out whether
N
Then, I examined the published reports of their profited

Second: Whether they.are employing more orkers.

have boon tabulated,

Their reports # here are
combined. answers.

the

they are
making

any

nutury.

first

123

9.

To the questionA whether they are getting any more foreign trade,

the answer is yes. In 1934, which was the first full year under the
-37

Roosevelt monetary program, their export sales were
59

them In 1993r and 69 percent greater than in 1932. The relative

importance of their export sales in their total eales Increased over

1933 percent, and ever 1992 percent
To the second question whether the number of their
has

was 34

increased the answer is also yes. Thomas Solit engeryment of employees
for 1994 there 16 8933, I percent greater

in 1994 than in 1932.
Both their export business and the number of their employees

were not only substantially in excess
8.7 of 1933 and 1932, but also
exceeded the figures for 1931 by 10.5 percent in the case of export
17.6

sales and 1605 percent in the case of the number of employees.

As respects profits, I found that the published reports of these
121 28
companies reveals the following: As against39a combined loss of net

millions in 1932, and a combined profit of 128
$ millions inand
1933,
the
well 65
combined profits for 1934 were in excess of hilmmillions, or 39 percent
greater than the combined profits in 1931.
The figures that I have cited for profits, losses, and employment
cover the domestic as well as the foreign businesses of these companies.
But the domestic and foreign businesses of these companies have followed

substantially the same unward pattern. When foreign sales recovered under
the Roosevelt monetary program, domestic sales recovered with them.
So there you have the answers of the best qualified witnesses. Under

the monetary policy of this Administration they got more business; they
lifted themselves out of a deficit in excess of $100 millions 34 to earnings
in excess of $100 millions; and employment increased by is percent.

/
of

10

124

There are many indications that world trade will increase

this year. Our monetary policy is not intended to capture
trade, but merely to protect our normal share. so far from
engaging in a competitive devaluation race with the other
nations we hold out to them a currency of such steadiness

that the normal tendency may very well be for the rest of
the world to move gradually toward practical exchange stabili-

sation.
Huilers course.
somebody rocks the boat that would be
the
natural
In estimating the future of our foreign trade in relation
to our monetary policy, we may as well face the question of

whether we wish to sell abroad vast quantities of goods that
the buyers cannot pay for, unless we lend them the money. of

course, if we want more paper there are plenty of international

bankers to arrange the details. We felt rich on that paper
during the roaring twenties. Now we know better.
In place of paper, under the operation of our new
monetary policy, we have been receiving large shipments of gold

and silver. Some of it came to settle trade balances, but and

some of it TAX Class reprein our
sound
sents capital seeking refuge
currency.

s various

economists will tell you that this policy is likely to end our

foreign trade, that we strip the world of gold our foreign
trade dies. But we are not stripping the world of gold. We

-

125
26 cents in silver back of every dollar actually in circulation.
Loans in default are not very good backing for currency; indeed
they might, without undue asperity, be described as also sterile.
If we must choose between the two, this Administration elects
payment in monetary metals. These, at least, can be spent again

in the future.
In conclusion, let me emphasize certain things: First, you
have an absolutely sound dollar that is today the steadiest
currency on earth. Second, the monetary policy of this Adminis-

tration rescued us from a chaotic situation; and it held the fort
through the most trying period of our recovery program. And,

finally, we seek no unfair competitive advantage in international
trade by monetary manipulation. The world should know that when

other countries are ready to seek practical exchange stabilization,
Washington will not be an obstacle.
Before we make any hard and fast international commitments,

however, we must be sure that the rules are fair and that they will
be observed. We must be sure that we will not lose our normal
trade position, which our new monetary policy is enabling us to

regain. If, on the other hand, the great trading nations elect to
continue under the present absence of rules, we are no longer at

Our hands are united

a

disadvantage. We will evade no opportunity to assist in the

rectoration of world prosperity-- except the over-present opportunity
to donate prosperity at our own expense.

miss Diamond:
This is photostat

of draft which
Pres reviewed, with

his changes in
has own handwriting

the original -pled
with a folder we
have of papers

with JAR'S hand 1

writing etc

It is my purpose, tonight, to state a few simple facts
which I hope will contribute to a clearer understanding of

the monetary policy of this administration. I shall not
enter into complicated discussion of the theory of money.
I shall merely tell you what was done

why

and the

effect.

For an orderly presentation of the facts it is important
that we go back to that period when goods and capital flowed

freely from continent to continent, wherever profit beckoned
enterprise, and see what the record shows on the payment of

international balances.
We may begin with the eighteen years between 1896 and

1914. In that period we exported thirty-one billion dollars
worth of goods that were paid for with goods and services.
The gold movement was smaller than the silver movement. We

exported A billion dollars worth of silver; and imported two-

thirds of a billion dollars worth. At the end of that period,
Europe had invested in the United States, about three billion
dollars in loans for productive purposes.
with the beginning of the World War a tremendous change

took place. From July 1914 to July 1922 we exported fortyMuch

seven billion dollars worth of goods. - of this was paid
for with goods that we imported but in balancing the account

we received nearly seventeen billions of dollars worth of
promises to pay.

&-

In the previous eighteen year period with our country one

f the world's most attractive fields for capital investment
e drew in about three billions of dollars from abroad, but when
e became a credit nation we loaned nearly seventeen billions of

ollars in eight years. Nor did we stop there. We continued to
xport more than we imported right on through 1929, accumulating

n additional two and a third billions of dollars in promises to
ay.

If we deduct from the grand total of our loans abroad, all
f the loans and credits that foreigners have here, and then
xamine the status of our net foreign investment, we find that
bout seventy percent of it is in partial or complete default.
There you have the background, from an American point of

iew, when the crisis developed in Europe
a in 1931. Credit and
currency difficulties which had-been spreading throughout Europe
ame to a head in the spring, of that year. On September 21, 1931,
ireat Britain suspended gold payments. Norway, Sweden, and
enmark followed within a. week. Japan acted in December. Other

ations either went off gold or took equivalent action to control
:heir exchange rates. In this procession, we were not the first;
re were the thirty-first. We did nothing until the spring of 1933.

