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BOARD OF GOVERNORS
OF THE

FEDERAL R E S E R V E S Y S T E M

O f f i c e

C o r r e s p o n d e n c e
gt

From

GoldenwejLser ^

W«

Date

March e, 1945

Subject:.

Gardner

Attached are several tables which may give the Chairman
some further information on the gold situation.
The f i r s t table, for instance, brings out the fact that
in raising the price of gold from #55 to $56 an ounce we would
increase the annual value of world gold production by 865 million
dollars on the basis of 1941 figures. The year 1941 was selected
because any more recent year would reflect the curtailment of gold
production brought about by various war measures. Of the 865 million
dollar increment, 740 million dollars would go to foreign countries,
including 500 million dollars to the British Empire.
The second table shows the e f f e c t of the assumed increase
in the price of gold on existing foreign gold reserves. The footnote
brings out the fact that South Africa would get an increment of about
470 million dollars in i t s existing gold reserves, in addition to
the 305 million dollar increment in i t s annual gold production shown
in the f i r s t table.
The third table gives South African gold mining data.
The number employed in the mines amounted to 380,000 in 1941.
More than half of the swollen dividends of the South African gold
mines ware payable outside the Union that year, most of these outside
payments presumably going to the British.
The fourth table shows the small number of men employed
in gold mining in the United States, although the coverage i s not
complete because some gold i s produced as a byproduct of copper.
The f i f t h table now in preparation w i l l give the data in
regard to United States gold production in more detail than was
possible in the note that I sent down to the Capitol.

Attachments




RESERVE RATIO PROJECTIONS

End of
1945
39.2

Reserve ratio - projected*

End of
1946
(Per cent)
32.1

End of
1947
26.6

(In billions of dollars)
Additional gold loss that would bring
ratio to:
30 per cent

4.2

1.1

25 per cent

6*4

3.7

0.9

Short-term foreign balances in United States, November 1944
Official
Private

Total

$3,179 million
2,255
.*
$5^432 million

*Assuming:
1.

Loss of 1.0 billion dollars of gold reserves in 1945.
1943 was 0.8 billion and in 1944 1.3 billion.

The loss in

2.

Excess reserves of member banks unchanged with sufficient growth in
reserve balances to accommodate deposit expansion equal to that which
occurred in 1944 with allowance for only two war loan drives in 1945.
A small growth of foreign deposits i s also assumed.

3.

A 5 billion-dollar increase in currency in circulation; approximately
the same as in 1943 and 1944.

**Ratio would be below 30 per cent with no additional loss of gold.




Table 1
Estimated World Gold Production - 19^1
(In millions of dollars)

Area
British Empire*
Europe (excluding United Kingdom)
Latin America
Asia (excluding British India)
All other
Total Foreign countries
United States (including Philippine Islands
Total

At $56
At #35
an ounce an ounce Increment
835
165
105
95
30
1,230
210
1,440

1,335
265
170
150
50
1,970
335
2,305

500
100
65
55
20
7U0
125
865

* At #35 an ounce South African and Canadian production amounted to
#505 million and #185 million respectively; at #56 an ounce the
figures would be increased to #810 million and #500 million respectively.




Table 2
Estimated Foreign Gold Reserves on September 30, 1944,
at $35 and $56 an Ounce
(In millions of dollars)

At $35
an ounce

At $56
an ounce

British Empire *

3,045

4,875

1,830

Europe (excluding United Kingdom)

8,080

12,930

4,850

Latin America

2,265

3,625

1,360

995

1,590

595

25

40

15

14,410

23,060

8,650

Area

Asia (excluding British India)
All other
Total

Increment

* I t might be well not to make the figures for the British Empire
public since the United Kingdom and Canada are concealing their
reserves for security reasons. Their holdings have been estimated
for the purposes of this table. The largest reported figure i s
?85 million dollars for South Africa. At $56 an ounce this figure
would be increased to 1,255 million dollars.




Table 3

South African Gold Mining Data

^

1950

1959

1941

1942

1945

85.0

154.3

168.0

168.0

168.0

10,716,351

12,819,344

14,386,361

14,120,617

12,800,021

8,716,000

19,903,000

19,400,000

17,489,000

15,323,000

*

57$

53$

*

45$

15,726,000

119,034,000

123,645,000

124,963,000

117,971,000

236,305

333,218

379,948

367,113

316,136

1,650,000

12,650,000

23,515,000

24,676,000

23,700,000

Average market price in London
(shillings)
Yield (ounces)
P

Dividends
Payable outside Union
Salaries and wages (peattds)
Number employed in mines
Tax yield

(Fiscal

year ended March 31)

1/ Data in some instances not f u l l y complete and applies to
large mines only.
*
Not available.
2/ Large amounts of gold mining stocks have been repatriated from British to
South African ownership in the war years. In order to encourage such
transfers the Union Government in 1941 imposed a tax of 5 per cent on
dividends payable to non-resident stockholders. This levy was raised to
7-1/2 per cent in 1942.




