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GOLD RESERVE ACT OF 1934

HEARINGS
BEFORE

THE COMMITTEE ON
COINAGE, WEIGHTS, AND MEASURES
HOUSE OE REPRESENTATIVES
SEVENTY-THIRD CONGRESS
SECOND

SESSION

ON

H.R. 6976

UNITED STATES
GOVERNMENT PRINTING
39539




OFFICE

W A S H I N G T O N : 1934

COMMITTEE

ON COINAGE, WEIGHTS, A N D
SEVENTY-THIRD

MEASURES

CONGRESS

A N D R E W L. S O M E R S , New York, Chairman
J O H N J. D O U G L A S S , Massachusetts
J O H N J. C O C H R A N , Missouri
W I L L I A M H. L A R R A B E E , Indiana
W I L L I A M L. F I E S I N G E R , Ohio
M A R T I N DIES, Texas
F. B. S W A N K , Oklahoma
C O M P T O N I. W H I T E , Idaho
E D W A R D R. B U R K E , Nebraska
J. L E R O Y A D A I R , Illinois
A B E M U R D O C K , Utah
T E R R Y M . C A R P E N T E R , Nebraska
W I L L I A M M . B E R L I N , Pennsylvania
C L A U D E V. P A R S O N S , Illinois
W I L L I A M B U M S T E A D , North Carolina




WILLIAM K .

II

R A N D O L P H P E R K I N S , New Jersey
L L O Y D T H U R S T O N , Iowa
H A R O L D M c G U G I N , Kansas
R A L P H R. E L T S E , California
A L F R E D M . W A L D R O N , Pennsylvania

GALLAGHER

Clerk.

GOLD KESEKVE ACT OF 1934
MONDAY,

JANUARY

HOUSE

OF

15,

1934

REPRESENTATIVES,

C O M M I T T E E ON C O I N A G E . W E I G H T S , A N D

MEASURES,

Washington, D.C.
The committee met at 10 o'clock, Hon. Andrew L. Somers (chairman) presiding.
The C H A I R M A N . The committee will please come to order.
Gentlemen, the purpose of calling you here this morning is to hold
hearings on the monetary policy of this country. It is to be hoped
that in these hearings we shall make a record that is available to the
Congress, which will enable all of us to become exact students of the
various monetary movements in this country.
To that end, it is the intention of the chairman to call before the
committee the foremost experts available. We have this morning
asked to appear Professor Sprague, who was professor of banking and
finance in the Harvard University School of Business Administration, and at a later date, economic adviser to the Bank of England.
At a later period still he was financial assistant to the Secretary of the
United States Treasury. He is the author of any number of books
on this subject, principally " T h e History of Crises Under the Banking System", which, you will recall, was prepared for the Aldrich
committee.
His experience throughout many years has been such that I feel
his testimony will be of great value to us.
Dr. Sprague, while he has not prepared a definite, formal statement
to present to us this morning, will endeavor to answer any questions
the members of the committee may have in mind.
If you will permit the chairman to suggest, it might be well for
Dr. Sprague to tell us something about the advisability of cutting the
gold content of the dollar. That is a technical subject, and we who
are not monetary experts may not be aware of the full significance of
it in all its phases. So I feel it would aid us a great deal in understanding wiiat condition we would be in if the movement did succeed
in this country.
Following Dr. Sprague's preliminary statement, we will have questions by various members of the committee.
I am sure you will realize that Dr. Sprague, although a very
energetic individual, is only human, and that we should try to limit
our questions as much as possible.
Dr. Sprague, we would like to have you proceed in accordance with
my suggestion, and if you would be good enough, discuss the advisability of cutting the gold content of the American dollar at this
particular time.
30539—34
1
1




2

GOLD RESERVE ACT OF 19 3 4

STATEMENT OF DR. 0. W. M. SPRAGUE, PROFESSOR OF BANKING
AND FINANCE, HARVARD UNIVERSITY SCHOOL OF BUSINESS
ADMINISTRATION, CAMBRIDGE, MASS.
Dr. S P R A G U E . The subject which your chairman has suggested is
one of extreme difficulty, owing to the fact that no country has ever
devalued its currency in circumstances quite like those which obtain
in the United States at the present time.
There have been many instances of a revaluation or devaluation,
but in all instances, so far as I am aware, they have been in the nature
of a recognition of a situation that had come about.
Let us take a particular case, that of the revaluation of the French
franc in 1927, a lowering of the value of the French franc far greater
that that w^hich has been suggested for this country.
It was simply a recognition of the value of the French currency as
it had become in 1927. Between 1914 and 1927 France was off the
gold standard and prices had advanced to between four and five
times the 1914 level. This was the result of the inability of the
French to finance the war exclusively by means of taxation and by
borrowing limited to current savings, and following the war to heavy
expenditure in connection with the restoration of the devastated
areas.
Throughout the entire period of 13 years there was an active
demand for labor and for materials in France. Consequently prices
tended to rise rapidly.
When such conditions had reached a sufficient stage of stability to
warrant the return to the gold standard, the franc was revalued at
3.9 cents as contrasted with the old value of 19.3 cents. An endeavor
to restore the old value of the franc would have involved an extreme
contraction of credit and currency and a catastrophic decline in
prices.
The revaluation of the franc was not designed to bring about an
increase in prices, but simply as far as one could judge at the time, to
maintain something approaching the level that then obtained.
As a matter of fact, the French franc was probably revalued at a
slightly lower rate than that which might have been adopted. A rate
of, say, 4.5 cents for the franc, would probably have been a little
more in line with relative prices m France and in other countries.
It was of course a disturbing factor in the situation for the rest of the
world that the French franc was revalued at that time a little lower
than what was probably an equilibrium rate.
Now, revaluation in our case presents a problem of a very different
sort. The level of prices in this country, as compared with prices
elsewhere, is not one which supports or provides a basis for a revaluation of the dollar at a third or a half of its former value.
We are revaluating the dollar with the expectation that the revaluation will set in motion forces which will bring about an upward
movement of prices. The problem, therefore, before us, is to consider
whether a lowering of the value of the dollar preceding a rise in prices,
relative to prices in other countries, will bring about a rise in prices
and an accompanying greater activity of business.
The most obvious and certain effect of revaluation is to provide the
Government with what may be styled a wind-fall profit. The
Government will have some billions of dollars to spend from sources




3 GOLD RESERVE ACT OF 19 3 4

other than taxation and borrowings. Will such an expenditure serve
to bring about a considerable rise in prices, and a rise in prices that
will hold? I should say that depends in every considerable measure
upon how that money is expended, and, indeed, upon how the other
funds the Government secures are expended, not upon the mere fact
that a certain amount of money is secured from sources other than
taxation and borrowings.
In all my thinking about these subjects, I am impressed rather
more, than a great many others who have given attention to these
matters, with the importance of the nonmonetary factors in the
bringing about of a movement of prices, and of securing stability
at a desired level of prices.
We look toward reaching a situation in which there will be full
employment of labor and an active demand for materials, without
persistent and continuing special expenditures on the part of the
Government, such as those involved in relief expenditure, public
works, or special expenditures designed to bring about a much needed
forward movement in agricultural prices.
We do not look with satisfaction upon a continuance of public
works and civil relief and other similar expenditures. We regard
them, and properly, as emergency expenditures.
I insist that whether the expenditure of these wind-fall profits, as
well as other expenditures, proves helpful, depends upon the way in
which the money is expended, and the effect that the expenditure
has upon the whole economic situation of the country.
If the Government expends enough money, it can employ, directly
and indirectly, all of the idle labor of the country, and bring a rise in
prices, just as happens in time of war. In the case of a great war, a
very large number of people are drawn into the training camps, and
the Government incurs huge expenditures for materials for war purposes. And when we reach a point at which there is full employment
of labor and an active demand for materials, if there is a plentiful
supply of credit and currency, prices go up.
But always in the case of a war we recognize that at its close we
are to be confronted with a period of difficult readjustment, with the
absorption of the men employed in the armies and the men employed
in military production into other occupations.
So, in case of public works, civil relief, and so on, we can get a rise
in prices if we expend money enough for those purposes to bring about
full employment of labor; but the problem still presents itself whether
we are employing that labor in such wise and under such conditions
that that expenditure will gradually taper off through the absorption
of these men in civilian work, or whether we are simply doing something analogous to that which takes place in war, employing them
under conditions that subject us to the necessity either of continuing
these expenditures indefinitely or making painful adjustments when
these expenditures cease. That seems to me to be the essential
problem before us.
If, for example, the wage policy and the price policy as regards
materials employed in public works are such as to establish relatively
higher prices for that kind of work and for that kind of material, then
you check the absorption of that labor and the use of such materials
in private industry. That seems to me to be the most serious question
that can be raised as regards our entire recovery program.




4

GOLD RESERVE ACT OF 19 3 4

In this country there has been wide-spread criticism, or skepticism,
regarding British unemployment insurance, commonly known as the
dole. It has been criticized on the ground that the rate of the dole
was so high it tended to impede the absorption of unemployed labor
in industry. Many people in Great Britain recognized this, and it
was very definitely recognized at the time Britain went off the gold
standard, when the dole rates were reduced, as a means, in part, of
balancing the budget.
But Public Works expenditures or Civil Works expenditures that
establish or maintain high rates of pay may have exactly the same
effect of impeding the absorption of labor in private employment.
It is not then solely the immediate effect upon prices of revaluation
that must be considered, but it is the probable permanent effect. It
does not seem to me, in other words, that in the recovery program
there has been proper consideration of the need of arriving at a situation in wrhich emergency expenditures will no longer be necessary.
Now. I come to another aspect of revaluation. I said a few minutes
ago that the French revaluation at a slightly lower value for the franc
than that which events proved was required, on the basis of relative
prices in France and elsewhere, was one of the disturbing factors in
the situation in the succeeding years.
Obviously, for a great country like the United States to revalue its
dollar at a rate which far more than in the French instance, goes
below relative prices, will be consequently even more disturbing. If
prices had risen in this country during the last year relative to prices
in other countries to anything like the extent of the suggested revaluation, then it would not be disturbing to other countries. Again,
if after revaluation prices were very promptly to advance in this
country far more rapidly than in other countries, it would not be a
disturbing factor in the situation.
I do not think anyone can dispute the proposition that the revaluation of the dollar to 60 percent is establishing a value for the dollar
that is far below its equilibrium value at the present moment.
Now, if some one of our States, let us say Mississippi, were a
separate country adopting this policy, it would probably almost at
once produce the desired effect. The State of Mississippi, if it were
a foreign country, would be engaged in producing mainly for export.
A very large proportion of the total output of the labor in that area
would be engaged in producing goods for export, in particular cotton,
and the revaluation of its currency would almost at once affect the
entire monetary situation, and establish equilibrium with the rest
of the world.
One of the difficulties about revaluation as a means of bringing
about an upward movement of prices in the case of the United States
is due to the fact that the country is so large that its export trade is
comparatively small, and that sufficient expansion of its exports
induced by a revaluation, to affect the entire monetary structure,
is quite inconceivable, and if it developed would be so disturbing to
the rest of the world that unquestionably protective measures would
be taken by other countries.
It is a little difficult to see, in other words, how revaluation can
possibly effect directly and immediately the prices, let us say, of very
many of the goods produced in New Jersey or in Michigan, even
though they may have a considerable effect in Mississippi or Arkansas,




GOLD RESERVE ACT OF 19 3 4

5

although in those States not so great an effect as if they were separate
countries.
Now, we come to a third possible effect of revaluation; what may
be supposed to be the effect of revaluation upon the great mass of
manufactured products produced and consumed within the country,
and of agricultural products, not produced very much for export;
upon the value of hay, eggs, pork, and wheat, of services, such as
electricity and gas, as well as manufactured products, from steel rails
to typewriters.
The direct effect must be pretty small. You and I do not have any
more money in our pockets as the result of revaluation; our bank
balances are not increased. We do not have any more purchasing
power than before. The only increase that has taken place in purchasing power is the increase in purchasing power possessed by the
Government through the windfall profit. It has from two to four
billions of dollars to spend that it would not have except through
additional taxation or additional brorowing.
So, once more we come back to the question of the influence that
may be exerted by the expenditure of this money. Revaluation
leaves us with somewhat more money to spend for other purposes than
would otherwise have been the case. Taxes for the moment may be a
little lower, or funds that would otherwise have been borrowed by the
Government we shall have available for other purposes, available for
making loans to industry. But will there be a greater demand for
funds from non-Government agencies, from the railroads, from the
utilities, from the industries, or from the building trades, on account of
the revaluation?
And shall we be more ready to lend the 2 or 3 billions of dollars that
we would otherwise have been lending to the Government?
That,
you can easily see, is a highly complicated question.
There may be a favorable influence on confidence, if it is believed by
the business community at large that revaluation is definitive.
If the dollar is revalued at 60 percent, or some other percentage,
and a definite stand is taken by the Government to the effect that
under no circumstances whatever will it repeat those operations, and
under no circumstances whatever will it resort to further extraordinary monetary measures, then it is, at least, possible that business
confidence will be strengthened. On the other hand, if it is to be
presumed that it is simply an experiment, to be followed by other
experiments of an uncertain nature in the event that there is no early
response in higher prices and greater trade activity, then you will
not get that strengthening of confidence which is one of the factors,
though not the only factor, required for a resumption of business
activity along normal lines. In other words, a strong case can be
made our for revaluation now if the Government is prepared to say
that it is the last of the monetary devices that it is going to use to
bring about trade recovery. If it is not prepared to take that stand,
then I should not suppose that revaluation would have any appreciable effect on confidence, or any desirable effect on bringing about an
increased demand for goods and services that will hold.
I am hot at all impressed by the reports of increased business
activity that come out from week to week. Of course, there will be
increased consumption of a very considerable variety of consumable
goods so long as the Government is expending large and increasing




6

GOLD RESERVE ACT OF 1 9 3 4

amounts of money. The problem, as I see it, is whether those expenditures, as I said before, are being handled in such ways that they will
in the course of a not too distant time cease to be necessary because
the equivalent or greater expenditures will be made on the part of the
industries of the country.
Now, Mr. Chairman, I hope I have gone far enough to induce some
searching questions on the part of your committee.
The C H A I R M A N . Thank you, Professor. There is just one other
subject that I would like to have you discuss before we leave, although
not necessarily at this moment, and that is the relationship that silver
would bear to a managed currency, if the country were to decide
upon managing its currency in the future. I believe the members
of the committee have some questions suggested by your statement,
and they would prefer to ask them while they are fresh in their minds.
Will the members of the committee indicate to me whether or not
they want to ask some questions at this time?
Mr. D I E S . I would like to ask a question at this point: Doctor, it
is said, but I do not know how truthfully, that the public and private
indebtedness in the United States amounts to about $230,000,000,000,
so that if we started out to pay it off at this minute, at the rate of
$1,000 a minute, it would take 385 years to discharge it. Now, do
you not think that a revaluation of the dollar, on the basis of a 50-eent
dollar, wrould relieve this country from a condition approaching
bankruptcy; and that only through a managed currency can we possibly liquidate our indebtedness, with the least disturbance to oar
economic system—in other words, that it is a question of necessity
and not a question of expediency?
Dr. S P R A G U E . I agree with you that the burden of debt has become
intolerably heavy, and that the existence of this debt greatly impedes
trade recovery. The question is how we can lighten this burden of
debt. Now, if revaluation of the currenc}^ would overnight provide
all of us with additional income, then it would be very likely exceedingly helpful; but my point is that this does not provide the debtor
with additional income. It only provides him with additional income if it induces such a situation as regards the demand for labor
and for material, and the prices of material, as to yield higher money
incomes so that the burden of debt will become lighter. I am not in
disagreement, I imagine, with anybody here as to the desirability in
some way or other of lightening the burden of debt. It is a question
of means.
Mr. D I E S . In that connection, let me see if I understand you: Is it
your contention that, if we revalue the dollar by cutting the grains of
gold in it by one half, or deflate the value of the dollar to that extent,
that will not automatically double the price of commodities, stocks,
farm products, and so forth?
Dr. S P R A G U E . It certainly will not, in my judgment, because
prices——
Mr. D I E S (interposing). I do not mean relatively, comparing one
commodity with another. I do not mean a relative change in values,
but I mean all commodities, debts, bonds, taxes, and so forth. Is it
your contention that a revaluation of the dollar, or a reduction of the
gold in the dollar to eleven-and-some-odd grains, or to a 50-cent basis,
will not actually cut indebtedness in half?




GOLD RESERVE ACT OF

19 3 4

7

Dr. S P R A G U E . It certainly would not. It would do so if, when the
Government did that, my bank balance and your bank balance were
to be doubled in amount. Then we would have twice as much purchasing power as before, and would be able to pay twice as much as
before for wheat, neckties, and everything else. It does not do that
immediately or automatically. The only prices which will tend automatically to go up on devaluation will be the prices of the things that
are exported very heavily.
Mr. D I E S . That would be cotton and wheat.
Dr. S P R A G U E . Not wheat. We do not export an appreciable
amount of wheat, because our price is already maintained at a level
of 20 cents or more above the Canadian and Argentine price. There
is nothing in devaluation to bring about any appreciable rise in the
price of wheat, because it is already above the world price. It is only
through the indirect influence that it may have on the general situation of inducing a much greater demand for credit and for currency
than before. If the business community is tumbling over itself in
order to get more capital and get more credit, as was the case, not
only during the war, but in 1919, after the war, when everybody was
believed to be fairly solvent, a situation in which there was a demand
for anything that anybody could produce, then you will have a rise in
prices; but when the business community does not see very clearly
any profit from increasing its plant equipment, or the quantity of
goods produced, you will have difficulty in getting a rise in prices.
In my judgment, you cannot get it exclusively by monetary means,
unless you go sufficiently far to create a situation in which there is
widespread distrust of the currency—something which I believe no
one contemplates as a desirable policy. However, it is perfectly
possible, if you want to reduce the value of the dollar temporarily to a
nickel by Governmental policy, to create a situation in which virtually
everybody will seek to convert the money in his pocket and the money
in his bank balance, and his insurance policy by borrowing against it,
into goods or into tangible property, but that is not what we are
considering.
We are considering how by monetary means within a reasonable
range we may create a situation in which there will be full employment of labor, an active demand for material, with rising prices,
which will yield permanently greater money incomes, and so lighten
the burden of debt. M y own feeling with regard to the burden of
debt is that it would be wise on the part of the creditor class and
helpful to the country if creditors were to accept for the time being
a lower rate of interest payments on the part of the great mass of
outstanding debts, and, where proper, in a great many instances to
reduce the principal of the debts without forcing debtors to go into
receivership or into bankruptcy.
Mr. D I E S . I do not want to ask too many question, because there
are other gentlemen here who want to ask questions, but I would
like to ask you this: D o you know of any nation that has not been
compelled to resort to inflationary measures, as France did when she
reduced the purchasing power of the franc from 100, the normal
point in 1914, down to 14 and probably to 10 before it was finally
stabilized in 1917? Even England was compelled to resort to inflationary measures. Now, it seems to me from the little study I
have given the subject, which is not a great deal, that the inflationary




8

GOLD RESERVE ACT OF

19 3 4

policy of France had the effect of stimulating production and stimulating business activity tremendously in that country during the postwar development. In fact, she became an export nation for many
commodities that before the war had always been imported. Now,
could we alone stand out against the world, when all other countries
are resorting to inflationary measures, or could we alone maintain
the gold dollar as it existed before?
Dr. S P R A G U E . I am willing to agree to that, but the point I made
at the very beginning was that inflation in France came before revaluation, and was an incident of a situation in which over a long
period of years there was a full demand for labor and material in
France. M y point is that it is difficult for this country to inflate in
any ordinary fashion. It is not easy to inflate when you have a great
many millions of people unemployed, and when throughout the entire
range of business, you have a situation in which very few people see
any good prospects for the employment of more capital or the enlargement of equipment. That is why I said that the nature of the
Public Works expenditure is a vital problem. One direction in which
it is possible to find a demand for labor and materials in this country
far more considerable than that which developed in the case of automobiles is through the development of a situation in which it will be
possible to produce better houses with proper equipment and furnishings for the mass of people with incomes under, let us say, $2,000.
There is a potential demand, if you could only tap it, for better housing
in this country. But, however, it requires organization directed toward the prevention of an advance in costs of construction, or of
rising land values, rake-offs on the part of contractors, rake-offs on
the part of those engaged in producing materials and furnishings that
go into houses, and securing a reasonable scale of wages in the construction trades.
Now, a policy which tends to stimulate and to encourage an upward
movement in the price of cement, plumbing supplies, and so forth, a
policy which supports the maintenance of high wages in the construction field, is a policy which chokes the possible demand for a large
amount of labor and materials. As I see it, our public works polic}7
tends to do just that thing. It does not examine the whole situation
or try to discover the things that would be wanted in much greater
quantity if prices were relatively lower. That is why I fear that
when we have expanded the $6,000,000,000 or whatever the amount
may be, for emergency purposes, we shall find that the emergency is
still with us, and that if we stop in 1935 or 1936, we will be in exactly
the position we were in at the time of the Armistice in 1918.
Mr. M C G U G I N . I would like to ask the Professor this question:
Last spring we were confronted in Congress with the proposition from
industries all over the country that depreciated foreign currencies
were making it possible for foreign industries to flood our markets,
and, at the same time drive us out of the foreign markets. Now,
do you believe that the depreciation of our money in keeping with the
depreciation that has already taken place in foreign money, will
solve the problem that we were confronted with then as a result of
depreciated foreign currency?
Dr. S P R A G U E . It is largely, I think, a question of the importance
of the particular influence. I do not think that the figures as regards
world trade indicate that it exerted a very great influence. World




GOLD BESE1IVB ACT OF

19 3 4

9

trade all over the place was shrinking, and our trade dropped off along
with the trade of the rest of the world. Here and there, I think there
were particular situations in which we lost sales owing to depreciation
of world currencies, but the amount thus lost I would say was not
sufficiently great to have been one of the big factors in our situation.
If you take, for example, the most conspicuous case, that of Great
Britain, you wall find that the amount of stimulation to British
exports arising out of the departure from gold and the depreciation
of the pound was not very great. The British position was something
like this: There had been a shrinkage for a number of years before
the country abandoned gold, because of the failure of British costs to
come down as rapidfy as they had been reduced in other countries.
Therefore, when the country went finally off gold, the pound at once
dropped, roughly, about 25 percent of its previous value. From that
time, the pound was held fairly steadily at that point. The equalization fund which was established w^as used not to depreciate the pound
when it was weak, but to support it, and to acquire foreign currencies
only at times wrhen the pound was temporarily strong, in order to
have foreign currencies to support the pound when it was weak.
Generally speaking, I would say the policy followed there wa.s not to
use depreciation as a means of stimulating the British export trade,
partly for the reason that it was naturally feared, or believed, that
further depreciation of the pound brought about by the policy of the
British Government would lead to protective measures on the part
of other countries.
Mr. M C G U G I N . Recalling a question by Mr. Dies pertaining to
debts, I was very much interested in your statement that it would be
better for the creditor class to take a reduction in interest, and, possibly, a reduction in principal. We might agree with that proposition,
but would it not be one that would be utterly impossible to carry out?
It would require the sanction or agreement of the mortgage companies
and insurance companies to bring about a reduction in the amount of
the principal and interest of mortgages, and, in fact, it would require
the cooperation of the entire creditor class, including bank depositors,
holders of insurance policies, and so forth, to reduce the amount of
deposits and the amount carried in insurance policies. Now, it would
be utterlv impossible to secure any such concurrence as that, would it
not?
Dr. S P R A G U E . I think, taking it as a universal policy, I would quite
agree with you, that it would be impossible, and it is largely for that
reason that people have been seeking for some monetary means of
turning the trick. I do not expect, or think it possible, that it could be
made universal, but I think that by a little here and a little there a
good deal could be accomplished in that direction that would be helpful. I do not consider that any one means is adequate by itself to
meet our present difficulties. I think that a little more could be done
in that direction if it were impressed upon all classes in the community
that it was desirable. It has been done to a certain extent, both as
regards to farm mortgages and as regards urban properties.
Mr. M C G U G I N . I have one more question: If we continue as we
have been going during the last 5 years, with unbalanced public
budgets, particularly in the case of our local government units, with
most of them applying to the Federal Government for relief, with the
Federal Government and the local government units operating each




10

GOLD RESERVE ACT

OF 1 9 3 4

year with budgets more and more unbalanced, in the end,, is there
any possible way to escape inflation in one form or another?
Dr. S P R A G U E . Well, I think, it depends upon whether we are making
progress in the right direction, doing a little here and a little there.
Mr. M C G U G I N . The point is, can there be any progress in legiti- '
mate industry, private industry, productive industry, or whatever
you call it, so long as Governmental units are absorbing all the credit
of the country? It is being absorbed by the Government of the United
States, and by every local community. They are issuing bonds every
year to take care of their deficits.
Dr. S P R A G U E . Let me illustrate it by a possible case: Suppose we
were taking in hand the railroads of the country: Here is a first-rate
agency for moving goods, which for one reason or another is being
duplicated to a greater or less extent by the use of roads by trucks.
I would be disposed to think that a policy regarding transportation
which would look at the problem as a whole, and which would be
directed toward using the railroads for the class of traffic for which
they are best suited, which would examine the structure of the railroad rates with the purpose of discovering whether there are not a
good many rates the reduction of which would serve to stimulate
traffic and reduce the cost to the consumer of particular products
that consumers would want in greater quantities if prices were
relatively lower, would be helpful in that one field.
It should be one that would also examine the railroad debt or
financial structure, and recognize that in the past probably there
have been serious errors made in financing which must be adjusted
through wiping some of the obligations off the slate. Some of the
trouble we are in seems to me to be due to the fact that following
the collapse in 1929 we went forward for a period of 3 or 4 years rather
on the assumption that somehow or other things would snap back,
and would be where they were before. Now, that does happen in
the case of minor,recessions. We had a minor recession at the end
of 1923, and then things improved in 1925. In 1925 we were doing
about the same things that we were doing when business was going
on prior to 1923—the same distribution of labor, and about the same
proportion of different things being produced.
The same was true after the modest collapse in 1927. But in
1929 we entered a period in which, apparently, very considerable
adjustments were necessary, with shifts in labor and shifts in values;
and that, upon the whole, we refused to do. We looked for a recovery
and a return to the condition of, say, 1928. The general point that
I am making is that no one policy, whether it be monetary or
nonmonetary, is sufficient to meet the present situation. I feel that
the attention that has been given to monetary policies in the last
few months in this country has tended to obscure in the minds of
most people the necessity for doing a good many things in the financial
and nonmonetary sphere in order to bring about the desired trade
recovery.
Mr. E L T S E . Dr. Sprague, as I understand, you believe that the
matter of adjustment of debts is largely an individual matter as
between debtor and creditor, and that the Government cannot do
much to help in that direction. Is that correct?




GOLD R E S E R V E ACT

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Dr. S P R A G U E . I think it can do more than it has been doing. It
has been doing a good bit in connection with smaller home loans
and farm mortgages.
Mr. E L T S E . But, speaking generally, will it not be a case of individual adjustment more than anything else?
D r . SPRAGUE.

Yes.

Air. E L T S E . N O W , with respect to this policy of devaluation as a
strengthening of the credit structure of the Nation, if the gold is to
be taken in to the Treasury of the United States, and against that
these new bonds are to be floated to the extent of several billions of
dollars, is that going to help the credit structure at all? Is it going
to relieve the strain on the credit structure to any extent?
Dr. S P R A G U E . I should think that the supply of funds available or
the supply of credit was and had been adequate. Let me take the
situation as it was developing last summer. Last summer we brought
out an issue of 8-year bonds, testing the market by a longer term
Government issue than had been put out for a number of years, and
that was a decided success. At that time there was at least relatively
a fair expectation on the part of the public that the Government was
not going to resort to extraordinary monetary devices. Then early
in October we went a step farther and offered 10- to 12-year bonds,
asking suscriptions for 500 millions of new money and venturing to
call 2 billions of the Liberty 4%-percent bonds for payment in April,
offering the 10- to 12-year bonds to holders of the called bonds; and
the response was very satisfactory. Assents were secured to the
extent of some 800 million out of the two billions in the course of something like 2 weeks. Then the gold-buying policy was announced,
and assents to conversion immediately ceased; that is the position
at the present time, and the Government has over a billion dollars
to pay out on those called bonds on the 1st of April to people who
have not assented.
I still believe that the assents would have been secured for practically the entire amount if we had gone forward on a basis of ordinary
governmental financial policy. The supply of credit, the ability of
the Federal Reserve to expand credit in response to any demand, is
very great. I do not think that we need to revalue now from the
point of view of the supply of credit; and I come back to the statement that I made earlier, that if it is stated when we revalue that this
is simply one of a series of experiments to be followed by others of an
indeterminate and undisclosed sort, then I should be disposed to
think that business confidence would be weakened, and also that
confidence in the credit of the Government might be so weakened
that it would be more difficult to float the additional 2 or 3 billions
of bonds over and above the windfall profit than it would have been
to float the entire quantity on the basis of complete confidence in the
monetary intentions of the Government.
In other words, I feel that revaluation, if it takes place, should be
the last of the monetary devices of the Government, aside from the
matter that your chairman mentioned a moment ago, of silver, about
which I shall have something to say a little later, after we have gone
around the table, I suppose.
Mr. E L T S E . A S I understand your position, then, underlying all
business of the whole Nation, of every individual and group of individuals, is a contract, the terms of which may be performed almost




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immediately or may be performed over a period of months or even
over a period of years, and until the parties to those contracts can
rest assured that conditions will be such at the time of the performance
of the contract as they were on the day of the execution of the contract, confidence is not going to be restored, industry will not be speeded
up, and the wheels of the factories will not begin to turn again.
Dr. S P R A G U E . I should imagine that I agreed with you about that,
although it is one of those general statements upon which we might
have differences as to what we meant by them. But for the moment
I will agree with you as to that.
Mr. F I E S I N G E R . Professor, does the supply and demand of gold
have any effect upon prices of goods and services?
Dr. S P R A G U E . If you give a sufficient long period of time, it does.
There are times when the effect is immediate; there are other times
when it is not. You may have a situation, for example, in which the
metallic reserves required by law underlying the credit structure do
not permit any further expansion of credit and currency. If at such
a time there is an active demand for more credit and currency, then
you may say that an increase in the metallic base would serve immediately to bring about an expansion of credit and currency and
probably an increase in prices, or prevent a decline. That, in my
judgment, would probably have been the situation of the world in,
let us say, 1898, if the Rand Mines in South Africa had not been
developed. I am convinced that if those mines had not existed silver
would have been added to gold as a part of the metallic base for currency some time between, let us say, 1898 anc1 1905.
If, however, you take a situation like the present, in which, in the
case of all of the important central banks of the world the gold base
is largely above gold requirements—Germany alone excepted—
and a situation in which there is not an active demand for more credit
and currency on the part of the business community, I do not think
that you get any immediate response through enlargement of the
metallic base, whether it be an enlargement through more gold or
an enlargement through more silver. If you project your mind over
a period of the next 20 years, I should be disposed to think that the
addition of a considerable amount of silver to the metallic base would
have an effect upon prices, because I presume that in the course of
the next 20 years there will be periods in which there will be an active
demand for a very much greater quantity of credit and currency
than now. But the direct effect of the use of silver in bringing about
a trade recovery, in improving conditions in this country and elsewhere next month or in the course of the next 12 months, seems to
me to be comparatively slight, and only brought about through
such effect as it may have on trade with the Orient.
Mr. F I E S I N G E R . Professor, prices of commodities exchanged in
world markets are measured by the value of gold, are they not?
Dr. S P R A G U E . Yes; they are measured by the value of gold; they
are measured by the value of sterling; they are measured by the value
of anything you like to take.
Mr. F I E S I N G E R . But is not the basis, after all, gold, that they are
measured by?
Dr. S P R A G U E . I think I can agree that that is the usual yardstick.
Mr. F I E S I N G E R . Well, would you say, then, if all commodities were
low in price, ar*d the value of gold was high, that there was anything
tb^ matter with gold?




GOLD R E S E R V E A C T

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Dr. S P R A G U E . I should have to look into the question as to what
brought about that low value of commodities, and if I discovered that
it was due to an inability of banks to meet an active demand for
credit, because their gold reserves were low, then I should consider
that gold had been responsible for the low value of commodities.
But I should have to examine each case by itself; and in the particular
case that we have at the present time before us, I simply do not believe
that a considerably greater amount of gold in the reserves of the
central banks of the world during the last 10 years would have made
any appreciable difference in the present value of commodities.
Mr. F I E S I N G E R . Did you read, Professor, the brief that was sent
over to you by Mr. Mclntyre with reference to the plan therein to
make possible profits to industry, farming, and commerce?
Dr. S P R A G U E . I am very sure I must have read it, and I am very
clear that I did, but I should not be in position to discuss the plan
without refreshing my mind. As I recall, it must have been last
August that it came aiong to me.
Mr. F I E S I N G E R . Y O U do not think that there is anything the matter
with gold, then, primarily; that the yardstick has been increased in
value, and all other commodities thereby decreased?
Dr. S P R A G U E . N O . I would say that whatever the yardstick is, it
will be affected by all of the operations that take place, financial and
otherwise; that in so far as there has been a direct influence exerted by
gold, it has come about, as I see it, in this fashion:
As I said before, the French revalued the franc at a point which
undervalued it; which was not an equilibrium rate. The British in
1925 valued the pound at the old parity, which overvalued it relative
to the trading position and the price position of the country. Numbers of other countries went back upon gold before they were in a
strong trading position, borrowing in London and New York in order
to provide themselves with an appropriate gold reserve. Then these
various nations, with their existing burdens of debt and taxation, and
prices not in equilibrium, found themselves in a difficult and uncomfortable situation, some of them tending to lose the gold that they had
acquired, because they had acquired it not as a result of their trading
operations and of a strong trading position, but through the negotiation of loans on the unfounded supposition that merely reestablishing
themselves on the gold standard, however they managed to do it,
would of itself serve to place them in equilibrium with the rest of the
world. That did not happen, and so you had a maldistribution of
gold, not due to a scarcity, taking the world as a whole, but very
definite indications of scarcity in the case of particular countries.
I can illustrate the point in this way: After Britain went off gold,
there was an eagerness on the part of some people in Great Britain, as
well as an eagerness on the part of numbers of people outside, that the
country return to gold speedily, but not necessarily at the old parity.
But there was no evidence at that time to determine what would be
an equilibrium rate for the pound—a rate which it would be quite
within the capacity of the country to maintain without extreme
difficulty, or a rate which would not be seriously disturbing to other
countries and their trading position if it were established. It therefore
seemed the wise course to adopt what may be styled a more or less
neutral policy—to avoid, if possible, extreme fluctuations of the
pound, but to take no action calculated or designed to fix it at a




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particular point until, by trial and error and experience, and the
shaping of events in the rest of the world, it could be determined what
the equilibrium rate might be.
Mr. F I E S I N G E R . You say that the central banks have got sufficient
gold; that there is not a demand for credit. You do not agree,
Professor, with Mr. Winston Churchill when he said that our yardstick had gotten out of shape?
Dr. S P R A G U E . N O . I very seldom agree with Winston Churchill,
I may say.
Mr. D I E S . Mr. Fiesinger, may I ask you a question? It is a little
out of the line of the examination, but it is a very vital question. I
understand that a bill will be submitted to the Banking and Currency Committee involving the question of revaluation or devaluation
of the dollar. At the last session of Congress, on March 20, I introduced a bill, which was referred to this committee, to revalue the dollar. I took it up with the Speaker, and upon looking into the unbroken
precedents we found that this committee had always exercised exclusive jurisdiction over that question, as well as the silver question.
Now, what I want to know is, Under and by what authority—if you
or any other member of this committee knows—is the Banking and
Currency Committee to be permitted to deprive this committee of its
long-honored tradition of exclusive jurisdiction over this subject, and
wiiether or not this committee is going to be disposed to permit that
to be done without some protestation?
The C H A I R M A N . M a y the Chairman interrupt to say that it has
come to his mind this morning that it might be well for us to discuss
this matter of our jurisdiction in executive session immediately after
the witness has completed his testimony; and if the gentlemen of the
committee will be good enough to just wait a moment or two, I
think we can go into that thoroughly and decide what procedure we
should follow.
Y o u may continue, Mr. Feisinger.
Mr. F I E S I N G E R . I think that is all.
Mr. W H I T E . Mr. Chairman, I would like to ask the Doctor on
what assumption he bases his statement that there is no active
demand for credit at this time.
Dr. S P R A G U E . I think there is no active demand for loans that will
pass the most rigid of banking tests, because of uncertainties about
the future, where it is desirable and profitable to expand. Then I
believe that there are a large number of other instances of a possible
demand where the obstacles are twofold. One is that a great many
concerns that were formerly pretty good borrowers are now not so
good. The banks are looking or have been looking for a very high
degree of liquidity, a greater degree of liquidity than was consistent
with the existing situation and a greater degree of liquidity than has
characterized their operations in the past.
Then there are particular areas where the number of bank failures
has been so considerable that it has deprived a good many concerns
of banking facilities as liberal as those which they enjoyed in the
past. But these are banking questions and not monetary questions.
For example, if you take the excess reserves of the member banks
at the present time, they are very large—seven or eight hundred
millions of dollars. It is not because of an inability of the banks to




GOLD R E S E R V E A C T OF

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15

extend more credit, but it is an inability of particular banks to extend
more credit. But if these excess reserves were much greater than
they are, there is no reason to suppose that the excess reserves would
become lodged with the banks that are not now able to lend more,
but rather with the banks that already have excess reserves and, for
one reason or another, do not extend the additional loans that they
might make.
I believe that the insurance system ought to lead to a loosening up
of bank credit, and I was strongly in favor of trying to get the system
going by at least as early as the 1st of October, to remove that impediment to more liberal lending on the part of the banks. Our bank
examiners have been exceedingly restrictive. They have reached the
state of mind where they are very fearful that after they have examined a bank, it shall be discovered that the bank has some frozen
assets that they did not note and there have been bank examiners
from different agencies more or less competing with each other in
discovering slow and doubtful assets. So that you have had a situation in the country in which banks were peculiarly unwilling to grant
loans with a customary degree of freedom.
Mr. W H I T E . Doctor, the trend of prices is a controlling factor in
the matter of banks making loans, is it not?
Dr. S P R A G U E . It is one of the factors, but not the only one. But
if that were the case, there should be much greater freedom in making
loans than before, because a great many prices have risen from the
extreme lows.
Mr. W H I T E . I would like to ask the doctor with reference to
securing a uniform money system throughout the nations of the world,
something comparable to the agreement of the Latin Union: Do
you think it is desirable that we should standardize our unit of primary
money as to fineness and value throughout the world?
Dr. S P R A G U E . I should think that that was a development that
might very reasonably come as an improvement of world monetary
arrangements. But I think it must come after the more difficult
problem of determination of the appropriate rates for the relative
values of different currencies. That is the most difficult problem
from an international point of view, and I confess that I do not believe
that it is possible at the present moment to determine the appropriate
values for the currencies of different countries. I believe that it is
desirable to go through a period of trial and error in which various
countries, avoiding extreme and positive monetary measures, shall
afford sufficient time to let the various currencies reach something
approaching an equilibrium one with the other.
Mr. W H I T E . The idea of stabilizing the currencies of the world
with one value for gold and silver, you do not think is desirable?
Dr. S P R A G U E . I do not think it is feasible at the present moment
to sit around a table and to try to decide whether, measured in the
dollar, the pound shall have a value of five dollars or six and the
French franc a value 6 cents or 7, 5 or 4, and the Argentine peso a
value of 40 or 30 cents, or whatever it may be. That does not seem
to me to be possible until we have gone sufficiently far in world
trade recovery to be able to picture the future a little more clearly
than we now can.
39539—34
2




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Mr. W H I T E . The disparity between the moneys of the different
nations as related to the value of gold and silver is one of the difficulties in carrying on international business?
Dr. S P R A G U E . Undoubtedly.
Mr. W A L D R O N . Doctor, is it not true that the greatest difficulty
with which we have to contend at the present time to provide premanent employment is to provide capital for the industries of the
country, for the business interests of the country? Is not that the
great drawback at the present time?
Dr. S P R A G U E . T O provide capital and to get a situation in which
the industries will want capital.
Mr. W A L D R O N . A S you have stated here, the appropriations that
we have been making for relief, in connection with public works and
in other channels of that kind, are expended after a limited time, and
then the people are out of work again; consequently we were not
getting anywhere that way?
Dr. S P R A G U E . That is what I fear.
Mr. W A L D R O N . What we have got to do is to get something in the
shape of permanent improvement of business, permanent employment.
Dr. S P R A G U E . Right.
Mr. W A L D R O N . Something that will start our business interests
going where they were going before this panic a few years ago.
Otherwise we will just continue to remain in this uncertain state, is
not that so?
Dr. S P R A G U E . That is what I fear.
Mr. W A L D R O N . That has been my position right along, that unless
there is capital provided, and it appears to me it must be provided
by the Ntaional Government, business will not be improved permanently. It seems to me that our great drawback in the greatest
manufacturing district of the country, in the Northeast, around
Philadelphia, is the fact that business interests are unable to get the
capital necessary for them to start their plants, and to bring back
people in employment.
Dr. S P R A G U E . I quite agree with that, if you are prepared to add
one more provision, and that is that those who furnish the goods that
are purchased with this additional capital participate in the financing.
Let us take, for example, such a case as the railways. If there were
to be a very considerable Government expenditure or assistance for
the purpose of rehabilitating and improving the equipment of the
railways, those who will benefit as vendors of the equipment should,
somehow or other, participate in financing the same. I think one
will get a sounder basis of finance by that method than if the Government does the entire financing. But that is merely what seems to
me a detail, though a very important and practical one.
Mr. W A L D R O N . Doctor, there are any number of instances of
sizeable manufacturing plants that are idle today for want of working
capital. They have no mortgages against their property, but they
cannot get the necessary credit from their banks with which to start
those plants going. That is the great difficulty as I see it, particularly in the large industrial centers, such as Philadelphia.
Mr. M U R D O C K . M a y I ask the gentleman, even if capital were
available, with prices as they are today, would they want any loans?
Is not that the problem? In other words, it is not a lack of credit




GOLD RESERVE ACT OF

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17

but, because of commodity prices, they do not want any credit, and
until we bring those prices up they will not ask for credit.
Mr. W A L D R O N . That is not the case from my knowledge of the
situation. We have any number of business houses who are in need
of working capital and who claim that they can use money to advantage. Some of them are quite sizeable concerns and have not
anything against their real estate. Everything is clear, but they
cannot get the money that they need with which to start going.
Mr. M C G U G I N . They claim they need it and they could use it and
make a profit, but they cannot convince the bankers, and the National Banking Department, that they can make a profit, is not that
the case?
Mr. W A L D R O N . I really could not say that.
The C H A I R M A N . Gentlemen, may I suggest we have only 1 0 minutes remaining and three other members of the committee may want
to ask questions. May I ask that you reserve this intracommittee
debate for some other time? I would appreciate it.
Mr. W A L D R O N . That is all, Mr. Chairman. I just wanted to bring
out that one point.
Mr. M U R D O C K : . Doctor, it is not feasible at this time to get away
from a metallic base entirely for our money, is it?
Dr. S P R A G U E . N O . I think a metallic base on the whole exerts a
desirable restraining influence at times. It would have been far
better for this country if our metallic base had been very much less
in 1928 and the years before than in fact it was. We were not compelled to exert a restraining influence on credit or on the wrhole
economic situation that was getting in bad shape. We were not
compelled to do so because the Federal Reserve had a reserve of 70
percent. If its reserve had been 50 percent or under in 1928, we
should have had that very much needed restraining action. We did
not take it for that reason and for the further reason that prices were
not going up rapidly.
I doubt whether you would ever get the desired action under a
managed currency because of that feeling, that you do not want to
hurt business, that obtained in 1298, and which prevented taking
restraining action.
By and large it seems to me that we need a situation in which no
very considerable departures from equilibrium can take place without
some restraining influence being exerted.
Now, a metallic base is not enough, because sometimes it is too big
and sometimes it is too little. You need some management. But
on the whole, I am inclined to think, human nature being as it is,
that it is a desirable safeguard.
Mr. M U R D O C K . Doctor, the addition of silver to our gold base
would have a steadying influence on prices at all times and it would
thereby preclude such a disparity as exists now and has existed for
the last 2 or 3 years, is not that so?
Dr. S P R A G U E . If you look over the period from 1 9 2 0 to 1 9 2 9 , 1 amnot
inclined to agree with that, for the reason that I believe that it would
have meant somewhat larger reserves in the Reserve Bank of New
York and the Bank of France and in one or two other countries, and no
appreciably larger amount in those countries that at that time were




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finding it difficult to maintain their gold base and were resorting to
all sorts of devices, including excessive borrowing, in order to do so.
In other words, I do not believe that any monetary system, pure
and simple, yields stability unless you have foresight and restraint in
the disposition made of credit resources, intelligence and foresight in
the investment of capital at long term, and a readiness to make adjustments in the industries and in the relative prices of different
products, and so on.
The monetary factor is only one of very many factors in the
situation.
Mr. C A R P E N T E R . D O } r ou not think it would simplify the process
a good deal, Doctor, if we turned our thoughts more to a national
system than if we try to reconcile our differences with foreign countries; if we cut loose from those countries and just try to adjust ourselves within ourselves?
Dr. S P R A G U E . I wonder whether you can. After all, we do have
foreign trade, and the value of our currency is in a very large degree
measured by its value relative to other currencies. You will recall
that when the gold-buying policy was started and there were no purchases except of domestic gold, it had no appreciable effect, so far as
one could discover, at any point whatever. It was when we began
to buy foreign gold that it began to be regarded as a somewhat potent
influence and affected foreign exchange rates, and that affected at
least in part the price of certain important exports. The only way
in which 3^011 can influence the situation internally is by monetary
action that will affect the demand for credit and currency within the
country; and in our modern organization of industry the only way,
as I see it, in which purely monetary action can exert an influence on
prices, is through the effect that your monetary action has upon the
demand for credit and currency.
It is along that line that I find myself constantly at odds with people
like Professor Fisher and Dr. Warren. They do not seem to me
to carry through the process of price change. They start and largely
end with money proper, apparently supposing that changes in money
more or less automatically affect the operations of banking, not merely
the supply of credit, but its demand.
Now, I hold very definitely that monetary changes only have a
direct effect upon prices in those occasional periods when there is an
active demand for credit and currency running in excess of the supply
of credit and currency possible under any given monetary arrangement. When your supply is far and away in excess of that demand
for credit and currency, I fail to see how you can expect any immediate
response by a monetary change which merely increases that potential
supply.
Mr. C A R P E N T E R . H O W much of a debt do you think this country
could put upon itself and be able to pay under the present line of
expenditures, and maintain the so-called public credit, national
credit?
Dr. S P R A G U E . H O W far could it increase its debt?
M r . CARPENTER.