-

in

As the nations went off gold the value of the currencies
,

in international exchange dropped sharply, and our customers

found it difficult to buy dollars with which to pay for
American products. They could trade with each other to some

extent if their various currencies approached equal devaluation, but they bought from us only what they couldn't do without. The physical volume of world export trade dropped about

one-third from 1929 to 1932, but our exports which had been

more than five billion dollars in 1928, dropped to a billion
and & half in 1932, a loss of more than two-thirds of our
business. To say that we merely shared in world-wide misfor-

is not entirely

tune for Aaccurate because our share included an additional

penalty for remaining on the gold standard. While total world
export trade declined, those countries which promptly went off
gold increased their share of what remained.

From September, 1931, to, the end of the first quarter of
1933 Great Britain increased her share of world trade seventeen

percent. Japan's share increased thirty percent. Our share
decreased forty percent. These percentages are based on
physical volume, not money values.
Some of the countries engaged in this scramble were

alarmed because they could see the bottoms of their gold bins.
They and others exerted pressure to have foreign credits called
home. Sometimes these credits responded by going in the other

direction just as fast as they could travel. Gold was

-

stampeding from country to country, always leaving the place
where it was needed, and rarely doing its new hosts any good.
Considerable amounts of it came here. But in 1932 it began

to leave more rapidly than it had come. This was fair notice
to all concerned that our turn was next. The panic was knock-

ing at our door, but nothing effective was done to avert it.
Europeans knew that we couldn't maintain our currency at a

level fifty percent above the average for the rest of the
world. Facing that crisis, the previous administration studbornly refused to take action, evidently under the impression
that that was a proud achievement when it WELB obviously economic

suicide, and 80 recomized

Out of the loans floated in this country, Europe had

left here more than a billion dollars to enjoy our high interest
rates. Knowing what was bound to happen they correctly judged

that it was high time to take this money home. They did so, and
the panic was on. We couldn't offer them their defaulted paper
when they called for their money. We couldn't even offer them

their paper that wasn't in default. We had let them have the
money on long term loans, and they had short term loans here.

Our long term paper wasn't due while their short term paper
,

could be called. They could demand gold for every dollar due,

and that is what they did. Thus it happened that in the winter
of 1932 we witnessed the incredible spectacle of gold going out

of the world's greatest creditor nation on every ship nearly

5

all of it to nations that were in our debt. Still nothing was done
to avert the disaster.
Stupendous as the gold movement was, we couldn't ship fast enough
to meet the demand, and speculators took advantage of the situation to

sell the dollar short. They were not all foreigners, either. However,
the citizenship of these snipers is of no importance since their
dominant trait is an utter lack of patriotism or loyalty to any nation.
They would sell civilization itself short if they could; and for all /

they knew at that time they might have been doing so.

Our loss of gold, added to the calamity of declining trade, falling
commodity prices, and wide-spread unemployment, caused bewilderment

and then panic. The disaster swept over our country with the fury of
hurricane. Our financial structure was in a state of collapse. In
the month of February 1933 and up to the time President Roosevelt took

office, half a billion dollars in gold and two billion dollars in
currency were withdrawn from our banks. They were closing, not

individually, but by whole states at a time. That was the situation
when this administration came into office. On taking his oath,
Mr. Roosevelt assumed both the duties of President and receiver for an
but on that tragic day
insolvent concern. The richest on earth
insolvent.

We were headed for disaster unless the run on the banks could be
stopped, and our gold reserves reassembled. Both objectives were
promptly achieved. The President's proclamation closed the banks,
ending the run, and the gold was ordered

-6into the custody of Uncle Sam under penalties. Those two acts
met the domestic emergency. Gold payments were then suspended

and that ended the outward flow which had finally attained a

total of three quarters of a billion dollars. This effectively
took us off the gold standard and the dollar began to adjust

itself to the realities of the world situation. The operation
was completed in January of 1934 when the exchange value of

the dollar was set at 59.06 percent of its former gold measure.
Since that time we have enjoyed the steadiest currency in the

world. It is, in fact, so steady that this year we find gold
flowing back into this country to take refuge in our dollar;
not to pay balances but to find safety. Some of the same
sharp-shooters who personally conducted the flight of gold from

this country during 1932 and the first two months of 1933 are

now bringing it back. I deplore their existence but I willing, however rejuctantly be admit their shrewdness.
But let us return to the record, and see what our new

dollar did to our foreign trade. Measured in volume or
tonnage the foreign trade of the whole world was still de-

clining, but from the spring of 1933 to the close of 1934
our share increased 22 percent. Measured in terms of value,
the increase was 57 percent.

-

In 1934 we shipped one-third less cotton than in 1932,

and got eight percent more money for it.

-7 We also got a higher price for our wheat but the drought
can account for most of the increase. Due to weather conditions alone, we harvested in 1933 the smallest wheat crop in

forty years; and in 1934 the smallest wheat crop in forty-one
years.

Our whoat exports have also been affected by quotas and
embargoes. Some of our former customers prefer, for reasons

of national policy, to grow their own wheat, regardless of
price.

Because of those factors, I cannot trace with accuracy and

fairness the effect of our monetary policy upon agricultural
exports.

A better test is offered by manufactured goods.
The volume of all our finished manufactures exported in
1934 increased 37 percent compared with 1932; semi-manufactures

increased 47 percent in the same period.

But the best test is to take a specific article, such PA
the automobile. In 1930, with the world on the gold standard,
we exported 238,000 cars. In 1932, with our country one of
the very few remaining on the gold standard, we exported 66,000
cars. In 1933 under the Roosevelt monetary program our exports

shot up to 108,000 cars. Last year they more than doubled;
they came right back to where they had been in 1930
238,000 care.

-During the disastrous period of declining sales, the
world still wanted American automobiles but it couldn't buy

the dollars to pay for them. Nothing startling developed
in the way of foreign competition; our prices didn't go up;

and quality improved.

We simply had an interim during which we couldn't sell

because the dollar was too high in relation to other world
currencies; this administration lowered the gold content of
the dollar and the foreign market is being restored to our
automobile manufacturers with such rapidity that the benefits
are already nation-wide.