Table 4
Employment and Production in United States Gold Mines, 1941

Average number
of men employed

Amount of gold
produced
(dollars)

In gold placer mining

15,368

52,067, 225

In gold lode mines

21.668

84.109. 690

55,056

156,176, 915

In gold-silver lode mines

3,205

5,698, 350

In silver lode mines

2.829

580, 020

41,068

142,455, 285

Total

Total

Total production in continental United States




169,122,500

Gold Production of the United States
{In thousands of dollars)

State and Territory
California
Philippine Islands
Alaska
South Dakota
Colorado
Nevada
Utah*"
Arizona
Montana
Idaho
Other




Total

Lfrv ^ *

ly .

1941

1942

1943

1942

Decrease
1943 1941-1943
26,084
5,073
13,766
14,764
5,438
5,566
289
2,882
3,331
2,416
2.546

44,896
39,570
20,524
17,438
8,868
8,298
+ 346
5,013

209,174 130,961 ^8.808 78.211 82,15.5

160.366

50,107
AO,052
24,364
21,415
13,567
13,228
13,040
11,109
8,844
5,292
8.156

5,211
482
17,606
3,840
3,977
18,741
4,699
10,137
10,496
4,930
13,675 13,336
6,096
8,978
2,148
5,479
1,042
3,458
2.997
5.543
31,295
5,555

^oU

18,812
34,497
6,758
2,674
3,430
2,732
+ 635
2,131
3,365
1,834
2.613

6,696

4,250
5.159




Largest producers of gold in United States in 1941
California
Yuba Consolidated Gold Fields
Idaho Maryland Mines Corp.
Natomas Co.
Empire Star Mines Co., Ltd.
Lara Cap Gold Mining Corp.
Alaska
United States Smelting, Refining and Mining Co.
Alaska Juneau Gold Mining Co.
Alaska Pacific Consolidated Mining Co.
South Dakota
Homestake Mining Co.
Bc^ld Mountain Mining Co.
Colorado
Golden Cycle Corp.
New Jersey Zinc Co.
Telluride Mines Inc. (formerly Veta Mines Inc.)
Nevada
Getchall Mine, Inc.
Nevada Consolidated Copper Corporation
Consolidated Copper Mines Corporation
Utah
Utah Copper Company
Snyder Mines, Inc.
United States Smelting, Refining and Mining Co.
Arizona
Phelps Dodge Corp*
Mammoth-St. Anthony Ltd.
United States Smelting, Refining & Mining Co.
Montana
Anaconda Copper Mining Co.
Idaho
Talache Mines, Inc.
Washington
Howe Sound Company
Knob H i l l Mines, Inc.

March 6, 1945
THE G L STANDARD A D PROSPERITY
OD
N
There is l i t t l e in history to support the statement that countries
that have departed from the gold standard invariably suffered disastrous
inflations.

Countries on the gold standard are not likely to leave i t ,

except when forced to do so by serious disturbances.

Consequently, there

is the likelihood that departure from the gold standard and bad times will
coincide.

I t is, however, more accurate to say that maintenance of the

gold standard at a time when i t was not adapted to conditions has caused
bad times, rather than to say that bad times have followed departure from
the gold standard.
England suffered severe depression in the 1920fs because i t went
back on the gold standard prematurely and at too high a rate for the pound
sterling.

Its departure from the gold standard in 1931 was forced by cir-

cumstances, but was followed ty an expansion in trade.

I t is for this

reason that British public opinion is set against a return to a rigid gold
standard.
In Germany departure from the gold standard was also caused by
unfavorable conditions and was followed by the establishment of an elaborate
system of exchange controls and multiple currency rates which were used ty
the German government to drive hard bargains with those who were dependent
on the German market.

Germany herself during the period of the 30!s ex-

perienced a vigorous expansion, though to be sure i t was based primarily
on arming the nation.




- 2 In France clinging to the gold standard through the early 30Ts
caused serious hardship and a flight of capital which contributed to
wrecking the economy.
Disastrous inflations have usually been caused not by the monetary system but by war.

Departure from gold was only one of the

incidents in the progress of wartime inflations.
I t should be kept in mind in general that the gold standard as
a widely functioning system of international exchange prevailed in the
world only f o r a relatively short period, principally from 1370 to 1914*
During that time management of international finance by England, in
which maintenance of a fixed price of gold was one of the elements, prevailed.