Dr.

SPRAGUE.

IS

M r . CARPENTER.




Yes.

that the question?
Yes.

GOLD RESERVE ACT OF

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19

Dr. S P R A G U E . I think it could go very far through the maintenance
of confidence in the monetary and economic policies of the Government.
Let me make this comparison. The British Government's debt is
between 35 and 40 billions of dollars, with a population one third
that of this country. Of course, their local debt is not as great as
our local and our State debt. But I would say that it was quite
within the taxpaying capacity of this country over the years, foi
the United States Government debt to be very much greater than it
now is.
The C H A I R M A N . The chairman has just one question, and I think,
Doctor, you will be able to answer this yes or no. I am merely asking
your opinion. If confidence is shattered by the reflation at this time,
do you think it will be more difficult to borrow the three billions
still needed than it would have been to borrow the entire sum of
our indebtedness without reflation?
D r . SPRAGUE. Y e s , sir.
The C H A I R M A N . I think

Mr. Fiesinger has one question and Mr.
White has one question, and then the chairman is most anxious to
hold a short executive session.
Mr. F I E S I N G E R . I just wanted to ask one further question.
Professor, I have before me a letter from the White House to
Congressman Lam neck, acknowledging receipt of a letter of May 24,
and an enclosed memorandum on the American plan for the control
of gold values. The letter says that the memorandum was sent to
Dr. Sprague. Doctor, you recall that document that was delivered
to you, I believe you said some time in August of last year? I do
not know whether you recall it or not, but that document was asked
for by the President of the United States and was sent to you. It
purports to give a remedy for some of the things that you have spoken
of here this morning as needing a remedy. You say, however, that
this document has now been sent on with your papers to Massachusetts and you have not a very distinct recollection of it. I wonder
if you could give me, or give the committee, rather, if the chairman
will receive it, an answer as to why the proposal therein contained
would not work?
Dr. S P R A G U E . I shall be very glad to do that, sir. But it will
perhaps facilitate matters if you can provide me with another copy.
Mr. F I E S I N G E R . I can provide you with another copy of it here
today, if you wish.
Dr. S P R A G U E . Very good.
The C H A I R M A N . Would you care to submit your answer to that
in writing to the committee, because I doubt if you would have time
to do it now, Doctor.
Dr. S P R A G U E . I think I had better do that.
Mr. F I E S I N G E R . In writing?
Dr. S P R A G U E . Yes. But I do not know just when I will get at
my papers, so if you would furnish me with a copy, it will speed action.
Mr. F I E S I N G E R . I shall be glad to furnish you with a copy.
Mr. W H I T E . Doctor, do you favor discarding the precious metal
base under your managed paper currency system?
Dr. S P R A G U E . Oh, no. I simply insist that a certain amount of
management is necessary under any system, more management than
we have had, probably, in the past; but that it is decidedly helpful,




20

GOLD RESERVE ACT OF

19 3 4

human nature being as it is, that we have a metallic base, and that
it is desirable that over the years that metallic base be adequate; and
that in that connection it may be desirable that some amount of silver
be included in the metallic base of central banks around the world.
The C H A I R M A N . Thank you very much, Doctor. Your testimony
has been most informing to this committee and we assure you of our
appreciation.
The committee is now adjourned.
Dr. S P R A G U E . I understand you will not want me further?
The C H A I R M A N . I think not, Doctor.
Dr. S P R A G U E . Thank you.
(Whereupon the committee adjourned to meet tomorrow, Tuesday,
Jan. 16, 1934, at 10 a.m.)




GOLD EESEEYE ACT OF 1934
TUESDAY,

JANUARY

HOUSE
COMMITTEE

OF

16,

1934

REPRESENTATIVES,

ON C O I N A G E , W E I G H T S , A N D

MEASURES,

Washington, D.C.
The committee met at 10 a.m., Hon. Andrew L. Somers (chairman)
presiding.
The C H A I R M A N . The committee will please come to order.
Gentlemen, this morning we will have the privilege of hearing Mr.
Frank A. Vanderlip, formerly Assistant Secretary of the Treasury, at
one time president of the National City Bank of New Y o r k ; later
president of the New York Clearing House, and at some period later
than that he was chairman of the New York Clearing House.
I know Mr. Yanderlip has given a great many years to the study
of monetary systems, and I am quite sure the information he will
give to us this morning will be greatly appreciated.
Have you a prepared statement you would like to make to the
committee, Mr. Vanderlip?
STATEMENT OF FRANK A. VANDERLIP, NEW YORK, N.Y.
Mr. V A N D E R L I P . M r . Chairman, I would prefer to talk face to face
with you.
B y the action of the President yesterday, I presume we will soon
find ourselves with all the monetary gold of the country in the Treasury of the United States. There may be a little surreptitiously hoarded
still, but substantially the whole stock will be in the Treasury, with
that portion that comes from the Federal Reserve banks represented
b y gold certificates, if the suggestion made by the President is followed.
The subject then becomes a question of what is to be done from
here on. W e are off gold; we propose to stabilize gold so that the
dollar will represent fewer grains than the old standard, but to go
back on a gold standard. I said " o n a gold standard."
Under no circumstances should we go back on the gold standard as
it existed prior to last March. Thirty-four nations have gone off the
goid standard, and there is an important reason.
If I may take a minute, I would like to define what the gold standard is, and what its functions properly are.
Let us imagine the monetary stock of the country as a block of
gold, and you know all the monetary gold in the world would only
be about 31 feet square. That block of gold would bear certain
burdens. There are just two functions it should bear as a gold
standard.
21




22

GOLD RESERVE ACT OF 19 3 4

It is a basis for currency issue. That gives confidence to the currency, a feeling that there is something back of that currency.
As our laws are now set up, it is also to control the amount of
currency.
Taking the Federal Reserve bank notes as an example, they must
have 40 percent reserve. Therefore, if we have a block of gold, we
can erect Federal Reserve bank notes twT> and a half times the size of
that block, but that is the limit.
The first function of a gold standard I would state as being a basis
and a limit to the currency issue.
Then it has another important function. Imagine a pair of balances
in which we put all our imports of goods in one balance and all our
exports in another. They would be somewiiat out of balance.
Then we put in our invisible imports and exports, that is, freights
paid to foreign vessels, tourists' expenditures, interest coming in, and
so on. They are still out of balance.
We can then tend to balance it by including the money that may be
borrowed in a foreign country, which has exactly the same effect as the
movement of goods. It will still be somewhat out of balance.
One way to adjust that balance, which must be adjusted, is the shipment of gold, gold being the one thing that is acceptable in every
market of the world. So there is a second function of the gold standard, to settle foreign trade balances. First, it is used as a base of
paper money and the control over its limit of issue, and, second, for
the settlement of foreign trade balances.
During and since the war, there developed some influences that
upset what had been an orderly working of the gold standard for a
century. There had been interruptions. We went off gold in the
Civil War; England went off gold five times during that century, but
on the whole, it had worked extremely well.
There developed a large amount of liquid capital, that crossed
frontiers, without any reference at all to foreign trade, frightened
capital, the owners of which became concerned about conditions in
the country where they resided, and wanted to remove their wealth
to some other country. There were what we call flights of capital.
There was an astute capital that sought temporary employment
and higher interest rates in some countries. A notable example of
that was here in 1928 and 1929, when there accumulated 2 billion
dollars of bank deposits owned by foreigners, in New York. That
inroad of capital came because there were high interest rates. If
stimulated an expansion of credit, and was a large influence in causing
the grotesque rise of prices that finally resulted in the debacle of 1929.
A monetary gold stock, when we return to a gold standard, must
be guarded against demands by this flow of liquid capital.
That liquid capital has been augmented in the last 3 years by the
English stabilization fund, which is a menace to any other country.
I have no fault to find with England for establishing it. It is distinctly in England's interest.
Here is what happened. England went off the gold basis, and
Parliament appropriated £150,000,000 to be handled by the Bank of
England to stabilize the pound in foreign exchange. It was found
that that w^as insufficient, and Parliament later appropriated 200
million pounds more. That is a billion and three quarters of credit.




GOLD RESERVE ACT OF 19 3 4

23

And remember, there is only a little over $11,000,000,000 of gold in
all the world.
That fund can be thrown across frontiers through the exchange
market, without any regard for foreign trade. It may move in quite
the opposite direction to the direction gold should be moving when
governed by the foreign trade of the country alone.
The whole object of the fund is to manipulate foreign exchanges in
the interest of the pound. The movement is utterly secret; nobody
knows the position of that fund and what it does.
But I regard that movement of capital across the borders as being
as menacing as a flight of military airplanes, and it should be met.
Another form of liquid capital is in the international ownership of
securities. If a foreigner owns a million dollars' worth of American
securities and decides to turn them back on this market, he secures in
24 hours a bank balance which, under the old gold standard, was
convertible into currency, which, in turn, was convertible into gold,
and that movement of capital had just as much influence on the
exchanges and on the international balance of the country as would
the export of goods. A cablegram from a financier could mean
more than a whole fleet of freighters carrying imports or exports.
Now, I would return to a gold standard, but it would be a limited
gold standard, so far as the redemption of currency is concerned.
There is another danger that I should have spoken about first,
and that is the danger of domestic hoarding. We have only had two
important experiences in my time. At least, in 1896, during the
free silver campaign, there was a certain amount of hoarding. And
just a year ago there was a very large amount of hoarding. Some
$600,000,000 of gold was withdrawn, and a new gold standard, a
modernized gold standard, must guard against that.
This is the sort of gold standard wdiich I would advise setting up.
I would first make it a bullion standard, not a coin standard. That is,
I would melt all the coin and never coin any more, and when there
was a redemption of currency, it would be in gold bars, perhaps of a
medium size of $5,000.
Now, the paper money would be redeemable, presumably, in a
definite number of grains of gold, and if there were a commodity
dollar, it would still be redeemable in gold, but in fluctuating credit.
So that any one with currency could demand gold and take it out of
our monetary stock, which is the base for our currency, and through
our currency is the base for our bank deposits.
I might interpolate a thought there. Suppose a country's currency issue was down to the legal limit, that is, that it had just two
and a half times as much currency as it had gold. Bank deposits
must have a currency reserve. Say the reserve has to be 15 percent,
and the bank deposits stood just at that point, at 15 percent of currency reserve.
I want to trace the effect of drawing a million dollars of gold out of
that country. You draw out a million dollars. Back on the gold
basis, you would have to reduce the currency 2% million, and by
reducing the currency 2J4 million you would have reduced the bank
deposits $16,660,000. That is not exactly an accurate picture of our
position, but it is practically so.
The danger of a movement of gold having no relation to trade, a
capital movement of gold, is that it may multiply easily 16 times in




24

GOLD RESERVE ACT OF 19 3 4

its effect upon bank credit, which must be reduced, in order to
reduce bank deposits to come within the limits of the currency as
they would have to be. The withdrawal of a million dollars, as used
in my illustration, forces the calling of loans of $16,000,000.
Now, to go back to what I would propose as a gold standard. It
would be a bullion standard, but currency could be presented for the
redemption of gold only for one purpose, when the gold was wanted
to settle a foreign trade balance, a debit balance, where gold was
needed for export. You could not get it if you wanted to hoard the
gold. A foreign capitalist who shipped securities to this country
and sold them could not invade our monetary base by having gold
liquidity given to those securities.
I would then have a free gold market. I would not condemn us
to being a hermit nation economically at all. We should have a
movement of capital, but that movement of capital could not attack
the monetary base; if it got to a point where they wanted to move
gold out of the country, they would have to move gold out of the
free gold market, rather than out of the monetary base.
As I stated at the "beginning, we will presently find ourselves with
all of the gold in the Treasury of the United States. What is best
to be done with that? M y recommendation would be the formation
of a new arm of the Government, as much a part of the Government
as the Treasury of the United States. I will not call it a central
bank, because it is not a central bank. It will have no capital; it
could never receive any deposits. It lacks those functions of a bank,
but it would perform some of the functions of a central bank.
I would give this new arm of the Government the sole power to
issue currency. I believe the issue of currency is particularly a Government function. I would take the right to issue currency away
from the Federal Reserve banks, and perhaps also from the national
banks. Taking it away from the national banks would not be essential to the scheme, but I think it would be desirable, on the whole,
and unify our money by having one type of Government money.
The functions of this institution would be very few. It would
receive no deposits. It would rediscount for Federal Reserve banks
self-liquidating commercial paper which the Federal Reserve banks
had, in turn, rediscounted for their member banks.
I am taking away from the Federal Reserve banks the right of
currency issue, and they must be supplied with some recourse if they
are to have the obligation of always rediscounting for member banks.
I would have them able always to go to this new institution and
re-rediscount that paper.
I would permit this institution to deal in the open gold market in
gold. I would abolish the free coinage of gold; that is, I would not
obligate the Government, as we have before to buy and sell gold at
a fixed price.
The Government would, through this institution, buy and sell
gold, but would not be forced to buy gold, as it must under free coinage.
In addition to rediscounting lor Federal Reserve banks, it would
buy and sell gold, and it should conduct open-market operations in
short-term Treasury paper, never in long-term bonds. I would like
to see it permitted to deal in short-term Treasury paper not having
more than 6 months to run; and also conduct open-market operations




GOLD RESERVE ACT OF

19 3 4

25

in bank acceptances, having the names of two banks, and to deal in
foreign exchange.
I would put the legal minimum reserve of gold back of this institution's notes.
The institution should be under the compulsion of publishing weekly
the ratio of gold reserve to its total liabilities, but with no dead line
of reserve below which it could not go. That corresponds with the
Bank of England and the Bank of France, and I think nearly all of
the central banks.
These would be the instruments, so far as manipulative operations
may go, to influence the price level, except the instrument of varying
the gold content of the dollar, which would not be embodied in this
institution.
However, if the Congress should ever decide upon the commodity
dollar, with a varying gold content, it would fit into this scheme
perfectly. Even a symmetalhe currency, composed of part gold and
part silver would fit into it. It seems to me designed either for a
definite gold standard of a fixed number of grains, or for a varying
gold standard, or for a gold and siJver standard.
Very briefly, Mr. Chairman, that is what I would have to say
about a return to the gold standard, and about a Government arm
which should issue currency, which should take over the open market
functions of the Federal Reserve system, and which should rediscount
paper for the Federal Reserve banks.
I have some very distinct ideas about things that should be done,
and probably would have to he done to the banking system at large.
I do not know whether you gentlemen want me to go into that, or
confine myself to the gold standard, to the stabilization of the dollar,
and so forth.
The C H A I R M A N . I think, Mr. Vanderlip, in view of the interest
that the country has in the gold standard at the present time, it
might be better to confine ourselves to that definite subject.
Mr. V A N D E R L I P . Very good, sir.
The C H A I R M A N . The chairman usually reserves his questions until
the last, but as he may be called away before the completion of
questions of other members, if you will permit me I would like to
ask one or two questions now.
You spoke about the equalization fund of Great Britain, and
referred to it as being like an invading army. That can only operate
against a stabilized gold dollar, can it not?
Mr. V A N D E R L I P . Oh, no, sir; that can operate against the value
of our dollars measured in pounds or francs, or kronen, or what you
will.
The C H A I R M A N . I do not quite understand how it could. For
instance, with the dollar changing from day to day, and with the
tendency to drop, would you make it undersirable on the part of the
British Government, for instance, to attempt to stabilize that dollar
when it was free to drop for a while?
Mr. V A N D E R L I P . The Bank of England finds itself possessed of this
great fund. It owns pounds. In the foreign exchange market they
can buy or sell dollars, and they can sell them short. That is, they
can sell what we cab' spot dollars, dollars that become available in the
bank deposits here at once, and against that, could buy a future to
make good those dollars, which would have the effect in the exchange




26

GOLD R E S E R V E A C T

OF

19 3 4

market of depressing our dollars; or it can buy in the exchange market
itself, increasing the demand for dollars, and advancing them. They
can manipulate the exchanges of every country, up or down.
The C H A I R M A N . They did operate against the American dollar
wiien we were on the gold standard and ceased to operate when they
left gold?
Mr. V A N D E R L I P . It is operating very effectively now.
The C H A I R M A N . I S there any report that you have that indicates
that the British Government has been buving American dollars
lately?
Mr. V A N D E R L I P . There never has been the slightest whisper of a
report. The English economists and banks talk about the mystery
of President Roosevelt's monetary policy; but the mystery of the
British equalization fund is complete.
The C H A I R M A N . The only way by which we can meet this equalization fund is by the creation of a similar fund in this country?
Mr. V A N D E R L I P . N O ; I have been trying to explain another w^ay,
the setting up of a gold standard where such a fund could only
operate against a free gold market, and not against a monetary system. Such a fund would always influence the exchange market, but
it could not move gold. Of course, it cannot at the moment move
gold with us, because we will not permit the gold to be moved. We
could meet that, if we are not quickly prepared to cope with it, through
a new gold standard. We could meet this fund at once with a
2-billion-dollar stabilization fund. That seems to be the administration's opinion, as it is suggested that the gold which is free from
the devaluation of the dollar be used for such a fund.
The C H A I R M A N . I think that is what I asked, was it not possible
to create a fund to meet that?
Mr. V A N D E R L I P . Yes; and that is highly desirable. It is as desirable to have that as it is to have protection for your country if you
are going to be invaded.
The C H A I R M A N . At the present time it is the only way of meeting
the equalization fund, until such time as you create a system such as
you have described?
Mr. V A N D E R L I P . We have met it in a most feeble little way, with
a few gold purchases we have made, and there has been a little
resistance to it.
Mr. T H U R S T O N . Y O U make reference to the effect upon our security values, and incidentally the stock exchange, of permitting large
quantities of securities to be sold, and that if there is a sufficient
number of these throughout the world you will eliminate the value
of our securities. Would you suggest how the amount or quantity
of stocks or bonds should be limited so that the sale could be spread
over a period rather than to be at one time?
M r . VANDERLIP.

N O , sir.

Mr. T H U R S T O N . H O W would you prevent that?
Mr. V A N D E R L I P . I would not prevent the international intercourse
in securities. I would permit a foreigner to own our securities, as
we own foreign securities. But when those securities cross the
frontier, they would not have any command over the monetary gold
stock.
If an English investor sold a million dollars' worth of securities in
New York, he would have a New York bank balance. He could turn




GOLD R E S E R V E A C T

OF

19 3 4

27

that into currency, but he could not get gold for that currency.
You could get gold for currency only when the gold was needed to
meet an international trade balance. You could not get it if it was
asked for to be hoarded, or if it was to be shipped in answer to a
capital movement.
Mr. T H U R S T O N . In other words, we would have a permanent embargo upon the exportation of gold?
Mr. V A N D E R L I P . So far as the Government gold stock is concerned,
and we would have a free gold market into which gold could flow from
anywhere, wherever purchased.
Mr. T H U R S T O N . Y O U made reference to the creation of another
Government entity, which probably would be called a central bank?
Mr. V A N D E R L I P . I do not think it ought to be called a central bank,
because it is not a bank, in the sense that it has no capital and could
never receive any deposits.
Mr. T H U R S T O N . It would be the creation of another unit in the
Treasury?
M r . VANDERLIP.

Yes.

Mr. T H U R S T O N . If such an instrumentality was provided, would it
be necessary to continue the Federal Reserve System?
Mr. V A N D E R L I P . Oh, yes. I should hesitate very much to see a
Government instrumentality reaching down into the banking system
where it controlled, in a large sense, the granting of individual credits.
This new instrumentality would rediscount this paper for Federal
Reserve banks, but the paper would first have to have been accepted
by a Federal Reserve bank and endorsed by it, so that the capital of
the Federal Reserve bank, which is the property of the member banks,
would have to be the stake of that endorsement. I would not have the
Government taking really any risks at all, or having any direct interest
over the granting of the individual credits.
If this is the appropriate moment to do it, I would like to make a
suggestion as to the management of such an authority or institution.
There is the fear, of course, on one side, of too great control or meddling
from political quarters. I think there would justly be as much fear
of meddling by organized banking interests. Therefore, there should
be set up, as far as is humanly possible, an independent, intelligent
management of this organization that is protected both from political
meddling and from organized banking meddling influence.
Mr. T H U R S T O N . Mr. Vanderlip, in the last few years political
meddling has not done any more injury than banking meddling,
has it?
Mr. V A N D E R L I P . I am inclined to think much less, sir. However,
it is well to meet both of those things as far as we can. I have
reflected on them. Of course, I do not pretend to have the answer,
but I would throw out a suggestion. Let us have seven trustees.
The appointment of those must lie with the President of the United
States, by and with the consent of the Senate. Perhaps in this
peculiar case I would also ask that it be the advice and consent of
the Banking and Currency Committee of the House. That would
be a new idea, but it would give the House direct voice, or at least
veto, regarding the management of such an organization.
Now, there should be insurance that there be at least some experienced minds in the management of this organization, and I have
thought of this possibility: That 3 out of the 7 should be appointed




28

GOLD RESERVE ACT OF

19 3 4

from a list of nominees made in concert by the 12 Federal Reserve
bank governors. That would insure 3 of the 7 men being what the
banking community regarded as sound, experienced men. I certainly
would provide that in every case such a trustee had to divest himself of financial interests, as the Secretary of the Treasury must
now divest himself of any entangling financial alliances or corporate
directorships.
Mr. F I E S I N G E R . Mr. Vanderlip, why did you say that this new
institution should not deal in anything but short-term bonds?
Mr. V A N D E R L I P . I regard that as very important. This institution ought not to finance the Government. If the Government could
turn its long-term bonds in to it and get currency in return, and if
the Government could influence—as of course it could—the management, there would be no limit to the amount of currency that might
be issued. Of course, you may answer that under this scheme there
would be no limit to the short-term notes that might be issued and
reissued and the bank or organization would have issued its circulating money against these short-term issues. The answer to that is,
in the first place, that the Government is not likely to go crazy. I
have not the fears about inflation to infinity that many people have.
I am afraid of printing-press money inflation. It is a most dangerous
road to start on. But the opponents of it always quote Germany
and the French assignat as illustrating the certainty that if you start
on that road you go to financial damnation. They seem to forget
that we fought the Civil War with printing-press money, and we did
not let it run away with us, and with sacrifice and hardship we very
promptly returned to a gold basis and resumed specie payment.
I do not believe the Congress of the United States or the people of
the United States are as featherheaded as to go into unlimited currency inflation at all. I am not afraid of it, and I do not believe that
through this organization there would be a constant creation of 6
months' Treasury paper having constantly to be renewed, so that
you would get an endless inflation of the currency. In any event,
you would have a boa^rd of trustees—of course they could be removed
from office; I. do not suppose you could give them a term like a judge;
you could, but presumably they could be removed from office—but
in any event you would have a board of trustees of experience, of
understanding of the current situation, and thay would be a considerable safeguard even as against an administration that distinctly
wanted to inflate. This authority or organization would never be
compelled—certainly should never be compelled—to buy short-term
notes. They could take them if they wanted to, or need not if they
decided not to. They could operate in the open market. That is
particularly where the handling of this short-term paper would be
effective.
Now, if I were going to set up a theoretically perfect organization,
I would exclude the Treasury paper. I think that is politically impossible and probably undesirable practically.
Mr. F I E S I N G E R . Y O U are sure you would have to have liquidity of
its funds?
Mr. V A N D E R L I P . The Government of the United States has no
right to demand gold liquidity for its obligations, if that gold liquidity
attacks your monetary base, and through that your whole currency
structure, and through that you whole credit structure.




GOLD R E S E R V E A C T

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29

Mr. F I E S I N G E R . N O W , Mr. Vanderlip, is there a difference in the
interest of the nations in price levels, that is, between the European
nations and the United States?
Mr. V A N D E R L I P . A difference in the interest? I do not quite
understand you, sir.
Mr. F I E S I N G E R . I S there a difference in interest in price levels?
Are the European nations interested in a lower price level than the
United States?
Mr. V A N D E R L I P . Oh, that depends. England is interested in a
higher price level. A nation that has too great a debt structure,
created at a higher price level, to be bearable at an existing lowrer
price level, is vitally interested in raising that price level.
Mr. F I E S I N G E R . I am speaking about the United States. You state
that they are interested in a higher price level, which I concede; but
are they interested in as high a price level as the United States?
Mr. V A N D E R L I P . Not in a price level that would advance as much
as we seem to desire the advance here. But our prices have fallen
lower.
Mr. F I E S I N G E R . N O W , then, as to this stabilization fund: Do they
not use that to gain a price level that is to their interest, and which
may be disastrous to the United States?
Mr. V A N D E R L I P . England unquestionably used that stabilization
fund to depreciate the pound, so that her foreign trade, which is vital
to her life, would be stimulated. Now, during the process of reducing
the value of a country's currency, there is great stimulation to its
foreign trade. After it has once stabilized on a lower level, and all
prices and wages have been adjusted to that lower level, there is no
advantage at all. But during the whole process of adjustment there
is a great advantage. We have seen it reflected in the large increase
in our exports in the last 3 months, and we will see that we are competing successfully with England in markets which she did command
up to the time our devaluation began—markets perhaps that she had
taken away from us because of her devaluation that w^as going on.
Mr. F I E S I N G E R . Y O U have not yet given us an opinion as to whether
or not England is interested in a lower price level than we have to have
in the United States to maintain our wealth structure.
Mr. V A N D E R L I P . I think England desires a higher price level.
Mr. F I E S I N G E R . Than we do?
Mr. V A N D E R L I P . A higher price level than she has at present, I
think would be the answer, rather than a higher price level than we
have. She desires, undoubtedly, a lower ratio of the pound to the
dollar than at present exists, or than was the old standard relationship.
Mr. F I E S I N G E R . Well, if she could get a higher price level, and yet
lower than our price level, she could command the markets of the
world, could she not?
M r . VANDERLIP.

Yes,

sir.

Mr. F I E S I N G E R . And she has operated that stabilization fund to
accomplish that object, has she not?
Mr. V A N D E R L I P . Absolutely; manipulated the exchanges—all exchanges.
Mr. F I E S I N G E R . Exactly. Now, are commodities sold in international markets measured by gold?




30

GOLD R E S E R V E A C T

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Mr. V A N D E R L I P . That depends somewhat on the market. They
are, in the last analysis, all measured by gold; that is to say, you can
harmonize the prices of an international commodity in all its markets
through that common denominator of gold.
Mr. F I E S I N G E R . N O W , then, if that is so, why should not the
United States control the value of gold, in the interest of its price
level, or the price level that it should have in order to sustain its
wealth structure?
Mr. V A N D E R L I P . The price level and the value of gold are just two
ends of the same teeter. You can say that your price level has gone
up or you can say that the value of gold has gone down. They are a
part of the same movement.
Mr. F I E S I N G E R . Gold value in gold-standard countries is the price
level, is it not—the price level of commodities?
Mr. V A N D E R L I P . Yes; the price level of commodities is the gold
value. But that gold value can fluctuate, and as it fluctuates the
price level will move.
Mr. F I E S I N G E R . N O W , then, if that is so, in order for the United
States to control its destiny, it ought to control the value of gold,
should it not?
Mr. V A N D E R L I P . It ought to have a market here that sets the
world's value of gold, and the Government ought to have the power
to buy and sell in that market; and that is what I have provided.
Mr. F I E S I N G E R . Could the value of gold be controlled by the placing
of silver in our monetary reserves in competition with gold, in order
that we might control the value of gold and thereby control the price
level that we need to sustain our wealth structure?
Mr. V A N D E R L I P . N O ; the value of gold could not be controlled by
that action, but it would be influenced.
Mr. F I E S I N G E R . It would be vitally influenced, would it not?
M r . VANDERLIP.

Yes,

sir.

Mr. F I E S I N G E R . Then w^hy not use silver in competition with gold
to influence, if not control, gold, and thereby take the thing out of the
manipulation that is possible, or that you fear, and that we all fear—
political influence and banking influence?
Mr. V A N D E R L I P . I would rather use the word " cooperation" than
"competition" in that relation. If through symmetallism
Mr. F I E S I N G E R (interposing). I am not talking about symetallism.
I am talking about placing silver in our reserves in competition with
gold.
Mr. V A N D E R L I P . Merely in the bank reserves?
Mr. F I E S I N G E R . At the market price of silver. I would not put
any fixed ratio on it, but at the market price of silver.
Mr. V A N D E R L I P . Put it into the bank reserves, you mean?
Mr. F I E S I N G E R . Put it into the bank reserves at the market price
of silver, or the gold price of silver, in order that we might better
control the value of gold and thereby control the price level.
Mr. V A N D E R L I P . We have now segregated all gold, taking it out
of the banking reserves and having it represented there by a paper
currency. To put silver into the bank vaults as a part of their
reserve, but having no gold actually there in the bank vaults, would
be a little curious. I think wThat has been suggested is that the
reserves of central banks might contain a proportion of silver.




GOLD R E S E R V E A C T

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Mr. F I E S I N G E R . Well, the proportion of silver, unless you used it
definitely to control the value of gold, would not be any good. Is
not that what we are doing now?
Mr. V A N D E R L I P . Y O U could not control the value of gold. You
would make a less demand for gold.
Mr. F I E S I N G E R . That is the point.
Mr. V A N D E R L I P . By substituting something for the gold.
Mr. F I E S I N G E R . If you made a less demand for gold, Mr. Vanderlip, then there would come an increase in commodity prices that are
exchanged in international markets?
M r . VANDERLIP.

Yes,

sir.

Mr. F I E S I N G E R . N O W , then, if that is so, why is not that desirable
in order that we may sell our products of which we produce an exportable surplus at higher prices in international markets and get the
advantage for the producers of prime commodities in the United
States? And when I say "prime commodities," I mean wheat and
cotton and copper and those prime commodities that are sold in international markets. Is not the trouble in the United States largely the
farm problem, and that we have had to sell our farm products in
international markets below the cost of production, and that the
sale of those products in international markets reflects back upon the
prices in the United States, and thereby breaks down the farm
prices below the cost of production?
Mr. V A N D E R L I P . Unquestionably an important part of our trouble
is the agricultural problem. This depression is not as simple at that
however. That is not the whole thing.
Mr. F I E S I N G E R . That is a large factor, though?
Mr. V A N D E R L I P : If I were going to name one thing—and it would
not at all be a comprehensive answer to the causes of the depression—
it is what has been a world-wide misconceptoin of the possibility of
liquidity. Now, liquidity means ability to turn goods into cash or
wealth into cash. We thought bank deposits were liquid, but permitted 75 percent of the bank deposits to be devoted to long-term
capital purposes, where the loans had in them no self-liquidating
quality. It was an illusion. It was a fallacy. Banker and depositor
alike believed that those deposits were liquid. The banker was not a
rascal. He was ignorant of the science of banking, and devoted
demand deposits to long-term capital uses. So that misconception
in the banking world is the chief cause why 10,000 banks failed in a
decade. Nations went off the gold standard through the misconception that all forms of property might be converted into currency;
that the currency might be a proper demand on the gold; that capital
movements having no relation to trade movements at all might
become a demand on gold; that is, that gold liquidity was given to
capital movements and to any property that could be turned into
currency. Now, that is a misconception. You cannot do it. You
are attempting the impossible; and it was the attempt of the impossible
that has put 34 nations off gold.
Mr. F I E S I N G E R . Mr. Vanderlip, I am not going to take up any
more of your time now, except to ask you one more question: Were
not the bank failures due to a fall in the price level and a fall in prime
commodities that lowered those commodities below the cost of production? Was not that the prime cause?
39539—34
3




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Mr. V A N D E R L I P . N O , sir; by no manner of means. It was a contributing cause. There were numerous causes. There was blank
mismanagement in some cases; there was dishonesty in some cases.
Those are small. But the great underlying thing was tying up in
capital uses demand deposits. When the banks put three quarters
of their assets into capital purposes, they made a fatal blunder.
Mr. F I E S I N G E R . Based upon the price level then existing, it was
not a blunder, was it?
Mr. V A N D E R L I P . Let us see what happened. One half of those
were in real-estate mortgages and in the actual ownership of Government, State, municipal, or corporate bonds. Now, there is no selfliquidating character in that at all. All 3^011 can do is pass it on to
some other investor. If investors become scarce, the price falls. If
investors become very scarce, there is a debacle in prices. Well,
investors became so scarce that there were times when there was no
bid for a bond of first-class character. Where is the liquidity of a
bank deposit that has been so invested? We have got to separate
commercial banking from investment banking—really separate it; no
show of it—really separate it, and have one class of banks that ill
deal only in commercial paper, that will pay their deposits on the
nail or close.
If they dealt only in rediscountable commercial paper, they would
be unassailable. They could always rediscount at the Federal
Reserve, and the Federal Reserve, according to the suggestions I have
been making this morning, could in turn rediscount at the Government organization, and your commercial banking situation would be
unassailable.
Now, you will have to set up investment banks, and those banks
should receive deposits. But the deposits should be made with the
depositor's eyes open as to what use is to be made of it. Those
deposits will be devoted to capital purposes, and when you invest
money in a capital purpose, it is not necessarily liquid. It is an
investment. There is some permanence about it. You should not
be able to invest in a capital purpose today and treat that as a bank
account that you could check on, that you could turn into money in
24 hours, at any time. That was the theory we operated under. It
is the same misconception about the possibilities of liquidity that has
broken down the gold standard and broken down our banking system.
Mr. F I E S I N G E R . Just one more question, Mr. Vanderlip. You
read the literature of the committee for the Nation?
Mr. V A N D E R L I P . Some of it. It is pretty voluminous, and I have
not read it all.
Mr. F I E S I N G E R . At any rate, you remember their statement that
85 percent of the banks failed because of a lowering of the price level,
and about 15 percent due to mismanagement and corruption?
Mr. V A N D E R L I P . Well, I would not agree with the statement.
Mr. F I E S I N G E R . Y O U would not agree with that statement?
M r . VANDERLIP.

NO.

Mr. F I E S I N G E R . Y O U do not think that the fall of the price level to
where it has been below the cost of production destroyed any considerable number of banks in the United States?
Mr. V A N D E R L I P . N O , sir. It was an influence. It made a more
difficult banking situation.
Mr. E L T S E . More of an effect than a cause?




GOLD R E S E R V E

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33

Mr. V A N D E R L I P . N O ; it was a cause. If a bank's collateral declines
in value, its management is put in a more difficult position. But that
decline in value was not so rapid but what a bank, in the long run,
would have readjusted its loans all the time, and the cost would have
come on the owner of the grain rather than on the banker.
Mr. F I E S I N G E R . H O W many banks have failed in the United States
in the last 5 years?
Mr. V A N D E R L I P . Ten thousand failed in the 1 0 years from 1 9 2 0
to 1 9 2 9 .
Mr. F I E S I N G E R . What proportion of the 10,000 banks, Mr. Vanderlip, in your opinion, would have failed if we had continued that price
level that we had in 1 9 2 9 ?
Mr. V A N D E R L I P . Y O U cannot really put that supposition, because
the real trouble was the lack of liquidity in the investments. If
there had been a movement to withdraw and a forced sale of the
bank's investments, you could not have maintained a price level.
You are speaking, of course, chiefly of the commodity price level.
Mr. F I E S I N G E R . Would there have been a disposition to withdraw
if the price level had been kept up in 1929? Was it not a fact that
there was a falling of the price level to the extent that the people
who had deposits in banks got scared?
Mr. V A N D E R L I P . The price level had not begun to fall in 1 9 2 9 — t h e
general commodity price level.
Mr. F I E S I N G E R . Y O U say it had not begun to fall in 1 9 2 9 ?
M r . VANDERLIP.

N O , sir.

Mr. F I E S I N G E R . Have you a chart on that?
Mr. V A N D E R L I P . I think I have.
Mr. F I E S I N G E R . D O you remember the days of profitless prosperity
that commenced about 1 9 2 7 ?
Mr. V A N D E R L I P . Yes, sir. Commodities did not go up, but they
had been pretty fairly level. N o ; they had not, either. I guess you
are right.
Mr. F I E S I N G E R . There was a fall in the price level?
Mr. V A N D E R L I P . Yes; there was a fall.
Mr. F I E S I N G E R . Have you seen my bill, H . R . 1577, Mr. Vanderlip?
Mr. V A N D E R L I P . I regret to say I have not.
Mr. F I E S I N G E R . I sent it to you; but you have not read it?
Mr. V A N D E R L I P . I have not.
Mr. F I E S I N G E R . Would you read it and give me your opinion
about it?
Mr. V A N D E R L I P . I will be glad to do so.
Mr. F I E S I N G E R . I would like to pursue this investigation very
much further, but on account of the other members of the committee
desiring to ask questions, I will give way now to the other members.
Mr. D I E S . Mr. Vanderlip, I would like to ask you a few questions
in connection with what the gentleman from Ohio said about the
price level. In your opinion, is the price level materially affected by
the quantity of money or the quantity of gold in the country, or
rather by other factors such as production, supply and demand,
export trade, and things of that sort?
Mr. V A N D E R L I P . There are many elements that enter into prices.
I do not believe any expert knows them all or could weigh their
relative importance.




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GOLD RESERVE ACT OF

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Mr. D I E S . But the point is, Do you believe that through the
quantity of money issued by Government you can materially control
or stabilize the price level?
Mr. V A N D E R L I P . Undoubtedly you can control or change a price
level by the quantity of money. Now, I do not believe that you can
get a mathematical correspondence or a prompt relationship. Obviously, if you produce enough money, you will so depreciate your
yardstick that it will measure more yards. That is all. The prices
will be higher.
Mr. D I E S . Well, relatively speaking, inflation, or the depreciation
of the country's currency, is merely beneficial insofar as it enables
the better classes to discharge their obligations; is not that a fact?
Mr. V A N D E R L I P . Relatively speaking; yes.
Mr. D I E S . Yet it does not benefit you and me in the exchange of
commodities between us. It only benefits me to the extent that I
owe you an obligation, either in taxes or in mortgages or any fixed
charge, and that fixed charge is scaled down through the depreciation
of the currency, enabling me to discharge that obligation with the
lower prices that I am receiving?
Mr. V A N D E R L I P . There is an important psychological effect of
inflation. With rising prices enterprises are stimulated.
Mr. D I E S . Surely; because of the fact that when the currency is
depreciated, say for instance when the United States depreciates its
currency 50 percent, that means, in effect, that foreign nations are
paying 50 percent less for our commodities than otherwise?
M r . VANDERLIP.
Mr. D I E S . And

Y e s , sir.

the reason we are selling our commodities for 5 0
percent less is because industry is paying 50 percent less for wages,
50 percent less for all fixed charges, such as bonds, taxes, and so on
and so forth; and so the effect of it is that foreign trade is stimulated
for the time being, due to the fact that nations can come into our
market profitably and to their advantage and purchase the things
that we have to sell?
Mr. V A N D E R L I P . Yes; but domestic business will be stimulated
also by a rising price level.
Mr. D I E S . In other words, when nations or countries become
heavily involved in debt, such as has been the experience for many
hundreds of years in practically every nation, there have been periods,
going back as far as Rome, when on account of the wars she waged
she became so heavily in debt that she was compelled to scale down
her indebtedness, and she did so by taking the Roman standard of
currency and reducing its content. She first reduced it 50 percent,
and she then reduced it as much as 90 percent, to enable her citizens
to discharge that indebtedness which meant bankruptcy to the nation. Now, every nation has had to resort to that. France, England, Italy, Germany, practically all of the nations have been compelled to resort to inflation—not as a desirable thing; not as what
they wanted to do, but rather as a necessity, because they were so
overwhelmingly involved in debt and staggering under such a tre
mendous burden that the nation could not pay out, and they had
therefore to scale down the debt. Is not that true?
Mr. V A N D E R L I P . That is true.
Mr. D I E S . N O W I want to ask you this: You believe that the
quantity of gold has a direct relation to the price level : is that a fact?