Some people will tell you that there simply couldn't be
any benefit in restoring trade by bringing our money into

reasonable relation with the other moneys of the world. I
decided to get the answer to that question from the manufac

turere themselves. They ought to know best. I asked the
executive heads of twenty-eight large firms whose products

are a representative cross-section of our export trade to tell
me:

First: whether they are getting any more foreign trade.
Second: whether they are making any profit out of it.
Third: whether it has affected employment in their plantsk
whether It I doing the MMSTC any good..

Their reports have been tabulated, and here are the
combined answers.

-To the first question, whether they are getting any more

foreign trade, they answer yes. In 1934, which is the first
full year under the Roosevelt monetary program, their export
sales increased in round numbers one hundred million dollars
above 1932.

To the second question, whether this trade is doing them
any good, they answer yes; they earned $117,200,000 in 1934

against a loss of $126,400,000 in 1932. These figures include
their losses and earnings on domestic sales also. Domestic

sales followed exactly the same course as their foreign sales when foreign sales hit rock bottom 80 did domestic sales: and
when foreign sales recovered under the Roosevelt monetary program, domestic sales recovered with them.

To the third question, whether employment in their plants
increased, they again answer yes; one hundred and ninety-eight
thousand more men and women were working in their plants during

1934 than in 1932, an increase of thirty-one percent.
7

So there you have the answers of the best qualified witnesses. Under the monetary policy of this administration they

got more business; they lifted themselves out of a deficit in
excess of one hundred million dollars to earnings in excess of
one hundred million dollars; and employment increased by nearly
-200,000.

-10-

There are many indications that world trade will increase

this year. Our monetary policy is not intended to capture
trade, but merely to protect our normal share. So far from
engaging in a competitive devaluation race with the other
nations we hold out to them a currency of such steadiness

that the normal tendenoy may very well be for the rest of the
world to move gradually toward practical exchange stabiliza-

tion. If that can be achieved, the final step should come
easily and almost of its own accord. Unless somebody rocks

the boat that would be the natural course.

In estimating the future of our foreign trade in relation
to our monetary policy, we may as well face the question of

whether we wish to sell abroad vast quantities of goods that
the buyers cannot pay for, unless we lend.them the money. Of

course, if we want more paper there are plenty of international

bankers to arrange the details. We felt rich on that paper
during the roaring twenties. Now we know better.
In place of paper under the operation of our now monetary
policy we have been receiving large shipments of gold
and and
some

silver. Some of it came to settle trade balances,
of it is of the class I mentioned & moment agorVarious
tt represents

capital seeking refuge in our sound currency. /economists

will tell you that this polioy is likely to end our foreign
trade; that first we strip the world of gold and then our

- 11 -

foreign trade dies. But we are not stripping the world of
gold. We have more gold than ever before, but the world

supply of monetary gold is also increasing rapidly. Production now proceeds at the rate of about one billion
to

dollars annually, and will increase. The great nations are
1

restoring their reserves. Meanwhile, percentages of the
total held by the various nations show no alarming changes.
We had 41.7 percent of all the monetary gold in 1922 and now

we have 38.8 percent. France had 8.4 percent in 1922 and

now she has 24.8. Great Britain lost gold heavily before
she suspended gold payments in 1931, but since then has in-

creased her share from 5.2 percent to 7.2 percent.
with increasing gold production, and hmmdreds of millions

of dollars worth of the yellow metal being brought out of

and
hiding, some of it can be used to pay balances. We are also
endeavoring to restore silver to greater usefulness as a

monetary metal. It is already the money of a large part of
the world's population.
Objection to our course is sometimes based upon the

assertion that we would bring vast quantities of the world's
gold here, only to be locked up in the United States
treasury - the phrase commonly used is that the gold thus

becomes sterile. At least, however, it goes to swell our
monetary reserves. You now have $1.55 in gold and about

12
Settlement of international balances in gold and silver restores

their

to the world's monetary reserveS stel normal function which is to act as a
traffic policeman, warning each nation promptly, when it buys more goods

we

than it can pay for with goods. If A don't use gold and silver in that way,
we
paper.
you run into the difficulty that engulfed us

12 -

26 cents in silver back of every dollar actually in circulation.
Loans in default are not very good backing for currency; indeed
they might, without undue &sperity, be described as also sterile.
If we must choose between the two, this administration elects
payment in monetary metals.

America

You will find the newspapers flooded with pleas

for us to return promptly to the old gold standard. Some of
the propagandists even go so far as to say that the other
nations would follow if we took the lead. hS a matter of fact,
if we took the lead that would put us right back where we were
)

in 1932, and furnish the soundest reason of all for them not to
follow, but again to take advantage of our disadvantage.
We realize the importance of world prosperity and
except
will evade no opportunity to assist in that direction
the ever-present opportunity to donate prosperity at our own
expense.

In conclusion, I should like to summarize this
statement by saying:

First: You have an absolutely sound dollar that
is, today, the steadiest currency on earth.
Second: The monetary policy of this administration
rescued us from chaos; held the fort through the most trying
period of our recovery program; and is now the spearhead as
we advance steadily. toward our goal.

Third: of the great trading nations that revalued
their currencies, we were the last, until quite recently, when
Belgium joined us.

- 13 -

The world should know that when it is ready to
seek foreign exchange stabilization, Washington will not be
an obstacle. Our position was that of an innocent by-stander

who suffered untold loss in a fight that he did not start,
and from which he could not escape. Why should we be singled

out and admonished that the moral duty to restore order is
primarily our 's? . Before we make any commitments, we must be

sure that we will not lose what we have just regained. We
have never been unwilling to stabilize. However, if the
great trading nations elect to continue under the present
absence of rules we are no longer at E disadvantage. We
revalued our currency just barely to the absolutely necessary
level, and we can go either way. Our hands are untied.

141

The ninth draft, representing what was done at the conference
on the morning of Monday, May 13, 1935. The marks are on this draft. (The
speech was delivered at 10 oclock that night.

First: The disputed figures from the Agricultural Department
were omitted.

Second: The amount of monetary metals behind each paper dollar

now in actual circulation was omitted because the Patman bill was pending.