With universal peace and relatively stable eoonomic conditions

this machinery functioned reasonably well.

I t broke down, however, as

soon as more powerful forces loosed upon the world by war upset world
stability.




PR IK CI PAL FEDERAL RESERVE HEl/ELOPKEHTS
(Dollar amounts in millions)
Reserves of
Federal
Reserve
Banks
(Nearly a l l
gold)

Deposits of
Federal
Federal ReReserve
serve Banks
note
(Mostly m nh *
eia
circulation
bank reserves)

Reserve
ratio
(Per cent)

Federal R >serve Bank holdings oft
e
United
States
Government
securities

Eills
discounted

•Acceptances

Federal ReLoans
serve index
and
investments of industrial
production
Of Q l l
commercial (1935-1939
- 100)
banks

1920

-

December

2,222

3,343

1,822

43.0

339

2,718

242

36,250e

62

1922

-

June

3,136

2,138

1,893

77.8

591

437

136

33,893

74

1923

-

December

3,169

2,292

1,931

75.0

106

771

324

37,296

84

1924

-

December

3,057

1,884

2,255

73.8

554

307

358

39,836

86

1926

-

December

2,929

1,856

2,290

70.6

322

668

385

43,927

97

1927

-

De cember

2,893

1,795

2,436

68.4

606

529

378

46,780

93

1929

-

June

3,011

1,667

2,374

74.5

179

978

99

49,424

113

1931

-

June

3,490

1,656

2,483

84.3

610

190

121

44,853

77

1932

-

June

2,799

2,630

2,166

58.4

1,697

495

50

36,091

54

1933

-

December

3,772

3,0,72

2,830

63.9

2,432

117

101

30,789

70

1939

-

June

13,801

4,457

11,697

85.4

2,563

4

1

39,367

103

1944

-

December

18,723

21,594

16,430

49.2

18,693

265

105,300e

232

i

-

e - Partly estimated*
tote: Federal Reserve Bank data are monthly averages of daily figures. Commercial bank data are end-of-month figures.
Index numbers are adjusted for seasonal variation - 1935-1939 = 100*




March 6, 1945
1.

The b i l l , in i t s e l f , would have no e f f e c t on the Reserve Bank

ratio — i t would merely reduce the number of ounces of gold that the
Treasury would have to hold back of the Reserve Banks1 gold certificates,
and release the remainder of the gold (#12,000,000,000 at the new valuation).
This profit would belong to the Treasuiy and the gold would not come to the
Reserve Banks unless the Treasury chose to spend the equivalent of this
amount or to deposit i t with the Reserve Banks.

Of the increment resulting

from the revaluation of the dollar in 1934 — $1,800,000,000 i s s t i l l held
ty the Treasuiy in the Stabilization Fund.
2. TOien "the Treasury spends the profit on the devaluation — this
would add not only to the reserves of the Reserve Banks but also to member
bank deposits and to their reserves, thus aggravating the existing i n f l a tionary pressure.
3•

The higher price of gold would also increase gold production both

here and abroad.

As this additional gold was sold to the Treasury ty producers

here and abroad i t would s t i l l further increase deposits and reserves of member
banks, and by an amount enhanced by the higher price of gold.
only^en^^

of effoiitLiftto^

This would not

PiLa ^non-essential

conmodity — but would also further aggravate inflationary pressure.
4«

An increase of the price of gold to $56 would increase the dollar

value of the $14 billions of gold held by foreigners by about $8.5 billions.
This would increase their claims on our goods.
to foreigners.

I t would be a tremendous g i f t

I t would also result in a larger flow of gold to the United

States in terms of dollars and, therefore, would s t i l l further increase our
inflationary danger.




- 2 5.

The higher price of gold would be a subsidy — not only to our

gold producers — but also to foreign gold producers, chiefly British,
Russian, and Canadian.
6#

Reduction of the exchange value of the dollar — which would

result from an increase in the dollar price of gold — would aggravate
the existing situation in making i t s t i l l more d i f f i c u l t for foreign
countries to compete with us in world markets.

I t would be a step dia-

metrically opposed to the Bretton Woods Agreements, which attempt to
revive world trade by establishing f a i r and stable exchange values for
currencies.
7.

The number of persons employed in gold production in this country

in 194-1 was only 35,000.

I t would be far cheaper to subsidize them in some

other way, i f Congress saw f i t to do so, rather than to make a move that
would have all the disturbing consequences just stated — both in the United
States and throughout the world.