GOLD RESERVE ACT OF

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35

Mr. V A N D E R L I P . It has a direct relation; not a mathematical
relation——
Mr. D I E S . I understand.
Mr. V A N D E R L I P . Where, if you change the gold content of the
dollar, you will immediately see, by some price level, a corresponding
mathematical change in prices. That will not happen.
Mr. D I E S . In other words, the quantity of money does not necessarily mean that all commodities will rise in the same proportion.
Some may not rise at all.
Mr. V A N D E R L I P . Certainly; that is true.
Mr. D I E S . But others may rise very high, and others only moderately. Now, the point I want to ask you about is this: As I understand your views on this subject, you think the Government ought to
maintain a metallic base which ought not to be subject to withdrawal
upon the part of foreign nations or speculators?
M r . VANDERLIP.
Mr. D I E S . That

Y e s , sir.

M r . VANDERLIP.

Y e s , sir.

it ought to be under the control of the United
States Government?
Mr. D I E S . T O serve as the foundation or the base of our currency
and credit system?
M r . VANDERLIP. Y e s , sir.
Mr. D I E S . N O W , in your

opinion, in view of the fact that during
the past 13 years, with the exception of last year, the production of
gold has steadily fallen off at approximately the rate of 13 percent a
year, whereas the volume of business increases normally 3/4 percent
a year, and in view of the unequal distribution of that gold, to such
an extent that only 3 nations control approximately 85 or 90 percent of the gold supply of the world, do you think it advisable, in
view of the tremendous commercial activity of the world and our
present civilization, to broaden our metallic base by adding to it
silver? Do you think that advisable?
Mr. V A N D E R L I P . I should not be opposed to it. I would rather
hesitate at the present moment in bringing that into a discussion if
I could avoid it, because I believe those things that I have been laying out are essentially important, and are primary to the use of any
metal.
Mr. D I E S . But the point is—and it is a vital question; of course
it goes to the very heart of this problem—if, as a matter of fact, our
metallic base is insufficient, then notwithstanding any expedient we
may adopt here, though it may serve for the time being to stimulate
business and to furnish the business world with sufficient money and
credit, eventually we will come back to the same proposition, the insufficiency or the inadequacy of our metallic base. Now, the point I
want to make is this, and I want to ask you a question predicated
upon this observation: It has always been urged that the objection
to bimetallism is the Gresham law and the ability of one nation to
maintain a fixed ratio between the two metals; but under your theory,
and under the President's plan, which is now embraced in a bill which
will probably be submitted to this Committee, unless we are deprived
of it through some sort of maneuvering—under that bill the President proposes to conscript, you might say, all of the gold now in the
possession of the Federal Reserve System, place it in the Treasury,
and prohibit it from being withdrawn by speculators from abroad




36

GOLD R E S E R V E A C T

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and by nations who want to build up artificially their supply of gold.
Now, under that theory, which I understand you to approve—you
approve that, as I understand your testimony?
Mr. V A N D E R L I P . I certainly approve taking over the gold; yes, sir.
Mr. D I E S . All right. Now, under that theory, in addition to the
$4,500,000,000, approximately, of gold owned by the United States,
why not add 2 or 3 billion dollars of silver? Of course, the Gresham
law could not apply, because certainly, under that law, since they
could not draw out gold, they could not draw out silver, and we
would not be bothered with the problem we had during the 80 years
that we had silver.
Upon several occasions we had the problem without gold being
taken away from us or silver being taken away from us. Now, under
the plan which the President incorporates in his bill, why could we
not broaden the base by adding a sufficient quantitv of silver to the
gold?
Mr. V A N D E R L I P . It is not quite as simple as you state it. As you
see, with the gold embargo nobody can get the gold anyway. I
believe, too, that we must return to the gold standard where there is
redeemability of the currency in gold. However, if my recommendation is followed, it will be for the limited purpose of supplying gold
with which to pay the foreign trade balance. However, there must
be a redeemability basis between gold and the currency. Under your
plan there would be no redeemability, only insofar as
Mr. D I E S (interposing). Would there be complete redeemability
under your plan?
Mr. V A N D E R L I P . There would not be redeemability under any circumstances whatever. But, if the gold is wanted to settle foreign
trade balances, it would be available.
Mr. D I E S . D O you mean that even as to the gold held by the
Treasury?
Mr. V A N D E R L I P . Yes; for the pupose of withdrawing gold to pay
legitimate foreign trade balances. That is a primary function of the
gold standard.
Mr, D I E S . Y O U mean, in other words, a limited redeemability,
but not a general redeemability.
Mr. V A N D E R L I P . Yes; a very strictly limited redeemability. I
would have no objection to adding a certain amount of silver to the
gold base. It is true I believe that the total production demand of
the world cannot increase faster than gold increases. That is, that
would he the case if gold were the monetary base of the whole world.
I think that would he an economic law. I think that a more rapid
increase of the base than 3/2 percent a year, which has "been about the
increase of gold stocks, would be desirable. I think that a definite
increase that you could put down at $1,000,000,000, or an increase
that would be in relation to the volume of business, would be desirable.
I would see no serious objection to the introduction of an amount of
silver along with a larger amount of gold as representing the redeemability of the dollar. Then the dollar would be redeemable in a
definite number of grains of gold plus a definite number of grains of
silver, which would be symetallism.
That is not altogether a modern idea. Marshall, the great classical English economist, first published it in 1886, but it has never
been tried. It would broaden the base without laying us open to




GOLD R E S E R V E A C T OF

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37

receiving the whole silver stocks of the world so far as the owners of
the silver might choose to send it to us. I have tried to avoid the
silver subject. It is a very controversial one. There are some very
important things to be done first; but the plan I have laid out would
work equally well with the dollar redeemable in a definite number of
grains of gold and with the dollar redeemable in an indefinite number,
under the commodity dollar theory.
Mr. D I E S . D O you think that commercial banks should be competed to maintain liquidity at all times?
M r . VANDERLIP.

Mr.

DIES.

Yes.

In order to meet the demands of depositors?

M r . VANDERLIP.

Yes.

M r . VANDERLIP.

Yes.

Mr. D I E S . That would make it necessary to separate commercial
banking from investment banking.
Mr. D I E S . Could private banks, independently of governmental
agencies, supply sufficient long-term credit to take care of the investment needs of the United States?
Mr. V A N D E R L I P . Not on the theory that you must have credit
that will permit you to turn any investment into currency overnight.
The investment must have the quality of permanence. It must not
be a speculation, but a real investment. It does not mean something on which money is to be borrowed at any time for any purpose.
I have in mind long-term investments. The other kind is not an
investment at all, but is a speculation.
Mr. D I E S . D O you think that, if the Government should refrain
from stepping into the field of long-term investments, except in a
financial emergency where we are compelled to do it during a crisis,
private business would furnish sufficient long-term investments to
meet the needs of our people?
Mr. V A N D E R L I P . Yes. Is there any doubt that there will be new
investments enough to absorb the fresh savings? There can be no
possible doubt of that.
Mr. D I E S . Y O U have read the President's message, have you not?
Mr. V A N D E R L I P . I have.
Mr. D I E S . D O you approve his plan?
Mr. V A N D E R L I P . Thoroughly.
Mr. D I E S . Y O U think that it is a wise and sound plan?
Mr. V A N D E R L I P . Yes. It seems to me that there is much less
mystery about what the President is doing than the opponents of his
policy have indicated. If I understand at all what he is doing, and
I have not the slightest reason for understanding it any more than
anybody else among the public has, everything he is doing is falling
right into a pattern, as a jig-saw puzzle would do, or as it would be
put together. The message of yesterday proposes two perfectly
logical and proper steps.
Mr. D I E S . You think, in other words, that we must first get
possession of the gold to keep private interests from profiting from
the reduction in the gold content of the dollar?
Mr. V A N D E R L I P . Yes; to avoid the injustice of leaving that gold
which you and I have been deprived of forcibly for the profit of the
Federal Reserve banks. That is something that cannot be considered.
Of course that gold should come into the Treasury where it will be
held to the profit of all the people.




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Mr. D I E S . D O you believe we should leave in the Executive a leeway of 10 percent, not to be fixed by Congress, but giving him discretionary power to observe a limit of 10 percent in revaluing the go d
content in the dollar from 50 cents to G cents? D o you think that
O
discretion should be left with the Executive?
Mr. V A N D E R L I P . Yes; I would be perfectly willing to leave it to
him.
Mr. D I E S . And not fix that differential by Congress?
Mr. V A N D E R L I P . Yes; let the President fix the last decimal.
Mr. E L T S E . In that connection, something has been said about
the gold going into the Treasury not being a theft. What would be
your answer to that? It has been said that the gold has been taken
away from the people who formerly owned it, and that they would be
entitled to the profits. As I understand your answer, it should not
be permitted to remain in the Federal Reserve banks, and that they
are not entitled to the profit,but that it belongs to all of the people.
Of course, the people from whom it came were the ones who owned it.
Mr. V A N D E R L I P . I said that wdien you put that gold into the
Treasury, the profit on it will belong to all of the prople. If it had
never been brought back into the Federal Reserve banks, the profit
would have belonged, not to all the people, but to the comparatively
few in number wrho held the gold, or the people who were so astute
or so suspicious of our ability to stay on the gold standard that they
hoarded the gold. Where they drew out the gold and hoarded it,
it does not seem to me that they established a very valid right to that
profit.
Mr. E L T S E . After all, was not the percentage of people, men and
women, who did that relatively small, as compared with the great
number of people who had gold, and who acquired it in good faith,
without any idea of hoarding it?
Mr. V A N D E R L I P . N O ; I think there was very little gold in the
possession of people prior to the time that this hoarding movement
began.
Mr. E L T S E . Referring back to the stabilization fund of England,
you say that w7e should counter with a stabilization fund of our own:
Now, if we do that, and I am not saying that 1 am against it at all,
my mind being open on the subject, would not that start a movement
by the other principal nations of the world that were formerly on
the gold standard, to do the same thing, and if that should be the
case, what advantage would there be to the United States? Would
we not be going around in a vicious circle?
Mr. V A N D E R L I P . It would not start something new. The whole
thing is not so new. France never had what was known as a stabilization fund, but the Bank of France had $800,000,000 here in 1928,
and the withdrawing of that money almost forcibly put us off the
gold standard. No; by no means do I think we should refrain from
protecting ourselves from the fear of starting something else that we
would be frightened about.
Mr. E L T S E . In other words, you believe in putting our owTn house
in order, and protecting ourselves while we are doing that?
Mr. V A N D E R L I P . By doing that we will make the best contribution
we can to the world.
Mr. W H I T E . Mr. Vanderlip, do you make any distinction between
the terms "inflation of the currency" and "replenishing the supply or
volume of primary m o n e y " ?




GOLD R E S E R V E A C T OF

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39

Mr. V A N D E R L I P . That is a little difficult to answer, because this
word "inflation" will be defined differently by about as many different
economists as we have. All of them will define it differently. You
can harmonize them. Those two terms are usually in the greatest
disharmony by virtue of the way you define them. If you mean by
inflation, or by any controlled inflation, inflation through the printing
press, I would say there was the greatest difference. I think there
is some difference in any event. It depends on your manner of
contrasting the word inflation with reflation.
Mr. W H I T E . I said "replenish."
Mr. V A N D E R L I P . But what is the difference? Replenish and reflation mean the same thing. Now, we have had a disastrous liquidation, and we need replenishment or reflation, or we need inflation
according to the way in which you define those terms.
Mr. W H I T E . Inflation means to expand.
Mr. V A N D E R L I P . Or leading us back to normal before we really
start what would be truly called inflation.
Mr. W H I T E . One of the big factors in the depression and the falling
of prices was the shortage of the element we call cash, was it not?
Mr. V A N D E R L I P . I do not think that was an important element at
all, really.
Mr. W H I T E . When we turn to liquidation, cash is the main factor
in liquidation, is it not?
M r . VANDERLIP.

Yes.

M r . VANDERLIP.

Yes.

Mr. W H I T E . Did not this country have a stringency or shortage of
cash?
Mr. V A N D E R L I P . We certainly had the impossibility of liquidating
the country in the wholesale fashion in which it w, c attempted.
Mr. W H I T E . If there had been an adequate volume of money or
cash, liquidation would have been easy, and the price fall would not
have been so drastic, would it?
Mr. V A N D E R L I P . That would have been the tendency. It would
have depended somewhat on where the volume of money rested, or
whether it was in the hands of people who would turn it into an effective arrest of liquidation.
Mr. W H I T E . Y O U are in favor of adhering to the metallic base of
currency, are you not?
Mr. W H I T E . Are you in favor of having a volume of new money
or coinage supplied to the business world that would keep pace with
the increasing population and expanding business?
Mr. V A N D E R L I P . I would not want to say a new volume or increase
by any new kinds of money. I certainly am not in favor of that.
Mr. W H I T E . I mean metallic money or basic money.
Mr. V A N D E R L I P . I am in favor of a volume of purchasing medium
that is fully keeping pace with the expansion of business.
Mr. W H I T E . D O you think that gold, with its present value and
rate of production, does that thing?
Mr. V A N D E R L I P . At times it does it; at times it more than does it,
and at times it very much less than does it. The volume of purchasing
medium has got to have expansibility and contractibility, if it corresponds as it should correspond with the volume of business needs.
Mr. W H I T E . I desire to call your attention to a statement by
Governor W. P. G. Harding, of the Federal Reserve Board, contained




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GOLD RESERVE ACT OF

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in Senate Document No. 310, made on M a y 18, 1920. Governor
Harding said that since June 30, 1914, the expansion or increase in
the volume of currency in circulation had been about $ 1 , 9 0 0 , 0 0 0 , 0 0 0 ,
and that the expansion of bank credit in this country had amounted
to about $ 1 1 , 0 0 0 , 0 0 0 , 0 0 0 . He said further—
D u r i n g the s a m e t i m e there has been an a d v a n c e in c o m m o d i t y prices of a b o u t
25 p e r c e n t .
T h i s has been a c c o m p a n i e d b y a decrease in the p r o d u c t i o n of
essential articles.

The thing we are attempting to do is to increase prices. D o you
not think that it would be in line with the information supplied by
Governor Harding to say that an increased volume of primary money
will bring about a rise in the price level, and a restoration of business?
Mr. V A N D E R L I P . I would rather read Governor Harding's full
statement before I undertook to answer that definitely.
Mr. W H I T E . It is contained in Senate Document No. 3 1 0 , entitled,
" A conference with the Federal Reserve Board and Federal Advisory
Council of the class A directors of Federal Reserve Banks. 7 '
Mr. V A N D E R L I P . I never saw that document.
Mr. W H I T E . Did the debasement of silver in the coinage of European nations and the sale of silver by the English Government for
India in effect create a money vacuum, or a vacuum in the supply of
international money?
Mr. V A N D E R L I P . It tended to make a scarcity. I should hardly
characterize it as a money vacuum. It did have a profound effect
upon the value of silver. It depressed it unfortunately and unduly.
Mr. W H I T E . It did very adversely affect the export business of
this country, did it not?
Mr. V A N D E R L I P . I think it did with South America and the Orient.
Mr. W H I T E . N O W , as to the supply of new money from the production of the mines, basic money or money of ultimate redemption,
do you think that the supply of gold is adequate to the needs of
business?
Mr. V A N D E R L I P . If the whole world were to go on the gold standard, it would depend then upon how much you devalued the currencies of the world. Of course, the volume of gold necessary to
support currencies depends on what the relation is between the
volume on the currency and the volume of the gold—that is, the
ratio of redemption of the currency. You could so devalue the
currencies of the world that the present volume of gold would be
adequate, or, possibly, too large. That is conceivable. One of the
troubles with gold as a standard is that its increase seems to be
limited on the whole to about 314 percent a year, while the increase
of business ought to be at times, and is at times, much more than
that. W e therefore do not anticipate our base as much as we ought
to at times, if our money is to keep pace with business. That is
taken up by an expansion of bank credit which is pretty effective in
supplying the needs; but the gold standard is not perfect. I would
not define it as a perfect instrument.
Mr. W H I T E . If the revaluation of gold is only a temporary expedient, you do not think that over a large number of years we could
keep on revaluing gold, do you? Must we do that ad infinitum, or
continue to revalue gold and never stop it?
Mr. V A N D E R L I P . There we have just the same problem that
arises from the currency printing press. In other'words, can you




GOLD R E S E R V E A C T

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41

start it and stop it? Certainly we would lose confidence in the gold
standard if there were frequent changes. However, England went off
gold, went hack on, and then went off again. She has been off the
gold standard live times in a century, and there is still, perhaps, more
confidence in the English management of finance than in the management of any other nation's finances.
Mr. W H I T E . But their going on and off did not contribute to the
stability of English finance.
Mr. V A N D E R L I P . N O : but it still remained the most stable money in
the world, nevertheless.
Mr. W H I T E . What, in your estimation, was the annual profit of
the English financiers in handling the world's banking business prior
to the war in 1914?
Mr. V A N D E R L I P . I have no means of estimating that. We could
get a part of it by knowing the profits of the great joint-stock banks of
England. Still it w^ould be very difficult to make an estimate of it.
However, I would certainly venture to say that it was an extremely
large amount.
Mr. W H I T E . Mr. Garrett in his articles mentions $ 4 0 0 , 0 0 0 , 0 0 0
annually.
Mr. V A N D E R L I P . I do not know, but if he mentions that figure, I
would say that it was not extravagant.
Mr. W H I T E . The value of the pound and the stability of the bank
of England have been a large factor in maintaining their control of
the world's banking business.
M r . VANDERLIP.

Yes.

Mr. W H I T E . A S a result of the war, financial supremacy shifted
from London to New York, did it not?
Mr. V A N D E R L I P . Only momentarily. It would undoubtedly have
done so permanently if we had had the men and a public sufficiently
trained. We naturally did not have that. We did a great many foolish things and failed to do a great many wise things. That is not
particularly to our discredit, however. We have been an insulated
banking community, and we did not have the men or the knowledge.
Mr. W H I T E . Was there not a competition between the banks of
London and the banks of Paris, the banks of London and the banks of
New York, and the banks of Paris and the banks of New York to
capture the financial supremacy in the world's banking business in
recent years?
Mr. V A N D E R L I P . Yes; but not so much as to Paris. Paris has not
an ambition to occupy the position that Great Britain has so long
occupied, and it has not the temperament to do it. There has been
sharp competition, not only between those nations, but the sharpest
and most vicious competition among our own bankers for supremacy
in that field. That is a competition tbey engaged in in buying certain issues of foreign securities. That competition was silly.
Mr. W H I T E . One of our main efforts was to raise and maintain the
high value of our dollar as a means of capturing that supremacy, was
it not?
Mr. V A N D E R L I P . I think they were more concerned in maintaining
a high commission on the securities.
Mr. W H I T E . France and England were trying to maintain the high
value of the pound and the franc, were they not, and were not our
American bankers also engaged in that contest?




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Mr. V A N D E R L I P . I do not believe the American bankers thought
anything about the high price of the dollar.
Mr. W H I T E . They have resisted every effort on the part of the
Government to increase the amount of primary money, and any
attempt at inflation, have they not?
Mr. V A N D E R L I P . M y experience indicates that the practical
bankers, or the great practical bankers, as a rule have given very
little attention to the currency question. Many of our very best
bankers are ill-informed on the currency question.
Mr. W H I T E . D O you not think that the influence of our bankers
was all on the side of maintaining the high vlaue of the dollar, all
through the preceding administration?
Mr. V A N D E R L I P . Not so very much, consciously, that is, in maintaining the high value of the dollar during that period. I have
heard discussions by ordinary banking men, and the question of
maintaining the high value of the dollar, I think, was not in their
minds.
Mr. W H I T E . The dollar did increase materially in value, did it not?
Mr. V A N D E R L I P . Yes; when commodity prices were falling.
Mr. W H I T E . They were not in favor of taking any steps to halt
that increase, were they?
Mr. V A N D E R L I P . Neither to halt it nor to accelerate it.
Mr. W H I T E . Did they not resist it, and did not the last administration resist that movement? Did they not resist it all through the
Hoover administration?
Mr. V A N D E R L I P . Just what movements do you refer to that affected
the value of the dollar?
Mr. W H I T E . There were numerous proposals before Congress for
paying the soldiers' bonus as a means of inflation, and for lowering
the value of the dollar. That effort was resisted all through the
Hoover administration.
Mr. V A N D E R L I P . They resisted it, I think, because the people, or
most of them, regarded it as unsound, either directly or from other
reasons. The soldiers' bonus had other elements in it than the
raising of prices through the inflation of the currency. That was not
the movement back of the soldiers' bonus efforts. There was a
movement toward free silver, but that was not taken as a movement
to raise commodity prices through debasing the dollar. I do not
think there has been in the banking mind a conscious effort at advancing the price of the dollar.
Mr. W H I T E . Y O U say there was no movement to halt or to accelerate
the advance of the dollar?
Mr. V A N D E R L I P . N O ; they have not thought much about it fundamentally. They have thought about the business on their desks.
Mr. B U R K E . I was very much interested in the outline of the plan
you suggested for setting up a currency authority, and there is just
one question I would like to ask you on that subject. You suggested
that currency authority in order to eliminate the requirement of a
full gold reserve. There has been a good deal of discussion about
reducing the requirement from 40 to 33% percent, or lower. Would
you consider it more advantageous to remove the requirement entirely?
Mr. V A N D E R L I P . Yes. Making the deadline the legal minimum
simply sterilizes everything below that. It paralizes the situation as




GOLD R E S E R V E A C T

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43

you approach the legal lower limit. I think that the sound judgment
and management of the bank should be the legal limit. There may
be times when things are too buoyant, and you ran the reserves, very
properly, high. If you were operating very high, there would be great
pressure put on you to reduce your reserves because you are so high
above the legal limit, whereas, if there were no legal limit, or if the
thing was run on the basis of judgment, I think the management
would be freed of that pressure. It has been found in European
banking that that is the safer and better plan. I am inclined to say
strongly that I would not make a definite legal connection between
the gold and the volume of currency. However, of course, the gold
must be there, and there must be weekly and daily reports on the ratio.
Mr. A D A I R . Would the return of the price level of 1 9 2 9 be considered inflation or reflation?
Mr. V A N D E R L I P . Not necessarily either. Inflation or reflation, as
I understand it, refers to the volume of currency in relation to the
volume of business. A return to a price level might occur without
any change in the currency at all. It would be a conceivable thing
that the mere action of supply and demand would return us to the
1929 price level. There is really no connection between a return to
the price level of 1929, or that of any other year, and the question of
inflation or deflation. I mean by that that there is no necessary
connection. Inflation would tend to bring us back to that price
level, but we could get to that price level without any inflation.
Mr. A D A I R . That would be true even if the price level should
exceed the price level of 1929.
Mr. V A N D E R L I P . Yes; it would be conceivable.
Mr. A D A I R . I S there anv dividing line between inflation and reflation?
Mr. V A N D E R L I P . If you could say there is a normal line, and that
you had fallen below that normal line of prices, and wanted to bring
it back through a manipulation of the currency, I would say that
there would be some relation between them. Now, you cannot say
what is normal, and, therefore, I think that it is difficult to define
what is inflation and what is reflation. We could say that we are
normal now, and that a certain amount of increase over this level is
reflation rather than inflation. They both mean about the same
thing. The work "reflation" has been coined to soften the word
"inflation." That is it.
Mr. A D A I R . Y O U do not take any particular year in the period of
the past decade to determine normalcy?
Mr. V A N D E R L I P . N O ; the year generally accepted is 1 9 2 6 as the
average for a 10-year period. Also, perhaps, we could point to a
given year in relation to debts. We could take that average, and
say that the debts were incurred at about that price level. There
is nothing sacred about that date, except that it seems to be a good
average to take.
Mr. M U R D O C K . Y O U would consider the using of silver or the
decreas'ng of the gold content of the dollar as inflation, would you
not?
Mr. V A N D E R L I P . I should say so.
Mr. M U R D O C K . N O W , do you favor giving the President, or some
other Government agency, the right to control the gold content of
the dollar?




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Mr. V A N D E R L I P . D O you mean to vary it every time
Mr. M U R D O C K (interposing). To vary it every time it was deemed
necessary.
Mr. V A N D E R L I P . The answer to that is difficult. Just whom
would you give the power to? Now, if you say we will adopt some
commodity price level as the normal, and when the prices vary
5 percent, or some other amount, either way, then the number of
grains in the dollar shall be varied, you will have laid down a principle, and whoever carried it out would not have occasion to exercise
judgment, but he would simply follow the principle. I think that
possibly that would be a safer course than giving to a man or a body
of men a general power to vary the content of the dollar. If that
power were given, it should be hedged about with all the safeguards
we can think of that did not become so great as to hamper it completely.
Mr. M U R D O C K . D O you prefer such a system to putting silver on
a monetary basis at this time?
Mr. V A N D E R L I P . I would not seriously object to either. I do
not believe that advocates of the commodity dollar will find that
the commodity dollar does all that they have anticipated. It will
tend to do partly what they anticpate, but there are other influences
and factors that make up prices. The amount of purchasing power
represented by bank deposits, and, indeed, some purchasing power
represented by the rise in the value of stocks and bonds, enter into
the fixing of prices.
There is no quick mathematical correspondence between prices
and the gold content of the dollar. If you use the commodity dollar,
you use a regulator, With the organization that I have proposed here
this morning, you would have all of those and other means and
influences to bring to bear on the price level. They would have their
influence upon market operations in the buying of gold, on the discount rates, and so forth. If Congress should say to that authority
that its duty was to so conduct its operations that they would tend
to maintain a level price index, I think that would be better than the
setting up of a commodity dollar. However, if you want to set it
up, you can set it up perfectly as a part of the machinery.
Mr. M U R D O C K . What would you think of a system of symmetallism
where by law you would fix the number of grains of gold and the
number of grains of silver that should constitute the dollar, leaving
gold as the standard unit of value, but without specifying either the
value of the silver separately or the value of the gold separately?
Mr. M U R D O C K . Having the dollar as our standard unit of value,
and without specifying either the value of silver separately, or of gold,
but allowing the President, or some governmental authority that you
have referred to, to raise, fluctuate, or control the respective values of
the two metals, under such a system as to afford the Government sufficient latitude to maintain the dollar at a fairer parity with the others ;
is not that preferable to any other use of silver?
Mr. V A N D E R L I P . It is a perfect instrument for governing the situation, but who is going to govern the governor?
Mr. M U R D O C K . That same objection could be made to your proposition of setting up this governmental agency.
Mr. V A N D E R L I P . It can be made to any measure or to any scheme.




GOLD RESERVE ACT OP

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45

Mr. M U R D O C K . It would still be in the hands of a governmental
agency, but it would really, in my opinion, restore great confidence,
or be more conducive to confidence on the part of the people than the
system which would allow any governmental agency to increase or
decrease the gold content of the dollar, as they saw fit, or as conditions warranted.
Mr. V A N D E R L I P . Yes. Before adjourning, Mr. Chairman, I would
like to ask a question. I have prepared a summary of my full views
on this matter. May I have the permission of the committee to insert
that in the record?
Mr. L A R R A B E E (presiding). Without objection, you may have that
permission.
(The paper referred to will be found at the conclusion of Mr.
Vanderlip's statement.)
Mr. W H I T E . Mr. Vanderlip, by revaluing the gold dollar, we will
by just that measure increase the purchasing power of the gold
hoardings of other countries, and of new gold that may come out of
the ground?
Mr. V A N D E R L I P . We will, unless we advance prices as a result of
it, but of course, that is what will occur, so we will not increase the
purchasing power.
Mr. W H I T E . A S to obligations already contracted for, it will
advance their buying power?
Mr. V A N D E R L I P . That is undoubtedly so; we would advance their
purchasing power for a time because our prices will not respond as
readily as theirs.
Mr. W H I T E . Statistics show that 7 0 percent of the world's gold is
mined under the British flag.
M r . VANDERLIP.

Yes.

M r . VANDERLIP.

Yes.

Mr. W H I T E . And it would place an advantage on 7 0 percent of the
gold in the hands of the owners of the British mines?
Mr. W A L D R O N . I S it not true that one of the principal influences or
drawbacks we have yet to contend with in recovering from this
depression is the fact that the smaller- and medium-sized business
concerns of the country are not able to get all the working capital
that they require t3 go ahead; is not that so?
Mr. V A N D E R L I P . There is a great deal of force in what you say,
but it is not because there is not working capital enough; it is not
because the banks are in no position to loan. The banks have a surplus reserve now of about $ 9 0 0 , 0 0 0 , 0 0 0 upon which they could extend
credit to 10 times that amount.
They are afraid of the character of the loans. What they are
afraid of is that the man who borrows the money is not going to have
a profitable business. And I can tell you gentlemen that there is in
the business world a great deal of fear of the utterances that have
been made in Washington, if profit is going to be taken out of business.
Profit is the foundation stone of the capitalistic structure. You
take profit out of it arid it all comes down. There is no surer way or
quicker way of destroying capitalism than to so legislate that there
is no profit in business. Capitalism will melt.
Mr. W A L D R O N . I S it not true that, until we can relieve that situation, we can not hope to get out of the present condition?
Mr. V A N D E R L I P . We are getting out of it, a little every day.




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Mr. W A L D R O N . But slowly.
Mr. V A N D E R L I P . Slowly, and being affected by occasional setbacks.
Mr. W A L D R O N . The set-up you recommend would not have any
influence in that direction, would it?
Mr. V A N D E R L I P . I think it would, have a very great influence. I
believe if we could get our whole banking and currency situation on
really sound scientific lines, we would return to a measure of prosperity as great as anything we ever had, and then we would greatly
exceed it. The possibilities of prosperity are just unlimited. The
difficulties are all man-made.
We have the foundations here for a higher scale of living, for greater
comforts so far as material things are concerned, more than anything
we have ever dreamed of. The thing that gets in our way is our own
stupidity, and nothing else.
Mr. W A L D R O N . When everything was going well and business was
booming, we did not hear anything about the money question.
Mr. V A N D E R L I P . That is perfectly true.
Mr. W A L D R O N . That has only occurred since we have gotten into
this troublous condition.
Mr. V A N D E R L I P . That is true, but as we look back we can see the
mistakes we have made, and the fallacies we have hugged to our
bosoms to plague us.
Mr. W A L D R O N . Then credit was probably too liberal; now we are
at the other extreme.
M r . VANDERLIP.

Yes.

Mr. L A R R A B E E (presiding). Senator Gore is here, and would like
to ask Mr. Vanderlip 1 or 2 questions. Without objection, Senator
Gore may proceed.
Senator G O R E . Mr. Eltse asked you a question that I had in mind,
but I will state it a little differently.
You stated that Great Britain's equalization fund might be compared to a fleet of armed battle planes, and that other nations ought
not to refrain from establishing a fleet of corresponding planes to
meet that attack, if it should come, merety because it might result
in such a conflict. Of course, we understand that.
I would like to have your opinion on this point: England has this
equalization fund to stabilize foreign exchange. We contemplate the
establishment of a similar fund, and you recommended it, to deal
in foreign exchange.
What do you anticipate the conflict and competition would result
in? Would it lead to an agreement or an adjustment of some sort
by which a unit of value or standard of value for international transactions could be arrived at, or would the destination be zero, as the
result of this competition?
Mr. V A N D E R L I P . I have never known of any conflict that did not
ultimately reach a peace, not a zero.
Senator G O R E . That is what I had in mind. What results might
come from the airplane figure, a rational peace, or, recognizing that
destruction might result to one or the other, which would not be
desirable, might they not arrive at a rational peace instead of waging
war to the bitter end, destroying one or the other? Is it not your
opinion that sooner or later commercial nations have got to arrive
by some means or other at some kind of a standard value, or unit of
value, or yardstick for international transactions, so that an English-




GOLD R E S E R V E A C T OF

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47

man, a Frenchman, and an American discussing a trade, when they
use the same word, will each know that it means the same thing.
Mr. V A N D E R L I P . We certainly have that word now, and it is gold.
Senator G O R E . We have had that s^ystem in the past, in the days of
the gold standard. We have had a sort of chaos since, and conditions
essential to the functioning of the gold standard do not now exist. It
will not function wrhen conditions essential to its operation are absent,
You might say that a locomotive is a good apparatus to draw a train
if you have two sets of steel rails and cross ties. It does not prove that
it is not fairly good motive power merely because it will not run across
the Blue Ridge Mountains without tracks.
I have figured that while we are now in chaos, if we are making
our way toward that destination where we will have an accepted
unit of a standard of value, we are making progress; but if we are
setting up antagonistic forces that will result in delay, that is not
progress.
Mr. V A N D E R L I P . I would think the probability is much greater
than, by setting up antagonistic forces, you would lead pretty quickly
to an understanding.
Senator G O R E . That is the desideratum.
Mr. V A N D E R L I P . Decidedly so.
Senator G O R E . We have to arrive at tiiat before we really set our
feet in the path of final recovery; is not that true?
Mr. V A N D E R L I P . I think it is.
Mr. L A R R A B E E (presiding). Mr. Parsons, of Illinois, who is not a
member of the committee, would like to ask a few questions. If
there is no objection, Mr. Parsons may proceed.
Mr. P A R S O N S . Mr. Vanderlip, the conditions which beset America
also obtain throughout the world to a very large extent.
Is it possible for us to recovery to any very large degree without
world-wide recovery?
Mr. V A N D E R L I P . Whatever the answer is to that, I should say, in
the first place, that world-wade recovery is well started, and we are
not in the forefront yet. Our recovery has been less than the worldwide recovery, distinctly. Surely, it is impossible for us to have a
full measure of prosperity with the rest of the world depressed. It
is impossible for the rest of the world to have a full measure of prosperity with our condition depressed.
But recovery started in world affairs a year and a half ago, and as
we look back on it now w^e can see that. It has reacted here for one
reason or another. I am hopeful it has started here.
Mr. P A R S O N S . In answer to that, is it not impossible, following
what Senator Gore said, for us to reach a full measure of recovery
unless we could stabilize the unit of value for the civilized nations of
the earth, whether it be gold or silver, with so many grains of gold, or
gold and silver taken together to constitute a unit of value?
Mr. V A N D E R L I P . It is extremely desirable that w^e have a stabilized
unit, but it is not so desirable that we should so hasten to do that that
we establish it on wrong principles.
There have been endless resolutions of chambers of commerce and
groups of economists, demanding immediate stabilization and a return to the gold standard. They are absolutely in error. If we should
immediately stabilize and return to the gold standard, we would re39539—34
4




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turn to an impermanent standard that would work no better than
the standard we have had. So, while it is essential to have a stabilized
currency, let us have it stabilized on right lines.
Mr. P A R S O N S . If the nations could get together, say, this winter,
within the next 100 days, and agree upon a standard of value of
both gold and silver, and constitute a unit of value somewhere along
in accordance with our 40 or 50 percent devaluation of gold, adding
to that silver, and we could have that unit of value stabilized and
agreed upon by all the principal nations, would not we immediately
then return to prosperity, that is, would we not go right along, all
the nations alike, upon this one stabilized unit?
Mr. V A N D E R L I P . I wonder if you are thinking clearly through the
subject? What do you mean when you say the nations could get
together and agree upon the value of gold? What does that mean?
The value of gold in what?
Mr. W H I T E . That was done by the Latin Union in 1 8 6 7 , including
France, Greece, Italy, and Belgium, was it not?
Mr. P A R S O N S . Y O U have said that you are in favor of at least a
40-percent devaluation, leaving that leeway?
Mr. V A N D E R L I P . Yes, I am quite in favor of that.
Mr. P A R S O N S . Suppose the nations actually could get together
and agree definitely upon 40-percent devaluation?
Mr. V A N D E R L I P . Would France agree upon a 40-percent devaluation of her currency? She has already devalued it 80 percent. Would
you have France devalue her currency?
Mr. P A R S O N S . We would have to agree upon a unit of value, so
far as international trade is concerned.
Mr. V A N D E R L I P . The unit of value is gold.
Mr. P A R S O N S . Of so many grains.
Mr. V A N D E R L I P . Of some number. You can vary it. There is no
necessity for an international arrangement at the present time, although it is desirable, and it will ultimately come.
We can go straight ahead and return to a gold standard, if we will
so define a gold standard that we can return to it permanently. We
can go straight ahead and stabilize by devaluing it to whatever point
we see fit.
Mr. P A R S O N S . Without regard to other nations?
Mr. V A N D E R L I P . Absolutely; there is no need of any international
conference whatever. Our destinies are in our own hands.
Mr. P A R S O N S . Will not that isolate us to a great extent?
Mr. V A N D E R L I P . Not a bit. Are we isolated now? Not in the
least. Oh, no; we will not be isolated.
The thing Senator Gore speaks of is highly desirable, to have a better
understanding, and the reaching of agreements so far as they can be
reached between different nations. But, for the steps directly ahead
of us, we do not need to consult anyone or have any international
conference before we act.
Senator G O R E . Y O U say recovery is under way, and that is undoubtedly true. Would you attribute that recovery in large part to
the operation of natural economic law and natural economic forces,
and the desire and effort of everybody to better their own condition,
or in larger measure to the artificial contrivances of governments to
bring about recovery? I do not know that you could apportion them.
Mr. V A N D E R L I P . I could not apportion them, but I would say it is




GOLD RESERVE ACT OF 19 3 4

49

due far more to natural forces in European countries, and also in the
Orient, although that is not so, I might say, as to Japan. There have
been artificial forces that have helped the Japanese recovery. But
on the whole it has been a natural recovery.
Senator G O R E . D O you not think the wiser policy on the part of a
government is to employ such artificial forces as will accelerate the
operation of natural forces?
Mr. V A N D E R L I P . Certainly I do.
Senator G O R E . Instead of superseding and displacing them?
M r . VANDERLIP. Y e s .
Mr. M C G U G I N . Air. Chairman, I

want to apologize to the committee and to Mr. Vanderlip for my inability to be present earlier this
morning. Air., Vanderlip's views and my own coincide on many
things very well, and his theory as to devaluation is the same as mine,
to a great extent.
But here is a point I wanted to ask Mr. Vanderlip about. Is not
there this danger in our country at this time, that the American
people are going to lose sight of the fact that devaluation is for monetary purposes, but on the contrary, demand it as an easy means of the
Government getting money, which, in turn, may he the cause of an
increased demand on the public Treasury for money, which will more
and more unbalance the Budget. And if that be true, no matter what
we do, how can we escape at least hopeless inflation in the end, if we
do not balance the Budget, and run in debt constantly.
Mr. V A N D E R L I P . You have asked several questions there. Let me
take the last one first.
A hopeless deficit in a budget will in the end lead to inflation, whereever you find it, if you go far enough and long enough.
But take some of your first questions. First, whether or not this
devaluation of the dollar will lead to the idea on the part of the general
people that devaluation is an easy road to prosperity, and that we will
have a demand continually to devalue. I take much more hopeful
view of the intelligence of American democracy than that.
In the first place, where has the chief pressure for funds come from?
Has not the amount that has been devoted to financial institutions, to
corporations, been greater than the amount that has been devoted to
individuals? I am not saying that it is not quite proper that it
should be so, but there has not been a country-wide demand that you
pay everybody something out of the Treasury.
Mr. M C G U G I N . Pardon me a moment. I think there is one thing
that you financiers fail to get a slant on that any Member of Congress
gets. It is just the other way around. If you read any Member's
mail on any morning, you will find out that, back at the grass roots,
you can scarcely find a citizen in any walk of life, whether he be
banker, merchant, farmer, lawyer, doctor, or a man out of a job—you
will find that the mind of this country today is absolutely overwhelmed with the thought that it is legitimate and proper for the
public money to go to the people, and this being a democracy, the
public mind will control. So it seems to me the danger of our program today is that it is going to be misunderstood by the people, and
that there is a greater requirement for a balanced Budget now than
at any time since the depression started, because I believe that 90
percent of the people today think you are devaluing in order to get
more gold in the Treasury, and I am afraid that is what is going to
happen.