Third: The phrase "We have never been unwilling to stabilize"

was changed to "We are not unwilling to stabilize" in order to avoid making
the London Economic Conference an issue in the speech

the important

point being not our position in the past but our present position.

Fourth: The well-loved phrase "I deplore their existence but
admit their shrewdness" was slaughtered lest it be construed as an attack
upon the tottering gold bloc.
Point Four was raised by Mr. Collidge. Points One, Two and

THree raised by Mr. Crowell, Mr. Gaston and Mr. Haas concurring.
Very important change in next to last sentence of speech

dictated by Mr. Oliphant.

Tenth draft of speech went on the air at ten oclock that night.

142

It is my purpose, tonight, to state a few simple
facts which I hope will contribute to a clearer understanding

of the monetary policy of the United States. I shall not
enter into complicated discussion of the theory of money.
I shall merely tell you what was done

why

and the

effect.

For an orderly presentation of the facts it 18
WILL

important that we go back to that period when goods and

capital flowed freely from continent to continent, wherever
profit beckoned enterprise, and see what the record shows
on the payment of international balances.
We may begin with the eighteen y ears between 1896

and 1914 -- the pre-war period. In that period we exported

thirty-one billion dollars worth of goods that were paid
for with goods and services. The gold movement was smaller

than the silver movement. We exported a billion dollars

143

-2worth of silver; and imported two-thirds of a billion
dollars worth. At the end of that period, Europe had

invested in the United States, about three billion dollars
in loans for productive purposes.
With the beginning of the World War a tremendous

change took place. From July 1914 to July 1922 we exported

forty-seven billion dollars worth of goods. Much of this
was paid for with goods that we imported, but in balancing
the account we received nearly seventeen billions of dollars
worth of promises to pay.
In the previous eighteen y ear period with our country,

one of the world's most attractive fields for capital
investment we drew in about three billions of dollars from
1

abroad, but when we became a creditor nation we loaned nearly

seventeen billions of dollars in eight years. Nor did we
stop there. We continued to export more than we imported

144

-3right on through 1929, accumulating an additional two and

a third billions of dollars in promises to pay.
If we deduct from the grand total of our loans abroad,

all of the loans and credits that foreigners have here, and
then examine the status of our net foreign investment, we

find that about seventy percent of it is in partial or
complete default.
There you have the background, from an American point

of view, when in 1931 things headed towards a crisis all

over the world. Credit and currency difficulties which
had been spreading throughout Europe came to a head in the

spring of that year. On September 21, 1931, Great Britain
suspended gold payments. Norway, Sweden, and Denmark

followed within a week. Japan acted in December. Other

nations either went off gold or took equivalent action to

foreign

control their exchange pabeer In this
1

so

145

-4-

not the First, we we did nothing
until the spring or 1933.
1935

As the nations went off gold, the value of their

currencies in international exchange dropped sharply, and

our customers found it difficult to buy dollars with which
to pay for American products. They could trade with each
other, to some extent, if their various currencies approached
equal devaluation, but they bought from UB only what they

couldnft do without. The physical volume of world export

14

trade dropped about anestying from 1929 to 1932, but our

exports, which had been more than five billion dollars in
1928, dropped to a billion and a half in 1932, a loss of more
than two-thirds of our business. To say that we merely
shared in world-wide misfortune is not entirely accurate
because our share included an additional penalty for remain-

ing on the gold standard. While total world export trade
declined, those countries which promptly went off gold

146

-5increased their share of what remained.
Fanio

From September 1931, to the end of the first quarter

of 1933 Great Britain increased her share of world trade
seventeen percent. Japan's share increased thirty percent.
Our share decreased forty percent. These percentages are
based on physical volume, not money values.
Some of the countries engagedin this scramble were

alarmed because they could see the bottoms of their gold

bins. They and others exerted pressure to have foreign
credits called home. Sometimes these credits responded

by going in the other direction just as fast as they could
travel. Gold was stampeding from country to country, always

leaving the place where it was needed, and rarely doing its
new hosts any good. Considerable amounts of it came here.

But in 1932 it began to leave more rapidly than it had come.

This was fair notice to all concerned that our turn was next.

147

-6The Panic was knocking at our door, but nothing effective
was done to avert it. Europeans knew that we couldn't

maintain our currency at a level fifty percent above the

average for the rest of the world. Facing that crisis, the
previous administration stubbornly refused to take action,
evidently under the impression that that was a proud
achievement when it was obviously economic suicide.

Out of the loans floated in this country, Europe

had left here more than a billion dollars to enjoy our high
YAGY

interest rates. Knowing what was bound to happen they

correctly judged that it was high time to take this money
home. They did so, and the panic was on. We couldn't

offer them their defaulted paper when they called for their
money. We couldn't even offer them their paper that wasn't
in default. We had let them have the money on long term
term

loans, and they had short term loans here. Our long
trade,

falling

148

-7paper wasn't due, while their short term paper could be
called. They could demand gold for every dollar due, and
that 16 what they did. Thus it happened that in the winter

of 1932 we witnessed the incredible spectacle of gold going

out of the world's greatest creditor nation on every ship

nearly all of it to nations that were in our debt.
Still nothing was done to avert the disaster.
OZUS

Stupendous as the gold movement was, we couldn't

ship fast enough to meet the demand, and speculators took

advantage of the situation to sell the dollar short. They
were not all foreigners, either. However, the citizenship
of these snipers 18 of no importance since their dominant

trait is an utter lack of patriotism or loyalty to any nation.
They would sell civilization, itself, short if they could; and
for all they knew at that time they might have been doing so.
proolome

Our loss of gold, added to the calamity of declining

trade, falling commodity prices, and wide-spread unemployment,

149

-8caused bewilderment and then panic. The disaster swept

over our country with the fury of a hurricane. Our

financial structure was in a state of collapse. In the
month of February 1933 and up to the time President Roosevelt

took office, half a billion dollars in gold and two billion
dollars in currency were withdrawn from our banks. They

were closing, not individually, but by whole states at a
time. That was the situation when this administration came
into office. On taking his oath, Mr. Roosevelt assumed both

the duties of President and receiver for an insolvent concern.