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Mr. V A N D E R L I P . It is shocking and horrible if 90 percent of the
people of this country have that attitude.
Mr. B U R K E . I dissent to that, for one.
Mr. W A L D R O N . And I dissent to that.
Mr. E L T S E . I dissent to that in part, but there is a terrific element
of truth in it.
In that connection, may I say I have two telegrams on my desk,
received this morning. M y home is in Berkeley, Calif. When I left
there we had no unemployment problem. Now, there are 1,800 men
in the C.W.A. work, and there are 3,000 standing in line, and the mayor
and the city manager are asking me to use every influence I have to get
appropriations continued, and to bring such pressure to bear as will
assure the continuance of that program.
I have a companion telegram from the mayor and city manager of
the city of Oakland, saying that unemployment conditions are worse
there than at any time during the depression.
It is my fear, may I say, that there is a greater element of truth in
what Mr. McGugin says than most of us recognize or are willing to
admit.
Mr. M C G U G I N . Let us look at the facts as they are.
Mr. W H I T E . I would like to say that it is my opinion that the
pressure for Government appropriations in various communities is
an effort to secure their share of the money that may be expended,
rather than a general movement to secure public mone}^ by the
population.
Mr. E L T S E . In other words, a division of the money; is that it?
Mr. W HITE. An equitable distribution.
Mr. E L T S E . A redistribution of wealth.
Mr. L A R R A B E E (presiding). The Chair would remind the members
of the committee that we are encroaching upon the time of the next
meeting here. The committee is under deep gratitude to Mr. Vanderlip for his wonderfully clear presentation of this subject this morning.
Mr. V A R D E R L I P . Thank you, sir.
(The matter submitted by Mr. Vanderlip is as follows:)
M E M O R A N D U M PROPOSING A MECHANISM FOR ISSUING CURRENCY, CONTROLLING
CREDIT, REFORMING THE B A N K I N G STRUCTURE A N D CONTROLLING THE PRICE
LEVEL

In v i e w of the r e c o m m e n d a t i o n s in President R o o s e v e l t ' s message t o t h e
C o n g r e s s t o d a y , w e shall p r e s u m a b l y soon find all the m o n e t a r y g o l d s t o c k in
the U n i t e d States in the possession of the United States T r e a s u r y .
T h e gold
will, in the main, be represented b y o u t s t a n d i n g circulating c u r r e n c y in the f o r m
of gold certificates.
W h a t should be the next steps?
In m y opinion, the nature and order of these steps should be as f o l l o w s :
Congress should create a Federal financial m e c h a n i s m w h i c h w o u l d h a v e , in
part, the f u n c t i o n s of a central b a n k , b u t as it w o u l d h a v e neither fixed capital
nor the right to receive deposits f r o m any source, the w o r d " b a n k " is n o t a p plicable.
I shall call it the Federal F i n a n c e A u t h o r i t y .
T h i s m e c h a n i s m w o u l d be wholly an a r m of the G o v e r n m e n t .
M y tentative
suggestion as to its m a n a g e m e n t w o u l d be t h a t it should h a v e a b o a r d of seven
trustees, a p p o i n t e d b y the President with the a d v i c e and c o n s e n t of the Senate.
Possibly it w o u l d be wise t o h a v e these a p p o i n t m e n t s also receive the a p p r o v a l
of a m a j o r i t y of the B a n k i n g and C u r r e n c y C o m m i t t e e of the H o u s e .
The
President should h a v e a free hand otherwise t o m a k e these a p p o i n t m e n t s , e x c e p t
t h a t f o r the p u r p o s e of insuring a n u m b e r of experienced men a m o n g the trustees,
I would suggest that three of t h e m must a l w a y s h a v e been selected f r o m a list
p r o p o s e d b y the g o v e r n o r s of the 12 Federal R e s e r v e banks acting together.
In




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51

any event, the management of the bank should he protected f r o m political interference and interference b y organized banking interests.
T h e institution should be endowed b y Congress with the sole p o w e r of currency
issue without a fixed legal m i n i m u m of metallic reserve, but under compulsion
to publish weekly the ratio of reserve to liabilities, as is the practice of the Bank
of England, the Bank of France, and m o s t other central banks.
T h e p o w e r of issue should be taken a w a y f r o m the Federal Reserve banks and
desirably f r o m national banks, and the aim should be ultimately to consolidate
all f o r m s of circulating m o n e y into one t y p e of currency issued b y the new
authority.
T h e Federal Reserve banks would continue to operate along the lines of the
original intention of the Federal Reserve A c t ; that is to say, they should constitute a central reservoir for holding the reserves of members, and should always
be in a position t o rediscount f o r members, eligible self-liquidating commercial
paper.
As it is suggested that the power of issue should be taken f r o m the Federal
Reserve banks, the new institution should have laid on it the obligation always,
in turn, to rediscount any self-liquidating commercial paper which has been
rediscounted b y any Federal Reserve bank f o r its members, thus continuing the
ability of the Federal Reserve banks always to rediscount such paper.
T h e new organization should further have the power to b u y and sell gold in
an open free gold market to which would be admitted gold of whatever origin
anywhere in the world. This market would be created f r o m the new production
of mines in the United States, f r o m any shipments resulting f r o m capital m o v e ments and f r o m such operations as the Central Finance Institution conducted.
There should be perfect f r e e d o m for individuals to b u y and sell gold in this free
gold market.
In returning to a gold standard, we must guard against those forces which
have made the old gold standard an untenable financial mechanism.
T h e true
functions of a gold standard are to furnish the base and the control of the issue of
currency, and to supply gold for export to meet any unfavorable trade balances.
T h e gold standard has broken d o w n because of the added burdens of giving goldliquidity to international capital movements.
Internationally owned securities
cannot properly be given a gold liquidity which invades the m o n e t a r y base, nor
can other capital movements, such as the flight of timid capital, the m o v e m e n t
of astute capital seeking higher interest rates, the operation of exchange speculators and the menacing operations of foreign governmental stabilization funds.
T h e British equilization fund, now aggregating $1,750,000,000, created for the
sole purpose of manipulating the foreign exchanges, crosses frontiers without the
slightest reference to whether a country has a favorable or unfavorable trade
balance.
It is operated b y astute generalship and we have heretofore had no
means for c o m b a t t i n g it.
T h e suggestion in President Roosevelt's message to set up an opposing stabilization f u n d of two billion dollars, created f r o m the gold which will be freed when
the dollar is devaluated, is admirable.
Such a f u n d would be unnecessary with
a modernized gold standard which would prohibit the redemption of currency in
gold except in cases where the gold was needed to pay legitimate trade-balances.
I would suggest that the right of free coinage of gold should cease. T h e F e d eral Finance Authority should augment or reduce its gold stock as it saw fit,
through operations in the free market.
T h e new institution would have in its hands the main instruments for c o n trolling the general price level. T h e principal manipulative factors that control
the price level are the v o l u m e of currency in respect to the v o l u m e of gold, the
rediscount rate, the open market operations c o n d u c t e d b y means of the purchase
or sale of short-term Treasury paper and bank acceptances, and the foreign
exchange market.
While I would not lay upon the management of this institution the explicit obligation of maintaining the price index at a continuous level,
I would charge it with the responsibility of so using those powers as to tend to
maintain stable prices after the price level had first been raised to the desired point.
If at some future time the Congress should decide to stabilize the dollar at a
fluctuating a m o u n t of gold, or if the Congress should a d o p t a symmetallic base,
T h e p r o p o s e d institution is
either plan or both would fit into this mechanism.
perfectly adaptable to stabilization of the dollar in a fixed n u m b e r of grains of
gold only.
Those w h o are convinced that a c o m m o d i t y dollar anchored t o an adjustable
gold base can be made to give us a steady price level will find in the suggested
mechanism nothing t o stand in the way of the Congress a d o p t i n g such a p r o cedure.
M y o w n belief is that a variation in the gold c o n t e n t of the dollar




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GOLD RESERVE ACT OF 19 3 4

alone would not give sufficiently prompt and certain control over the price level,
and that it would be far safer to make full use first of those other functions of a
managed currency—the rediscount interest rate, the open market operations and
some participation in the foreign exchange market. Almost as necessary and
important as the adoption of a modernized gold standard and the creation of
an institution of issue, is a reformation of our general banking system.
The need has been clearly demonstrated for a complete separation of the two
essentially different types of banking—commercial banking and investment
banking. Ten thousand banks failed in a decade, largely because demand deposits had been devoted to capital purposes. It came about that only about
25 percent of the assets in bank portfolios was made up to self-liquidating commercial paper. The remaining three quarters of the banks' portfolios were made
up of collateral loans against corporate stocks and bonds, real estate mortgages,
and of actual ownership of foreign and domestic Government securities, State
and municipal securities, and the bonds of corporations.
The use of demand deposits for such capital purposes is fatal to the currency
liquidity of the deposits.
The situation demands the absolute separation of these two types of banking.
The commercial banks should receive deposits upon which they will pay no
interest, but they should assume the obligation of keeping their deposits so
liquid that they may meet any demand made upon them.
If the portfolios of the commercial banks are made up of self-liquidating commercial paper, always rediscount-able at the Federal Reserve bank, the position
of such banks will be unassailable so long as their conduct is within the lines that
the law should lay down.
It may be argued that there would not be sufficient commercial paper to supply
the demand. As deposits would receive no interest, even that is a situation
which is not dangerous, and so far as it existed, it would only go to insure the
complete liquidity of deposits.
As deposits in commercial banks could no longer be devoted to collateral
stock and bond loans, and as there would presumably be an excess of deposits,,
the commercial interest rates would tend to be much lower than under the old
system, and lower than the call loan rate. Commercial borrowers would not
have to compete with the capital market.
The investment banks should receive deposits also, and should pay a substantial rate of interest on them, but funds so deposited would not, under all
circumstances, be liquid. It is improper that there should be any attempt to
give capital funds complete currency liquidity.
Capital investment carries with it some consequences and obligations of permanence. At lease, attempts should not be made, as now, to give capital investments complete currency-liquidity under all circumstances.
There should be a clear understanding on the part of the depositor in an investment bank that his deposit is to be devoted to fixed capital purposes, and
that it has liquidity only so long as the capital market is open. If he needs
liquidity, he must forego interest and place his deposit in a commercial bank.
Attempts to meet fixed capital needs with demand deposits have been disastrous. Capital needs should be supplied from the deposits in these investment
banks. The investment banks would make collateral loans and meet the other
temporary needs of the fixed capital market, including the call money market;
and conversely, the funds of commercial banks could not be lent in the call
money market.
While the following proposal is not essential to an orderly construction of a
banking system, I would, nevertheless, like to suggest the tentative trial of a
new type of commercial bank.
M y suggestion is that permission be given to form mutual commercial banks.
In such banks there should be two classes of deposits: First, those coming from
depositors who never borrow, and whose only use for a bank is a safe repository
for their funds. The desire of such depositors is, in effect, to have a safety-deposit
vault upon which they can write checks and through which checks can be collected.
To deposits from this type of depositors, I would give a preference in the mutual
commercial bank.
The borrowing depositors would constitute the mutual control of the bank
and they would, much as stockholders in a bank now do, elect the directors of the
bank.
The directors would have much the same function that the directors in capitalstock banks have, with the important exception that they would not have the
power to appoint the officers. I would delegate that power to the Federal
Reserve bank of the district in which the mutual commercial bank was located.




GOLD RESERVE ACT OF 19 3 4

53

This w o u l d create w h a t w o u l d a m o u n t t o a n e w career in b a n k i n g . N o longer
w o u l d it be the o p e n road t o a position as a b a n k officer t o be a n e p h e w of the
chief s t o c k h o l d e r ; n o r w o u l d the road of progress f o r an efficient b a n k officer b e
b l o c k e d b y seniority a n d the necessity of awaiting the d e a t h of m o r e or less
s u p e r a n n u a t e d officials.
T h e Federal R e s e r v e b a n k w o u l d m o v e officers f r o m o n e b a n k t o another,
filling the m o r e i m p o r t a n t positions with the successful career-men a n d g u a r d ing e n t r a n c e t o the career of b a n k i n g b y a professional service e x a m i n a t i o n
w h i c h w o u l d require a t h o r o u g h g r o u n d i n g in e c o n o m i c principles a n d in the
science of banking.
Such efforts as we h a v e had h e r e t o f o r e to establish m u t u a l c o m m e r c i a l b a n k s
h a v e failed t h r o u g h inefficient m a n a g e m e n t . Such a s y s t e m as I suggest w o u l d ,
I believe, insure a m o r e efficient m a n a g e m e n t than has resulted f r o m the profit
m o t i v e of c a p i t a l - s t o c k banks, a n d it w o u l d h a v e the distinct political and
social a d v a n t a g e of p l a c i n g b a n k officers in their true light in the eyes of t h e
p u b l i c — t h a t is, n o t as personages of great wealth h a v i n g credit f a v o r s t o dispense, b u t as the c o m p e t e n t a n d respected servants of a p r o p e r l y c o n s t i t u t e d
b a n k i n g system.
In a m u t u a l c o m m e r c i a l bank, such as I a m suggesting, b o r r o w i n g d e p o s i t o r s
w o u l d h a v e m u t u a l c o n t r o l of the bank.
T h e y w o u l d h a v e t o s u b o r d i n a t e their
deposit claims t o the deposits of n o n b o r r o w i n g depositors.
If such a b a n k m a d e
losses, such losses c o u l d be m e t f r o m the b a n k ' s earnings; a n d b e y o n d , the loss
w o u l d fall p r o rata o n the b o r r o w i n g depositors.
T h e rate of interest t h a t b o r r o w e r s w o u l d h a v e t o p a y w o u l d a l w a y s be a n i c e l y
b a l a n c e d figure b e t w e e n the lowest feasible rate and the necessity f o r m a k i n g
earnings sufficient t o c o n d u c t the bank efficiently but e c o n o m i c a l l y , a n d t o m e e t
a n y losses t h a t the b a n k m i g h t encounter.
It w o u l d 110 longer be a b a n k m a k i n g
the highest interest rate that the traffic w o u l d bear, because it w o u l d be t o t h e
interest of the m u t u a l control, all of w h o m were borrowers, t o h a v e a l o w rate.
On the other h a n d , there w o u l d be a f o r c e p r e v e n t i n g the rate being m a d e t o o l o w ,
because e v e r y b o r r o w e r w o u l d k n o w t h a t if the b a n k ' s earnings were insufficient t o
m e e t losses, the loss w o u l d fall u p o n the b o r r o w i n g depositors' deposit b a l a n c e .
T h e d e f e c t of the g o l d standard, of our currency system, of o u r b a n k i n g o r g a n i z a t i o n a n d our security markets m a y be t r a c e d in large measure t o a single
general a n d a l m o s t w o r l d - w i d e m i s c o n c e p t i o n .
W e h a v e failed t o recognize w h a t
is feasible in the w a y of giving l i q u i d i t y t o currency, t o bank deposits a n d t o
i n v e s t m e n t securities.
L i q u i d i t y means the ability t o turn a n y f o r m of wealth
i n t o m o n e y . W e h a v e a t t e m p t e d t o g i v e such gold iiquidity t o all f o r m s of w e a l t h .
T h a t fallacy has caused the d e b a c l e i n t o w h i c h w e were t h r o w n , b u t f r o m w h i c h
w e are beginning t o emerge.
A c o m p l e t e financial p r o g r a m , therefore, w o u l d also
include s o m e changes in our securities markets w h i c h w o u l d clearly recognize the
i m p o s s i b i l i t y of giving g o l d liquidity or even c u r r e n c y liquidity t o all f o r m s of
investment.

(Thereupon a recess was taken until 2 p.m.)
AFTER RECESS

The committee reassembled at 2 p.m., at the expiration of the recess.
STATEMENT OF REV. CHARLES E. COUGHLIN, PASTOR OF THE
SHRINE OF THE LITTLE FLOWER, DETROIT, MICH.
The C H A I R M A N . The committee will please come to order.
This afternoon, gentlemen, the chairman is very happy indeed to
present Father Charles E. Coughlin, pastor of the Shrine of the Little
Flower, of Detroit. In presenting Father Coughlin, I wish to say
that in the last 3 or 4 years he has proven himself to be one of America's
best authorities on finance. He has come today to help us to consider
ways and means of improving the monetary system of this country.
Father, if you have any prepared statement to make on this subject,
we shall be very pleased to have it now. At the conclusion of your
statement, the committeemen, who will not interrupt you during your
speaking, would like the privilege of asking questions.




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You may proceed, Father.
Father COTTGHLIN. Thank you, Mr. Chairman. I have no prepared statement.
Mr. Chairman, I thank you first of all for this kind invitation
which you have extended to me to speak before this most important
committee on the matter of improving the monetary system of the
country.
I do not appear before you as an expert in things monetary; that
is, in their specific practices throughout the world, and especially
throughout our country. I do pretend to know perhaps a few generalities about money in its relation to human nature and to the
necessities of trade and commerce as a medium of exchange.
For more than 3 years there has been an advocacy in this Nation
for a change in our financial system. I suppose this agitation or
advocation was brought about more or less by the happenings which
have been brought to the attention of every schoolboy in the c o u n t y .
Eventually everything was brought to a head last March 4, when our
banks collapsed. Those of us who are interested in finance (and
tracing our interest back to the year 1913), recognize that at that date
there had been introduced into our Congress and passed into law the
Federal Reserve Act. The main purpose of the Federal Reserve Act,
as I gather it, was to so stabilize the finances of this Nation that
never again would there be a depression. Those are not the exact
words of the preamble to the Federal Reserve Act, but I think that
is the thought inculcated.
Well, after 1913 we still persisted in finding our way into the panics
which followed and finding our way out of them. It was evident that
this great piece of legislation, so well conceived in honesty, did not
function, and perhaps could not function. Why it could not function
isfnot my purpose to answer.
About the year 1914, shortly after the establishment of the Federal
Reserve banks, we were very close to a financial panic. I believe
there are many economists in the country, and especially in England,
who will maintain that the World War saved us from a break-down
at that period. During the course of the war we made progress in
things financial. Our country became wealthier than ever in industry and commerce; but, hand in hand with it, our national debt increased from approximately $1,400,000,000 in 1914 to about $23,000,000,000, as it is today. We were borrowing our way into prosperity,
and had forgotten that some day these debts must be paid, because
we had no intention of adopting the Stalin philosophy of repudiation.
Never will we have that intention in this country. I believe we are
too well cultured, too well educated, too well civilized, to fall into
such a breach of one of the fundamentals of civilization.
It so happens that in my brief study of the theories of money I have
discovered that in proportion as debts nationally accrue and get out
of control, almost in the same proportion currency runs into hiding.
As a result, we went through that aftermath of the World War culminating in 1929, when it was found just impossible to keep on borrowing ourselves out of debt. It was just impossible to face these
tremendous debts with any reasonability. Men began to question,
not exactly the soundness of capitalism—I think the sane people in
this nation have always lent their support and will always lend their
support to that theory of economics—they began to question the




GOLD RESERVE ACT OF 19 3 4

55

abuses that grew up around capitalism. The theory was perfect; the
practice had fallen into abuse.
Many questions were brought to the front concerning this. The
Socialist was on his soap box; the Communist was agitating in his
darkened hall; the legislator was planning to find ways and means out
of this predicament in which we found ourselves. And finally we
bethought ourselves of what was transpiring in England, in France,
and in the other European countries—countries which had become
intricately involved in the same problem as had we ourselves. I believe that France came out of the Great War with a debt approximating 80 billion dollars, if we use our money terms instead of their
franc terms.
Well, with the French possibilities and potentialities for production,
80 billion dollars was just something that was ephemeral, something
fantastic. Consequently, the French decided to revaluate their
franc. They did it 5 to 1. The franc, instead of being 20 cents, as
we ordinarily estimated it in this country, was reduced approximately
to 4 cents. Some of us did not understand at the time why France
took this step. But after much inquiring we discovered that the reason
motivating this financial move was to reduce their debts—at least the
payability of their debts, if I may coin that word. By revaluating
the franc 5 times, they divided their debts 5 times. Their 80 billion
dollars was just cut to 16 billion dollars. France again was solvent.
Her debts were payable. Bear in mind that all this time she did not
necessarily go off the gold standard, at least as far as the civilized
world was concerned.
Is France the only nation which accomplished this end? Not at
all. I believe there were something like 37 nations involved in the
Great War. As a result of the financial predicament in which they
found themselves after the war, 36 out of the 37 nations went through
the same process as France did. That is history; that is over the
darn; there is no use in our discussing that. Later on I will return to
the discussion of one nation. I will refer to Japan specifically when I
come to speak of silver intimately.
And so it was that about 3 years ago I began a campaign on the
revaluation of the gold ounce. At that time it was considered quite
radical even to mention this, but eventually the idea seemed to catch
hold. I found that I was not the only one thinking of this. Many
eminent bankers, who were afraid at the moment to have their names
publicized for entertaining such thoughts, held kindred views. Many
eminent statesmen, so I discovered, were of the same opinion. This
gave me courage to carry on, until today our most beloved President,
who has seen fit to hold tightly to capitalism, and yet rid capitalism
of its major abuse—our President, who prefers the preservation of
human rights when confronted by a host of financial rights, has taken
the first primary essential step in the revaluation of the gold ounce
or of the gold dollar.
You gentlemen are well apprized of the fact that this fetish, this
superstition of a gold ounce at $20.67 is more or less of a modern conventional practice. Only for 61 years in the history of the world has
gold been valuated at $20.67 an ounce. For the 60 million years
preceding it, if the world existed that long, no one ever thought of
designating an ounce of gold at $20.67. And, more than that, in
the minds of those founders of the system of capitalism, in the mind




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GOLD RESERVE ACT OF 19 3 4

of Adam Smith, in the mind of Ricardo and those other gentlemen,
there was never entertained the superstition that this one commodity,
this one yardstick upon which all our wealth is predicated, should be
gaged at $20.67 an ounce.
Who was it that invented the superstition—just as idle as the superstition of the god of Baal and his idols? It is difficult for us to discover; but I do know this much: That it was not even seriously intimated in the parliaments of men that gold should be $20.67 an
ounce until after the Napoleonic wars. There is a long story associated with the Napoleonic wars which is more or less of a side issue to
this question. I will state this much relative to it:
Napoleon evidently was bent upon obtaining the dictatorship of
the world. England had spent almost her last man, her last pound,
in preventing this catastrophe. England had issued bond upon bond;
she had diced with her last penny at the battle of Waterloo. In
Berlin, in Paris, and in London there w^ere three brothers, one in each
capital, the Mayer brothers—the Rothschilds, as they have become
better known—and these three brothers, in their sagacity for things
productive and for things constructive along lines of finance, played
England against France. If France should win the war, they would
win, because they had issued bonds there; if England should win the
war, they again would win, because they had issued bonds there.
And so I remember the story, that is not all fiction; I remember the
story that perhaps cannot be proven—how in the very process of
Wellington's victory over Napoleon, one of the Rothschilds had the
news sent to England, some hours before the truth had arrived there,
that Napoleon was victorious. As the result of this news, the
English bond market suffered tremendousty in those few short hours.
The Rothschilds bought the depreciated bonds. The truth arrived in
England, and the depreciated bonds were doubled in value. The
Rothschild fortune was originated and made.
England came out of the war owing this tremendous debt. Those
bonds had been made payable in gold, and the English people owed
the most tremendous gold debt ever cogitated by the mind of man.
That was, wre will say, approximately the year 1820. And so
during those years that immediately followed, it so happened that
English intelligence, English patriotism and English perseverance
conspired to save their country from financial disaster.
By the year 1873 the plans originated from 1820 or 1826 until that
date had been completed. We know how England, which until that
date had been on a silver and a gold standard, decided to rest the
security of her future finances upon gold only. We know how France
and Holland followed. We know how, by 1873, silver was demonetized in this country, in a manner that Mr. South Trimble, I believe,
has already told this committee; and we know how from that date,
1873, until this present date, silver, that has always been the money
used by the majority of persons in this world, was cashiered, and gold
from that date was priced at $20.67 an ounce—a throwback to the
Napoleonic wars.
Sixty-one years, I said, have elapsed since then until this present
date; four fifths of the people of the world still persisting in going on
using silver as their money, one fifth of the population of the world
dedicated to the use of gold as their sole standard—gold at $20.67
an ounce. But who were this one fifth? They were the most cultured




GOLD RESERVE ACT OF 19 3 4

57

people in the world in one sense. They were the most enterprising
people in the world in another sense, England, Germany, France,
Spain, Holland, Portugal, South America in part only, and North
America, including the United States and Canada, dedicated themselves to the solid, single, sole gold standard. I am not saying this
out of any braggadocio spirit, but I really think that this one fifth of
the world's population which I have enumerated were during this
cycle of civilization the finest type of people in the world—the most
enterprising; the most cultured, I repeat—and naturally they began
to dominate the world. The seas were crowded with our ships; the
cities were filled with our goods of production; our wheat fields in
the West supplied a hungry England; our factories in Detroit made
automobiles for Europe; our textile mills 011 the eastern coast, in
Massachusetts and up and down the Atlantic, supplied raiment for
more than one fifth of the world. We made tremendous progress—
not because of the gold standard, but in spite of the gold standard.
Now, all during this time, if we have our picture complete, four
fifths of the world—because they had no gold—remained in the background of this marvelous progress which we witnessed over the face
of this earth. In our prejudice—yours and mine both; we are both
guilty of it—we have been taught to look upon China with more or
less disrespect. We cast our eyes upon India, referring to its people
as pagans, referring to them as barbarians—people of our own flesh
and blood; people in whose hearts there was that desire to have the
things that we possess; people who desired to go ahead with their
railroads, their paved highways, their electric washing machines,
their bath tubs, their motor cars—and all this time their newspapers,
such as they had, carrying the story of American civilization and
burning into their own minds the story of their own degradation.
They could not trace it.
I am going to come to another point in this discussion: The point
that the single gold standard at $20.67 an ounce—and I am very
careful to emphasize the $20.67 portion of this agrument—the single
gold standard at $20.67 an ounce has proved to be a bottle neck,
through which all this tremendous commerce of America, England,
France and Germany, this one fifth of the world's best blood, was
forced to pass—this little narrow gulf, this little narrow bottle neck—
until eventually we found that it was clogged in passage. Why,
years before this time the great problem of production had passed
out of existence. It was no longer a problem for us how to grow
enough wheat to feed our folks; it was no longer a problem how to
make automobiles for the demand of the American public. Detroit
is geared up to make 9 million units per year, and the most that we
can consume, or the world can consume, in its present plight, is
three and a half million a year.
It is the same with every article of our production. I repeat,
production had been no problem. The problem now had become
one of distribution; and this little bottle neck could not distribute,
from the great ocean of our production, our goods, or the goods of
Germany, or France, or England, or Spain, or South America, to
the hungry mouths, to the naked backs, that were clamoring for these
things.




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GOLD RESERVE ACT OF 19 3 4

Now, all that I have said, perhaps, is simply relative to the sociological aspect of gold at $20.67 an ounce. Let us become more specific
and speak more of its financial aspect.
As we know from our history and from the experience which we
ourselves have gone through, we have never used gold as money in
the sense that you have had it in your purse and you have carried it
about in your pocket and paid your grocer and your butcher and your
milliner and the rest of your people in gold coinage. We have not
been accustomed to do that. Gold is money, yes; but gold was never
admitted to be currency money amongst us. Gold was too precious
a thing really to be held as currency money. The natural attrition
of one gold coin rubbing against another—why, that was a superfluous waste. And, on the other hand, we are not forgetting the little
emery cloth that some people with rubber consciences used, rubbing
off a little piece of gold here and there—saving it—stealing it. We
are not forgetful of the debasement of our gold coins.
Very correctly, then, gold was not used as currency money. But
we did discover this from our own experience and from the experience
of those who preceded us that it was quite possible for our Government, or for those who had control of the gold, to keep if in a safe
place and issue against it those dollar bills that we carry around to
the extent of two and one half times as many dollar bills as we had
dollars' worth of gold in our Treasury or in our vaults. I am telling
you absolutely nothing new when I am repeating these ancienthistory facts. Currency money at the rate of two and one half
times the amount of gold money would be found to be adequate and
would be found to be reasonable, and we would be on the gold standard. Now, we had this thought in our minds, that the philosophy of
capitalism, as I understand it and interpret it, means that m the
issuance of money, capital provides a means b}^ which we may have
two and one half times as much currency money as we have of gold
money, and by which we may have 12 times the number of debt
dollars that we have of gold dollars in our hands for safe-keeping.
W e are perfectly conservative when we i o that, but what happened?
After the great war, we awoke one morning, with the aid of our
bookkeepers, to discover that we had about $235,000,000,000 payable
in gold. Those 8235,000,000,000 were not all Government dollars.
Some of them represented insurance money owing to policy holders,
and some of it was corporation money owing to stockholders. Some
of them were corporate debts as well as private debts. The $235,000,000,000 was simply the sum total of our national, corporate, and
private debts, payable in gold.
Well here, after all our license to capitalism for financing us, we said
capitalism should issue only
currency dollars and 12 debt dollars
for every gold dollar that we actually possessed. It was not difficult
to see that capitalism could not go on any more than a human being
equipped for the operation of breathing air could go on when submerged in the waters of the ocean. We were out of our element.
Now, what was the financial suggestion? The financial suggestion
was heard that our Constitution, one of the finest instruments ever
written or conceived by man, had already provided for this emergency. The Constitution of the United States, ever since its inception
has said that Congress shall have the right to coin and to regulate the
value of money. The word "regulate" came up, and it was dis-




GOLD RESERVE ACT OF 19 3 4

59

cussed time and again. It was discussed, I remember, by ExPresident Taft, a man whom I revered and knew very well. It was
the subject of a great deal of discussion, and they even went to the
dictionary to find out what the word "regulate" meant. If you will
interest yourself sufficiently to examine any accredited dictionary,
you will find that the word "regulate" certainly does not mean to
fix. Were I to drive down the street with a fixed steering wdieel on
my automobile, certainly I would run into another motor car or into
a side wall, if I went any distance. I must regulate where I am going.
The verb " t o f i x " and the verb " t o regulate" are almost antithetical
in their meaning. They are almost opposed. The verb " t o regulate "
is used in the constitutional statement.
The Constitution says that Congress has the right to coin and to
regulate the money of this Nation, whereas we have been going on
interpreting this verb as if it meant that Congress had the right to
coin and fix the value of money, or the money basis, at $20.67 per
ounce. Why, we have been unconstitutional. We have not been
acting in the tenor of the minds of Washington, Jefferson, and the
rest of them who conceived the human idea that money is the servant
of man, and not his master. At last this idea has seemed to make
inroads on the minds of the people all over the country. The school
children of the Nation have been taught the meaning of this verb
" t o regulate", as well as the diplomats of the Nation, and as well as
the financiers of the Nation. That has been going on until today
our most wonderful President, whom God may bless and keep in
health until he finishes his program, has caught the meaning of the
verb " t o regulate", and has caught the meaning of that moral
principle that man shall not be the servant of gold, but gold the
servant of man. Now, conjoining those ideas, we are not going to
be Bolsheviks, and we do not plan to be Stalinites and repudiate our
debts. We all readily admit that the debts must be paid.
On the other hand, we readily admit that we must find the wherewithal to pay them with honest money, and not with printing-press
money. Was not that a problem to be faced? Mr. Roosevelt viewed
that problem, with gold at $20.67 per ounce, and said, " Y o u cannot
issue sound currency to the extent of 2 % times the value of this gold
that will be adequate." On that basis, you could not predicate the
payment of this $235,000,000,000. We owed this $235,000,000,000
either through our own fault or the fault of our parents. This indebtedness of $235,000,000,000 was created out of the war, which, to use
the words of President Wilson, was a commercial war. It was a
mistake, but we have the debts and must pay them with sound and
adequate money. We are paying for our mistakes and for those of
our parents. Let us not be welchers on that point. Let us be honest
and admit that we made the mistake, or that our parents made the
mistake. The philosophy of Nietzsche, of Hegel, and of Schopenhauer—the philosophy of German}' that might makes right, was
responsible.
The philosophy of greed that is still evident in radical commercial
warfare; the philosophy of greed that leads people to believe that
they must be the only nation; the philosophy of individualism—all
of it culminated in the shell holes of Flanders and France. Let us
admit that it was a mistake, but let us also admit that we are bound
to pay the price for having committed that mistake. Perhaps this
is a strange philosophy to be preaching to a legislative committee,




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GOLD IlESEI?VE ACT OP 19 3 4

but, nevertheless, it is the philosophy of truth. All of those ideas
certainly must have been in the mind of President Franklin Roosevelt,
and that is why he said that in order to pay, in order to save capitalism, and in order to save the world against its own self, let us widen
the base of this little $20.67 per ounce of gold until it is $40 per ounce,
or thereabouts. That means for every gold dollar we can have two
and a half currency dollars, and if necessary, we may have 12 debt
dollars for everv unit of this gold. On yesterday we cut our debts
back by one half. The $235,000,000,000—and I am speaking in
round figures—have been practically cut to $117,000,000,000. That
was done on yesterday provided the President will follow through
with the policy to which he has committed himself. To my mind
there is no reason to think that he will not follow it through.
Now, I hope I have clarified that much of it, and now let me say
this regarding the question of following through with it: Speaking in
round numbers, we have about
billion dollars of gold in the country,
at $20.67 per ounce, and we have about, in round numbers, 5K billion
dollars of currency mone}^, which, with a population of 126,000,000
people totals about $42.06 per capita. That is all the currency money
there is in this country. There is no need of my asking the question
whether capitalism will live up to its prerogative of issuing two and a
half times the amount of currency money that we have of gold. Really
we have about l){ billion dollars of currency money against the gold,
and from that you can see what capitalism is doing. Now, to follow
it through will mean that the $42.06 of currency money per individual
in this Nation will be practically doubled. What are the figures?
The 4% billion dollars in gold yesterday automatically became 8%
billion dollars in gold. Of course, I understand that that is not legislation as yet. Congress has not yet passed upon it, but I cannot conceive for one moment of Congress refusing to follow through on this
point. Gentlemen, if Congress should refuse to follow through on
what President Roosevelt suggested yesterday, I predict revolution in
this country, and a revolution that will make the French revolution
silly. It is either Roosevelt or ruin. I think I am able to say something about that. About 150,000 letters every week come to my
office unsolicited from every quarter of America.
These people cams almost in confession before me, without trying
to sell me anything. I think I know the pulse of this Nation. Therefore, I am taking it for granted that this 8/2 billion dollars in gold is
already here. Congress cannot do a thing but say " M r . Roosevelt,
we follow on that point." To my mind the Congressman, who, either
through mental laziness does not acquaint himself with the facts surrounding this question, or through some other circumstances refuses to
understand what Mr. Roosevelt means, and the problem which he is
forced to face—that Congressman who opposes him is certainly playing
with political dynamite. I say that not because I care for myself.
It does not make any difference to me personally, but it does make a
difference to me as a citizen. It does make a difference when I look
out on those people who write to me and tell me what is in their
minds.
Perhaps I have diverged a little bit from what I was going to say.
I am taking it for granted that we have 8% billion dollars of gold on
which capitalism will permit us to print two and one half times the
amount in currency. I said it will "permit" us to print, and I do not




61 GOLD RESERVE ACT OF 19 3 4

say that it will force us to print the two and one half times the
amount of gold in currency. That would he about $19,000,000,000
of currency money that capitalism will permit us to have on the
basis of that 8K billion dollars in gold. I do not mean that we necessarily will go to that extent. I do not say that we must do that, but
capitalism will permit us to have, in addition, 12 times that amount
in debt dollars, which will serve to cut {he $235,000,000,000 in half.
Now, that is the first follow-through. That is the course which it
is up to Congress to pursue. We cannot make one solitary movement
from this present condition in which we find ourselves unless that
step is taken. The joy throughout the country, the happiness in the
minds of the people from Maine to California, and all that transpired
on yesterday, was predicated upon their hope of what you Congressmen will do. That is true because so far it is only psychological.
So far it is only idealistic. The realistic side of it will happen when
you gentlemen legislate it into law. That is true because Congress,
and not the President, not the people, nor any council, has that power.
Congress has the power to coin and regulate the value of money.
That is what our Constitution provides, and above all things we are
going to remain constitutional.
The second follow-through is this: The mere revaluation of gold
is not sufficient. It will still remain only a hypothetical revaluation,
or only a psychological or idealistic revaluation, unless more money
is put into the hands of the people. The revaluation without increased
circulation is hyprocrisy. That is why we want real revaluation.
W7e do not want it simply as a literary achievement, or as a philosophical idea, but we want it as a practical thing in order to get more
money into the hands of the people. We have $42.06 per capita in
this nation, and $14 per week is the salary of the average laborer in
the United States.
Now, how can a man work on $14 per week? How can he buy a
$550 or $600 Ford car? How can we hope to keep the factories going
when we are paying the average laborer $14 per week? The price
of the commodities they eat and wear will more than take up the
entire $14 per week. Are our manufacturers simply going to be
makers of automobiles to be stored on the plains of Arizona, or
thrown into the ravines of the Rockies? Our wage level must be
lifted through some of this circulation if there is going to be such a
thing as distribution. I repeat that production is not our problem,
but it is distribution. In other words, we want to restore the purchasing power of our people. We want to make it possible for the
General Motors, Hudson-Essex, Packard, Henry Ford, and all the
rest of them, to make motor cars so as to keep our men employed,
and to make it possible for the people of the country to purchase their
products. Now, that is one point. That was the second followthrough. I conclude that part of it by saying there should be additional money circulating in the hands of the people. Now, as to
the third follow-through, and now I am coming to a point relative
to the subject of silver. W^ould you mind if I incorporated in this
discussion at least a portion of a booklet published by W. J. Marshall
& Co., at 350 Bay Street, Toronto, Ontario? The title of the booklet
is " T h e Silver Situation." For the benefit of members who wish to
obtain this booklet, I will say again that the address is W. J. Marshall
& Co., 350 Lay Street, Toronto, Ontario. M y reason for reading




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GOLD RESERVE ACT OF 19 3 4

this is to show you what is in the mind of some English bankers on
the silver situation, and to show } r ou that they are not so far from our
own minds. This article is entitled "British Economist Urges
Empire Bank to Set Up New Gold Unit." The article is a special
to the Toronto Daily Star, dated "Ottawa, May 12," and it reads as
follows:
" I see no w a y out of the present e c o n o m i c world depression b u t the restoration of s i l v e r / ' said J. F. Darling, director of the Midland Bank, the second
largest bank in the world, in an interview with the Daily Star t o d a y .
" I like
t o be an optimist, b u t I am satisfied that matters will go steadily wrorse until we
restore the equilibrium of our financial structure b y the rehabilitation of silver.
T h e danger is that the wrorld m a y c o m e t o disaster before the bankers of the
world agree upon the solution.
I believe that the necessary action will b e taken,
b u t apparently, there will be no m o v e until things are so b a d that it is seen t o be
the only way out. For that reason, while I grieve wrhen I read of new evidence of
depression and newT tales of u n e m p l o y m e n t , I am somewhat cheered also, because
I think of it as a step nearer to ultimate p r o p s e r i t y . "
Mr.«Darling is in Canada 011 his own initiative, attempting t o interest the C a n a dian G o v e r n m e n t and Canadian bankers in his proposals.
H e has been quietly
sounding out public opinion. T h e conversion of the D o m i n i o n to his idea would
be a great step forward, he thinks, to the larger scheme which he feels is the logical
w a y of achieving " t h e rehabilitation of silver."
" S u g g e s t i o n s are m a d e f r o m time to time of an international conference t o
agree on a silver ratio to restore the purchasing power of the Orient, and so
f o r t h , " he said.
" B u t is there any record of an international conference ever
" T o m y w a y of thinking, that is n o t the
accomplishing anj^thing," he asked.
solution.
I propose a bank of the Empire which would set up a new gold unit,
Rex."

That will be interesting to you gentlemen, because these thoughts
are not published ordinarily in English news journals. These thoughts,
we are tempted to believe, are more or less foreign to the English
mind. We are apt to think that England and the United States are
financially hostile to each other, but that is not entirely true.
Mr. Darling continues:
I propose a bank of the Empire which would set up a new gold unit, R e x . I t
would acquire the gold reserves of the British Empire, and establish a ratio of
value between gold and silver.
W h a t ratio would y o u set up? At present the value of silver has fallen so l o w
that its intrinsic value is only one sixtieth or one seventieth the value of gold. I
would fix the ratio in the first instance at 20 to 1. I w r ould fix the value of the
" R e x " , which is equivalent to our p o u n d sterling (about $4.87) at 113 grains of
fine gold.

That is the statement of Mr. Darling. The purpose I had in reading
that long excerpt, first, was to show you that England and Englishmen
are thinking about the rehabilitation of silver, and, secondly, to show
you that they are proposing to use it in a new coin called " R e x . "
This b something that 1 cannot be dogmatic upon, because I do
not know enough about it. You will hear a great many people on this
subject.
The point is, what are we going to do about silver? Mr. Roosevelt
told us in his message yesterday that something is going to be done
about it. There is no question about that. What are we going to do
about it, and why are we going to do it? Why are we going to do
something about silver? The answer is obvious. There are some in
our Nation who tell us that silver must be rehabilitated or remonetized or restored—all these verbs are used, I believe, synonomouslv—
for two reasons: One reason is to broaden the base of our gold, of our




63 GOLD RESERVE ACT OF 19 3 4

basic money. The other reason is to help the Orient regain its purchasing power.
M a y I discuss first that question of broadening the base of basic
money? Briefly and candidly, I have not yet been convinced that
silver is absolutely necessary to broaden the base of our basic money.
I am not convinced yet that it is necessary, because I am still convinced of the correctness of our Constitution which permits us to
regulate it at $50 an ounce, at $100 an ounce, at a million dollars an
ounce, if necessary, and which will never be necessary. The point is,
the value of an ounce of gold is elastic; it is regulatory. That is the
thought behind the founders of the Nation; it is the thought behind
the Catholic Cardinal who suggested it; it is the thought in the mind of
Gresham, for whom the law was called; it is the thought behind the
minds of business men, of men of great national and international
prominence; gold is elastic. So, because of that reason, it has not
convinced me that silver must be rehabilitated to broaden the base of
our basic money.
There is another reason why it should be restored, rehabilitated,
remonetized. What is that? It deals with the Orient and it deals
with the United States, both. How does it deal with the Orient?
In those nations we have 800,000,000 people, approximately, living
in China, India, Afghanistan, and Manchuria, added to the hundred
million or so living in South America, who are all on the silver standard. I realize and I appreciate that since 1926 India has been,
nominally, on the gold standard, but as I said, rather facetiously
over the radio, they are on the gold standard like we were on the
dry standard during the period from 1918, and so forth, nominally.
Only they are still on the silver standard, and there is no deceiving
ourselves about that, although they are legally on the gold standard.
What is their silver worth? It is selling somewhere about 44K
cents an ounce. How did it happen to get to 44H cents an ounce?
Was it not a dollar and $1.39 an ounce at one time? Oh, yes. How
did it happen to fall to 44% cents an ounce? I remember in 1926
Stanley Baldwin passed an act of legislation. He was then premier;
that act put India on the gold standard, and it permanently kicked
her silver into the back lot, almost the same as silver was outlawed
here in 1873. From that moment, instead of putting India on a gold
standard, we put India on the loin-cloth standard. From that day
on, we have had Gandhi traveling up and down India opposing English things, opposing England, opposing all the propaganda of English purchasing power, and of purchasing English textiles. We find
India, instead of buying a few million yards of cotton cloth from
Japan, as formerly, we find them today buying a great deal more;
Japan is supplying most of the textiles to India, and England has
been cast out of the picture.
I believe Senator Wheeler has brought this matter to our attention
in a radio address within the last 2 weeks. India's purchasing power
has been cut in half; it has been quartered in more senses than one.
The same applies to China. Now, that is one point to bear in mind.
India and China cannot buy our bathtubs, our shoes, our shirts,
our wheat, our automobiles, and our copper pipe, because if they
attempted to do so, instead of paying $1 for wheat, India would be
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5




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GOLD RESERVE ACT OF 19 3 4

obligated to pay four in their money; they cannot afford to trade
with us.
Eight hundred million people have been closed from our manufacturers, from our farmers, from our industrialists; the greatest wall
in the history of civilization has been built on the shores of the
Pacific; not the Chinese wall, but the silver wall, which prevents the
Orient from trading with us.
In the meantime, what has happened in Europe? This has happened: Since the beginning of the war, especially, we have fallen
into the habit of sending to Europe our blueprints, our brains, our
machinery, our money. Perhaps the best iron and steel processor in
the world happens to live in my parish, and his name is Michaels. He
was employed by a large automobile manufacturer in Detroit, Henry
Ford. Michaels was requested, in view of his knowledge of steel and
iron processing, to go to Russia and teach them all that he had
learned. Michaels went over and spent 2 years there, and taught
them all the phases of iron processing. I asked him, "Henry, how
many men did you really teach? First, did you have clever men to
teach?" He said they were clever men; 20 of them. I asked him if
he succeeded in teaching them, and he replied, "Surely, I d i d . "
Then I asked him if they learned, and he replied, " Oh, y e s . " And then
I asked, " Y o u have there just as good iron processors as y o u ? " He
answered, " Y e s . "
I asked, " H o w many did you teach?"
He
answered, " A t least 2 5 " , and you have not 25 Michaels on this
continent.
Machinery, I stated, was exported to Europe. You remember the
old model T Ford which was a wonderful car. Mr. Ford had put
the best money, the best materials behind the manufacture of the
machinery to make that car. It was lifted up from Detroit body
and bones and carried to Russia. We have exported our machinery.
Did we export our money? Did we expatriate our money? WTe have
expatriated so many dollars that we do not know ourselves how many
it is. It is at least nineteen billions of dollars, publicly and privately,
since the Great War. They have our brains, our blueprints, our
machinery, and our money. That is one item.
The second item about Europe is that in an official document
which was released a week or so ago by the Federal Government,
and I believe I referred to it over the microphone, they tell us that
last year that little strip of land known as Italy produced more wheat
than the great Dominion of Canada produced. Mussolini had
preached the gospel of self-preservation and self-sustenance to such
an extent, he told them to dig up their vineyards and plant wheat
there, until last year they succeeded in producing more wheat than
Canada. Europe produces more wheat than North America, and
we are talking of opening up our trade and commerce allowances to
Europe in order that we may send wheat there. They are laughing
at us; they are in position to export wheat to America.
That is astounding; that is one thing Fascism did to Italy; that is
one thing it is doing to Germany; that is one thing Stalinism is doing
to Russia. I have been through Germany; I have been through
those countries; I have watched with what tenacity they till the soil.
There is not room for a fence; no wastage; every square foot of ground
is under cultivation, but never under such cultivation as it has been
recently. That is for our farmers and our manufacturers. That




GOLD RESERVE ACT OP 19 3 4

65

applies to the machinery, to the blueprints, and our financialists find
that it applies to the money, and so, it is only the ill-informed who
are under the superstitious delusion that Europe is going to be our
big customer. We are practically through in Europe, and let us
learn that from facts and not from fancies.
As I said, what are we going to do, lie down and die; because
we are geared to make 9,000,000 cars per unit industrially, are we
going to content ourselves with making only a million, keeping our
laborers engaged only 1% months and allowing them a rest period
for the other 11 months? N o ; we are not. built like that in
America. We are not going to keep on burning our cotton, destroying our wheat, slaughtering our pigs, because God has given us fecundity and because we are going to find a market, make one, and in
order to do it, since Europe has our brains, blueprints, machinery, and
money, let us, for God's sake, turn to the Orient. Let us turn to
China, with whom we have never had objection except in the Boxer
rebellion; let us turn to India that has been on the loin-cloth standard.
The lord mayor of an English city was at my home not many months
ago. He is a graduate of Oxford and a highly polished gentleman.
At lunch he said to me, " Y o u Americans are not apprised of the fact
of Gandhi's great contribution to the United States. You may think
I am radical, but of one thing I feel certain, he has delivered India into
the hands of tire United States."
In India and China there are 800,000,000 people, and are we going to
suck our thumbs and wonder if we will rehabilitate their silver so they
can buy our goods, shoes, wheat, cotton, or are we going to put our
men on the C.W.A. for the rest of their lives?
Now, it is this oriental problem that is in my mind as I talk about
the rehabilitation of silver.
Silver is the oldest money used in the world. Christ was betrayed
for 30 pieces of silver. Gold was not money in the time of Christ;;
gold was a precious metal or commodity. In fact, the Wise Men
who came from the East brought gold, frankincense, and myrrh.
They had gold, but long before they had gold they had silver, and
they will have silver long after they have gold. We do not know
much about the production of gold. The greatest gold mine in the
world is in South Africa. I am acquainted with Mr. Denny, whom I
consider to be one of the greatest economists in the world. Ontario
spent money to hire good brains, and they hired Denny to tell them
something about it. That rich mine in South Africa will be all worked
out in 75 years, according to the Minister of Mines of South Africa,,
according to Denny, according to prominent people in the British
Empire. It is said that they are all wrong; we will find new mines;,
we have been trying to find gold in such a way in the last hundred
years that I think people have put more into the ground than they
have taken out. It has been the biggest scandal known in America.
I am saying silver will be used, because gold is petering out, but
passing that over, the main point at issue is, let us restore the purchasing power of the Orient, of 800 million people, so that their silver is
brought back somewhere near the price of its value, and so that our
farmers, our industrialists, our laborers will not have to look forward
to the tragic spectacle of being servants under the C.W.A. for the
rest of their lives.




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GOLD RESERVE ACT OF 19 3 4

We have mass production machinery and we persist in using it.
Two years ago my mother was in Egypt. She saw them bringing
water from one of the tributaries of the Nile, bucket full by bucket full.
One man would dip the water and pass it to another and so on until
10 men were engaged in this one simple operation. She said to them,
" W h y don't you put a hose down there and get it out in that w a y ? "
One of them who spoke English very well said, "Will you please mind
your own business? If we put a hose down there it will throw 10 men
out of a j o b . "
W e are not going back to that system; we are going to keep the
blessings that God has given us; we are going to produce and we are
going to find markets where our production can be consumed.
Many things are changing rapidly since 1914 to the present; we
have been in a cycle of change. Perhaps this is one of the culminating
factors of the financial depression. At last, the Orient is going to be
respected; at last, we are going to observe that there is a possibility
that they are going to wear shoes, to wear clothing instead of loin
cloth, to have macadam roads instead of dirt holes, to have plumbing, steam boats on their rivers, steel rails across their continents.
You may think it very peculiar for a priest to be interested in such
matters. To tell the truth, the reason I became interested, and
why I still am, I have heard it said that our Catholic and Protestant
missionaries when asked if they are making any converts will say,
" N o ; those poor devils who have not anything to eat will come around,
but we are not making any progress." It has been drilled into them
that we have sent them over to preach the Christian gospel, but we do
not say, " Y o u can have our bathtubs, our wheat, and our c o t t o n " ;
it is a fine theory; but they say, " W e will not accept .your religion."
W e are the world's champion hypocrites. Then, we begin to chisel
in on Christ and say our brother is the man who lives next door to us,
but not the one who lives across the Pacific. I believe in the survival
of Christ's doctrine of brotherhood. The world cannot exist one
fifth oversupplied and four fifths on the verge of starvation.
You have read Floyd Gibbons' Red Napoleon; how the people
came down the coast of British Columbia; I do not believe that for a
moment; what I do believe is this: If I may define the yellow peril,
it is this: Those people are going to have automobiles; they are going
to have clothing, wheat, cotton, and if we do not give it to them, the
yellow peril that faces us is that their markets will not consume our
products; their markets will not consume the products of our factories;
our factories will remain idle and our fields will become idle. That is
the yellow peril, the coming revolution in America, unless we find an
outlet for the production of America. That is the yellow peril. We
are never going to have communism or anything like that here, but we
are liable to have a lot of other things. That is why I am interested
in the restoration of silver, to build up the purchasing power of 800
millions who are hungry for what we have and what we have they cannot get, and who cannot purchase that which we have because we have
quartered their purchasing power. We have so much gold in the
world. We have four and a quarter billions, which is more than we
should have, in this country; we have so much that we have unbalanced the purchasing power of the rest of the gold nations.
We talk about Spain buying from us, and South America buying
from us. You cannot get blood out of a stone; they cannot buy on a
gold basis; they have not got gold.




GOLD RESERVE ACT OP 19 3 4

67

Coming to the more practical point, how are we going to restore
silver; what method are we going to use to restore silver? There is
the bimetalist who wants silver and gold both used, independently,
as a base, and there is that other type who wants us to take all the
gold and dump it into the Atlantic; he is pretty radical. There is
the third type who thinks we can use both together. I do not want
to be dogmatic about this, because I do not know anything about it.
I do not think anybody else has come to defend his conclusions. I
have some suggestions; it is likely that they are wrong; perhaps there
is some truth in them; let us advance them. M y suggestion is this:
I am zealous that the United States should nationalize all the c o m mercial silver in this Nation; that is the first method. How much
commercial silver is in this Nation? I do not know, and I do not
think anybody else knows. I do not think anybody knows definitely.
The best answer is in Mr. Denny's book. He admits he does not
know. There is, conservatively, 100 million dollars' worth of silver
at about 45 cents an ounce. I think we have that; I am sure we havev
Supposing in this process that the Government sets out tomorrow to
purchase all the silver, spot silver it will be, not contract silver; tomorrow we will go into the market and buy at 45 cents; the next
day it will be 50; eventually the United States will have puchased
all the silver in this country at a figure somewhere around 54, 55, or
56 cents an ounce; that is, commercial silver, if I know anything about
the market; I may be wrong. That is my presupposition on the
matter. A hundred million dollars is only a drop in the bucket; it
does not mean anything; that is not enough silver.
Supposing Mexico learns that we are in the silver market; they start
bootlegging; London learns; Hong Kong learns; Tokio learns; they
bring the silver in and we say, "Sure, we will buy more." We could
buy almost 300 million dollars wTorth of it; I think w^e could succeed
in purchasing three hundred millions of spot silver at somewhere
under 64% cents an ounce; that is, do it now. After we have that
nationalized, as its first step, I think we have two things to do,
according to my mind. First of all, we have token money in our
pockets; in our pockets we have a half dollar piece. This 50-cent
piece is no more 50 cents than this lead pencil is a camel. This
50-cent piece is worth 22 cents. Anybody can tell you that a silver
dollar contains about 1 ounce; a half dollar about a half ounce; it is.
valued at 44 cents an ounce, and the 50-cent piece contains about
22 cents worth, at the most. The first tiling to do is let us raise this
from token to real money. That is the next thing, according to my
mind. How are we going to do it? Before we start, some person is
going to tell me the story that was preached about the thirteenth
century. Just the other day, one of our bishops told me that he had
something to show me. It was a French volume of sermons which
some priest had preached in the cathedral of Rouen. He was talking about hell and purgatory. He was telling the people, " W h e n
you die, you will have neither a gold pocket in your shroud nor a
silver pocket." I said, " W h a t are you showing me that f o r ? " He
said, " D i d you ever hear of Gresham's l a w ? " Now, here is the
point: All through the thirteenth century every man had two pockets
in his clothes; one for gold and one for silver. Now, when a man
would go to a shoemaker he would say, " H o w much are the shoes?"
And the shoemaker would reply, " T w o dollars." He WT>uld look at




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GOLD RESERVE ACT OF 19 3 4

the shoemaker and if he was an easy mark, he would give him the
two dollars in silver. The idea was to preserve the more precious
metal.
Whenever cheaper and more precious money existed hand in hand,
the tendency was for the cheaper money to drive the dearer money
into hoarding.
Gresham never invented that law; he was a plagiarist. A Catholic
cardinal invented the law and Gresham, a " high-f aluting " Irishman,
stole it. He was a boy friend of Queen Elizabeth's. The Gresham
law is this: That cheap money has a tendency to drive dear money
into hiding; that is the simple way of stating it; that is the truth.
In order to obey Gresham's law, what are we going to do? Are
we going to call silver a basic money equivalent to gold? That is
going to be the great question which you gentlemen must decide.
I do not know; I do not pretend to know. Offhand, I would say,
that since gold is the more precious money, I think gold should be
the more basic money, if I can coin that comparison, and silver an
auxiliary money; not saying it is not good, but it is not as precious
as gold. Offhand, again, I would say that this Gresham's law invariably operates, and has operated over the history of finance; since
Gresham's law has a tendency to drive dear money into hiding, why
not mix a little of the dear in with the auxiliary so it cannot be driven
into hiding?
Having nationalized our silver, as well as our gold, and having
decided that we are going to lift its price so it will be real money
instead of token money, shall we issue a new coinage? Shall we
abolish the good coinage we have in the United States today; I mean,
the dollar plus the printing press money? No. I think the simpler
we can keep the currency the better. Why multiply currencies?
Simplification is best; keep what we have, our one, two, five, ten,
and so forth; keep them. We will still issue then two and one half
dollars to our unit of gold, but with our money nationalized, our silver
nationalized, and with an equivalent price of perhaps a dollar an
ounce—I am not trying to say it should be 15, 20, or a 100 to 1. I
do not know who is able to do that, because no one knows how much
is in the world. We have it in candle sticks, teapots, chalices, tableware; we have it hidden, and we do not know how much is hidden
in India; the Indians do not trust the bankers either. We do not
know how much is in the world; we guess 8 billion ounces in the
world; that is the best guess any person of the reputation of Denny
will make; we do not know. We do not want all the silver in the
world here. If we had it we would be liable to die of King Midas'
disease. Just now, I hear it asserted that if we start on a great
gold-purchasing program in England, they will give us more gold
than we can assimilate. Combining, therefore, gold and silver as a
basis, it is possible in the redemption of our present silver money to
symmetallize it, to put a little gold in it, so it will not be all silver,
and we have not so much silver money in America, and to issue good
currency dollars at least on the rest of it, in the ratio of two and a
half to one.
These thoughts, gentlemen, perhaps have dealt with the philosophy
of money; with the sociology behind it; with the revaluation of gold
and with the restoration of silver. After all is said and done, I
;think there is one who has even more interest than any of us and that




GOLD RESERVE ACT OP 1 9 3 4

69

is Mr. Roosevelt, As far as I understand his program, he is bent
upon nationalizing gold; that will be done. He is determined to
revaluate gold; that will be done. He has his mind fixed upon doing
something for the precious metals, gold and silver; that will be done.
Those things have passed the stage of debate, but it is not debating
to ask how shall we do something for silver? How shall we expand
currency? As I understand it, this is the purpose of this meeting
of the Weights and Coinage Committee. You gentlemen have a
huge task upon your hands, to listen for perhaps two or three months
to people telling you how it should be done. It must pass through
the sieve of your intelligence, and eventually, I know, much good
will be accomplished. You will strike upon something, not today,
not tomorrow, not that my ideas are going to be acceptable, but
merely provocative of more thought. I have some qualifications or
characteristics, being a pioneer, as all are pioneers. We are going to
make mistakes, but when we are finished we are not going to have a
mistake. I know if we patiently and intelligently follow Mr. Roosevelt he is not going to make a mistake, because God Almighty is
directing him. We have said enough prayers to get us out of the
depression. I think he is the answer to our prayers. He is trying
his best; he is honest, courageous and intelligent; he has the qualifications; he has leadership and he has follow^ship, which is the important thing; none are opposing him, and with followship we are going
to get out of this depression. We do not know what the word prosperity means; we think we have had prosperity in the past. It was
not; it was only the mirage.
Five years from now we will have a greater prosperity in this country
than was ever dreamed of, and we are on our way; we are not turning
back, and I think that you gentlemen in this Congress, the Seventythird Congress, when history will have been written 200 years from
now, will go down more famous perhaps than the First Congress of the
United States.
Mr. F I E S I N G E R . Have you finished, Father Coughlin?
Father C O U G H L I N . Yes.
Mr. F I E S I N G E R . Mr. Somers wanted me to apologize, since he was
called before the House, and he asked me to take his place. I am
interested in one of the last things you said. One of the last things
you said was that you had just heard that England was going to put
some gold on the market. We might have to buy quite a lot in the
United States. Did you say that?
Father C O U G H L I N . N O ; I said this: I said this, if I can recollect,
without calling upon the clerk, that perhaps we were going to pursue
the program of buying more gold, it might be to our advantage not to
get too much. Week before last we had bought about 75 millions of
newly mined gold, and of the European gold; last week we bought
about 90 millions more. All during this time we have been venturing
to buy newly mined Canadian gold, South African gold, Australian
gold; I simply said that we might pursue the policy to buy more and
that it might be to our disadvantage to get too much.
Mr. F I E S I N G E R . Y O U agree that gold is a commodity.
Father C O U G H L I N . Yes.
Mr. F I E S I N G E R . Measured by the same law that other commodities
are measured by in this world.
Father C O U G H L I N . In one sense.




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GOLD RESERVE ACT OF

19 3 4

Mr. F I E S I N G E R . Y O U agree that the commodity is regulated by the
law of supply and demand?
Father C O U G H L I N . Not altogether. I believe, in this matter of
using something as a medium for trade and commerce, a medium of
exchange, we must have a yardstick. Therefore, let us take a commodity that is precious, that is malleable, that is beautiful; gold is
only the yardstick. We can put a more or less permanent value on
it—there is a more or less qualification—and call that the value, the
value of gold at $40 per ounce. That is not dedicating ourselves to
the theory that we must keep it forever and ever.
Mr. F I E S I N G E R . I am not trying to trip you up. I am trying to
get light. They have gold markets in London, free-gold markets,
where they buy and sell. Mr. Vanderlit was before our committee
and he advocated the establishment of free gold.
Father C O U G H L I N . I freely concur in that.
Mr. F I E S I N G E R . I take it that these markets would deal in the commodity gold?
Father C O U G H L I N . The newly mined gold?
Mr. F I E S I N G E R . I am referring to the word " g o l d " , to the commodity; wherever it could be purchased if it is free. Therefore, the
markets would be regulated by the law of supply and demand. The
price of gold would be regulated by the supply and demand of gold.
If we revalue, and you say we are on the way, and in the international
markets the dollar is valued at 50 cents, what would happen if England
should throw vast quantities upon the markets of the world and break
the price down again to $20.67? Would we not then have a dollar
worth a quarter in international markets rather than 50 cents?
Father C O U G H L I N . That is a problem, truthfully, I have not
worked out, in matters of dollars and cents. What I did intimate,
in general, was this: In all likelihood, if we go into gold purchasing
too far we are liable to have more thrown at us than we require.
Mr. F I E S I N G E R . If we are going to maintain prices
Father C O U G H L I N (interposing). We do not have to continue.
Mr. F I E S I N G E R (continuing). If we are going to maintain prices,
we have to buy and continue to buy so we can keep the price up
at that figure; otherwise the price will go down.
Father C O U G H L I N . I do not think so.
Mr. F I E S I N G E R . In other words, the market in New York would go
below the price set upon the dollar?
Father C O U G H L I N . I do not think so. We happen to be the creditor
nation of the world, and therefore we can regulate the price. Were
we the debtor nation, I think your contention would be correct. W e
happen to be in the saddle.
Mr. FIESINGER*. I am trying to get some information. I do not
quite get the bearing of being a creditor nation on the price of gold
in international markets.
Father C O U G H L I N . M a y I explain a little further? Today England
owes us billions, payable in gold. Today she is not paying it; she
is paying token money. Supposing she starts throwing off gold on
the markets; we can start collecting some of our money if it is placed
over here.
Mr. F I E S I N G E R . Y O U think we could pick it up by sending the
sheriff after it?
Father C O U G H L I N . I think it is long overdue.




GOLD RESERVE ACT OP 19 3 4

71

M r . F I E S I N G E R . D O you agree with this: That the United States is
in a different position from any other nation before in the world's
history, in this, that it is a great agricultural Nation, a great industrial
Nation, and a great producing Nation?
Father C O U G H L I N . Correct.
M r . F I E S I N G E R . N O W , in order to maintain our position as a great
agricultural Nation, we ought to get as high a value for the things
we send abroad as it is possible to get. D o you agree with that proposition?
Father C O U G H L I N . N o t altogether. I do not think we should take
advantage entirely of the law of supply and demand.
M r . F I E S I N G E R . D O you not think that the prices of wheat and
cotton and the other things which we produce in considerable surplus
in this country are more or less determined in the markets of the
world?
Father C O U G H L I N . Correct.
Mr. F I E S I N G E R . SO, it would not be to our advantage, would it,
to depress the prices of those things in the international markets?
Father C O U G H L I N . I think you are correct.
M r . F I E S I N G E R . If it should happen that England or some other
nation wanting to buy our products cheap should sell gold in order
to break down the price of gold, would not they thereby be in position
to buy those things below the cost of production, even?
Father C O U G H L I N . I think you are correct. Of course, that brings
us back to one more question, Are we going to have a universal quota
in finance until the nations learn to cooperate instead of strangling
each other?
M r . F I E S I N G E R . In that connection, Father, you said at one point
that you thought that there was not so much difference in financial
interests between Great Britain and the United States. D o you not
recognize that there is a great difference in the interests of the two
nations?
Father C O U G H L I N . Perfectly.
M r . F I E S I N G E R . With reference to the price level; that is to say,
the price they will pay for things in the international markets?
Father C O U G H L I N . I think you are correct. England is not selfsustaining for 24 hours. It is a nation, immensely wealthy, living off
colonies, steamship trade, and commerce. We, on the other hand
neet not live off another nation; we are self-sustaining.
M r . F I E S I N G E R . Y O U know we took some steps to protect our
money—rather protect world money, not our money but world money,
which is gold, so that we will get a reasonable price for products, a
price that will sustain the wealth structure of the United States, and
still you sav to pay debts which now aggregate
Father C O U G H L I N (interposing). I perfectly agree to that extent,
but may I go on another point? That is peculiar; I did not intend
to touch upon it.
Senator G O R E . M a y I ask a question, because you have touched
on two points that mystify me or concerning which I am in the
mist. The first point I entirely agree with you about, and that is
Congress has power to coin and regulate the value of money. You
suggest that we want to remain and would remain constitutional, and
I agree with you. I was wondering if the act of M a y 12, last, and
that act, while passed in a few days, does it not in fact transfer the




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GOLD RESERVE ACT OF 1 9 3 4

power to regulate all money from Congress to the President? Is not
that the very point in this proposed legislation?
Father C O U G H L I N . Senator Gore, I think there is room for debate
in what you say, in this sense; I do not know what is the best judgment of the country; the attorneys and the judges would have to
decide that, whether or not Congress has the right to delegate the
coining of money to anybody else. But, during the period of time
since the origin of the first national bank in this country, we have
been unconstitutional in that we have practically given to the national banks of this country the right to coin, print money. We are
talking about acting unconstitutional today, when since the inception
we have been unconstitutional.
Senator G O R E . I come to the next point, and you and I agree that
gold has been too dear in this country; that gold is too high; we agree?
Father C O U G H L I N . Yes, Senator.
Senator G O R E . That its purchasing power is too large and that
fact is the reason that tilings are too low.
Father C O U G H L I N . Correct, Senator.
Senator G O R E . Our great objective is to reduce the value of gold,
cheapen gold, in order to increase the price of commodities; that is
true?
Father C O U G H L I N . Correct.
Senator G O R E . Y O U agree, I take it, that if the President revalues
gold, the enhancement should and could properly be taken over by
the Government instead of allowing it to remain in the hands of the
private owners and the banks; do you think that justified?
Father C O U G H L I N . I certainly do, Senator.
Senator G O R E . In China, you say we want to increase their purchasing power, increase the value of silver from 44 to one dollar or
$1.30 an ounce.
Father C O U G H L I N . Approximately.
Senator G O R E . That is based on the theory that money in China
is too cheap, and that we must raise the value of money in order to
restore Chinese prosperity. Here is the thing I cannot understand;
I cannot figure out why it is that we want to cheapen the money here
in order to enhance the price of commodities and on the other hand
we want to make silver dearer in China in order to restore Chinese
prosperity.
Father C O U G H L I N . W7ould you like me to talk on that point for
awhile?
Senator G O R E . Yes, I would like to hear you. It looks to me like
the two things are working in reverse.
Father C O U G H L I N . Very well, Senator Gore. I may start out by
suggesting that you can do this to both. In this country, we are
finding ourselves in the position of having all the productivity, as
far as factories are concerned; our civilization has been regulated
so that our laborers depend upon factories for their livelihood, mass
production. Now, we find ourselves in a position where our factories
cannot produce; where there is no purchasing power. Therefore, in
order to save ourselves, and we are hoping simply to be fair and
honest, not to be necessarily philanthropic; not to be necessarily
humanitarian, but just to be honest, plain honesty in this sense, that
we know that nature has bestowed upon us for every 1 ounce of gold,
15 or 16 ounces of silver. Since 1453 we have kept accurate account




GOLD EESEEVE ACT OP

1934

73

of the production of silver and it is 15 or 16 ounces to 1 of gold,
and yet we price it at 70 to 1.
Senator G O R E . China, as you know, was experiencing a boom in
the building trade, as long as silver was cheap, 25 to 30 cents an ounce.
Since silver went up, China has moved into this depression, and for
the last year and a half a depression has prevailed there and it prevails there today, like it does here; I am not an economist.
Father C O U G H L I N . I do not know, Senator. I disagree with you,
that China has been in a period of depression for 500 years.
Senator G O R E . Compared to the Occident, that is true.
Father C O U G H L I N . Moreover, I have the figures of Senator Burton
K. Wheeler on the textile industry in China and Japan.
Senator G O R E . There is a great deal of silver in China, and if you
raise the price of silver in China, I can see how that will help the man
with silver in his pocket and the bank with silver in its vaults. Suppose you raise the price to a dollar; that is, raise it over 100 percent;
then it will take twice as much tea to get an ounce of silver as it does
now; it will put their prices down but the value of their silver goes up.
Father C O U G H L I N . M a y I explain that, Senator?
Senator G O R E . Yes.
Father C O U G H L I N . The price today of silver is unjust; it is like the
price of cotton; simply by act of British legislation, passed by Stanley
Baldwin in 1926, the price of silver was purposely beaten down, because I can go this far from good authority; we learn that England
was under the impression in 1926 that they had to pay for the war,
and therefore, India and China were going to pay for the war.
Senator G O R E . I did not want to lead you afield.
Father C O U G H L I N (continuing). Consequently, since the price was
intentionally beaten down, so that we have this Chinaman and this
Indian paying four times as much.
Senator G O R E . I note that Chinese trade has declined less than any
in the world. There must be some reason for that.
Father C O U G H L I N . He had less to lose.
Senator G O R E . He had less to lose, but China pays for our goods
with her goods. When you put the price of silver up, you put the
price of goods down. Here is the point which is mystifying: We
are trying to hammer gold down, believing it is too high, and if we
can, it will put the price of commodities up. On the other hand, we
are trying to prize the price of silver up, which will have the effect
of putting the price of tea down, so the remedy through wdiich we are
trying to restore prosperity is just the reverse of that urged on China?
Father C O U G H L I N . I don't take that attitude at all.
Senator G O R E . I know you don't want to do it.
Father C O U G H L I N . I want to be open in it, I want to be fair.
I didn't answer your other question, though. The answer to the
other question is this. Is it fair when nature distributes 15% or 16
times as much silver as she does gold, and we are using both as money,
as we are doing today, is it fair to say nature is distributing 70 to 1
when we wush to lift the price of cotton up to where it is profitable
for the farmer to produce it, or to raise wheat up to where it is profitable for the farmer to produce it, and not to produce the same thing
to the miner who produces the silver?
Senator G O R E . Here is the point I am driving at. If you succeed
in doing that and raise the price of silver in China, you might make




74

GOLD RESERVE ACT OF 1 9 3 4

her money lower like ours is now and you might make her things
eheap, like ours are now.
Father C O U G H L I N . I don't agree with you; you say like ours are
now.
Senator G O R E . I mean up to a week ago.
^ Father C O U G H L I N . It is a different thing. I am not revaluating
silver 15 to 17K times 1, I have personally taken that argument away
from the nonsilverites and put it up to 40 to 1.
Senator G O R E . Let's say we cut gold in half in a week, and your
suggestion was, I believe, to a little more than double silver in China.
Father C O U G H L I N . Yes; and here also.
Senator G O R E . We are cutting gold in two here to raise the price
of things, then we are doubling the price of things in China, won't
that cut the prices half in two?
Father C O U G H L I N . Not exactly, Senator; no. If we double the
price of gold, and make it 41 or 42, therefore naturally we are doubling
the price of every other commodity in this country.
Senator G O R E . We will assume that, but it won't work out that
way.
Father C O U G H L I N . We will say silver is 41, or make it 45, or even
make silver 46, we are doubling that and making it 92, or as I see it,
approximately a dollar, I am still treating it as a commodity.
• Senator G O R E . If the value of silver should go up in China, each
"bank that holds it, if we should put it up here, would have his silver
in his bank, or in his pocket doubled, and would it be your idea the
Government should take the enhancement in silver like we did in
gold, or have you given that thought?
Father C O U G H L I N . N O ; I have not given it thought. M y idea is
that the Chinese Government will hold their silver and let it alone, as
they will be glad to keep their hands off of it, because they know its
purchasing power has been doubled in the United States. We know,
as water always seeks its level, that if it raises over there, it will raise
here.
Senator G O R E . But that hurts the man who has the silver, and it
doubles the price on things.
Father C O U G H L I N . That is true, but we have hurt them over there
for 500 years in their Western civilization; we have hurt them so bad
they don't know what to do.
Senator G O R E . I have to go now, but I am sure you will pardon
me one remark, in reference to what you said that we are not philanthropic. If you will pardon me, I will say I was talking to a Senator
and he asked the question I am asking you now, and suggested it
would react unfavorably on China if we did raise the price of silver
there, and if I may be allowed to say this, he said, we don't give a
damn about China, we are looking after the United States.
Father C O U G H L I N . But I do give a damn.
The C H A I R M A N . There is a discussion on that in our committee
hearings, Senator Gore, and I will try to find it for you.
Senator G O R E . I will be glad to have it. I am sorry to have to
go and I thank the committee for indulging me this privilege.
Father C O U G H L I N . Were there any further questions on the case of
Japan which we were discussing?
The C H A I R M A N . There are other members of the committee who
would like to ask questions. I would like to pursue my line of questions, but I will not do it. I will call on Dr. Larrabee.




GOLD RESERVE ACT OP 1 9 3 4

75

Mr. L A R R A B E E . I have no questions.
The C H A I R M A N . Mr. McGugin.
Mr. M C G U G I N . There is no question about revaluation, it is comingto us in a few days, and following that there will be left about 8
billion dollars of gold in the Treasury, and after that would be the*
following increase in circulation from the present about 5% billion
dollars up to 10, 12, or 15, or whatever it may be. What is your
suggestion as to the best way for the Government to get that money
into circulation?
Father C O U G H L I N . That is a very fine question. We have about
6 billion dollars of war bonds, Liberty bonds, that are now callable..
M y suggestion is w^e use some of the circulation money with which*
to cancel these bonds for which we are paying interest for the shell
holes and the white crosses and the broken bodies of our veterans.
M y suggestion is that the citizens who have suffered from the war,,
rather than gained, should have this benefit, by our ceasing paying
interest on bonds. That is a theory upheld by the best capitalists*
and by the best moralists. Then, put these 5- and 10-dollar bondsinto circulation that Mr. Roosevelt was speaking about yesterday,
and that is what he means by it, I am sure, put those in the hands
of the present Liberty bondholders. That is the way to cancel it.
Mr. M C G U G I N . Under our present revaluation we would have
approximately an inflation of 12 billion dollars, would that be about
right.
Father C O U G H L I N . Approximately.
Mr. M C G U G I N . N O W , is there not this danger, that the public, the
American people, and this is a democracy, and after all public opinion
prevails—might they not reach the conclusion that if we could save
12 billion dollars that easy, that would be the wa}^ to pay 30 billion
dollars, and in that way might we not get into a spiral of printing
presses in printing money as every other nation has done?
Personally, I am for deflation, and want the currency to go u p
accordingly; but what I do see in the future, unless the American
people are by all odds the best financiers in the world, if they pay
a part of it by printing money, they will never stop until they have
paid it all that way, and deflation will not do any good.
Father C O U G H L I N . That is very well, and here is the best way I can
answer it, because I don't know the future any more than anyone
knows it. I think the American people have been well educated in
the constitutionality of our program of money, and by the way, it is
the only constitution in the world today that has that article incorporated in it, and that has been taught to every high-school child,,
that our Congress has this right.
Mr. M C G U G I N . There is no question about the right that Congress,
has given to it. Congress has the right to go into deflation and
inflation and it would be perfectly constitutional if we had a hundreds
billion dollars inflation.
I have been one that has been in favor of deflation of the gold
dollar for over a year and a half. Now that the purpose is about to*
be accomplished, I am glad to see it accomplished, but what I am
fearful of is that the thing the people are going to see in this is 4 billion
dollars of easy money, and not a monetary reform for monetary
purposes.




76

GOLD R E S E R V E A C T

OF

19 3 4

The responsibility is now going to be upon the last one of us who
have advocated deflation to help keep the public inind straight, that
the purpose of the deflation was not primarily to get easy money, but
to try to get circulating money that has some relation to the value of
commodities.
What I am fearful of, is that this thing is going to lead straight
forward into hopeless inflation, and I am afraid it is going to be on the
basis of bonds, and if we take up 12 billion in that way, they will
demand that we take up 30 billion.
Father C O U G H L I N . The public might demand every bond in relation to the war should be canceled, and the public would be justified
in that; and if capital is going to save itself, we must come to that
conclusion.
Mr. M C G U G I N . H O W can we distinguish between the bonds?
Father C O U G H L I N . They are perfectly distinguishable, just read the
name of the bond. Every Liberty bond is a bloody bond. It was
the most heinous name given to a bond.
Mr. M C G U G I N . That might be where there might have been a
mistake.
Father C O U G H L I N . N O ; we can conscript human life, and we are
going to conscript wealth hereafter. A war is not fought to preserve
the home of the poor man only, it is also fought to preserve the industry and the wealth of the rich alone.
Mr. M C G U G I N . That is true, but if we let this thing go it may run
into a spiral of conscriptions.
Father C O U G H L I N . Yes; the question is how to stop this thing.
Mr. M C G U G I N . That is my question.
Father C O U G H L I N . M y answer is, first, I have too much confidence
in the American people in their ability to distinguish between a good
bond and a bad bond, or distinguish between good money and bad
money, and next, you and some of the others should be telling them
on the radio and otherwise the truth, and I think we can convert
them. Wrc have had an uphill fight bringing them this far.
Mr. M C G U G I N . I suppose about 12 billion or 16 billion of those
bonds you refer to as the bloody bonds constitute a part of the debt?
Father C O U G H L I N . There is about 1 4 billion altogether directly or
indirectly traceable to the war. Some times we try to borrow ourselves out of debt, which is bad business.
The C H A I R M A N . M a y I ask one more question before I go, Father
Coughlin?
Father C O U G H L I N . Surely.
The C H A I R M A N . If we make $ 2 out of $ 1 , that is, if we value gold
at $ 4 1 . 3 4 and make two dollars out of one, as we have it now, how
would that help to get more money for the wheat and cotton and those
things that sell abroad for grains of gold?
Father C O U G H L I N . Abroad?
T h e CHAIRMAN.

Yes.

Father C O U G H L I N . I think our market abroad is just about null
and void. I am not even thinking of " a b r o a d " in terms of Europe;
I am rather thinking of abroad in terms of the Orient. I have tried
to point out where they are selling wheat in Europe; Europe will sell
us wheat.
The C H A I R M A N . After all, the price of wheat is determined at
Liverpool, that is the great market for wheat in the world, and that




GOLD RESERVE ACT OP 1 9 3 4

77

price of Liverpool may reflect itself in the Orient, and certainly does
reflect itself back into this country.
I think you stated before if we produce an exportable surplus of a
commodity, the price abroad reflects back on the price in this country.
Father C O U G H L I N . That is true; but it is a complexity of a situation
I do not understand and have never heard explained in any book—why
the debtor nation should set the price of gold, wheat, or any other
commodity.
The C H A I R M A N . Y O U think we ought to determine the value of the
gold in this country?
Father C O U G H L I N . I think, being the creditor Nation, we should.
The C H A I R M A N . And fix the value of gold in our own country?
Father C O U G H L I N . I think so. Let's take ourselves first, honestly
and justly.
The C H A I R M A N . I have got to be excused, and will ask Mr. Berlin
to take the chair; I am called to the floor of the House.
I want to thank you for your testimony and your statement, Father
Coughlin.
Mr. B E R L I N . Mr. White, have you any questions?
Mr. W H I T E . Father Coughlin, do you favor a managed system of
currency?
Father C O U G H L I N . I would prefer the word "regulated."
Mr. W H I T E . Would you favor or not favor a metal basis?
Father C O U G H L I N . I am in favor of a metal basis.
Mr. W H I T E . What is the need for basing your currency on a metallic basis?
Father C O U G H L I N . T O have a yardstick of wealth.
Mr. W H I T E . Just as a yardstick?
Father C O U G H L I N . Yes; and you have to have something printed
that cannot be destroyed or mutilated.
Mr. W H I T E . Over in the Bureau of Weights and Measures we have
a yardstick, and it is only 1 standard yard. Would 1 standard dollar
perform the same function?
Father C O U G H L I N . It would for the domestic trade if we were honest, but unfortunately there has been such a thing as original sin, which
has dishonestyfied people, so money is the cause of natural dishonesty
of human beings.
Mr. W H I T E . D O you believe in the proposition of adhering to a
metallic basis for our currency to automatically limit the volume of
currency?
Father C O U G H L I N . I don't understand the question.
Mr. W H I T E . We maintain currency on a metallic base to automatically limit the volume of currency to the production of those
precious metals.
Father C O U G H L I N . I think that in theory; yes. Some times in
practice it doesn't work out, as for instance, in Lincoln's day, they put
out several million dollars of greenback, and there is about 300 thousand dollars of them around the country today without any metal
backing, people are accepting them, and they are just as good as any
money. That is in theory. If we wish to retain expansion, it
should be about 2% to 1.
Mr. W H I T E . We are talking of those things you mention as the real
taxing power of Congress,
Father C O U G H L I N . Yes.




78

GOLD RESERVE ACT OF

19 3 4

Mr. W H I T E . Congress levies taxes and will accept those greenbacks
in payment of taxes, and they have a legal value, they are backed by
the wealth of this country.
Father C O U G H L I N . Yes.
Mr. W H I T E . The record for the annual production of gold in 1 9 3 0
was 2 0 , 1 5 0 , 0 0 0 , 0 0 0 ounces, and in 1 9 3 1 was 2 1 , 3 0 0 , 0 0 0 , 0 0 0 ounces,
and this would be 426 million dollars in the gold produced annually.
Under the plan now of revaluing the dollar, this would give a purchasing power, up to the time of new production of gold, of 426 million
dollars, which is 70 percent produced under the British flag; wouldn't
that give the British Nation a great advantage over us in this country?
Father C O U G H L I N . I think 6 0 percent is closer, according to the
Britishers themselves in the reports here. Surely it will give them
an advantage in one sense, and it will give us an advantage in another
sense. It is a case of gaining in one case and losing in another.
Mr. W H I T E . It is proposed to reduce the purchasing power of gold
in this country by reducing the gold content in the dollar; would not
the remonetization of silver effectively do this and at the same time
advance the price of silver and increase the purchasing power of foreign countries for our surplus products.
Father C O U G H L I N . After all, gold and silver are only the ambassadors of wealth, they are not wealth. After all, the real wealth
of our country is its farms, its fisheries, its forests, its labor. If we
can work harder and produce more, and grow more than the Englishman, we can transfer our work and products for gold. It is not the
man who mines the gold that is the wealthiest, it is the man who
works the hardest, or the nation, that gets the gold.
Mr. W H I T E . Isn't the remonetization of silver of more value than
revaluing the gold dollar?
Father C O U G H L I N . Not necessarily, no.
Mr. W H I T E . It would at the same time reduce the purchasing power
of gold, and revalue gold, wouldn't it?
Father C O U G H L I N . Only in a small sense, because we have sold so
few ounces of silver. There are only 8 million ounces of silver in the
world, and the most we can figure it in this country is 45 cents an
ounce, which is about a hundred million dollars of silver here today.
Now, we have two problems, the domestic problem and the foreign
problem.
The domestic problem is to get ourselves on our feet so that production will be increased. The foreign problem is to enable the people
to pay us, and they can't do that now.
In China we say we won't take your silver, and they won't do that,
and the silver problem is directly related to the foreign problem.
Our rising and fall of the domestic problem is directly related to the
revaluing of our gold, so that our debts will be paid, so that both
things are needed.
Mr. W H I T E . In buying 2 0 0 million ounces of silver in 1 9 2 0 under
the Pittman Act, we had the highest price silver ever reached in the
country, when it went to $ 1 . 2 9 , higher than the value in the Orient;
and don't you think if we remonetize silver we will deflate the gold
dollar and increase the purchasing power of foreign customers and
find an outlet for our products?
Father C O U G H L I N . I am sorry, I don't agree with that, for this
reason, if we simply reflate our silver or remonetize it at $1.25, or even




GOLD RESERVE ACT OP 1 9 3 4

79

$1.39 per ounce, which I think is the highest the Irving Trust Co. or
the Guaranty Trust Co. sold it to England for out of our treasury,
then I think we would have an influx of silver in this country from
China, Japan, South America, and India buying our gold, and it
would not be five years until we would be drained of all of our gold.
We have to take care of our gold as well as the silver. We know
what happened in the last administration in January, February, and
March, those 3 months of last year, the first 3 months of the year, we
lost about 700 million dollars worth of gold out of our Nation. D o
you know what we lost it for, and traded it for? England had her
printing presses going, she printed a lot of pound sterling notes and
shipped them over here and took away our gold. France did the
same thing with francs. We got into that in January, February, and
March, and it nearly cost our shirt.
Mr. W H I T E . Would you think no country can keep more than its
distributive share of what may be called international money? You
might issue bonds until doomsday and even if you get hundreds of
millions of dollars of gold, if you do not lock up that gold and keep it
under guard, it would not remain. The volume created abroad would
lead to a fall in prices abroad, while the increase of the money volume
by the inflow of gold would create a rise here, and the moment you
unlock your treasury, would flow out again. Isn't that the effect of it,
if we unlock our treasury the gold will flow out again—isn't that the
underlying cause for having to lock up our gold?
Father C O U G H L I N . That is the underlying cause of nationalizing
our gold. If you want to get on the question of international banks,
why should we permit our gold to be in the hands of international
bankers who cut it back and forth from Europe to America and to
Tokio, they making a rake-off on the handling of commerce. Isn't
this the height of time for the United States to get into the international banking business?
Mr. W H I T E . It is as futile to keep gold under such circumstances
as to attempt to pump the water out of the harbor of Liverpool into
the harbor of New York and expect to maintain two separate levels
by such an operation.
Father C O U G H L I N . Unless we nationalize it and begin to sever the
chains which bind us, not to England—I wouldn't disparage the
Englishmen, I think too much of them, but the national bankers in
England; and unless we exert our authority as being tne creditor
nation, and do not hang our head with our tail between our legs.
Mr. W H I T E . Didn't 200 thousand ounces of gold flow out of this
country
Father C O U G H L I N . That wras after the war.
Mr. W H I T E . I beg your pardon, the war closed in 1918 and this
was in 1920.
Father C O U G H L I N . Yes, and they bought our silver with our gold.
It was still the war.
Mr. W H I T E . D O you recall at that time, that to protect the price
of silver in the Orient, we borrowed 45 million dollars from the
United States Treasury and the gold was melted and shipped to the
Orient and protected the price of silver?
Father C O U G H L I N . Y O U are talking about what the Federal Reserve bankers did, not what the American people did.
39539—34
6




80

GOLD RESERVE ACT OF

19 3 4

Mr. W H I T E . When we succeed in protecting the price of silver, we
have raised the price of other commodities.
Father C O U G H L I N . In that you are right, but they will never do
that again with us.
Mr. W H I T E . Not if we remonetize silver.
Father C O U G H L I N . Not if we remonetize and nationalize silver.
Mr. B E R L I N . Mr. Murdock, have you a question?
Mr. M U R D O C K . I have a question which has been submitted in
writing by Mr. Wreideman of Michigan.
WTrile w^e are the creditor nation, the price of wheat, cotton, gold,
and silver, is fixed in a debtor nation, England, but are not the prices
fixed by the international bankers?
Father C O U G H L I N . Of course; where is the head of the international
bankers, it is in Threadneedle Street, England.
Y o u are acquainted with the philosophy that flowed out of England,
not the English people, and I wish that understood, they are just as
fine as we are, but they have been dominated, too.
Let me explain that a little bit. I remember going to school under
Professor Mayward, and at that time we had a rather thin-skinned
professor of British history who was always telling us about the persecution of the Irish people. Professor Mayward, of Scotland, took
exception to this professor talking about it, and he said, " Y o u boys
don't understand the persecution the English people have undergone.
They have suffered more than the Irish, and they have no means of
expressing their suffering; they have been dominated by the international banker."
That was in 1911 when old Professor Mayward told us how the
English people have suffered more than we are here.
I think in one sense, so far as financial philosophy is concerned,
it was the most iniquitous we have had to deal with. They regulate
the finances of the world; and through it they regulate to a degree
the House of Lords in England and the House of Commons in England.
It was they, I believe, who undertook, and rightly, to hire the
best talent in this country. Who did they hire, a little banker in
Wisconsin or in Idaho? No, they hired the best banker, the biggest
banker and the most immortal banker in the world, J. P. Morgan Co.,
to be their representative; and here they have dominated our Federal
Reserve bank. And, if you will notice, the President in his statement
yesterday, omitted the word "Federal," is the Reserve Bank, because
he is too smart a man for that.
I will admit graciously we have been dominated by banking, by
central banking, and by individuals, who through commerce and
trade have been the bottle neck, the man at the tollgate, exacting
a toll on every automobile and shoe and everything else made, and
now it is the time for taking gold, their play toy, away from them,
and not let them clip the coins and debase the coins passing through
their hands.
Mr. M U R D O C K . Y O U said in this follow-through program they
probably would use this field for profit that comes to the Nation, and
by the revaluing of gold and the payment of bonds, the Liberty
bonds, or bloody bonds, as you call them, and in that case wouldn't
those bonds largely be in the hands of your big bankers?
Father C O U G H L I N . Correct.