The richest on earth

but on that tragic day

insolvent.
We were headed for disaster unless the run on the
banks could be stopped, and our gold reserves reassembled,

Both objectives were promptly achieved. The President's
proclamation closed the banks, ending the run, and the

150

-9gold was ordered into the custody of Uncle Sam under
penalties. Those two acts met the domestic emergency.
Gold payments were then suspended and that ended the outward

flow which had finally attained a total of three quarters of

a billion dollars. This effectively took us off the gold
standard and the dollar began to adjust itself to the
realities of the world situation. The operation was completed
in January of 1934 when the exchange value of the dollar was

set at 59.06 percent of its former gold measure. Since
that time we have enjoyed the steadiest currency in the

world. It is, in fact, 80 steady that this year we find
gold flowing back into this country to take refuge in our

dollar; not to pay balances but to find safety. Some of
the same sharp-shooters who personally conducted the flight

of gold from this country during 1932 and the first two

months of 1933 are now bringing it back. I doplore their

existence but I their shrewdness.

151

- 10 But let us return to the record, and see what our

new dollar did to our foreign trade. Measured in volume
or tonnage the foreign trade of the whole world was still
declining, but from the spring of 1933 to the close of 1934
our share increased 22 per cent. Measured in terms of value,
the increase was 57 percent.

In 1934 we shipped one-third less cotton than in 1932,
but we got eight percent more money for it.

We also got a higher price for our wheat but the
drought can account for most of the increase. The
conditions alone, we Harvested In 1933 the smallest Wheat

crop in forty years and in 1034 the smallest wheat crop in
fenty one years.
Our wheat exporte have also been affected by quotas

and embargoes. Some of our former customers prefer, for

reasons of national policy, to grow their own wheat, regard-

less of price.

152

- 11 buy

Because of these factors, I cannot trace with accuracy

and fairness the effect of our monetary policy upon agricul-

tural exports.
A better test is offered by manufactured goods.
The volume of all our finished manufactures exported
in 1934 increased 37 percent compared with 1932; semi-

manufactures increased 47 percent in the same period.

But the 'best test is to take a specific article, such
as the automobile. In 1930, with the world on the gold
standard, we exported 238,000 cars. In 1932, with our
country one of the very few remaining on the gold standard,
we exported 66,000 cars. In 1933, under the Roosevelt
monetary program, our exports shot up to 108,000 cars. Last
year they more than doubled; in fact they came right back
to where they had been in 1930
firma,

238,000 cars.

During the disastrous period of declining sales,

the world still wanted American automobiles but it couldn't

153

- 12 -

buy the dollars to pay for them. Nothing startling
developed in the way of foreign competition; our prices
didn't go up; and quality improved.
We simply had an interim during which we couldn't

sell because the dollar was too high in relation to other
world currencies; this administration lowered the gold

content of the dollar and the foreign market is being
restored to our automobile manufacturers with such rapidity

that the benefits are already nation-wide.
Some people will tell you that there simply couldn't
be any benefit in restoring trade by bringing our money into

reasonable relation with the other moneys of the world. I
decided to get the answer to that question from the manu-

facturers themselves. They ought to know best. I asked
the executive heads of twenty-eight representative large
firms, whose products are a cross-section of our export

154

- 13 -

trade, to tell me:
First: Whether they are getting any more foreign
trade.

Second: Whether they are making any profit out of it.
Third: Whether it has affected employment in their
plants.

Their reports have been tabulated, and here are the
combined answers.

To the first question, whether they are getting any
more foreign trade, they answer yes. In 1934, which is the
first full year under the Roosevelt monetary program, their
export sales increased in round numbers one hundred million
dollars above 1932.

To the second question, whether this trade is doing
them any good, they answer yes; they earned $117,200,000

in 1934 against a loss of $126,400,000 in 1932. These

155

- 14 figures include their losses and earnings on domestic sales

also. Domestic sales followed exactly the same course as

their foreign sales - when foreign sales hit rock bottom
so did domestic sales; and when foreign sales recovered under
the Roosevelt monetary program, domestic sales recovered with
them.

To the third question, whether employment in their
plants increased, they again answer yes; one hundred and
ninety-eight thousand more men and women were working in their

plants during 1934 than in 1932, an increase of thirty-one
percent.

So there you have the answers of the best qualified

witnesses. Under the monetary policy of this administration
the

they got more business; they lifted themselves out of a

deficit in excess of one hundred million dollars to earnings
in excess of one hundred million dollars; and employment

156

- 15 increased by nearly 200,000.

There are many indications that world trade will
increase this year. Our monetary policy 16 not intended to
capture trade, but merely to protect our normal share. So
far from engaging in a competitive devaluation race with the
other nations we hold out to them a currency of such steadiness that the normal tendency may very well be for the rest
of the world to move gradually toward practical exchange

stabilization. If that can be achieved, the final step
should come easily and almost of its own accord. Unless
somebody rocks the boat that would be the natural course.

In estimating the future of our foreign trade in
relation to our monetary policy, we may as well face the
question of whether we wish to sell abroad vast quantities
of goods that the buyers cannot pay for, unless we lend them
the

money. of course, if we want more paper there are

157

- 16 -

plenty of international bankers to arrange the details.
We felt rich on that paper during the roaring twenties. Now
we know better.

In place of paper under the operation of our new
monetary policy we have been receiving large shipments of

gold and silver. Some of it came to settle trade balances,
and some represents capital seeking refuge in our sound

currency. Various economists will tell you that this policy

is likely to end our foreign trade; that first we strip the
world of gold and then our foreign trade dies. But we are
not stripping the world of gold. We have more gold than
ever before, but the world supply of monetary gold is also

increasing rapidly. Production now proceeds at the rate

of about one billion dollars annually, and will continue to
increase. The great nations are restoring their reserves.
Meanwhile, persentages of the total held by the various

158

- 17 nations show no alarming changes. We had 41.7 percent of
all the monetary gold in 1922 and now we have 38.8 percent.
France had 8.4 percent in 1922 and now she has 24.8. Great

Britain lost gold heavily before she suspended gold payments
in 1931, but since then has increased her share from 5.2

percent to 7.2 percent.

of

With increasing gold production, and hundreds of

millions of dollars worth of the yellow metal being brought
out of hiding, surely some of it can be used to pay balances.
We are also endeavoring to restore silver to greater useful-

ness as a monetary metal. It is already the money of a

large part of the world's population.
Objection to our course is sometimes based upon the

assertion that we would bring vast quantities of the world's
gold here, only to be locked up in the United States Treasury
-- the phrase commonly used is that the gold thus becomes

159

- 19 -

nations would follow if we took the lead. As a matter of
fact, if we took the lead, that would put us right back where
we were in 1932, and furnish the Boundest reason of all for
them not to follow, but again to take advantage of our
disadvantage.