GOLD R E S E R V E A C T

OP

19 3 4

81

Mr. M U R D O C K . Are not you a little afraid if this matter gets into
their hands, they m&y tighten up on it like they are now doing?
Father C O U G H L I N . N O ; I am not afraid of that for this reason,
that there is what we call, as far as bankers are concerned, " h o t
money." Hot money is currency money. The bankers cannot hold
onto currency because it gains them no interest like a bond does.
Hot money must be put out to gain interest, and where can he put
it, if he doesn't put it in bonds; he will have to put it in good, solid
American agriculture and industry.
Mr. M U R D O C K . Don't you think one of the most efficient means,
of following through this program would be the payment of the
soldiers' certificates, and get the money out into the hands of people
who will keep it in circulation?
Father C O U G H L I N . T W O years ago, Mr. Murdock, I appeared before the House Ways and Means Committee to advocate that, when
Mr. Hoover was still President. Had Mr. Hoover followed the suggestion and put $2,000,000,000 into circulation in the hands of our
veterans, we would not be meeting here today to discuss this thing.
Mr. B E R L I N . Gentlemen, I dislike very much to prevent the remaining members from enjoying the liberty of questioning Father
Coughlin. However, you must bear in mind that he has been here
2l/2 hours now. After all, as brilliant as he is, he is only human, and
I am quite sure he doesn't want to be imposed upon. So may I be
permitted, on behalf of the committee, to express our appreciation of
the brilliant manner in which you have expressed yourself today,
Father Coughlin. If at any time in the future you will be good
enough to return to us, we will be delighted to have you whenever
you care.
Father C O U G H L I N . Thank you, Mr. Chairman, and gentlemen of
the committee.
Mr. B E R L I N . The committee will now adjourn until 1 0 o'clock
tomorrow morning.
(Whereupon, the hearing was adjourned until Wednesday, January
17, 1934, at 10 a.m.)







GOLD RESEKVE ACT OF 1934
T H U R S D A Y , J A N U A R Y 18,
HOUSE

OF

1934

REPRESENTATIVES,

COMMITTEE ON][COINAGE, W E I G H T S , AND

MEASURES,

Washington, D.C.
Hearing on H.R. 6976, a bill to preserve and protect the gold
standard (etc.) was resumed before the committee at 2:45 p.m.,
Hon. Andrew L. Somers (chairman) presiding.
The C H A I R M A N . We will resume the hearing on H.R. 6976.
We have before us Mr. John Janney, who has appeared before us
on two or three other occasions during the time when we were considering other questions, so that I think it is entirely unnecessary for
me to go into an introduction of any length. We all know him
intimately.
He has, I assume, read this bill pretty carefully.
I think, Mr. Janney, that we would like, if you will, to have you
confine yourself to the details of this bill, showing how in your opinion
it is intended to operate. We do not have much time to go into
theory, and I think that we are pretty well grounded in the effects
of commodity prices and the conflict between our stabilization fund
and other funds, but if you will explain how you think the various
paragraphs of this bill are going to operate, we will be very appreciative.
STATEMENT OF JOHN JANNEY, CHAIRMAN OF THE BOARD,
AMERICAN SOCIETY OF PRACTICAL ECONOMISTS
Mr. J A N N E Y . The fundamental thing in this bill as to its effect on
the monetary system is this change of the gold content. The rest
of the bill, aside from that, relates to certain management in the
departments of the Government.
The change of the gold content of the dollar is a thing that, the
more you study it, the more you realize the subtleties of it. How
I could bring the minds of this committee down to its various ramifications in so brief time as is available, I do not exactly know. I
suppose that each member of the committee has thought a great deal
about it.
The thing that gives me the most apprehension is the habitual
misstatement of the factual situation. For example, we hear it said
that we can "raise the price lever' by changing the gold content of
the dollar.
That is fallacy which, it seems to me, Congress should thoroughly
visualize and understand. If you change the price of a bushel of
wheat in terms of dollars, and at the same time change the value of
the dollar, you have to watch out, because you are considering two




83

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GOLD RESERVE ACT OF 19 3 4

opposite value motions. You may not at all be increasing the value
of the wheat. Price is one thing; value is another thing. If you
lower the content of the dollar 50 percent, and get double as many
dollars for a bushel of wheat, you are not changing the value that you
get for that wheat. You get exactly the same value for it. By the
term "price level" wTe refer to the " v a l u e " of what you get not the
name of what you get.
You have to consider the ramifications of that question, because it
may lead you into the most dangerous position this country could
possibly be in, namely the foreign control of the value of our property
and our products. That is what is holding back India today and
other countries that are being exploited. I want to emphasize this,
because there is a pitfall here and a trap for us. The United States
of America may by this bill put the very important matter of your
price levels entirely out of the hands of any official body of this country, and into the hands of foreign bankers—not foreign governments,
but foreign bankers. I would like to explain a few things that are
very important to consider in connection with this bill.
The Bank of England is a private institution. It consists of private
partners. They have little official or legal restrictions from the
British Government. You will find all of that fully set out in the
McMillan report. It comprises a group of men associated together
very much like those associated in the firm of J. P. Morgan & Co.
During the Napoleonic Wars, in consideration of about 14 million
pounds sterling loaned to the Government they received or enlarged
the right to issue Bank of England notes. That is to say the right
to issue currency. That right, coming from the Government, gave
to the bank certain powers which was perfectly safe for the British
Government to give them, and it has worked very well. But for
our Government to give the same power to any group of men in this
country, would not be safe and it will not work well because in our
case the task is to raise the value of our production and in their case
the task is to lower the value of products they buy. A bank can
easily function under their money system so as to depress present
price levels, but a bank cannot function so easily or at all to elevate
price levels.
If we are going to be guided by monetary experts in the United
States who have been schooled directly or indirectly in Europe we
must analyze carefully this distinction. I had the privilege of talking
to Dr. Sprague, with Mr. Blagden of New York and a stenographic
reporter, about 2 months ago, in the Treasury Department. The
Secretary of the Treasury, Mr. Woodin, arranged this interview just
before he retired and I have a record which I can show—and it is a
very illuminating document—when the time comes if the committee
wishes to go into that. I have talked to other advisors of our Government lately on this subject. I have been driven to the belief that
many of our economists in this country have been schooled in the
procedure of English finances, and the Bank of England system, and
we must watch our step, for if we get into that, we are lost.
Here is the basis of this distinction: The wealth of England is based
upon trade, commerce, colonization, and manufacturing. The wealth
of the United States is based upon vast natural resources and the
production and manufacturing of the yearly yield that flows from them.
I will not elaborate this distinction. I have done this already in former




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85

hearings of this committee. I will merely say this is a fundamental
economic difference. It accounts for why England has achieved the
1913-14 price level and why we wish the 1926 price level. England
and America can never agree to any matter affecting value levels
except to the disadvantage of America. That is a historic fact as well
as an economic factor.
Those who do not fully understand this will do well to study into it
carefully.
In this connection there is a detail in banking that also becomes a
factor in this situation. A banker, at will, can contract his credits.
A banker, at will, cannot expand his credits. For a banker to expand
his credits requires a borrower who is able and willing to borrow.
For one to be willing to become a borrower, he must have a prosperous
business condition whereby he can return the money and retain a
profit from the use of it. For this reason the credit expansion of banks
does not work in times of depression. The credits cannot go out for
the lack of confidence in borrowers.
The Constitution of the United States. took that matter into
account when it said that Congress shall regulate the value of money.
For Congress to regulate the value of money in the case of a producing Nation like the United States is all right, and for the Bank of
England to regulate the value of currency in the case of a consuming
nation like England is all right, but the two are entirely separate and
distinct economic applications and if the United States abandons
that distinction, we are going to live to see the day where that will
become one of the most tragic things that ever happened in the
history of this Nation. To express simply and in a few words what
this economic difference between England and America means
when translated into the monitary situation I will say England will
do well to strive for high purchasing power of gold together with a
managed currency. America will do well to have a low gold-buying
power and a managed money base with a currency attached to gold,
not a managed currency. And this can easily be done, if we wish
to do it. It is my view that in this bill you are not regulating the
value of money but you are setting up a managed currency. The
two are quite different things.
How can I in a few minutes explain to you gentlemen the point
so that you can mentally digest it? It is impossible for me to do
that, but I can point the warning to you, to take home with 3rou for
consideration, and I recommend that Congress does not act on this
bill until you have thoroughly digested that principle. This bill
should have deliberate consideration and exhaustive debate if we
are to avoid going into a trap that will impoverish the masses of our
people.
How can it be said that you are removing the cause of your trouble
when you get in 60 percent money, 10 cents a pound for your cotton
instead of 6 cents a pound in 100 percent money. There is a very
serious deception there, because for a time it will look as though you
are getting out of your trouble.
Let me illustrate this temporary illusion by supposing that we pass
a law tomorrow declaring the gold content one fourth grain to the
dollar—we make a penny $1. You sell a bushel of wheat now worth
$1 and you get $100 in the new money. At the store the price of a
pair of shoes is $5. You buy the $5 shoes with one twentieth of the




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GOLD RESERVE ACT OF 19 3 4

bushel of wheat and you have $95 left. That works because of your
system of bookkeeping. That man who bought that pair of shoes
for his store paid $3 to the wholesaler or manufacturer. He put them
on the shelf to sell for $5 several months ago. Now he gets $5 and
that's his method of transacting business. It takes months for that
difference of price under the new money denomination to percolate
through. When you get 10 cents a pound for your cotton under this
continual changing value of your dollar, your costs and your losses
are charged off under a different and lower scale.
In a situation where we change the gold content of the dollar, it
takes months for changing costs to percolate through, and then if we
change it again, it takes additional months for that to percolate.
In view of this, our past experience with a devaluated paper dollar
cannot be accepted as a safe guide to future permanent devaluation.
Especially where billions of dollars of borrowed money from the
Government have gone into the maintenance of activities of a temporary and artificial character. Profits to private enterprise, which
is our only way out of our difficulty, will only come from higher price
levels and not from higher sounding names to the same old values.
Does this bill mean that the United States of America is going to
imitate England, and go to a managed currency system, without
imitating England by first managing the value of the metallic monetary base?
When the United States goes to a managed currency without first
controlling the monetary base, there is only one thing in the offing
there, and that is an agreement between England and the United
States whereby we will go in and say that $4.20 is a pound or $4.80
is a pound, or we will fasten the two currencies together by an agreement of some kind, and when we do that England, with her colonies,
and with her banking system all over the world, will be able to control
the value of all currencies by controlling the purchasing power of
sterling in terms of its value in units of the metallic base. Then they
can put sterling up and the dollar will go up with it, and as they put
sterling down the dollar will go down, and they will be in control of
the value of the dollar, the value of our commodities, and the value
of billions of nominal dollars of our property.
In other words, those who are in favor of lowering, or interested in
destroying property values in this country, would be placed in a position to control our dollar and hence our property as to its price level.
Now, I am not trying to argue against this proposal. I am trying
to point out the dangers in it. I am trying to point out what should
be carefully thought out on this matter by Congress before they vote
on it. This bill is loaded with dynamite. Our past history is strewn
with mistakes in our agreements with foreign nations. This may
prove to be the most tragic of them all.
I have prepared a chart, if I have it with me—I did not expect to
be here today—which shows diagrammatically the picture of price
levels in relation to the basic money of the world.
From the high point of this chart you have a picture of the exact
repercussion following the operations on the money base. In 1929
something happened to depress the value of the monetary base from
a point on the scale here [indicating] to a point on the scale there [indicating]. This is a diagram of a fact, not a theory. After about 12
months you will see that the prices of the commodity level followed




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87

it exactly. The price level of the commodities is affected by the
issues of credits as we all know. But if it has any effect it is shown
on this chart, but the amount of credit that you can superimpose
on your monetary base is determined largely by the stability of your
monetary base. And you can note how it has acted because any
action is here shown. The problem for this Congress is to control
this line.
It seems to me that if this bill were amended so as to give American
control of price levels by control of this lower line (value of metallic
base) you have solved your problem.
M y contention is that with any managed currency, you have European control of price values, and with a managed base you have American control. England may have all of her colonies and may have
all of her banks, but England has not greater commercial friendship
among many of the nations than the United States has. The United
States has the commercial friendship of nations like India and China
and other important commercial nations that are going to grow in
importance if we can lift the standard of their living. With basic
money we can secure their trade, and I cannot conceive how this
great nation can willfully abandon the idea of controlling the monetary
base which they can easily do at practically no cost, and throw
themselves into the domination of European nations by a managed
currency system. Certainly not until they have first thoroughly explored the possibility of this country managing the monetary base or
determining whether or not they can do it.
In the matter of the monetary base, you have no entangling alliances
in front of you with any nation in the world, nor any complicated
agreements. You do not have to stabilize your currencies by agreements with nations. All that you have to do is to exercise your
economic power within the Nation to arrive at this level [indicating]
on this chart, and we can put that curve, that line on that chart,
at any point we wish, and we can hold it there, and we can do away
with the oscillating up and down on that curve by a process that
this committee has already passed upon in the form of the Fiesinger
bill.
Now, this monetary drop here [indicating] was due not to the destruction of the gold values, but to the destruction of silver values,
because there was a good gold production in these years. The same
reaction always shows on the chart.
If the United States of America takes in hand the enhancing of
the gold value of the silver in the world, it can take that curve and
put it up to the point that would produce the 1926 price level. This
would fulfill the Presidents declared policy in value as well as in name.
I cannot imagine anybody contradicting that, after you thoroughly
understand what I have said. If the United States of America, acting
alone, can control the monetary base as it can do, and if this is contradicted it should be also debated, the commodity price level will
most certainly continue as it has for the last 100 years to follow the
monetary base.
Also I cannot imagine the United States of America giving to the
Secretary of the Treasury the powers that are involved in this bill
until this fact is first availed of, or else successfully contradicted.
Also I certainly think that the time should be limited, as one of
the members of this committee has just urged. It is inconceivable




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to me to give the powers that this bill involves to Government officials
for any length of time more than is necessary. It may require a
two-thirds vote to withdraw this power over veto. Such a vote
could hardly be secured, due to the very nature of the power involved.
Mr. C A R P E N T E R . D O you make a distinction between the Secretary
of the Treasury and the President of the United States?
Mr. J A N N E Y . N O ; I would not give any official that power, because
we all know that all of these officials get so busy that they have to
delegate these powers. Theoretically they are doing it, but practically
they are not.
Mr. M C G U G I N . In the case of an equalization fund, would the
witness believe that it would be infinitely better to set up an equalization board of five members, to do nothing but the handling of that
fund?
Mr. J A N N E Y . I think that it would be very much better.
The C H A I R M A N . D O you think that the passage of this bill would
prevent us from regulating the value of our dollar for the future?
M r . JANNEY.

I

do.

The C H A I R M A N . D O you think, Mr. Janney, that there is any legislation that we can add to this at a future date that will take care of
the policy of some foreign country controlling our dollar?
Mr. J A N N E Y . N O ; I do not think there is. If we get into this, we
will get into such a messy situation that we wall never get out of it
except by a war.
I want to point out one or two things. We went into the Jay
Treaty just as we have gone into this; the Senate was hurried into
the ratification of the Jay Treaty on exactly similar propaganda conditions that we have as to this. Nobody in the country understood
the Jay Treaty, and there were tremendous prejudices reflected in
the meetings which passed resolutions as to it. We fought the War
of 1812 because of the transgressions of our rights on the seas but
at the peace conference, what happened? There was nothing said
about our regaining our rights to the seas which we held before
the Jay Treaty. During the W^orld War, the English, operating
under the Jay Treaty, captured and took possession of our consignments over the ocean in such a high-handed fashion as was little
understood in this country. It is a grave question whether that
might not have led us into war if the conditions had been different.
I think, Mr. Somers, that this is leading us into a similar treaty
with England
The C H A I R M A N . This is an effort at stabilization, is it not?
Mr. J A N N E Y . N O . This is not, if you will excuse me and if you
want my opinion, because by stabilization I will assume that you
mean a stable value of your products, a stable buying power of your
commodities, or a stable price level. This is a stabilization of your
products in terms of dollars, but the dollar will not be stable if it is
tied to sterling. It will be subject to the Bank of England in the
matter of stabilization. And after we enact this bill, from then on
our power to stabilize gold as to its buying power is gone.
The C H A I R M A N . On that I quite agree with you. Nevertheless,
this is a stabilization of the commodity price level in America to the
American dollar. In order to make that a world stabilization, the
pound sterling, the French franc, the German mark, and so forth,




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must be in turn stabilized in terms of the American dollar, and I
think that you and I agree pretty much on that theory.
But here is what I want to get clear in my own mind. Stabilization is going to be brought about some day. We can not always go
on battling one against the other.
The British pound has a tendency to fluctuate in value, and in this
bill we permit the American dollar to fluctuate 10 percent, and the
British pound, in fluctuating 10 percent, would fluctuate to a degree
that would amount to approximately 48 cents.
Now, is there any likelihood in the immediate future of the British
pound fluctuating beyond 48 cents, or beyond the fluctuating capacity of the American dollar under this bill?
Mr. J A N N E Y . Yes. There are two things there. In the first place,
that fluctuation of the American dollar destroys the American dollar
from competition with sterling in the foreign market where sterling
is staple in terms of English securities used as a basis for credits.
A managed currency issued by this Government cannot compete
with a managed currency issued by sterling, on account of the fact
that the English control the foreign banks and largely the ocean-going
ships of the world, and can in that situation extend sterling loans to
central banks of other nations freely. They can place commercial
treaties along with these loans.
To compete with sterling, we must have a dollar with a fixed metal
content. For these reasons we cannot compete with their managed
currency.
That is a thing that you want to make very clear.
The C H A I R M A N . I agree with you. However, I wish that you
would make clear in my mind
Mr. J A N N E Y (interposing). Now, then, the other question, if you
will excuse me, is the manipulation of the pound. Once we go into
this arrangement which I consider a trap, the English will manipulate
the pound to the extent that they wish to manipulate it, and in a way
that will absolutely control our price levels and we will not have the
power to counteract that. The reason is, England will still control
the money base. This 2 billion dollars, if we want to, can be placed
into this contest and dissipated. England has the greater power in
the commerce of the world, through her control of banks, shipping,
colonial possessions, and world trade, and it would be the dog wagging
the tail as far as sterling wagging the dollar is concerned, if we tie our
hands by passing this bill.
The C H A I R M A N . Let us get back to your original answer. You
said that if the British pound should operate against the American
dollar, we must have a currency that is not tied to gold.
Mr. J A N N E Y . N O ; we must have a currency that is tied to gold and
fixed in its gold content, so that in the commerce of the world they
will have more confidence in our dollar than in sterling.
The C H A I R M A N . I misunderstood your answer. I agree with the
expression that you just made. I wanted that made perfectly clear.
Now, when the British equalization fund operates against a dollar
pegged to gold, we must have some instrument of defense against
that.
Mr. J A N N E Y . Yes, and our defense is to control or regulate the
purchasing power of gold itself.




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GOLD RESERVE ACT OF 1 9 3 4

The C H A I R M A N . We are attempting in this bill to create just that
instrument of defense by establishing two billions of dollars in the control of one man. You can make the control so flexible that the man
can do anything he wants and raise the value of the American dollar
to meet the competition that you spoke about. Now, I contend that
while to go back to gold might be dangerous now, in an attempt to
stabilize, nevertheless, with the creation of this new defense, we are
protecting ourselves against the very operation that you complain
about.
Mr. J A N N E Y . I will tell you wdiy I do not think that. Suppose
that we stabilize as you call it under this bill by the devaluation of
the gold dollar between 40 and 50 percent. That makes the dollar
worth, say, 50 cents, and temporarily it puts the dollar where we are
striving for. But suppose England then sells on the market suddenly
$100,000,000 worth of gold, so as to lower gold-buying power?
The C H A I R M A N . Then we can protect ourselves by purchasing
that gold.
Mr. J A N N E Y . Suppose they sell another $100,000,000 worth of
gold?
The C H A I R M A N . Where will they get it?
Mr. J A N N E Y . They have it.
The C H A I R M A N . They happen to have it, but this is not the only
demand on British gold. They have not that in excess of their
demands.
Mr. J A N N E Y . But, Mr. Somers, you must recognize the fact that
the English own the gold mines of the world and we have no direct
information as to their gold holdings, except the Bank of England
holdings. England first discredited silver as a monetary metal, and
now gold is not functioning satisfactorily. Gold becomes discredited
from its buying power being elevated and forcing countries off of the
gold basis. This brings sterling currency into general use. I do
not think that we will ever see the gold standard come back as it
was; we will never see the old cornered-gold standard again. If the
United States does not set up a regulated gold standard where the
gold value is not allowed to fluctuate, we will have little control of
the world price levels.
In other words, we have to look to the possibility that if we do not
defend the monetary base, there will be no stable primary money in
the world, and the world market will then accept sterling exchange as
a preferable world money. Then England can sell gold or buy it
freely.
The C H A I R M A N . We will assume that what you have just described
comes about, and that they do that very thing. There is still one way
that we can meet it, by doing for silver what she refused to do, is
there not?
Mr. J A N N E Y . I do not think that that would be sure.
The C H A I R M A N . It would not be sure, because you have the
Japanese yen which will come into the picture to disturb both of
them, but I do think that you will agree with me this far, that we
could defend ourselves—not protect ourselves but defend ourselves;
do you see the distinction?—by the use of silver if the condition that
you describe came about.
Mr. J A N N E Y . I would like to explain why I do not think that you
could do that.




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91

The C H A I R M A N . I want to complete this thought. The Japanese
yen would come into the picture at that time, that being purely a
managed currency predicated upon nothing except a budget not
balanced in 29 years and a beautiful, altruistic desire to ruin the
Chinese people by capturing her territory, and Japan would come
into the picture and disturb us both, so that it might be difficult for
us to control our dollar even if we used silver unless we had a flexible
system to operate against the Japanese yen.
I say that because that is my theoiy of money in a nutshell, and
it is my hope, as chairman of the committee, that the progress of the
monetary system will lie along some of those lines, and I would
appreciate very much your reaction to that.
Mr. D I E S . I would like to get something cleared up.
Mr. F I E S I N G E R . Let him answer this question of Mr. Somers.
Mr. J A N N E Y . This is a very important question.
Take this dollar that we have now and devaluate it down to 60
cents, that gives a gold dollar that is right for the moment, if then
England, to get her gold price level, sells gold down to where it was
in 1914, then as gold comes down, the new dollar will come down
with it. Our dollar will then be worth 35 cents in present gold buying power. We are creating that very situation by this law. We aregiving England this power and not providing for ourselves any defense from it.
Silver provides no remedy in such a situation. Using silver still
further lowers the value of your gold, so you will get the dollar down
to about 25 cents.
I am glad you asked that question, it is vitally important. It
brings out that this bill gives away or forfeits our power of control.
Great Britain would have world price level control, in terms of world
values, absolutely in the hollow of her hand if we would do this thing.
She can lower gold and thereby lower our dollar if we fasten it to gold
as provided in this bill, and we would be perfectly powerless to control
the situation because of the way we have drawn this bill. Permit
me to give you a piece of mental gymnastics to go through in your
minds so as to uncover the subtlety in this bill. If you will increase
the gold content of the dollar, if you will add 25 percent to the gold
content of the dollar, so that you have 28 grains of gold in the dollar—
and I am not proposing this; this is merely to help you understand
something—what will that do to the value of your dollar? It will
make it go up 25 percent, which of course makes it too high.
But, then, if you will reduce the ounce of gold in its buying power
50 percent which you can do, that brings your dollar down to the
purchasing power that you want, but what have you done to your
wheat and cotton and copper? You have increased their buying
power and insured American prosperity. When you send your
cotton and wheat and copper to Europe, its buying power is 25 percent greater in terms of their gold money. That illustrates how our
interest is defeated by lowering the gold content of the dollar.
But, if you will continue the gold at its present content, and bring
the value of gold, and all gold moneys are included in that, down
to where you want the dollar, then you have England and France and
these nations that want a low commodity price level defeated, and
you have won a victory. If you lower the value of the gold content,
you have the American producer defeated and England and France




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GOLD RESERVE ACT OF

19 3 4

have won a victory, because to bring gold down then will make the
dollar too low.
Mr. D I E S . Here is what I want to knowT, in some sort of language
that one can understand.
The C H A I R M A N . I hope that that is not a dirty crack. [Laughter.]
Mr. D I E S . N O ; I do not mean it in that sense; but, getting down to
the practical operation of the thing, you will agree that if we devalue
the gold dollar or reduce the content 50 percent, commodity prices
will rise.
Mr. J A N N E Y . Yes, in terms of dollars.
Mr. D I E S . It will double the price of your cotton and of stocks and
commodities, as distinct from fixed charges, such as debts, taxes,,
and so forth; in other words, the prices of those commodities wTill
double—is that not a fact?
Mr. J A N N E Y . I will say yes, but you must remember that stocks
will not double unless the corporations are put in good shape, but I
understand what you mean.
Mr. D I E S . That will aid those who have those commodities, in
paying off their debts.
Mr. J A N N E Y . Certainly.
Mr. D I E S . We ha^e approximately 230 billion dollars in public
and private indebtedness, so that the debtor engaged in the production of farm products, and the debtor who has tangible property as
distinguished from fixed charges, debts, and so forth, w:ll profit to
the extent that one half of his debts wTill be liquidated?
Mr. J A N N E Y . That is right.
Mr. D I E S . N O W , that is one salutary result that will flow from this
devaluation.
Mr. J A N N E Y . That is one result.
Mr. D I E S . D O you think that that would be a good result, in view
of the fact that we are staggering under a crushing burden of indebtedness, assuming that we are staggering under it?
Mr. J A N N E Y . I am glad to answer that question, it is very important.
It will do as you say as to debts but it is not a benefit to cancel
debts in this way, in my opinion. If you want to cancel them, do
not wreck your money system in the process; do not put your money
system into a junk pile in order to cancel 50 percent of your debts.
Let me point this out to you, Mr. Dies: Debts are not paid by
partial cancelation, but from profit from business. What you want
to do for the debtor is to increase his earning power—is that not
right?
Mr. D I E S . That is true; I see your reasoning, but what I want to
get are some of the results of this bill, whether good or bad.
Mr. J A N N E Y . I think that they are bad in that respect. I think it
is better if we do not cancel debts in that particular wray. If we provide this country with a workable money system which meets the
condition in America, if wre evolve a sound money system and put
business on a profit basis, then the creditor is in a position to get
paid the other half at least.
Mr. D I E S . I understand that.
Mr. J A N N E Y . After you have done that, then is the time to decide
what you want to do as to the cancelation of debts, and if you do
want to cancel debts, pass a law wrhich says that 50 percent of all




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debts are canceled, or 40 percent, or 60 percent. Thereby you will
have the two things separately. You will have a sound money
system which will put the debtor in a position where he can make a
profit, and you will have your debts canceled also.
Mr. D I E S . I am trying to get the results of this bill. You say that
you agree with me that it will devalue commodity prices and enable
the debtor to pay off his debts at 50 percent of what they are now.
Mr. J A N N E Y . Excuse me; I do not want you to understand that J
say that the debtor can pay off his debts. Understand me; a debtor
has got to make a profit before he pays any debts, and under this bill
I do not think that we would restore profits in this country, for this
reason, that we do not increase the commodity price level in terms of
value.
Let me see if I cannot make that clear to you. A nation like the
United States, that produces 18 billions a year out of the ground has
as its fundamental source of wealth, productive industry. The problem of the United States is to restore that price level which gives a
profit to its producers.
Now a price level which gives a profit to a producer is a level of
prices not in terms of dollars, or any other name that you write on a
piece of paper, but in terms of wealth.
The point that I want to draw is that you have not permanently
raised your price level in terms of wealth by this change of the gold
content. Of course there is a temporary condition that will last for
a year or two but it will fade away.
Mr. C A R P E N T E R . What do you mean by "terms of wealth"?
Mr. J A N N E Y . In terms of what you could exchange it for in other
things.
Mr. D I E S . D O you mean relatively, between one commodity and
another?
Mr. J A N N E Y . Y O U send a bushel of wheat to Europe, say, and you
get $2 for it
Mr. C A R P E N T E R (interposing). D o you not mean, by your reference
to exchange, international trade?
Mr. J A N N E Y . I am getting to where the exports determine the value
of your home products. If you cannot get rid of your surplus production by export, it comes back on your home market and destroys your
profits because of that competition.
In other words, if I can ship wheat to Europe and get $1.20 a bushel
for it, you have to give me $1.20 a bushel for it in Chicago.
Mr. C A R P E N T E R . But if you did not have to worry about the international trade, would that not simplify our method and make this
plan that we have much more workable?
M r . JANNEY.

NO.

Mr. C A R P E N T E R . I do not like to think in terms of international
trade.
Mr. J A N N E Y . Nobody does in this country, because we have been
propagandized into thinking that our international trade is a disadvantage. They tell you our foreign trade is only 10 percent, and
let me tell you something about that. A farmer will grow a cow, and
send the cow to market. The cow is skinned, and the hide goes to
the tanner, and that goes on the books, and the tanner sends it over
to the leather manufacturer, and that goes on your books. The
leather manufacturer sends it to the shoe manufacturer, and he makes




94

GOLD RESERVE ACT OF

19 3 4

shoes out of it. That hide is entered on your books 10 times in your
internal trade. In your export trade it is handled only once.
When we have a foreign trade of 6 billion dollars, and you have a
production from our natural resources of 18 billion dollars, that
foreign trade might represent an export of 3 billion dollars, or all
of the surplus of what we have produced. Don't let yourselves be
deceived by figures, for figures are of no value until after they have
been analyzed.
The point is not whether your foreign trade is 3 percent or 2 percent
or 10 percent, but whether you can send out your surplus, even if 1
percent, and get a profit for it, for even if it is only 1 percent, that 1
percent accumulates and in a few years will destroy your profits.
Mr. M C G U G I N . I do not believe that you meant exactly what you
said in answer to Mr. Dies' question, that reducing the dollar 50
percent would double the price of all commodities. It will not double
the price of a commodity of which we produce a surplus and have no
foreign market for, such as wheat.
Mr. J A N N E Y . That is right.
Mr. M C G U G I N . It might do it for cotton, but as to hogs, cattle,
sheep, wheat, dairy products, all of those products which we are
producing more than can be consumed and which we have no foreign
market for, if you make dollars out of nickels it will not materially
increase their profit.
Mr. J A N N E Y . That is absolutely right, and that is a very good point,
and that point ought to be explained a little bit.
If you have a product on which the price is doubled by a change in
the gold content of the dollar—•—
Mr. D I E S (interposing). Let me ask you this
Mr. J A N N E Y (continuing). And you cannot export that surplus
because, you have your price doubled at home and it still only brings
2 shillings abroad, then you do not send that product abroad, but
you leave it at home in order to get that $2, then the price at home is
forced down.
Mr. S W A N K . W h y did Congress ever fix the gold content of the
dollar at 23.22 grains, and what is there sacred about fixing it at that
price?
Mr. J A N N E Y . Absolutely nothing sacred about fixing it, but there
is a great deal sacred about, after having fixed it, maintaining it.
Mr. S W A N K . Why did they do that?
Mr. J A N N E Y . Because they made a coin 9 0 percent fine, and they
put the alloys in it and it happens to work out that many grains of pure
gold in the coin.
Mr. F I E S I N G E R . Did they not follow the British pound on that,
and was it not an act of England that fixed the price of gold, and did
we not fix the dollar according to the pound?
Mr. J A N N E Y . I think that we had a Spanish silver coin that more or
less directed that.
Mr. M C G U G I N . There is another thing in connection with this
bill
Mr. J A N N E Y . If you will excuse me, I want to answer this question
about why we fixed 23.22 grains.
It does not matter a bit what we fix; that is an arbitrary thing to
start with, just like when you fixed a yard, you might ask why we
fixed it at the length that we did. We could have fixed it at any




GOLD RESERVE ACT OP 1 9 3 4

99

length that we chose, but here is the point, after you fix it and have
everything based on it, then you cannot change it without affecting
all of those things that represent past transactions.
Mr. S W A N K . If Congress has said that there should be 40 grains, we
should not change that?
Mr. J A N N E Y . We need not change that, if we can regulate the value
of those 40 grains, which we can do as soon as we understand the law
of supply and demand as applied to gold.
Mr. S W A N K . That is what we are doing or trying to do in this bill.
Mr. J A N N E Y . We do not regulate the value of gold; we change the
volume or weight of our dollar currency. We should regulate the
value of the ounce of gold, and this Congress has never enacted a law
in its history that tends to prevent the commodity gold from either
going up or down. You do not regulate the value of gold when you
change the gold content of the dollar. And even as to the dollar,
you are changing it, not regulating it. Suppose that you are driving
your automobile, and it is going to one side; would you change it and
leave it there? The value of gold, like wheat or any other commodity,
is determined by the law of supply and demand.
Mr. E L T S E . By regulating the value, you do not mean shoving it
up or down? You mean regulating something else that brings it
about?
Mr. J A N N E Y . Yes. Controlling the value of anything is not determined directly by the laws that you write in your statute books,
but by economic laws and the effect of your statute has either upon
supply or upon demand.
Mr. E L T S E . Y O U mean regulating the thing that the dollar buys.
Mr. J A N N E Y . Y O U can put in your statute books things that should
control the demand or the supply of the material in your dollar and
thereby you work with economic law.
Mr. M C G U G I N . From your statements, do I understand that this
bill reduces the content of the gold dollar?
Mr. J A N N E Y . That bill gives the power to reduce it but fixes those
limits which deprives us of free action and leaves price levels low in
terms of foreign money.
Mr. M C G U G I N . S O far as that is concerned, the President already
has the power, under the Thomas amendment, to fix that anvwhere
between 50 and 100?
Mr. J A N N E Y . Yes. And that gives free play if left that way.
Mr. M C G U G I N . And as far as this is concerned, after we pass this
bill he still has the power to leave it at 100 or to fix it somewhere
between 50 or 60?
Mr. J A N N E Y . Yes. Subject to the limits fixed in the law.
Mr. L A M N E C K . He has not the power under the Thomas amendment.
M r . MCGUGIN.

Yes, he has.

Mr. L A M N E C K . But he cannot use it.
Mr. M C G U G I N . Why can't he? This bill does not change that a
bit. It simply clarifies the Thomas amendment.
Mr. C A R P E N T E R . D O you know of anything in this bill that is of
benefit to this country, and, if so, what is it?
Mr. J A N N E Y . I do not think that it does anything that is good,
and I think it does a great deal that is bad, but I will say that if you
39539—34
7




100

GOLD RESERVE ACT OF

19 3 4

take the spirit of this bill, and put the objective of this bill into a
law, which is to get the 1926 price level, and to get a dollar that will
not vary in a generation, which are the objects of the President's
policies that would be very desirable. The President's policy is
right. This law does not carry it into effect.
Mr. E L T S E . It is not clear in my mind what we mean by regulating.
Is the yardstick, so to speak, the measure of value, to be a fixed
permanent thing, in that the value does not change, but to regulate
supply and demand, for example? Is that what you mean? In
other words, you do not regulate the value of the dollar by moving
it up or down, but you regulate the thing that controls what I might
term the market value of the dollar?
Mr. J A N N E Y . Might I state that in a little different way?
Mr.

ELTSE.

Yes.

M r . ELTSE.

Yes.

Mr. J A N N E Y . By regulating the value of the thing, you mean the
regulating the amount it will buy?
Mr. J A N N E Y . N O W , if you want to coin money out of gold, then the
Constitution says, as I construe it, that you must regulate the value
of gold. To regulate the value of gold, you have two simple factors;
you have a certain supply of gold and a certain demand for gold, and
the demand divided by the supply gives you the value. England
comes along and tremendously enhances the demand for gold by
certain things that she did. Why can we not enact laws that affect
the use or demand for gold?
Mr. D I E S (presiding). We have a caucus at 4 o'clock, and it is
nearly 4 now. I dislike to interrupt you, but what is the pleasure of
the committee with reference to that?
(After an informal discussion on the question of continuing or discontinuing the hearing:)
Mr. D I E S . The thing that I had in mind is, suppose that, instead
of calling a bushel of wheat now bringing 50 cents a bushel, we say
that that 50 cents is $1; will not that wheat bring $1 a bushel?
I will admit that that will not help when you take a bushel of that
wheat for something that you need, but if you raise 1,000 bushels
of wheat, instead of getting $ 5 0 0 for them, you have $ 1 , 0 0 0 , and
you can take that $1,000 to your creditor and pay him off, and
it amounts to no more or less in that respect than a liquidation of
your indebtedness to the extent of 50 percent.
Mr. M C G U G I N . Y O U are talking about a deceptive thing. I have
been silly enough to argue the same thing, and I have made speeches
where I said that on the floor last spring, but all of the facts and experiences prove to the contrary. With your juggling of the dollar in
the last 4 months, it has increased the prices of the things here that you
have an export market for, but at the same time eggs and pork have
been going down, and wheat has not been going up. If you had a
foreign market for some of these things and could sell them for British
pounds and not for the depreciated dollar, it would be reflected in
3^our price, and it does it in your cotton, and it would in wheat if we
had an export market.
Mr. D I E S . I think you are wrong about that. But we will have to
take this up again tomorrow morning.
(Thereupon, at 4:05 p.m., an adjournment was taken until Friday
morning, Jan. 19, 1934, at 10 o'clock.)




GOLD RESERVE ACT OP 19 3 4 97
SATURDAY,

JANUARY

HOUSE
COMMITTEE

ON C O I N A G E

OF

20,

1934.

REPRESENTATIVES,

WEIGHTS

AND

MEASURES,

Washington, D.C.
The committee met at 9:30 a.m., Hon. Andrew L. Somers (chairman) presiding.
STATEMENT OF JOHN JANNEY—Continued
Mr. J A N N E Y . Mr. Chairman and gentlemen of the committee, I
have brought for your consideration charts which show the result of
the operations in recent months of our currency manipulations as it
reflects upon commodity values; also upon the values of securities
listed upon the stock market.
I have here charts which show the price levels in England of their
stocks and commodities, and also the price levels in America of our
stocks and commodities.
These charts establish that the English management has arrived at
a valuation of commodities which gives to them the 1913-14 price
level, but they do not arrive at this price level in terms of any fictitious
valuation measurement, such as we now have in the currencies of most
of the nations. England has arrived at the 1913-14 price level in terms
of stable or real measurement of value. On the other hand, Ameiican
commodities have had a serious drop in value, if the same standard of
measure is used as we used in 1932, and the early part of 1933 or any
other real standard. It is not generally understood that our commodity prices have fallen in the last year, if measured in actual value, as
compared with what they were in 1932 as measured b}^ the same yardstick. You cannot measure the value of anything to get its relative
value without using some fixed standard of value to measure it b}^.
Fluctuating currencies cannot be used. The present dollar cannot be
used to give you a correct picture of values, not while the dollar is
fluctuating. The problem of this Nation, therefore, is not only to
control the value of currency, but to control the value of our property
and our products in terms of some yardstick of measure which will be
used in the markets of the world; and to have that, you must have
some real value to measure from.
Mr. D I E S . Let me ask you a few questions, because, evidently,
you have given a good deal of study to this question: D o you think
it possible, as those who are now contending for the commodity dollar
believe—and I presume you know what the Fisher plan is—-to take
the gold content of the dollar and take the average commodity
price level, and make the gold content of the dollar conform to it?
Mr. J A N N E Y . As I understand your question




97

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GOLD RESERVE ACT OF 19 3 4

Mr. D I E S (interposing). What they propose to do is to change the
weight of the gold content of the dollar to conform to the rise and fall
of the average commodity price level.
Mr. J A N N E Y . That would be all right if you want to give away
your foreign trade. But this we cannot do and prosper, despite what
certain informants may say about it.
Mr. D I E S . That is what I would be interestsd in knowing about.
The proposition is to change the weight of the gold content of the
dollar to conform to the commodity price level, and the average
commodity price level would be the standard of value.
Mr. J A N N E Y . That is what the foreign trader would think it was,
and he would not have any confidence in it, because he would not
know that you would not change the content of the dollar over night.
On the other hand if you had a fixed gold content, say 23.22 grains,
and by controlling the demand-supply ratio of gold—a very easy
thing for us to do—you thereby held a steady buying power for gold
itself, you would have your problem solved. If you want the United
States to be a prosperous Nation, you must be able to export your
surplus products. Therefore you need a dollar of world-recognized
value and you must not sacrifice that necessary quality of money
in order to get stability. If you have a surplus of products, products
that you have no use for in home consumption, these must be disposed of in foreign trade. In disposing of them in England, for
example, sterling would represent the actual money value. The goods
shipped to us in return must be represented in dollars. So it follows
if sterling and dollars both have a fixed gold content, commerce is
helped by money stability.
If you have gold as your basis for money, or if you have money
that can be converted into gold for use in your trade with foreign
nations you have full basis for confidence. Then all you need do is
to provide a stable \alue for gold as a commodity. The problem of
money is to be able to serve these ends, and a fixed gold content
plus stable gold values answers the problem. When this is so easy
to do why not do it instead of following those schools of thought that
are now monopolizing the attention of the country and the Government, and which, while curing one aspect of money stability are
ruining other aspects of money—storage of value and confidence in
value. Congress has the problem to solve of preserving the three equalities of money. That is to say: First, full value; second, international
acceptance or world-recognized value; and third, si able values, not
fluctuating value. In the case of the insurance companies, their
policies represent the cost of the people who have, at the sacrifice of
the present, accumulated wealth for the future. That wealth belongs
to the people, and we cannot settle the problems arising from the
mismanagement of the world-money system by passing the consequences of mismanagement on to those who have saved. It does
not meet the problem to pass the losses of mismangement from one
class to another class. So I propose that we take hold of gold and
manage it. There is the answer.
Mr. D I E S . Can you regulate the value of gold, or has Congress the
right to do that? If we have yanked the price of gold up from $20.67
per ounce, that was simply the statutory price, and that does not
affect me value of gold at all, because the value of gold is determined
in the world market, just like wheat or cotton, in accordance with the




GOLD RESERVE ACT OP 19 3 4

99

law of supply and demand. Would you keep it at that point, as we
have the right to do, because Congress has the right to regulate the
value of money, regardless of what some people may think? What
would prevent us from using silver, since there is 15 times as much
silver as gold in the world, or would you use silver for the purpose of
stabilizing gold? In other words, when gold becomes too high in
purchasing power, would you use silver in order to bring that gold
down? Why not bring it down by the use of silver?
Mr. J A N N E Y . That goes to the very heart of the problem of this
country.
Mr. D I E S . Could you do that?
Mr. J A N N E Y . Yes, sir; we could do that. And the United States
can do it acting alone. And if we keep away from international
agreements we will do it. I have a chart here before me which shows
with mathematical accuracy what you could do and I believe I can
explain to you how we could do that. This lower line [indicating]
represents the value of world money supply going back 80 years. It
shows variation in progress from year to year of the value of the
monetary base of the world. You perhaps have never seen such a
chart before, or a chart so set up that it would definitely answer your
question. You have seen charts which represented gold and you have
seen charts representing silver, but you have probably never seen a
chart that gave you the picture you have here before you. Your
question is, How could silver be used to control the value of gold
through the use of the law of supply and demand?
M r . DIES. Yes.
Mr. J A N N E Y . First

note the variations in this lower line [indicating]. It represents the value of all the money of the world, which is
to say the value of monetary gold of the world plus the gold value
of the world's monetary silver. This is the world's monetary supply.
Now, if you will notice from this chart, the upper line which accurately represents the variations in world commodity prices you will
note it follows the variations in the line of your monetary base.
Here [indicating] in 1896, when we had our lowest depression in
the gold value of the monetary wealth of the world, you had also
your lowest depression in commodities and in business. In 1918-20
when we had our highest registered values of the monetary base we
also had our highest commodity values and prosperity. You must
understand that this line represents only money that has a real or
intrinsic value at the time of the transaction, and does not represent
a promise to pay some value at a later date. The total value of the
cash money of the world as distinguished from credit money is represented by this line [indicating]. It is remarkable how the price level
follows exactly this ] ine. From 1870, when we had a prosperous
period, to 1896, the gold value of the total money supply of the world
steadily dropped, as you see indicated by this line [indicating]. That
was not due so much to any falling off in the production of gold, but
it was due mainly to the diminishing value of silver and this resulted
from legislation. You have your question answered here, because
her is a picture of exactly what has happened. We can use this same
principle. We can control the monetary line on this chart also by
legislation on our part. We can raise the gold value of the monetary
base back to this point, which produced the 1926 price level. Or we
could put it a little higher or a little lower. England has moved this




100




GOLD RESERVE ACT OF 19 3 4

GOLD EESEEVE ACT OF 1 9 3 4

101

line for 100 years; now let us move it for awhile and bring back a
basis for prosperity. And then hold a steady prosperity condition.
Mr. D I E S . A S long as the western civilizations used silver for money
which they did over a longer period of time than they used gold, silver,
of course, had that additional demand made upon it because of its
use for monetary purposes; but when the western civilizations demonetized silver, that, of course, tremendously increased the demand on
gold for money purposes. Silver fell, and gold immediately rose in
value. In the silver-using countries, the price level increased. In
China, for instance, the price level increased when we demonetized
silver, simply because the demand for silver was lessened here.
Therefore, it seems to me that the solution of this whole question is
that we have to return in some degree to the use of silver in connection
with our monetary base.
Mr. J A N N E Y . The only difficulty about that is that there are so
many people in this country who cannot visualize the distinction
between silver as money and silver as a standard. They think that
unless you make a silver standard, you will not have silver as money.
They do not understand the use of the word " standard". For instance, you hear people say that England abandoned the gold standard
simply because she abandoned the redemption of her notes in gold,
but England has not abandoned gold as a standard. Gold is still the
means of measuring values. It is not automatic but they calculate
back into gold values to get at the actual value. You cannot have a
gold standard and at the same time a silver standard. Two standards of money without a force to hold them together gives great
trouble. If you would use silver as money and keep gold as a standard it would make your problem easy.
Mr. D I E S . Or use it to regulate the value of gold.
Mr. J A N N E Y . That is the solution. Use silver as money to regulate the value of gold. You could buy silver and put it in the Treasury, and as you put silver in the Treasury, you are increasing the
monetary value of silver, and exactly to that extent you are decreasing the monetary value of gold. England has used that formula
through the past century for the purpose of controlling values. The
value of our products, that we take out of the earth, amounts to
about $18,000,000,000 a year, and England can take that production
of wealth, which should yield us $18,000,000,000 of values a year,
and reduce it by 20, 30, or 40 percent. On the other hand, by reversing the motion we can increase the buying power of those commodities to that extent. By following out this use we can take this
lower line on the chart, and we can raise that line exactly to the point
we wish. There is no nation on earth that can prevent it. No nation needs to cooperate with us in that. No nation on earth can
prevent us from doing what we wish to do in raising this line [indicating]. We can buy silver and put it in the monetary reserve, and
we can control the amount.
Every 100,000,000 ounces of silver we put to monetary use will
decrease the demand on gold to a point that will represent something like 5 percent. If you want to decrease the purchasing power of
gold 40 percent, all that you have to do is to buy a comparatively
small amount of silver and put it in the monetary reserve to be used
in competition with gold. It could not possibly cost this Government over 50 millions of dollars to do this. In fact we would have a




102

GOLD RESERVE ACT OF 19 3 4

big profit in the silver we would buy on a rising market. The net
total cost to us would be approximately nothing and the rise in
property values would be definite and sure and under our control.
The trouble with our use of silver up to this time has been this: We
have never had a law permitting silver to be used in our monetary
supply except where there has always been written into the law a
forced limitation on the amount we can use. For instance, between
1834 and 1873 we had a law that permitted silver to be used in our
monetary base, but we did not put any silver in, because under the
law our Government could not use silver coins if their value happened to be over $1.29 per ounce. We had bimetallism at the ratio
of 16 to 1. Bimetallism at the ratio of 16 to 1 meant that this G o v ernment, even if silver was worth $1.39 per ounce, could only pay
$1.29 per ounce. The result was, as fast as we coined silver into
dollars, the dollars were melted down and the silver shipped out of
the country in order to get that profit. Now, a fixed ratio between
gold and silver does not work, because when gold is above silver at
that ratio, you lose the gold; and if silver is above gold at that ratio,
you lose the silver. In neither case do you have free control of the
money base. Before 1834, in the United States, we got no gold for
exactly the reverse reason. Gold was at a premium at the ratio of
15 to 1, and the gold coin if we got any were melted down and the
metal shipped out of the country. Silver was at a premium at the
ratio of 16 to 1 and shipped out. If you could cure that defect, you
could use the two metals.
If you give the Government leeway, or give it the privilege of putting silver into the base, whether the price is more or less, that would
remedy the defect. Then you could control the point where you
would put silver into monetary use. Then use the quantity of silver
as a regulator or flywheel. This line here on the chart [indicating!
represents the gold value of the monetary base, no one can understand
this use of silver and deny that the United States can direct this line
on the chart. Again no one can deny that this will have the effect
claimed upon gold values on price levels in gold-standard countries.
Y o u wmild have to deny the law of supply and demand to do that.
Y o u cannot find a place on this chart during the last 100 years where
the price level of commodities w^as not influenced by the money base
value as here shown. The price level indicated by this line [indicating!
represents the value of gold and gold-money equivalents in the world—
that is, the monetary gold and the monetary silver, or silver that is in
competition with gold in the world money system. In other words
this chart merely shows the supply and demand of gold as a commodity. It is natural that its buying power should follow that.
The United States has a solution of this money probelm here
before you in picture form, which is both safe and sure. Also it is
inexpensive. But we are not solving the problem when we take our
gold and chop it up into smaller pieces or chunks. They talk of
saving to the Treasury additional money as profits from this change
in the number of chunks amounting to something like $2,000,000,000.
That is not profit. That is no more profit than would be obtained if
we took a piece of pie that was cut into four pieces and cut it into
eight pieces, and then took half of the pie.
On the other hand, if you will have the content of the dollar remain
at 23.22 grains, and bring the purchasing power of gold down by




GOLD RESERVE ACT OP 19 3 4

103

operating under the law of supply and demand, you will not only be
able to get all of your products sold in foreign markets in competition
with the products of other countries, but you will be able to bring
about the sale of those products in foreign countries for enough to
pay the cost of production and yield a profit. If you can sell your
surplus products in foreign countries on a basis that yields a profit,
then you will sell what you use at home on a basis that will yield a
profit. I say that because you will never mke a profit at home on
any commodity you produce unless the surplus is sold in foreign
countries at a profit. That is where competition is reached in the
sale of commodities.
Mr. D I E S . If you lessen the demand for gold, it falls in purchasing
power.
Mr. J A N N E Y . Yes. That is a simple mathematical fact. Y o u
could get every expert in the world in this room, and not one of them
could successfully deny that fact, and they must admit we can control
the buying power of gold by this means. You are talking about
mathematical facts, not theories or beliefs.
Mr. D I E S . That plan is not in this bill, and will not be in the bill.
The only way we can do those things will be to have the committee
meet and determine it one way or the other, as soon as this other
matter is disposed of.
Mr. J A N N E Y . The President in his message said this:
T h e other principal precious metal—silver—-has also been used f r o m time i m memorial as a metallic base f o r currencies as well as f o r actual currency itself.
It is used as such b y p r o b a b l y half the p o p u l a t i o n of the world.
I t constitutes
a very i m p o r t a n t p a r t of our m o n e t a r y structure.
It is such a crucial f a c t o r in
m u c h of the w o r l d ' s international trade that it c a n n o t be neglected.
* *
*
G o v e r n m e n t s can well, as t h e y h a v e in the past, e m p l o y silver as a basis f o r
currency, and I l o o k f o r a greatly increased use. I am, h o w e v e r , w i t h h o l d i n g
a n y r e c o m m e n d a t i o n s t o the Congress looking t o further extension of the m o n e t a r y use of silver because I believe that we should gain m o r e k n o w l e d g e of the
results of the L o n d o n agreement and of other m o n e t a r y measures.

In the first paragraph that I quoted, the President speaks of silver
as currency, and it is possible that he overlooked the use of silver as
money. The use of silver as currency is one thing and the use of
silver as money is an entirely different thing, because the use of silver
as money affects the value of the gold in the world. Our failure to
control gold is what is ruining the United States. The value of the
gold of the world is still 70 percent above its normal purchasing
power. If silver is made currency, it will not affect that, but if silver
is made a part of the monetary base in competition with gold, it will
affect that. T o make silver money is in the interest of the United
States. To make silver currency may be so managed as to be in the
interest of Europe.
Now, as to this second paragraph, I would like to have the committee consider this observation: If you permanently devalue the gold
content of the dollar, you will take away from this country the opportunity that it now has to exercise the control that we need to exercise
over this purchasing power of gold. We cannot bring the purchasing power of gold down after we devalue the gold content of the dollar,
unless you are willing, when the time comes, to put the value of the
dollar down into the sub-basement. It may very easily turn out
that the plan to devalue the dollar is a subtle trick of finance to give
the world a lower price level in terms of real values.




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GOLD RESERVE ACT OF 19 3 4

This country cannot stand price-level manipulations. W e do not
need price manipulations. As I understand value control, it is
exactly as Mr. Dies has expressed it. It is an operation that makes
use of the law of supply and demand of the gold money of the world,
or in the law of supply and demand as applied to the gold value of
the money base. The minute this country does that, we can control
the situation and remedy our evils, but as long as we fail in that,
we will sink further and further into the morass, and will finally go
beyond our depth so that we will never get out. We cannot plow
up our crops and spend billions of dollars a year as a dole for the
men who planted, harvested, transported, fabricated, and administered to all the wants indirectly involved in this economy. United
States Shipping Board, research department, shows that in 1926 we
exported 68,139,521 long tons (2,240 pounds each) of commodities,
while in 1932 we exported only 31,844,566 tons. Shall we plow up
the production acreage that yielded the difference of 36,294,955 tons?
What will we do with the railroads that hauled that tonnage, the
doctors, the lawyers, the merchants that lived off of it? Where do
the ramifications of all that wealth reach to? Are we insane to talk
of the willful destruction of all that wealth in order to avoid meeting
a problem?
Mr. Chairman, I would like to put in the record a letter addressed
to the President under date of December 23, 1933, and also a letter
addressed to Mr. Mclntyre, secretary to the President, under date
of January 1, 1934.
(The letters referred to are as follows:)
Washington,
Hon.

Franklin

D.

D . C . , December

23,

1933.

Roosevelt,

President of the United States, White House, Washington,
D.C.
M y D e a r M r . P r e s i d e n t : T h e interview between D r . Sprague and the writer,
which occurred on O c t o b e r 5, and which was referred to b y the Speaker of the
H o u s e in his speech in N e w Y o r k and as noted in the newspapers of d a y b e f o r e
yesterday, emphasizes the importance of m y immediately writing t o y o u as t o
w h a t I believe to be a conspiracy against the United States. I will refer also
t o recent interview" with D r . Warren and Professor Rogers, which f o l l o w e d f r o m
m y visit to the W h i t e House, in response t o letter I received f r o m y o u r secretary,
M r . M c l n t y r e , requesting that I interview these gentlemen.
I feel it m y d u t y to
report to y o u that in all of these interviews, I f o u n d a startling absence of f u n d a mental thinking, so far as the interest of the United States is concerned.
I found
a subtle completeness of thought processes, so far as the protecting the interest
of E u r o p e is concerned.
I further f o u n d an absence of comprehension as to the
difference in the interests of Europe and the United States.
I attribute this a d v o c a c y of Europe and betrayal of American interest t o
o r t h o d o x y or teaching and not t o a deliberate effort to betray our c o u n t r y .
I d o n o t k n o w w h y y o u r secretary wrote me to interview these men, nor w h y
Secretary W o o d i n arranged the interview with Dr. Sprague, wiiich interview was
taken d o w n b y a c o m p e t e n t reporter and is available in detail for y o u r consideration.
I did n o t request these interviews.
On the contrary, in m y letter of
N o v e m b e r 1 to Mr. M c l n t y r e , I gave reasons against the interview p r o p o s e d b y
him.
I d o n o t understand just what m y responsibility is in this i m p o r t a n t
matter.
B u t if these proceedings have any taint of placing responsibility upon
m e as an e c o n o m i c advisor of certain M e m b e r s of the House of Representatives
or of the C o m m i t t e e of the House, who has reported on this question, I feel sure
y o u will pardon m e if I wish to fully divest myself of any such responsibility.
A frank statement of m y personal views and impressions gained in these c o n ferences would seem to be in order.
M y view is that y o u are surrounded b y
a d v i s o r s w h o have honestly absorbed English tutorage on m o n e t a r y policy.
This is a point of danger b u t the greatest danger is something entirely different.
I sense a kind of conspiracy a m o n g European sources of influence or p r o p a g a n d a
and t o the end that this Nation is being led into a trap.
W e are all of us being
surrounded b y this influence.




GOLD RESERVE ACT OP 19 3 4

105

Y o u yourself broke a w a y f r o m it as formulated in one trap, b y eleventh hour
action as to the L o n d o n Conference. H o w nearly we fell into that trap, y o u are
fully advised.
N o w in a little different f o r m , the same trap is set again and y o u
m u s t b e equally diligent. I feel it in line with m y d u t y in the a b o v e situation
t o m a k e to y o u a f o r m a l report and record as follows:
These interviews, so far as they were permitted to progress, show that these
three men, D r . Sprague, Dr. Warren and Professor Rogers, are all in f a v o r of an
e c o n o m i c theory that should be considered favorable to England, France, a n d
other nations in their class, and against the interest of the United States and
nations economically situated in its class.
D r . Sprague was frank in expressing f a v o r of English control of m o n e y values
and o p p o s e d to American control.
Professor Warren and Professor Rogers, while
n o t so frank in expressing this view, are in f a v o r of policies that will result b y
subtleties in English control of world moneys.
There is a trap set here where
the real truth is n o t disclosed because it is not superficial and these men seemed
to be unwilling to dig into the subsurface and consider the f u n d a m e n t a l facts.
T h e y are n o t frank as Dr. Sprague was in a v o w i n g f a v o r for English control.
T h e y would, in fact, d e n y it in words, while they a d v o c a t e it in a c t i o n — n o t
intentionally, of course.
I d o n o t need, M r . President, to tell y o u that I have complete confidence in
y o u in every respect; y o u r loyal a d v o c a c y of the interests of the United States;
y o u r intelligent grasp of this question; y o u r earnest effort to serve the people.
These need no eulogy f r o m me, b u t as President Washington was misled in his
a d v o c a c y of the Jay T r e a t y , which relinquished our right to the f r e e d o m of the
seas, as President Grant was misled in his a p p r o v a l of the m o n e t a r y l a w of 1873,
so it is possible f o r y o u to b e misled, unless y o u consider the t w o sides of this
monetary question and share with Congress this responsibility b y permitting
full and free debate u p o n this question.
I will state briefly and somewhat roughly these t w o opposing principles.
american

interest

If y o u will s t u d y a proposal to increase the gold content of the dollar 25 percent
or to a b o u t 28 grains of gold, and then lower the purchasing p o w e r (as expressed
in world commodities) of gold to the 1926 price level f o r this new dollar, y o u are
thereby increasing the purchasing p o w e r of the products of American resources
in terms of world trade to an extent that will insure American prosperity.
This
w o u l d be decreasing the purchasing p o w e r of the o u n c e of gold to approximately
50 percent of its present purchasing power. I t would give the 1926 price level
t o the dollar and a still higher price level to our commodities in terms of world
trade.
european

interest

If y o u decrease the gold content of the dollar 50 percent y o u lower the purchasing p o w e r of the dollar b u t leave the purchasing power of c o m m o d i t y gold
uncorrected. T h u s y o u a d v a n c e European interest and defeat permanently
American interest (by purchasing p o w e r I mean in terms of world trade and n o t
in terms of dollars or other currencies). I t can be undeniably shown that this
plan does n o t give t o America control of the value of her commodities in world
trade. I t does n o t give t o America control of the purchasing p o w e r of gold, b u t
y o u d o sacrifice permanently the great o p p o r t u n i t y n o w available t o you.
If
y o u d o n o t change the gold content of the dollar, y o u can control the value of
gold and also the value of the dollar. If y o u increase the gold content, y o u
strengthen the American position.
B u t if y o u decrease the gold content, y o u
will thereby decrease the purchasing p o w e r of American resources t o a degree
t h a t will insure great prosperity f o r the nonproducing nations of E u r o p e and
saddle this c o u n t r y with a lengthy period of depression. A n d that is not all, y o u
will permanently place this country in a position where it cannot exercise the
p o w e r n o w available t o control gold values as a c o m m o d i t y , w r hich means the
purchasing p o w e r of our p r o d u c t s in world markets.
the

two

plans

contrasted

T h e difference in the t w o plans is essentially this. In the first, America
assumes control of the purchasing p o w e r of all gold values in world c o m m e r c e
a m o n g gold standard countries. In the second, we leave this control with
E u r o p e and thereby we leave t o t h e m the p o w e r t o manipulate our changed gold




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GOLD RESERVE ACT OF 19 3 4

dollar hereafter and t o manipulate the currencies of the world. Our p o w e r t o
correct our position which we have suffered ever since 1836 is gone.
Our position
will then b e c o m e intolerable.
W h o e v e r controls gold values in terms of
currencies, accomplishes nothing other than
creditor.
W h o e v e r controls the value of
prosperity of this N a t i o n and the c o m m e r c e

dollars or francs or other detached
an a d j u s t m e n t between debtor and
the c o m m o d i t y gold, controls the
of the world.

T h e values of world c o m m o d i t i e s in undefined currencies represents a vital
d e c e p t i o n that has worked into this discussion. This deception m u s t be cleared
before we m a k e a false step based u p o n it. T h e stakes are m o m e n t o u s , are
ruinous. T h e y represent a disadvantage t o this c o u n t r y that will run into
billions of dollars per year. This loss we c a n n o t continually endure.
If this disadvantage is fastened u p o n this c o u n t r y b y binding international
agreement, such as the Jay Treaty or the H a y - P o n c e f o r t e T r e a t y , it will e v e n tually mean war between the United States and E u r o p e or else the c o m p l e t e
servitude of the United States t o E u r o p e in m o n e t a r y p o l i c y .
A m e r i c a will then
b e s o m e w h a t in the position India n o w occupies.
W i t h o u t the freest kind of public discussion and free parliamentary debate,
such an arrangement would take the risk of a revolution in this c o u n t r y and
the responsibility of determining an issue of such far-reaching c o n s e q u e n c e is a
responsibility that cannot be taken in any other w a y unless the spirit and intent
of our Constitution is ignored.
This whole proceeding in regard t o our m o n e t a r y policy must be taken a w a y
f r o m secret discussions of experts and given a full and free airing u p o n b o t h floors
of Congress, if there is t o be any chance of counteracting European education
a n d European influences which all w h o understand this subject see clearly t o b e
a p o t e n t force in guiding such clouded public opinion as prevails on this s u b j e c t
in America.
Permit m e t o say that the gold-content clause was n o t allowed f r e e d o m of
d e b a t e in the House of Representatives at the time it was enacted. I t was
urged as an expedient to give power t o the G o v e r n m e n t for the purposes of the
L o n d o n Conference.
It was in some quarters considered as a delegation of p o w e r
n o t t o be used unless necessary, without further debate in Congress.
T h e record
will s h o w that there was no adequate debate on this question.
Permit m e further t o say that the entangling agreements with other countries
as e m b o d i e d in the proceedings at the world conferences, secured b y Senator
P i t t m a n , relating to limitations of the action of governments, as t o silver, will
h a v e the effect of limiting our control in this matter.
Otherwise, it can be shown
t h a t we have free control.
If we engage in entangling alliances with other nations
as t o the matters of m o n e t a r y policy proposed in this morning's papers, y o u will
further tie the hands of this Nation without a n y compensating advantage.
A n d in conclusion, permit me to say that you cannot safely f o l l o w these m e n
w h o are y o u r advisors blindly.
A t least y o u cannot f o l l o w t h e m so long as
t h e y cannot face a discussion across the table in the presence of responsible
G o v e r n m e n t officials, in the presence of a reporter .to m a k e a record of this discussion, and in the presence of representatives of the Congress w h o are m e m b e r s
of this c o m m i t t e e charged with constitutional responsibility in this matter.
Our c o u n t r y is being betrayed b y false teaching. This is n o t m y personal
v i e w alone. It is the view of almost all of those w h o with m e have studied this
question.
W h a t I have stated in this letter represent the views of m a n y of our
patriotic citizens w h o find themselves unable t o speak t o y o u on this subject.
A m o n g t h e m are citizens of this country w h o perhaps hold a higher constitutional
authority and responsibility than even the executives hold on this subject.
I
refer t o a m e m b e r of the committee of Congress, which under the Constitution,
has jurisdiction on this subject, which committee, under authority of expressed
resolution of Congress (Feb. 8, 1932) has d e v o t e d m o n t h s of study to this s u b j e c t
and has stated to Congress, in formal report, that we are suffering f r o m 1 ' T h e
legislative acts of E u r o p e a n c o u n t r i e s " .
( R e p t . no. 1320, M a y 14, 1932.)
I
refer also t o a m e m b e r w h o in conference with other members of this c o m m i t t e e ,
has introduced a bill into Congress ( H . R . 1577, 73d Cong., 1st sess.) which gives
a defensive plan to America and in a w a y that avoids entangling agreements
with other countries.
In m y interview with y o u r various advisors, I have been shocked t o find that
these men n o t only have n o t studied this p r o c e e d i n g of Congress, b u t apparently
t h e y did not k n o w of it. In m y conference with D r . Sprague, I f o u n d that the




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GOLD RESERVE ACT OP 19 3 4

paper which y o u requested should be submitted on this subject to y o u on M a y 24,
had never been read b y him. On that date, y o u requested Congressman Fiesinger, Congressman L a m n e c k , and myself to submit a certain written discussion
bearing on this question.
This was handed b y Congressman L a m n e c k to y o u r
secretary, M r . M c l n t y r e .
It was submitted b y him to D r . Sprague and in the
conference with Dr. Sprague, in answer t o question, it was disclosed that he had
never considered the matters contained in this document.
I t is with great regret that I feel it necessary to o c c u p y y o u r valuable time
with this c o m m u n i c a t i o n .
Y o u will recall I have never before since your election
t o the Presidency, volunteered any c o m m u n i c a t i o n to y o u on this subject.
There
have been m a n y requests that I k n o w of f r o m others or suggestions that I c o m Tntil now, I have n o t seen it as m y d u t y t o
municate with you on this subject.
L
d o so.
I n o w see the possible betrayal of the vital interests of this c o u n t r y , innocently
of course, but none the less effectively unless these vital matters are given full
consideration.
T h o s e w h o pose as a d v o c a t e s of these t w o respective sides of
this question must be heard. Y o u cannot leave the a d v o c a c y of the American
side of this question to y o u r advisors f o r the reasons I have a b o v e suggested,
and the intimation in t o d a y ' s press of a hasty action on the very eve of the assembly of Congress, in a matter where constitutional authority is vested in Congress,
causes me the greatest concern and m a y I venture to say, strongest sense of
personal responsibility.
Someone should c o m m u n i c a t e with }Tou thus freely and frankly on this i m p o r tant matter.
E v e r y o n e is leaving it f o r someone else to do. In this circumstance, I feel I must view m y responsibility as advisor to members of Congress
in this matter, a sufficient ground to trespass upon your valuable time to the
extent of sounding this note of warning as to the hidden dangers that lurk below
the surface in this intricate and important matter.
W i t h great respect, I am,
Very sincerely yours,
John

W a s h i n g t o n , D . C . , January
Hon.

M. H.

Janney.

1, 1934•

McIntyre,

Secretary to the President,
The White House, Washington,
D.C.
M y D e a r M r . M c I n t y r e : In our telephone conversation of Saturday y o u
asked m e t o let y o u have a written statement on the p o i n t under discussion and
as I understood y o u referred t o the subject of m o n e y control in the sense of the
control of the purchasing p o w e r of the metallic base.
T h e f u n c t i o n of governments as t o currencies, bank notes, and credits is o f t e n times delegated t o banks. In some governments the value of the m o n e t a r y base
is controlled at the discretion and in the power of banks. T h e B a n k of England,
which is a private bank, e n j o y s large powers in b o t h of these respects.
In the United States the case is different. T h e p o w e r t o regulate credits m a y
be delegated t o bank managements b u t not the p o w e r t o regulate the value of
the metals f r o m which coins are m a d e . Under our Constitution this p o w e r rests
with Congress. " C o n g r e s s shall coin m o n e y and regulate the value t h e r e o f . "
B y the value of a metal we mean its buying power. T h e depression of p r o p e r t y
values in the world is s y n o n y m o u s with enhancement in gold values in countries
where gold is the standard of measure.
This tragic world event which we call depression always occurs when there is a
depressed value of the total metallic or m o n e y base of world. Prosperity has
always a c c o m p a n i e d an increase in the value of the world m o n e y base at the rate
of 3.2 percent or more per year. In history there has been n o exception t o this
natural and fundamental f a c t situation when averaged over a period of years
sufficiently long t o register. In a f e w words this f a c t m a y be crudely stated as:
T h e m o r e there is of a thing the less it will b u y .
T h e nation which controls the gold value of the world m o n e y base will c o n t r o l
the price level in all gold standard countries and will at least share equitably in
world trade and c o m m e r c e and export profitably its surpluses of p r o d u c t i o n .
T h e depression of the m o n e y base paralleled the destruction of R o m e and the
D a r k Ages. T h e depression of the m o n e y base a c c o m p a n i e d the depression of




108

GOLD RESERVE ACT OF 19 3 4

1873-96.
T h e depression n o w in progress has a c c o m p a n i e d a serious depression
in the gold value of the m o n e y base.
B y the value of the m o n e y base I mean the gold value of the metal used in
the world as a m o n e t a r y reserve for governments, banks, corporations, and individuals, as a basis f o r business activities.
This includes the m o n e t a r y gold and
m o n e t a r y silver of the world.
Together they constitute the base of the credit
structure and capital structure of the nations and the vital f o r c e b a c k of world
c o m m e r c i a l activities. These t w o metals under normal conditions are freeh r
exchangeable each for the other at their market value and the depression of one,
f o r this reason reacts upon the other.
T h e y both therefore must be reckoned as
a part of the wTorld m o n e t a r y base.
This interaction between gold and silver was testified t o b y M r . M o n t a g u e
N o r m a n of the Bank of England in 1926. I can furnish y o u with charts to show
this relationship with almost uncanny accuracy.
A n d this relation can be c o n trolled b y the United States in the interest of stability with greater ease than
other nations have affected it b y their activities and the p o w e r t o c o n t r o l this is
placed in the hands of the G o v e r n m e n t of the United States b y the Fiesinger bill
n o w before Congress.
T h e United States is just n o w vitally concerned in this matter and f o r the
m o m e n t is in the hands of a g o v e r n m e n t which has announced a p o l i c y of restoring
the 1926 price level which is a prosperity price level. A t the same time the
administration has declared for a dollar whose value will n o t materially change
in a generation and f o r a sound dollar which means a dollar recognized in world
markets as carrying its face value and which is accepted at such value b y world
markets.
T h e achievement of this policy w o u l d restore prosperity t o the United States,
w o u l d open a market f o r its products on a profitable basis and should be the aim
of all D e p a r t m e n t s of the G o v e r n m e n t .
H o w e v e r all of the advisers of the a d ministration with w h o m I have discussed this matter w o u l d sacrifice s o m e of
these qualities in order to secure others and thus defeat the high aspirations of
the President in affording this country the e c o n o m i c protection it must h a v e and
has a right to expect .
T o restore gold values in the metallic base t o wThere they were in the year 1926
w o u l d cost this Nation, operating under the Fiesinger bill, less than 5 million
dollars net. I t could be accomplished within 90 days.
Those w h o d o n o t wish
t o a d m i t the law which operates here to produce these results can offer n o real
opposition as there could be no material loss of either time or m o n e y .
On the
other hand, a favorable demonstration would save billions of dollars of values,
material, and other losses, moral and physical, b e y o n d our p o w e r t o c o m p u t e or
even imagine.
This is perhaps the first time in our history that our G o v e r n m e n t has been in
the hands of the real interest of the people, facing a break d o w n of a f o r m e r
s y s t e m with the o p p o r t n i t y before it of an open doorw r ay to the control of m o n e y
values. T h e authority f o r this control has been placed b y our Constitution in
the hands of Congress. T h e door of o p p o r t u n i t y stands wide open and this
G o v e r n m e n t has not yet m o v e d in that direction. Our experts are n o t urging
t h a t we take control of the world m o n e y base a w a y f r o m corporations and banks
of foreign governments to place this control of this powerful factor for human
welfare or human woe in the hands of Congress.
If the group in the c o m m i t t e e of Congress which has r e c o m m e n d e d this c o n t r o l
is t o be heard in the councils of the administration, they w r ould r e c o m m e n d in some
f o r m the principals for American control of the world m o n e y base as set o u t in the
Fiesinger bill ( H . R . 1577).
This bill gives a clean-cut, definite, simple program f o r taking control of the
m o n e y base and exercising that control so as t o completely carry o u t the policies
of the President as publicly announced and as a b o v e outlined.
T h e Fiesinger bill involves no complications, it involves n o experiment.
It
uses accepted or p r o v e n m e t h o d s and accomplishes a c o m p l e t e and u n c o m p r o m i s ing control of the gold value of the m o n e y base until the 1926 price level in terms
of gold is captured and permanently held. I t takes the control of price levels
a w a y f r o m individuals and establishes a price level fair t o all and in the p o w e r
of Congress alone to change.
T h i s leaves the matter of b a n k credits, currencies, and exchange t o receive c o n sideration as soon as the bases upon which they rest, and the values with which
t h e y have to deal, are rendered stable and definite. T h e powder of private




GOLD RESERVE ACT OP 19 3 4

109

manipulators and exploiters is curbed to such an extent as will guarantee p r o t e c tion t o the people.
A n d the basis for the people of one nation t o exploit the people
of another nation b e c o m e s modified t o such an extent as t o p a v e the w a y f o r
disarmament b y r e m o v i n g the real reason f o r maintaining armaments.
T o d a y we have a whole nation back of a G o v e r n m e n t which has defined a
p o l i c y that implies that this thing will be done. T h e thing that gives m e concern
as expressed in m y letter to the President of D e c e m b e r 23, is the apparent unwillingness of the administration's present advisers t o face this issue. N o n e of them
have been willing to discuss the matter.
On the contrary we have all the various " r e d herrings" that it w^ould seem p o s sible to devise to lead us a w a y f r o m an American plan t o control the m o n e y base
and leave this control in the hands of those w h o have been exercising it to our
destruction during the past century and a half.
These diversions leading us away f r o m American control receive almost daily
c o m m e n t f r o m high political advisers, f r o m the press, and other sources of discussion. On the other hand it seems impossible t o gain adequate consideration f o r
a n y plan that will give American control.
T h e y are:
1. T h e 16 to 1 remonetization of silver, which w o u l d so limit the scope of the
action of our G o v e r n m e n t as to curb and hamper its p o w e r of m o n e t a r y control. In
a d d i t i o n there would be the handicap of t w o standards of value t o be maintained
of equal purchasing power.
This w o u l d lessen our c o n t r o l and increase foreign
p o w e r of control of the m o n e y base.
2. T h e silver proposals of Senator P i t t m a n which w o u l d leave E u r o p e in the
control of the m o n e y base and of world m o n e y values and require that our silver
m o n e y be supported b y g o l d in order t o maintain its parity.
3. T h e change of the gold content in the dollar which operates on our national
currency and n o t on the world m o n e y base. I t changes the value of dollars, as a
currency unit, n o t the value of gold. I t changes the value of debts b u t does n o t
increase the ability to p a y because it does n o t correct the lowered b u y i n g p o w e r of
our products in the markets of the world which is the basis of profits.
4. International agreements as to silver which destroy our f r e e d o m of control
and limit the f r e e d o m of world silver markets u p o n which the operation of an
American plan for control of world m o n e y must be based.
These various proposals all leave Europe in control of the value of our p r o p erty and our commodities in world markets.
T h e y all constitute a surrender of
the constitutional p o w e r of Congress to control m o n e y values. T h e y do not
permit Congress to a n y longer regulate the value of the metals which we coin.
In point of fact this Fiesinger bill is the only m e t h o d yet p r o p o s e d under
which Congress is permitted t o discharge this d u t y of our G o v e r n m e n t delegated
t o it under our Constitution.
D o y o u k n o w of a n y valid objections to the Fiesinger bill? N o n e of the
advisors of the G o v e r n m e n t w h o m I have had the privilege of conferring with
have urged any o b j e c t i o n t o it at all. After m o n t h s of investigation and after
serious conferences with leaders in banking and finance I can find absolutely
none with the exception that the p o w e r to regulate values is taken a w a y f r o m
banks and placed automatically at the price level fixed b y Congress.
This
w r ould be an o b j e c t i o n t o the President's policy and not to the bill f o r in this
respect the bill adopts the policy of the President.
T h e most far reaching benefit f r o m this bill is that the American dollar reinstates a world recognized value as a basis for world trade. This dollar is in a
position of advantage in competition with bank credits and fiat exchange of
foreign countries.
Sterling exchange becomes a secondary world m o n e y and not
a primary world m o n e y .
N o other f o r m of dollar currency can meet this requirement.
T h e plans
p r o p o s e d for the consideration of our G o v e r n m e n t will sooner or later be attached
t o sterling b y some f o r m of agreement and those w h o manipulate sterling will
also manipulate dollars.
T h e constitutional control of Congress will pass b y this arrangement to foreign
countries.
Our people and possibty our courts will seek to repudiate such a
violation of our Constitution as soon as the burden of it presses d o w n as hard as
it inevitably will upon us and becomes discernable t o the senses of a confused
people. T h e armies and the navies of the other parties of these agreements will




110

GOLD RESERVE ACT OF 1 9 3 4

b e there t o guard the other interest w h o h a v e e n t e r e d in t o the agreement against
us.
Y o u h a v e uncertainty, c o n f u s i o n a n d d a n g e r on the o n e h a n d a n d clear c u t
right, justice, a n d simplicit}^ o n the other.
W h y c a n n o t this m a t t e r r e c e i v e
c o n s i d e r a t i o n f r o m our G o v e r n m e n t at least equal t o t h a t b e i n g g i v e n t o these
v a r i o u s proposals, all of w h i c h in c o m m o n leave t o E u r o p e a n bankers a n d
E u r o p e a n G o v e r n m e n t s the c o n t r o l of the value of a n d t h e m a r k e t s f o r o u r
p r o p e r t y a n d our p r o d u c t s .
H e r e is an A m e r i c a n plan f o r A m e r i c a n c o n t r o l of the p u r c h a s i n g p o w e r of
g o l d t h r o u g h the m e a n s of the c o n t r o l of the w o r l d m o n e t a r y base.
W e take
possession of the same m e a n s that other nations h a v e used b u t w h i c h w e h a v e
n e g l e c t e d t o use.
W e c o n t r o l b y this process the g o l d value of t h e metallic
base of g o l d plus silver in the world w h i c h the history of the 2 centuries d e m o n strates, w i t h o u t a n y d o u b t , t o be the basis f o r the c o n t r o l of t h e p r o s p e r i t y of
t h e p r o d u c i n g nations, of the world.
I t will cost us n o t h i n g t o d o this.
I t i n v o l v e s s i m p l y the p u r c h a s e of silver
a n d its use in our national m o n e y reserves, f o r its w o r l d - a c c e p t e d v a l u e a n d t o
s u c h extent as will raise the value of the silver half of the w o r l d ' s m o n e t a r y base
a n d l o w e r the value of the g o l d half of the w o r l d ' s m o n e t a r y base until g o l d
reaches its n o r m a l purchasing p o w e r as of the year 1926.
N o t h i n g c o u l d b e m o r e simple.
N o t h i n g c o u l d be easier.
W h y cannot the
a p p r o a c h i n g session of Congress address itself t o this simple solution of t h e
w o r l d s m o n e t a r y ills? If Congress will d o this, our m o n e t a r y t r o u b l e s will s o o n b e
a thing of the past.
T h e basis of G o v e r n m e n t a n d b a n k i n g finances will then be firmly established.
C r e d i t s can b e e x t e n d e d with confidence.
C o m m e r c e will begin t o m o v e a m o n g
t h e nations, because central b a n k s can p r o v i d e themselves w i t h a d e q u a t e reserves
t o s u p p o r t c u r r e n c y a n d c o m m e r c i a l requirements.
Surplusses will vanish b y
m o v i n g into the v o i d s of w a n t a n d p r i v a t i o n in r e m o t e sections of t h e w o r l d .
Prices will rise u n d e r this natural d e m a n d , a n d a profit basis will be restored.
I n d i v i d u a l s a n d c o r p o r a t i o n s will find o p e r a t i n g capital t o b a c k u p the activities
thus created.
T h e b u y i n g p o w e r of h o m e m a r k e t s will r e v i v e t h r o u g h t h e d i s b u r s e m e n t of these profits.
A n d the b u y i n g p o w e r of Asia with the increasing
s t a n d a r d of living a n d a stable s y s t e m of finance assured f r o m its stable w o r l d
b u y i n g p o w e r , will d e v e l o p in each one of its 1,000 million p e o p l e , an e v e r - i n c r e a s ing b u y i n g p o w e r f o r our p r o d u c t s so t h a t w e m a y t r a n s f o r m an o v e r e q u i p p e d
w o r l d i n t o a w o r l d of ever-increasing w a n t s t o be satisfied o n l y b y e v e r - i n c r e a s i n g
circulation of w o r l d p r o d u c t s .
Such a state of affairs, as far as Asia is c o n c e r n e d ,
has n e v e r existed in the historv of m o d e r n finance as will be established b y this
bill.
T h e r e is m u c h a v a i l a b l e d a t a w h i c h I h a v e collected t o b a c k u p these s t a t e m e n t s
a n d it will g i v e m e pleasure t o d o w h a t I can t o m e e t a n y o b j e c t i o n s w h i c h y o u
m a y find being raised t o this proposal.
A n d if n o n e can b e raised, can I n o t
rely u p o n y o u as a p a t r i o t i c A m e r i c a n citizen t o help clear a w a y m i s u n d e r s t a n d ings a n d c o n f u s i o n as t o this i m p o r t a n t matter.
C o r d i a l l y a n d sincerely yours,
John

Janney.