We realize the importance of world prosperity and

will evade no opportunity to assist in that direction
except the ever-present opportunity to donate prosperity at
our own expense.

In conclusion, I should like to summarize this
statement by saying:

First: You have an absolutely sound dollar that is,
today, the steadiest currency on earth.
Second:

The monetary policy of this administration

rescued us from chaos; held the fort through the most trying
period of our recovery program; and is now the spearhead

- 18 -

160

sterile. At least, however, it goes to swell our monetary
reserves. You now have $1.55 in gold and about 26 cents

in silver back of every dollar actually in circulation.
Loans in default are not very good backing for currency;
indeed they might, without undue asperity, be described as

also sterile. If we must choose between the two, this
administration elects payment in monetary metals.

Settlement of international balances in gold and
silver restores to the world's monetary reserves their normal
function which 1s to act as a traffic policeman, warning
each nation promptly, when it buys more goods than it can

pay for with goods. If we don't use gold and silver in
that way, we run into the difficulty that engulfed us
paper.

You will find the newspapers flooded with pleas for

us to return promptly to the old gold standard. Some of
the propagandists even go 80 far as to say that the other

161

- 20 as we advance steadily toward our goal.

Third: Of the great trading nations that revalued
their currencies, we were the last, until quite recently,
when Belgium joined us.

The world should know that when it is ready to

seek foreign exchange stabilization, Washington will not be

an obstacle. Our position was that of an innocent bystander who suffered untold loss in a fight that he did not
start, and from which he could not escape. Why should we
be singled out and admonished that the moral duty to

restore order is primarily our s? Before we make any
commitments, we must be sure that we will not lose what we,

have regained. We have never beenunwilling stab-

just
against
are
to
ilize. However, if the great trading nations elect to

no

continue under the present absence of rules we are no longer
at

a

disadvantage. We revalued our currency just-barely

162

more
than
21
was
to the abolustely necessary lever, and we can go either
way. Our hands are untied.

163
TREASURY DEPARTMENT

May 13, 1935.
Washington

Press Service
No. 4-93

Following is the text of a radio address by Henry Morgenthau, Jr.,
Secretary of the Treasury, to be delivered over a joint hook-up of the

National Broadcasting Company and Columbia Broadcasting System, nt

10:00 P.M., Eastern Standard Time, Monday, May 13, 1935. It is for
release after delivery has actually begun and no portion or synopsis
of its contents may be given out in advance.
THE AMERICAN DOLLAR.

It is my purpose, tonight, to state a few simple facts which, I hope,
will contribute to a clearer understanding of the monetary policy of the

United States. I shall not enter into complicated discussion of the theory
of money. I shall merely tell you what was done why

and the effect.

In order to examine the record in logical sequence, it is necessary
to review, briefly, the background of our present problems. Foreign trade
has, from the beginning, been an important factor in the business of the
American people. During the eighteen years immediately preceding the out-

break of the World War, we exported thirty-one billion dollars worth of
merchandise, almost all of which was paid for with goods and services that
we received. The net gold movement to us was relatively small, amounting

to $174,000,000. Foreigners invested in the United States, during those
eighteen years, two billion dollars: Americans invested abroad, one billion
dollars. At the out-break oz the World War, the American people owed the

world three billion dollars more than foreigners owed us. That was what
the lodger showed on July 1, 1914.
With the beginning of the World War, a tremendous change took place.

From July of 1914 to the end of 1922, we exported forty-seven billion dollars
worth of merchandise. Much of this was paid for with goods, services and
gold, but there remained due 118 a balance of 19 billion dollars, for which
we took mostly promises to pay.

164
-2-

Now note the contrast. In the previous 18-your period, with our country

one of the world's attractive fields for capital investment, we drew in about
one billion dollars not from abroad, but when we became a creditor nation,

the not outflow of capital reached nineteen billion dollars in the eight
years betwoen the beginning of the World War and the end of 1922.

Nor did we stop there. We continued to export more than we imported,

thus accumulating an additional two and a half billions of dollars of net
foreign investment by the end of 1929.
If we deduct from the grand total of our loans and investments abroad

all of the loans and credits that foreigners have here and then examine
the status of our net foreign investment, we find that an amount equal to

two-thirds of it is today in partial or complete default.
There you have the background, from an American point of view, when in

1931 things headed toward a crisis all over the world. Credit and currency
difficulties which had been spreading throughout Europe came to a head in
the Spring of that year. On September 21, 1931, Great Britain suspended
gold payments. Norway, Sweden, and Denmark followed within 3 week. Japan

acted in December. Other actions either went off gold or took equivalent
action to control their foreign exchange.

As the nations went off gold, the value of their currencies in international exchange dropped sharply, and our customers found it difficult to
got dollars with which to pay for American products. They could trade with
each other to somo extent, but they bought from us only what they could not
do without. The physical volume of world export trade dropped about onefourth from 1929 to 1932, but our exports dropped almost one-half in the
same period.

165
During 1932, England increased her share of the world trade by 16

percent over the previous year; and Japan by 29 percent. To say that we
marely shared in world-wide misfortune is. not entirely accurate, because our
share included an additional penalty for remaining on the old gold standard.
While total world export trade declined, those countries which promptly
went off gold increased their share of what remainod.
Some of the countries became alarmed because they could see the bottoms

of their gold bins. They and others exerted pressure to have foreign credits
called home. Sometimes these credits responded by going in the other direction

just as fast as they could travel. Gold was stampeding from country to
country, always leaving the place where it was needed, and rarely doing its
new hosts any good.

In January of 1932, gold began to leave the United States in alarming

amounts. This was fair notice to all concerned that our turn was next. The
panic was knocking at our door, but nothing effective was done to avert it.
Europeans knew that we could not maintain our currency at the old gold level

without a further ruinous deflation of our prices, trade, and industrial
activity. Facing that criois, the previous Administration stubbornly refused
to take action, evidently under the impression that that was a proud achievement, when it was obviously economic suicide.

Foreignors had left here more than a billion dollars to enjoy our high
interest rates and prospects of quick profits. Seeing what was happening,

they judged that it was high time to take this money home. They did so,
and the p&nic was on. We could not offer them their defaulted paper when

they called for their money. We could not even offer them their paper that
was not in default. We had let them have the money on long-term loans; and

166

they had short-term loans here. Our long-term paper was not due, while

their short-term loans could be collected and their stocks sold. They could
domand gold for every dollar due, and that is what they did. Thus it
happened that, in the first six months of 1932, we witnessed the incredible
spectacle of gold going out of the world's greatest creditor nation on every

ship.....nearly all of it to nations that were in our debt. Still nothing
effective was done to avert the disaster.
Stupendous as the gold movement was, we could not ship fast enough to

meet the demand, and speculators took advantage 01 the situation to sell

the dollar. They were not all foreigners, either. However, the citizenship
of those snipers is not important since their dominant trait is an utter

lack of patriotism or loyalty to any nation. They would soll civilization
itsolf short if they could, and for all they knew at that time, they might
have been doing SO.

Our loss of gold, added to the calamity of declining trade, falling
commodity prices, and widesprend unemployment, caused bewilderment and then

panic. The disaster swept over our country with the fury of a hurricane.
Within a few months, our financial structure was in a state of collapse.
In the month of February, 1933, and up to the time President Roosevelt took

office, about half a billion dollars in gold and nearly two billion dollars
in currency wore withdrawn from our banks. They were closing, not

individually, but by whole states at a time. That was the situation when
this Administration camo into office. On taking his oath, Mr. Roosevelt
assumed both the duties of President and receiver for a concern. the

richest on earth... but on that tragic day fnce to face with insolvency.
We were headed for disaster unless the run on the banks could be stopped,

167
-5-

and our gold reserves reassembled. Both objectives were promptly achieved.

The President's Proclamation closed the banks, ending the run, and tho gold
was ordered into the custody of Uncle Sam. under penalties. Those two acts
met the domostic emergency. An embargo on gold exports was declared and

that ended the outward flow. This effectively took us off the old gold
standard and the dollar began to adjust itself to the realitios of the world
situation.
In going off gold, we were not the first, WO wore the thirty-first.
The oporation was completed in January of 1934 when the dollar was revalued

and set at 59.06 percent of its former gold content. Since that time we

have enjoyed the soundest currency in the world. It is, in fact, so sound
that we find gold flowing back into this country to tako rofuge in our
dollar; not to pay balances but to find safoty. Some of the samo sharp
shooters who personally conducted the flight of gold from this country
during 1932 and the first two months of 1933 are now bringing it back,

But let us return to the record and 800 what our now dollar did for

cur foreign trade. I shall take all three of the commonly used yardsticks
and apply thom.

First: Mensured in physical volume, the United States increased its
export trade during 1934 as compared with both 1932 and 1933.

Second: Measured in dollar value the United States increased its
foreign trade in 1934 as compared with 1932 and 1933.

And, finally: Measured by percontage share in the physical volumo of
total world trade, 170 again show an increaso over both 1932 and 1933.
This is the more. remarkable because the volume of our agricultural
exports was declining.

-6-

168

In 1934 we shipped one-third loss cotton than in 1932; but....WO got
soven percent more money for it.
We also got a higher price for our whent, but the drought can account
for most of the increase.
Our wheat exports have also been affected by quotns and embargoes.

S anc of our former customers prefer, for reasons of national policy, to
grow their own whent, regardless of price.
Because of these unusual factors, I can not trace with accuracy and

fairness the full effect of our monetary policy upon agricultural exports.
A bottor test is offered by manufactured goods.
The physical volume of all our finished manufactures exported in 1934
increased 37 percont compared with 1932; somi-marrifactures increased 47

percent in the same period.

To bo concrete, let us take n specific article, such as the automobile.
In 1930 we exported 238,000 care. In 1932, with our country one of the very
few remaining on the old gold standard, 170 oxported 65,000 cars. In 1933
under the Roosevelt monetary program our exports shot up to 107,000 cars.
Last year they more than doubled; they came right back to where they had
been in 1930.

During the disastrous period of declining sales, the world still wanted
American automobiles but it could not get the dollars to pay for them.
Nothing startling developed in the way of foreign competition; our dollar
prices had not gone up; and quality remained just as good, or improved.
We simply had an interim during which we could not sell because the

dollar was too high in relation to other world currencies; this Administration lowered the gold content of the dollar and the foreign market is

-7-

169

being restored to our automobile manufacturers with such rapidity that
the benefits are already nation-wide.
Some people have been telling you that there simply could not be any

benefit in restoring trade by bringing our money into reasonable relation
with the other moneys of the world. I decided to get the answer to that
question from the manufacturers themselves. They ought to know best. I
asked the executive heads of twenty-nine large representative firms whose

products are a cross-section of our industry to tell mo:
First: Whether they are getting any more foreign trade.
Second: Whether employment in their plants has increased.

Thon, I examined their published reports to find out whether they were
making any profits. Here are the combined answers.

To the first question whether they are getting any more foreign trade
they answer "yos". In 1934, which was the first full year under tho
Roosevelt monetary program, their export sales were 59 percent greater than
in 1932.

To the second question
increased

whether the number of their employees has

they also answer "yes". Two hundred and four thousand more men

and women were working in their plants during 1934 than in 1932, an increase
of 34 percent.

To the third question whethor they are making any money

the

answer is again "yes". Their combined loss in 1932 was one hundred and

twenty-one million dollars; their combined profits for 1934 were in excess
of ono hundred and twenty-eight million dollars. Those figures include
their losses and earnings on domostic salcs also. Domestic sales followed

substantially the same course as their foreign sales. When foreign sales
hit rock botton SO did domostic sales; and when foreign sales recovered

170
-8-

under the Roosevelt monetary program, domestic sales recovered with them.

So there you have the testimony of the best qualified witnesses.

Undor the monetary policy of this Administration, they lifted themselves out of a deficit in excess of one hundred million dollars to earnings
in excess of one hundred million dollars; and employment increased by more
than 200,000.

There are many indications that world trade will continue to increase.

Our monetary policy in relation to foreign trade is not intended to capture
business, but morely to protect our normal share. So far from engaging

in a competitive devaluation race with the other nations, we hold out to
them a currency of such steadiness that the normal tendency may very well

bo for the rest of the world to move gradually toward practical exchange

stabilization. If that can be achieved, the final step should como easily
and almost of its own accord. Unless somebody rocks the boat that would
be the natural course.

In estimating the future of our foreign trade in relation to our
monotary policy, we may as well face the question whether we wish to sell
abroad vast quantities of goods that the buyers can not pay for, unless we
lend them the money. Of course, if we want more paper there are plenty of

international bankers to arrange the details. Wo felt rich on that paper
during the roaring twenties. Now we know better.
In place of paper, under the operation of our new monetary policy,
we have been receiving large shipments of cold and silver. Sumo of it camo
to sottle trade balances, and some represents capital seeking refuge in

our S sund currency. Various economists will tell you that this policy is

likely to end our foreign trade; that first we strip the world of gold and
then our foreign trade dios. But we are not stripping the world of gold. We

171
have more gold than ever before, but the world supply of monetary gold is

also increasing rapidly. Production now proceeds at the rate of about

one billion dollars annually, and will continue to increase. The groat
nations are restoring their reserves. Meanwhile, percentages of the total
hold by the various nations show no alarming changes. We had 41.7 percent
of all the monetary gold in 1922 and now we have 38.8 percent. Franco had

8.4 percent in 1922 and now she has 24.8. Great Britain lost gold heavily
before she suspended gold payments in 1931, but sinoe then has increased

her share from 5.2 percent to 7.2 percent.

with increasing gold production, and hundreds of millions of dollars
worth of the yellow motal being brought out of hiding, surely some of it
can be used tr pay balances. We are also endoavoring to restore silver to
grontor usefulness as a monetary metal. It is the money of a large part of
the world's population.
Objection to our course is sometimes based upon the assertion that we

would bring vast quantities of the world's gold and silver here, only to be
locked up in the United States Treasury the phrase commonly used is that

the gold and silver thus become sterile. At least, however, it goes to
swell our monetary reserves. Loans in default are not very good backing
for currency; indeed they might, without undue asperity, be described as

also sterile. If we must choose between the two, this Administration
elects payment of international balances in monetary metals.
You have heard the argument that we should stabilize by declaring

that we will not change the present gold content of the dollar. Some even

go 80 far as to say that the other nations would certainly follow, if we
took the lead. If we launched out alone on such a course, it would put us
right back where we were in 1932, and offer a tempting invitation for the

172
-10-

others not to follow, but again to take advantage of our disadvantage.
Wc realize the importance of world prosperity, and will evade no

opportunity to assist in that direction except the ever-present
opportunity to donate prosperity at our own expense.

In conclusion, I should like to summarize this statement by saying:

First: You have an absolutely sound dollar.
Second: The monetary policy of this Administration rescued us from
chaos; held the fort through the most trying period of our recovery program;
and is now the spearhead ns we advance stoadily toward our goal.

Third: Of the great trading nations that revalued their currencies,
we were the last, until quite recently, when Belgium joined us.
The world should know that when it is ready to seek foreign exchange

stabilization, Washington will not be an obstacle. Our position was that
of an innocent bystander who suffered untold loss in a fight that he did
not start, and from which he could not escape. Why should we be singled

out and admonished that the moral duty to restore order is primarily ours?
Before we make any commitments, we must be sure that we will not lose what

we have just regained. We are not unwilling to stabilize. However, if
the great trading nations elect to centinue under the present absence of
rules we are no longer at a disadvantage. We revalued our currency no more
than was necessary and we can go either way. Our bands-are-untied.
00000

Treasury Department

May 13. 1935

The following data; to which reference is made in Secretary Morgenthau's radio address of
May 13, are for release simultaneously with the address.
Domestic Sales, Export Sales, Profits and Employment, 1931-1934
Summary of Reports From Twenty-nine Companies
:Number of:

Value of

:Value of:

:Percent:

: employees:

:ddomestic:Percent: export :Percent: Total :Percent: export:Published: as of :Percent

sales of : sales : of : sales of : to : profits* December : of

(mill.$) 1931 :(mill.$) 1931 (mill.$) 1931 : total : (mill.$): 31st

(thous.) :

1931
1932
1933
1934

3,475
2,380
2,571
3,220

100.0
68.5
74.0
92.7

264
181
209

287

100.0
68.6
79.2
108.7

3,739
2,561
2,780
3,507

100.0
68.5
74.4
93.8

77.4

7.1
7.1

121.0 d

7.5
8.2

39.1
128.1

* Profits before dividends

d Deficit

Reports from the following companies are included in this tabulation:
Allied Chemical and Dye Corp.
Allis-Chalmers Mfg. Co.

American Rolling Mill Co.

Anaconda Copper Mining Co.

Armour and Co.

Bethlehem Steel Corp.
Burroughs Adding Machine Co.
Cannon Mills Co.
Chrysler Corp.

General Electric Co.

National Cash Register Co.
National Supply Co. of Delaware
Pepperell Manufacturing Co.
Remington Rand, Inc.
Sherwin-Williams Co.
Socony-Vacuum 011 Co.

Standard Oil Co. of California
Sterling Products, Inc.

Swift and Co.
Texas Gulf Sulphur Co.

Ingersoll-Rand Co.
International Business Machines Corp.

United States Rubber Co.

Johns-Manville Corp.

United States Steel Corp.
Westinghouse Electric & Mfg. Co.

International Harvester Co.

Underwood Elliott Fisher Corp.

Youngstown Sheet & Tube Co.

677
592
732

796

1931

100.0
87.4
108.1
117.6