Mr. J A N N E Y . I would like to say, in connection with Mr. Dies'
question, that Mr. Walter Lippman, in the New York Herald-Tribune, of January 16, has expressed himself as follows:
today

and

tomorrow

the

reconstruction

of

money

[By Walter Lippmann]

T h e President's p r o p o s a l s contain so m a n y t e c h n i c a l i m p l i c a t i o n s t h a t I d o
n o t feel able t o discuss t h e m after h a v i n g h a d o n l y a f e w hours t o t h i n k a b o u t
them.
O f f h a n d , it w o u l d appear, h o w e v e r , t h a t w h a t he has d o n e is t o k e e p
himself u n c o m m i t t e d as t o a p e r m a n e n t solution of t h e m o n e t a r y p r o b l e m , while
t a k i n g t w o definite measures f o r the i m m e d i a t e m a n a g e m e n t of the dollar.
T h e first of these measures aims at a t e n t a t i v e stabilization of , t h e dollar w i t h i n
w i d e l i m i t s — b e t w e e n 50 a n d 60 cents g o l d .
T h e s e c o n d establishes an e q u a l i z a t i o n f u n d t o k e e p the dollar within those limits b y b u y i n g a n d selling g o l d a n d
f o r e i g n exchange.
T h i s f u n d is t o c o m e f r o m the c a p t u r e of t h e g o l d p r o f i t o f
t h e F e d e r a l R e s e r v e S y s t e m a n d the T r e a s u r y .
T h e p r o f i t arises f r o m the f a c t




111

GOLD RESERVE ACT OP 19 3 4

that the official price of gold is raised f r o m a b o u t $20 an ounce t o at least $34
an ounce.
T h e decision t o use this f u n d f r o m the gold profit primarily as an equalization
f u n d , and n o t as a whole, at any rate, t o finance the deficit, is in itself very i m portant.
If I interpret it correctly, this decision means that the President is n o t
letting this great f u n d of 3 t o 4 billions find its w a y into the banking system where
it w o u l d swell excess reserves to a p o i n t at which credit inflation w o u l d be difficult
if n o t impossible t o control.
So it m a y be said that the President is proceeding on the principle of keeping
the dollar under control: externally b y means of an equalization fund, internally
b y keeping the excess reserves of the banking system in a f o r m and within limits
where credit can be managed b y the normal m e t h o d s of credit expansion and
contraction.
All of this, as the President makes clear, is only a step, and a tentative step at
that, toward " a n ultimate world-wide s o l u t i o n . "
T h a t solution is n o t yet in
sight. I t m a y be useful, however, to a t t e m p t to state the nature of the p r o b l e m
which calls f o r solution.
T h e practical difficulties of restoring the international gold standard and the
dangers of restoring it in its old f o r m are perhaps n o t fully appreciated a m o n g
those w h o look u p o n themselves as the guardians of sound m o n e y .
Y e t we h a v e
just witnessed the break-down of that standard less than 3 years after it had been
reestablished, and it is difficult to see h o w responsible statesmen and financiers
can a d v o c a t e a second restoration until and unless they are reasonably certain
that the causes of the recent break-down have been cured.

9

I t is p r o b a b l y m o r e difficult to restore the international gold standard t o d a y
than it wTas in 1925. For since that time the bulk of the world's m o n e t a r y gold
has been accumulated and sterilized in three countries. There are a b o u t 23,000
tons of gold in the world and a b o u t 18,000 of them are held in the United States,
France, and Great Britain. Obviously, these three great gold-holding countries
have got s o m e h o w to redistribute their gold if there is to be an international
gold standard. H o w is this to be done? H o w are Japan and Germany and
Central Europe and South America and Australia and India to get enough of this
gold to set up true gold currencies with gold reserves? Obviously no one in
France, England, or America is going to present the Japanese and the Germans
and the Argentinians and all the rest of them with their fair share of the world's
Nowhere does devotion to the gold standard go to the length
small stock of gold.
of contemplating free gifts of gold to countries which lack it.
B u t if gold is n o t given away, then tnose w h o lack gold m u s t b o r r o w it or
m u s t b u y it. B u t w h o in L o n d o n , Paris, or N e w Y o r k wants to lend gold to
countries that lack it? T h e reason they nave lost their gold is that they already
o w e m o r e than they can pay. T h e only other w a y they could get gold is to b u y
it b y exporting more goods than they import. T h e y could do this b y depreciating
their currencies. B u t this would mean that Britain, France, and the United
States would have to stand b y and let their foreign trade be undercut b y the
debtor countries and their h o m e markets flooded b y cheap imports.
Political human nature will n o t stand that. Therefore, the gold which is
n o w cornered in these countries cannot be redistributed as a gift; it cannot be
b o r r o w e d or b o u g h t b y the debtor countries except b y threatening the trade of
the creditor countries.
Some observers, notably Mr. L. L. B. Angas in his extraordinarily interesting
p a m p h l e t on " T h e C o m i n g Collapse in G o l d " have concluded that the practical
difficulties of redistributing the gold, and of keeping it distributed, are insuperable.
T h e y prophesy the a b a n d o n m e n t of gold and a d v o c a t e the continuation permanently of wThat n o w exists in three quarters of the commercial world, that is,
m a n a g e d paper currencies.
This is a conclusion which m o s t men will be ex^tremely reluctant to accept.
T h e President has m a d e it clear in his message
that he does not accept it. For while it is indisputable that all modern currencies
are, and necessarily must be, managed, it seems extremely dangerous, in view of
the limitations of human w i s d o m and disinterestedness, not t o have some metallic
measure which restricts somewhat the discretion of those w h o manage m o n e y . •
B u t any one w h o is conservative enough to desire a metallic control of m o n e y
must be bold enough to recognize that gold as it is n o w distributed, and the gold

39539-^-34-




8

•

. \

112

GOLD RESERVE ACT OF 1 9 3 4

s t a n d a r d as o p e r a t e d since the war, offer n o h o p e w h a t e v e r .
T h e basic reason
is t h a t while the g o l d s t a n d a r d c o n t r o l s national currencies, this c o n t r o l is t o l e r able o n l y if the gold s t a n d a r d itself is wisely a n d e f f e c t i v e l y m a n a g e d .
Before
t h e w a r t h e single g o l d s t a n d a r d w o r k e d well f r o m a b o u t 1896 t o 1914.
That
was its best p e r i o d .
I n t h a t t i m e there was a plentiful s u p p l y of n e w g o l d a n d
t h e g o l d s t a n d a r d was well m a n a g e d f r o m L o n d o n .
Since the w a r n o b o d y has
m a n a g e d the gold s t a n d a r d e f f e c t i v e l y or well, a n d there has b e e n n o great s u p p l y
of n e w g o l d .
T h e u p s h o t is that m o s t of the w o r l d is off the g o l d s t a n d a r d , a n d
m o s t of the g o l d of the w o r l d lies sterile in Paris, N e w Y o r k , a n d L o n d o n .
*
*
*
*
*
*
*
T h e restoration of an international metallic s t a n d a r d w o u l d , t h e r e f o r e , s e e m
t o require t w o things.
One is the breaking of w h a t has been called the c o r n e r
in g o l d , t h a t is t o say, a deliberate r e d u c t i o n of the value of g o l d so t h a t t h o s e
w h o h a v e cornered it a n d h o a r d e d it will wish t o sell it a n d so get it d i s t r i b u t e d .
T h e other is the establishment of a m e t h o d of h o l d i n g the l o w e r e d value of g o l d
s t e a d y so t h a t nations returning t o g o l d will n o t thereafter be s u b j e c t e d t o v i o l e n t
deflations or violent inflations.
T h e real q u e s t i o n f o r all m o n e t a r y conservatives, a m o n g w h o m the President
m u s t clearly be i n c l u d e d — f o r all w h o w a n t metallic m o n e y a n d n o t c o m p l e t e l y
m a n a g e d p a p e r m o n e y — i s this: B y w h a t d e v i c e can gold be m a d e less v a l u a b l e ,
a n d its value then stabilized?
F o r until g o l d itself is stabilized, n o o n e w h o
u n d e r s t a n d s this q u e s t i o n will wish t o stabilize the dollar p e r m a n e n t l y o n g o l d .
W e l l , w h a t is it t h a t gives gold its value?
Its b e a u t y ?
I n s o m e measure.
But
there are m o r e beautiful metals than g o l d .
Its utility?
I t is not v e r y useful.
T h e chief reason w h y gold is so valuable is that in all the civilized c o u n t r i e s of
the W e s t it can a l w a y s be sold at a fixed price.
W h e n the m i n t s are o p e n ,
n o b o d y need fear t h a t he c a n n o t sell his g o l d .
In other words, t h e greatest
value of gold is d u e t o the fact t h a t it is legal m o n e y at a s t a t u t o r y price f o r a
fixed q u a n t i t y .
T h i s m a k e s it a universal m e a n s of storing wealth.
Without
t h a t , were g o l d d e m o n e t i z e d as silver has been in the W e s t , its value w o u l d fall
That p e o p l e w o u l d p a y f o r it t o fill their teeth a n d t o m a k e j e w e l r y a n d o t h e r
to w
industrial p r o d u c t s .
*

*

*

*

*

*

*

If we d o n o t wish t o d e m o n e t i z e gold, b u t d o wish t o reduce its value a n d then
regulate its value, it f o l l o w s t h a t we m u s t d o s o m e t h i n g t o its m o n e t a r y p o s i t i o n .
F o r it is its m o n e t a r y p o s i t i o n t h a t gives gold its chief value b y creating an
unlimited demand.
N o w t o reduce the value of a n y t h i n g , y o u h a v e either t o
r e d u c e the d e m a n d or increase the s u p p l y .
T o regulate its value y o u h a v e t o
c o n t r o l e f f e c t i v e l y either the d e m a n d or the s u p p l y .
B u t it is i m p o s s i b l e t o d o
v e r y m u c h a b o u t the d e m a n d , t h o u g h s o m e of the reformers think t h e y can d o
something.
T h e President seems t o share their v i e w in t h a t he p r o p o s e s t o s t o p
entirely the circulation of g o l d coins.
This reduces d e m a n d , n o d o u b t , b u t it
does not control demand.
B u t the s u p p l y it m a y b e possible t o c o n t r o l because it is such a small s u p p l y .
T h e t w o possible w a y s of controlling it are, first, b y v a r y i n g the g o l d c o n t e n t of
currencies in each c o u n t r y , and s e c o n d b y reestablishing silver a n d treating it
b y l a w as an e q u i v a l e n t f o r gold.
T h e first m e t h o d is p u r e l y national.
It
w o u l d a d j u s t the dollar t o c o m p e n s a t e f o r changes in the value of g o l d .
The
s e c o n d m e t h o d is international.
It would adjust gold b y compensating with
silver f o r changes in its value.
*

*

*

*

*

*

*

T h e t w o m e t h o d s are n o t exclusive.
I t is quite c o n c e i v a b l e t h a t the U n i t e d
States m i g h t t a k e t h e lead in m a n a g i n g the value of g o l d b y b a l a n c i n g it w i t h
silver in order t o o b t a i n reasonably stable international prices, a n d also m a n a g e
the dollar t o g o v e r n the A m e r i c a n price level in relation t o those international
prices.
I h o p e this d o e s n o t o p e n u p vistas w h i c h are t o o alarming.
M y own conviction is t h a t this is the g r o u n d w e h a v e i m m e d i a t e l y t o explore if w e are still c o n s e r v a t i v e e n o u g h in m o n e t a r y m a t t e r s t o prefer hard m o n e y at the base of credit
to absolute paper money.
F r o m the p o i n t of v i e w of the r e c o n s t r u c t i o n of a g o l d
s t a n d a r d , those w h o are exploring the possibilities of silver a n d of a v a r i a b l e g o l d
c o n t e n t are the true c o n s e r v a t i v e s .
T h e y alone are t r y i n g t o find a m i d d l e r o a d
b e t w e e n the o l d gold standard, w h i c h is n o w impossible t o restore, a n d the
p a p e r m o n e y s y s t e m , w h i c h is gaining g r o u n d so rapidly in the w o r l d .

Mr. F I E S I N G E R (presiding). Does that complete your statement?
(Thereupon the committee went into executive session.)







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GOLD RESERVE ACT OF 1934
FRIDAY,

JANUARY

H O U S E OF

19,

1934

REPRESENTATIVES,

C O M M I T T E E ON C O I N A G E , W E I G H T S , A N D

MEASURES,

Washington, D.C.
The committee met at 2:15 p.m., Hon. William L. Fiesinger
presiding.
Mr. F I E S I N G E R . Gentlemen of the committee, we have with us this
afternoon the distinguished junior Senator from Texas, Mr. Connally,
who will expound this measure.
STATEMENT OF HON. TOM CONNALLY, A UNITED STATES
SENATOR FROM THE STATE OF TEXAS
Senator C O N N A L L Y . Mr. Chairman, I want to apologize to the
committee for being late. I had a hearing before the Secretary of
Agriculture, and just got out of it a few moments ago; and my material for this presentation is in my office. I want to apologize for
appearing before the committee without more accurate and detailed
preparation.
First, I am strongly in favor of the President's program in connection with gold, as outlined in the proposed legislation.
As early as January 24, 1933, I believe it was, having given a greatdeal of study to the demand for inflation, and to the fact that commodity values—lands, houses, agricultural products, manufactured
products, and everything else—had declined in value so radically
compared to the gold dollar, I came to the conclusion that the only
sound and safe process of inflation was to cut the gold content of the
dollar. I made a speech in the Senate on January 24, 1933, while
Mr. Hoover was still President, proposing that such be done. At
that time I suggested a 65-cent dollar. It was such a radical move at
that time, in the view of many, that I dared to be rather conservative
in the amount of cut proposed.
Again, on January 25, 1933, and on April 18, 1933, I made other
speeches in the Senate along the same line; and when the inflation
amendment came along later in April I made an extended argument
about the constitutional powers of the Government to cut the gold
content of the dollar.
In essence, the President's plan is entirely satisfactory to me.
I do not think there is any question on earth but what, under the
powers given to the Congress in the Constitution to coin money and
regulate the value thereof—I do not say fix the value—the Congress
may whenever it sees fit change the gold content of the dollar. The
Constitution says that the Congress shall have power to coin money
and regulate the value thereof; and if regulate means anything it
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means the power to change the standard of money; to change the
gold content of the dollar whenever the Congress may see fit so to do.
This is like any other great power confided to the Congress. The
people simply have to trust to the Congress to do the fair, the just,
the wise thing. For instance, the Congress has power to make war;
and it may make an unjustifiable war or a terrible war; yet that is
one of the things with which we have to take chances. Therefore
when the Constitution gives to the Congress the power to regulate
the value of money the Congress has that power subject to its own
discretion. There can be no doubt of that. Undisputably the Congress had the power to change the amount of gold in a dollar whenever
the Congress may see fit to do so. If we do that, it would be unconscionable to allow the Federal Reserve System to get the profits on
all gold in its vaults, because gold is charged with a public interest,
it being a medium of money; and the Government, having control of
monetary gold and money, it certainly has a right to demand of the
Federal Reserve banks that they turn that gold over to the Government, not without compensation, but on the fair basis of dollar for
dollar.
In other words the Federal Reserve banks would get just as many
dollars for their gold as they paid in dollars for it, or as they credited
their depositors for it. If they have, say, 3 billions of gold in
their vaults and turn it over to the Government, they will receive
for it $3,000,000,000 in new money.
Mr. C O C H R A N . M a y I interrupt the gentleman?
Senator C O N N A L L Y . Certainly.
Mr. C O C H R A N . Referring to the matter of gold in the Federal
Reserve banks, that gold came from the member banks, did it not?
Senator C O N N A L L Y . Yes; part of it did.
Mr. C O C H R A N . And they obtained it from the people?
Senator C O N N A L L Y . Yes.
Mr. C O C H R A N . Therefore in the end if the provision were made
that Federal Reserve banks should reap the benefit of profits due to
inflation, would it not be just and proper that this money be passed
to the people who put it in the banks? And there is no way to find
who put it into the banks.
Senator C O N N A L L Y . That is right. Of course, every dollar of
money in the United States belongs to somebody. The money the
Federal Reserve banks have in their vaults does not after all belong
to the banks, it belongs to the fiduciaries whoever they are. The
local banks received the money from their depositors, naturally.
If it is lawful to make an individual come in and surrender his gold
to the Treasury or to the Federal Reserve banks, and have that
individual take $20 in paper money for $20 in gold, why is it not fair
to do the same thing with the Federal Reserve banks; that is, make
them turn over their gold for so many paper dollars?
Of course, the constitutionality of making individuals turn over
their gold has not been determined; but we have gone ahead and
acted and required that the people of the United S t a t e s t u r n
their gold over to the local banks or the Federal Reserve banks or
the Treasury. They have surrendered their gold. Obviously, gold
in the vaults of the Federal Reserve banks is gold turned over by the
people of the United States, because the people were afraid not to
turn it over, fearing prosecution. Would it not be an outrage to take




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that gold away from private individuals and let is pass into the hands
of the Federal Reserve banks and then give the Federal Reserve
banks two dollars for one upon a surrender of that gold to the Government?
Mr. P E R K I N S . Where did the gold turned in under the Excutive
order go?
Senator C O N N A L L Y . Turned in by the individuals?
Mr. P E R K I N S . It wound up in the Treasury or the Federal Reserve
banks.
Mr. P E R K I N S . SO that part of the money in the Federal Reserve
banks is money you and I and other citizens turned over to those
banks?
Senator C O N N A L L Y . Yes. Much of the money in the vaults of
Federal Reserve banks is gold that was in the hands of private individuals a year ago, and they had, by compulsion, to turn it in. This
money was first turned over to the Federal Reserve banks.
Failure to take over the gold in Federal Reserve banks would simply
permit the Federal Reserve banks to make a profit from individual
citizens who turned in their gold.
I am sure that all you gentlemen have read the opinion of the
Attorney General concerning this subject. The Attorney General
takes the view, and I think properly so, that the price of gold, $34 an
ounce, applies to newly mined domestic gold only. According to the
statutes of the United States an ounce of gold is now worth $20.67.
Gold is the only commodity on earth, about which I know, whose
value is fixed arbitrarily by law. Take 23 grains of gold to the mint,
and you get a gold dollar for it. It does not make any difference how
much gold is produced in the world, you still get $1 for 23 grains of
gold. Repeating, it was the only commodity on earth whose value
was absolutely and rigidly fixed by law. And that is still the value
of monetary gold. It is only the new gold that is worth about $34 an
ounce at the Treasury.
How would we cut the gold dollar successfully in any other way
than by this proposal here? How would we adjust the difficulties
without requiring everybody to turn in his gold to the Treasury.
Otherwise some citizens would make an undue profit.
Mr. W H I T E . Would not the remonetization of silver accomplish
the purpose of revaluing the gold dollar?
Senator C O N N A L L Y . I do not think so. Whenever the price of
gold is raised the price of silver also is raised. You, of course, want
to help silver; but the minute you raise the price of gold, like this
bill would do, you raise immediately the price of silver and make it
worth that much more. That is because there is a well-known ratio
between gold and silver. When the price of gold increases the price
of silver also increases.
Mr. W H I T E . We are seeking to raise commodity prices and to
decrease production here.
Senator C O N N A L L Y . Yes; that is true.
Mr. W H I T E . That is a function of Government?
Senator C O N N A L L Y . Yes.
Mr. W H I T E . In the statement of Mr. Harding to the members of
the advisory board of directors of the Federal Reserve System he
stated that from 1914 to 1921, as a result of putting $1,900,000,000
in circulation, with an expansion of credit of $11,000,000,000, prices




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rose 25 percent and we had a decrease in the price of essential articles.
If we did that by increasing the money in circulation, with a constant
expansion of credit, then if we remonetized silver we will do the same
thing again.
Senator C O N N A L L Y . I do not agree with the silver thesis, and I will
tell you why. The minute you cut the gold dollar to 60 cents you
increase the volume of money, if you want to issue it by 66%, because
you cut 40 percent off. The basis then is 60, or 40 percent. If we
take a gold dollar and cut it in half, have we not twice as many
dollars. We have only about 4h billions of actual gold. B y cutting
the 4K billions in half we would, of course, have 9 billions in hard
money. Under the reserve laws we can issue a great many more
certificates than there are gold dollars, because the reserve requirement is only 40 percent. We could, therefore, issue about 13 billions
of gold certificates and have a 40-percent gold reserve.
I favor using silver as part of the monetary reserves, as a subsidiary
coin, but, my dear sir, the minute we go on a free-coinage basis,
according to my humble view, unless we have an agreement with
foreign nations, as to what the ratio shall be, we should have the bulk
of the silver of the world and no gold. What is the trouble with
India and China today? They have all or most of the silver in the
world, and it is worth practically nothing. D o we want to exchange
roles with them. D o we want to use silver only and therefore have
other nations look upon us sorrowfully?
Internationally, all trade balances are settled in gold. If we had
free silver we should have to use gold also. The difficulty about gold
and silver is the matter of ratio.
There is the Gresham law, which means that when you cut the
ratio of gold and silver to the point where silver is worth more here
than elsewhere, the silver of the world will come here, and gold will
leave here. After the Napoleonic wars France had a silver ratio of
15.5 to 1. We had a ratio of 16 to 1. Silver was worth more in
France than here and the result was that our people sent their silver
to France.
Mr. W H I T E . H O W do you account for the fact that when we, under
the Pittman Act, placed a value of a dollar an ounce on 2 billion
ounces of silver the price of silver in India was $1.42, higher than the
normal value of a silver dollar.
Senator C O N N A L L Y . We bought and stored that silver and therefore made it scarcer. When any article gets scarce, the price of it
goes up, of course. For example, if I should buy in imagination 5
million bales of cotton, the price of cotton would soar, but when
people learn that it is only imagination the price will decline.
B y this proposal we would increase the volume of money by several
billions of dollars. But what difference does it make as to form of
money, so that it is cheaper?
Mr. W H I T E . We want to obviate future money stringencies and to
avoid a repetition of our present experience.
Senator C O N N A L L Y . Y O U say we would have more money if we
should coin silver. There is not any more silver on the valuation
basis than there is gold. Is not that true? It is even.
Mr. W H I T E . That is correct.
Senator C O N N A L L Y . Certainly, it is perfectly even. Suppose we
coined all the silver, we would not have any more money than if




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we coined the gold. Why not let us have some legislation once in
awhile on the subject of money without getting the silver question
in it.
Mr. P E R K I N S . The difficulty some members will experience when
called upon to vote on this bill is that they do not feel that the gold
should be taken from the Federal Reserve banks. They will agree
that the increased value should be taken. Will you please address
yourself to that, Senator?
Senator C O N N A L L Y . I introduced a bill on this subject in the Senate
to take the gold from the Federal Reserve banks. That bill provided
that the Federal Reserve banks should turn over their gold to the
Treasury and receive in lieu thereof gold certificates in the same
number of dollars as the present amount of the gold. If they turned
in 3 billions, they would receive that amount in gold certificates; and
as soon as the gold content is changed those Federal Reserve banks
could go to the Treasury and get gold certificates to which they are
entitled and use the certificates as a reserve in lieu of actual gold. Is
there anything wrong with that proposal?
Mr. W H I T E . D O you think it would have the same debt-paying
power as the present gold dollar?
Senator C O N N A L L Y . Yes; so far as debt is concerned. If, for example, 1 owe you a thousand dollars, the Supreme Court has said
that I may legally take a thousand paper dollars and pay you. If
you have a gold bond for, say, $5,000 issued 5 years, the maker of
that bond may take new gold and pay off that bond. That point has
been settled since the decision in the Legal Tender cases. During the
stress of the Civil War the legal tender laws were enacted, and they
were passed upon by the Supreme Court after the war. Greenbacks
were freely issued without their having a gold or a silver reserve
behind them. Those paper dollars were worth only about 35 cents in
gold; but, because the Congress had said that those greenbacks should
be legal tender for the payment of all debts, excepting taxes, the
Supreme Court held, although by a divided court, that such an act
of the Congress was legal, and one could pay his debts dollar for dollar
with a 35-cent dollar.
Mr. W H I T E . The money was legal tender?
Senator C O N N A L L Y . Yes; even though it was practically worthless.
Mr. W H I T E . Y O U mentioned the subject of the constitutionality
of the act. Will you please address yourself to that subject and say
whether we are, in your opinion, declaring a constitutional function
Congress has to the Executive in this act?
Senator C O N N A L L Y . Y O U are not. There are several Supreme
Court decisions in this connection. Legislative authority cannot
be delegated. I grant that. There is, however, a line of Supreme
Court decisions holding that when the Congress, by an act, outlines
its policy and limits the authority an administrative officer is to
exercise under that act—when the Congress outlines its wishes and
desires—the remainder of it is purely an administrative act which
an executive officer may perform.
In Field v. Clark, which is a tariff case, the issue was one in which
the President had been given authority to place embargoes and
prohibitions against foreign countries that had in the matter of commerce discriminated against the United States. The constitutionality of that power exercised by the President was questioned. The




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contention was that the Congress was allowing the President to select
the nations for reciprocal treatment and allowing him to say how much
the duty should be on articles from certain countries, which, it was
alleged, was strictly a legislative power, because the Congress was
empowered to fix duties and taxes. The Supreme Court in that
case held that such a law was not a delegation of the congressional
authority, because the Congress had clearly indicated a governmental policy, and that the determination as to what country or
countries were so discriminating against the United States was an
administrative function that the Executive had a right to determine.
So that in this proposed act the Congress has made a declaration
of policy that it is the intention to cut the gold dollar to between 50
and 60 cents. This would simply vest in the Executive certain administrative duties with reference to the enforcement of the law; but the
Congress has, repeating, clearly outlined a governmental policy.
Without this proposed act this could not be done, probably. This
act expresses the congressional will and the congressional policy,
and I do not believe it is a delegation of the authority vested in the
Congress.
In closing let me say that the reason I advocated cutting the gold
dollar was, for some reason, the gold dollar had been going higher and
higher and higher while property values were going lower and lower
and lower, measured in gold. The States and the municipalities and
the Federal Government were so loaded with bonded indebtedness,
our people generally were so loaded with mortgage indebtedness on
property, that I did not believe they could ever discharge those debts
in gold dollars of the old content under present economic conditions
and according to present price levels.
I believe it is wise and sound and safe and proper to cut the gold
content of the dollar, because that will permit of a general adjustment
of the debts of everybody and the commodities of everybody. I
believe it is wiser and sounder and safer to do this than to go on and
have a period of absolute deflation wherein our people would be foreclosed, cities wTould become bankrupt, and our Federal Government
would have to issue bonds at increased rates of interest. I believe
it is wiser and sounder and safer to do this than to try to go through
on the high-standard dollar.
This is no new doctrine. Nations from the beginning of time have
revalued their money. France did it. Great Britain did it. When
Great Britain stabilizes she will do so on a lower level than the old
pound.
Now talk about contracts. M y friends, of course, I believe
absolutely in respect for contracts; but contracts are not superior to
great governmental powers and great governmental functions that
are superior to anybody's individual contract. Talk about the gold
clause in contracts. This is my answer to that: When a man issues
a bond payable in gold coin, and when a man buys a bond payable in
gold coin, they do so with the knowledge that, under the Constitution, the Congress may legally at any time change that gold dollar;
and that constitutional provision is written into that contract. We
have the power to make war. Let us say that a man had a contract
to sell goods in Europe and the war came on, an embargo is placed
against our export; that is not a violation of the contract because the
man knew that the Congress had powder to declare war; and if the man




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has such a contract and those circumstances overtake him, the contract is not worth a dime. Repeating, when a man contracts to
make payment in a gold dollar he does so knowing that the Government may say what a gold dollar shall be at any time.
Mr. PERKINS. Many contracts w^ere made payable in gold of a
standard weight and fineness?
Senator C O N N A L L Y . Yes.
Mr. PERKINS. When we have eight or nine hundred billions of gold
obligations and only 10 or 12 billions of gold, there is something that
rises above contracts, and that is absolute necessity.
Senator C O N N A L L Y . True, contracts may be sacred; but there is
something more sacred, and it is the high function of the Government
to take care of the general welfare of the people of this Republic. We
have many, many millions of indebtedness in the United States payable in goid coin of the present weight and fineness. How could that
indebtedness be paid?
Mr. ELTSE. But all that indebtedness does not mature at one time.
Senator C O N N A L L Y . N O ; that is true.
Mr. ELTSE. Somebody has remarked here that the undertakers
could not take care of the business if everybody would die at the same
time.
Senator C O N N A L L Y . Could any considerable part of those debts
be paid now?
Mr. PERKINS. Referring to the matter of the undertaker, if everybody should die at one time the undertakers too would be dead, therefore we need not bother about that. [Laughter.]
Senator C O N N A L L Y . I mean that individuals have to yield in the
face of a great public necessity; and the reason the Congress was
vested with these transcendental powers over money was so that money
is a function of Government and a dollar is just a symbol. It is not
something that may be eaten or worn. A dollar is just a symbol that
the Congress sets up as an agency or means of exchange.
Mr. E L T S E . IS it so much a question of whether the Government
has the right to devalue the gold content of the dollar, and thereby
breach faith with makers of contracts, as it is a question of the
right of business men and industries of the Nation to have some definite, fixed, determinable standard by which they may gauge their
future conduct.
Senator C O N N A L L Y . Have they had such a standard during the
past 4 years?
Mr. ELTSE. Yes; I think they did, until the first of this year.
Senator C O N N A L L Y . They thought they had a standard. Business
was paralyzed. I do not recognize any difference between a business
man and any other kind of man. Everybody who works or toils is a
business man. I do not especially recognize any thin, upper crust
called "business men." Everybody in this country is a business man.
The business man has had a fixed standard of gold during the last 4
years and he has been keeping his money in their vaults. He has not
been buying property, because of the uncertainty of economic conditions and not because of the dollar.
After all, when we went off gold everybody took these new dollars.
Did you gentlemen see any banks refusing to take any of the new
dollars for deposit? Did you gentlemen see any merchants who
declined to take a 65-cent dollar? A dollar is a recognized symbol




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and the only question is whether it will be accepted by everybody.
When the gold content of the dollar is cut we have every dollar in
circulation worth a dollar. Every dollar would be worth the same;
every dollar would be a sound dollar. Every dollar would pass
current.
Referring to certainty—when we change that value why is not the
dollar as certain for the business men as for anybody else? They do
not take any more chance than anybody else.
Mr. E L T S E . I say let us fix it and be done with it.
Senator C O N N A L L Y . This bill will fix it better than it is fixed now,
because it may be worth a hundred cents now or it may be worth 50
cents.
Mr. E L T S E . Under this bill, as drawn, it is not mandatory that the
President shall devaluate.
Senator C O N N A L L Y . Yes. He has devaluated to 6 5 cents, and he
is not going above that. He will not make it any dearer than it is
now.
Mr. E L T S E . Except the profit the Government would make from
devaluation, what would be the advantage?
Senator C O N N A L L Y . It would give the certainty you say you want.
Besides it would give the sanction of the Government to this plan and
be assurance that this would be the policy. Under the present plan
the matter is up to the Executive. If the Congress passes this proposed bill, and announces its policy, we shall have assurance that this
will be the fixed, definite policy of the Congress of the United States
to regulate the gold content of the dollar between definite limits. I
myself should be glad to fix it definitely, but, on account of exchange
and fluctuations, it might be desirable to have a little tolerance. At
the Bureau of Standards they preserve a standard yard and weight,
but there is always allowed a little tolerance. If we were in a normal
condition and the world were not upset, I should be willing to say it
should be 50 cents, and fix it there; but the 10-point variation is not
undesirable. That is a practical consideration.
Mr. P E R K I N S . It would prevent the hoarding of gold?
Senator C O N N A L L Y . Yes. I introduced a bill last April looking to
cutting the gold dollar to 66 cents and calling all gold into the Treasury, and not having any more of it coined, simply keeping the bullion,
and having a dollar worth so many grains of bullion. I would not
have coined any such money, but would have issued certificates. W e
have to use this money in international exchange; and why have the
gold coin when we have a gold certificate? We do not need any gold.
Let me tell you an interesting story about gold. I had a month's
salary in gold certificates and I left it with Mr. Pace, in the Senate
disbursing office; and I thought I would take a look at it before surrendering it. I went to do so, and I found the money in greenbacks.
I asked, " W h a t did you do with those gold certificates of mine?"
and he replied, " 1 turned them over to the Treasury because the
President ordered them turned in."
Mr. B E R L I N . In section 10 of this [indicating] bill 2 billions is set
aside as a stabilization fund. Is that not the real ace in this whole
bill?
Senator C O N N A L L Y . I do not think so; but is is, I grant, important.
That is, I think, modeled after the British equalization fund. We
would not lose that money. We would gain at one time and lose at




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another, and come out just about even. That is due to exchange rates
and fluctuations. That is just part of our profit. One of the policies
of the administration is, instead of spending that profit, to keep that
profit in the Treasury in this fund until we get to normal and then
dispose of it as we see fit.
Mr. PERKINS. Why should we make a law for the permanent of
this 2 billions. Why not make it pending the emergency or for some
definite time?
Senator C O N N A L L Y . If we say " emergency
I do not think that is
possible. If we should make it for only a short time, that would
make a difference with foreign countries and they would probably
play against it; but if it be made permanent we could discontinue it
when we got ready. I do not think that w^ould cause any trouble.
Mr. WHITE. We have spoken about profits in the operation of
that fund. May I ask whether there would be any losses?
Senator C O N N A L L Y . There would be losses and gains. A money
exchange is like any other commodity. If one should want to buy
francs on the British exchange the price he w^ould have to pay would
be determined by the demand for francs on that exchange at the time
he wanted to buy. The demand governs the price, as usual. Again,
if we ship 3,000,000 or 4,000,000 bales of cotton to European and get
paid for them in francs, we shall have to sell those francs for dollars.
Our people cannot spend francs; those francs have to be converted into
dollars. And to dump that many francs upon the British exchange
w^ould cause the price of the franc to go down some at least. On the
other hand, if a big load of goods should come here, the reverse would
be true. There would be a reverse effect on the dollar.
Mr. ELTSE. Referring to the matter of the Federal Reserve banks
holding the gold and turning the profits over to the Federal Government, what advantage is there to the Federal Reserve banks in holding
the gold and not turning it over to the Treasury?
Senator C O N N A L L Y . I cannot see any advantage. You will be
told that the gold is used for issuance of notes.
I want to say something about the Federal Reserve banks, and I
want everybody to get it. I especially want the newspaper men here
to get it.
If the Federal Reserve banking system sets itself up in opposition
to the Government of the United States and undertakes to play the
game of the old United States Bank and the Biddies in the time of
Andrew Jackson, somebody will destroy the Federal Reserve System
just as Jackson destroyed the United States Bank in the thirties.
Every dollar the Federal Reserve banks have in their vaults was
deposited there by somebody. They owe their depositors. On the
other side they have assets, notes from banks and notes from different
other concerns. All they own consists of assets or dollars. It is all
in terms of dollars. They have no horses or cattle in their vaults.
They owe debts and debts are owed to them. When this money is
taken from them and they are given new dollars, they can pay their
debts with new dollars, and they will be just as well off as they are
now.
Mr. ELTSE. They are certificates.
Senator C O N N A L L Y . They are entitled to the gold for them after
the dollar has been revalued.




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Mr. F I E S I N G E R . I thank you on behalf of the committee for this
illuminating talk, Senator.
Senator C O N N A L L Y . I am glad to be with you, and I thank you for
hearing me.
M r . F I E S I N G E R . Gentlemen of the committees, we are fortunate
in having with us this afternoon Gov. George W . Norris, governor
of the Federal Reserve Bank of Philadelphia. He has shown his
interest in this matter by consenting to come before this committee
and give us his views of this bill. Y o u may proceed, Governor
N orris.
STATEMENT OF GEORGE W. NORMS, GOVERNOR OF THE FEDERAL
RESERVE BANK OF PHILADELPHIA, PA.
M r . NORRIS. Mr. Chairman, may I ask whether you would like
me to get through in 10 or 15 minutes?
Mr. F I E S I N G E R . I think that will be just as you like. If you wish to
make a statement and go along with that statement uninterrupted,
I think the committee wall respect your wishes.
M r . NORRIS. If you want me to get through in 10 or 15 minutes I
will confine myself absolutely to this bill; if you will give me a few
minutes more than that, there are a few preliminary observations
that I would like to make.
M a y I say, first, gentlemen, that I received the chairman's invitation to come here today only late yesterday afternoon, so that I have
had no time to prepare any statement or material, and I want it
understood that I am not speaking for the Federal Reserve Board or
for any other Federal Reserve bank, but am merely speaking here as
an individual.
I would like first to make a very short and simple statement on
the gold situation. It is very commonly alleged that there is not
enough gold in the world, that the increase in the stocks of monetary
gold has not kept pace with the demand. That argument has been
specially pressed by Professor Cassell, of Sweden. In 1927 or 1928
what they called the " G o l d Delegation" of the League of Nations
made an estimate of the probable production of gold during a series
of years following—I think they ran it 10 or 15 years. All their
calculations of the probable production of gold have been greatly
exceeded.
In addition to the increase in the production of gold, that is, of
gold from the mines, there has been a very great reduction in the
amount of gold used in the arts, so that a very much larger proportion, of a larger output has gone into monetary gold, with the result
that at the end of 1928 the gold reserves of the central banks and
treasuries of the world were 10 billion dollars; at the end of 1929,
in round figures, 10^ billion; at the end of 1930, 11 billion; at the end
of 1931, eleven billion seven hundred million, and at the end of 1932,
eleven billion nine hundred million. That is an increase in 4 years of
over $1,800,000,000, or 18.64 percent, or an average increase in the
world's stock of monetary gold of 4.66 percent a year.
The calculation that statisticians and economists have substantially
agreed upon is that the world increase in production, which indicates
the demand upon gold, averages over a long peiiod of years about 3}{
percent, and that therefore to keep pace with the growth of population




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and business, the stock of monetary gold must increase at least
percent annually.
In those 4 years that I have indicated, as the result of the increased
production, the diminished absorption in the arts, and the outflow
of gold from India, which had previously been known as the " world's
sink for gold
the increase in the stock of monetary gold has averaged
4.66 percent, and world production of basic commodities, instead of
having gone up in those years, has gone down. So that we have an
infinitely larger proportion of gold today in proportion to the demand
for gold—the load that gold is expected to carry—than we have had
at any time in recent history.
Next I want to say a word as to the currency in circulation. A
great many gentlemen speak of the necessity for increasing the circulating medium. The currency in circulation today in this country
is 18 percent larger than it was in 1926, and larger than it was in 1929,
when wages were high, pay rolls large, prices high, and the demand for
currency was very much greater than it is now. So that I cannot see
any sound argument that can be made that there is any shortage of
gold in the world, and certainly not in this country, where we have
the largest stock of any nation in the world, nor is there any shortage
of the circulating medium.
Of course, the currency in circulation represents only a small part,
less than 10 percent, of the total circulating medium because over 90
percent of our transactions are settled by check.
There has been a very considerable shrinkage in the deposits, what
the statisticians—and I am neither a statistician nor an economist—
what they call the " b a n k deposit currency." The reduction in the
net demand deposits of the banks, I think, has been, since 1929, in the
neighborhood of 20 percent, but production has gone off, prices have
gone off, pay rolls have gone off. So that whether we take actual
currency or whether we take bank credit currency, there is an ample
supply of both.
Now as to credit—and, of course, I realize that what I say as to
currency and as to credit will seem incorrect to gentlemen from
particular localities where, as the result of bank failures or crop
failures or something else, the people are very poor and there is a lack
of credit and of currency. I know that exists in some sections of the
country, very unfortunately. I regret it deeply but of course it is
impossible to go into those local details. I am giving you simply the
national figure. Within the last year the Federal Reserve banks, in
an effort to aid the situation, have bought over 600 million of Government bonds. Those bonds, of course, have been bought largely from
the banks, that are now the principal holders of Government bonds,
and the result of those purchases has been to create over $900,000,000
of excess reserves in the banks of this country. I forget whether that
is all banks—no, I think it is member banks—but at all events whatever
criterion is taken for the excess reserves, when we originally started
out on the bond buying program we thought that it would be advisable
to give the banks $250,000,000 or $300,000,000 of excess reserves; and
if they had that amount they would want to use them, they would
loosen up in their credit policies, and that the result on business would
be beneficial; but we have gone on to the point where we have brought
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those excess reserves up to not only $250,000,000 or $300,000,000,
but on to over $900,000,000.
I am not going into any extended discussion of the devaluation of
the dollar.
Senator Connally has spoken very interestingly about that. I think
we are all resigned to the dollar being devalued. Personally, I think
that 60 percent is too low. The dollar was driven down at one time
to a fraction under 60; then it rallied to 64 or 65, and has since been
fluctuating between 62 and 64. That very low valuation of the dollar
is due to several causes. It is due in the first place to the fact that
American exporters, who have been nervous for the last 8 or 10 months
about the future of the dollar, have left their balances abroad instead
of bringing them back here. There has been a considerable flight of
capital from this country, and there has been the operation—I don't
know what that has been exactly—but there has been the operation
of this gold buying abroad and talk of the possible devaluation of the
dollar to 50 cents. So I think that a great many things have conspired to drive the dollar down below natural or proper levels. I
believe that if it were to be announced tomorrow that dollar devaluation had been abandoned, the dollar would at once rise to 100. Probably it is not desirable that it should The devalued dollar gives us
an advantage in foreign trade, and I agree in the main substantially
with what Senator Connally has said about the great volume of debt
in this country, and that we are faced with a choice between a long
period of individual deflation and liquidation, and some arbitrary
measures of this sort that will clean the situation up at one stroke.
So I am not opposed, and I do not think many of the officers or directors of the Reserve banks are opposed to the devaluation of the
dollar, nor do they assume to say how great that devaluation
should be.
Senator Connally referred to the gold that has been turned in, the
large amount of gold that the Federal Reserve banks hold that was
turned in by individuals in obedience to the President's order last
March. I do not know what that amounts to in the system. I know
that in Philadelphia we have about $14,000,000 of gold that has
been turned in in that way. We have never regarded that as our
gold. We have at all times been ready to turn it over to the Treasury
at any time they call for it. We only received it as agents for the
Treasury, and we never have for a moment considered that it was
our gold or that it was anybody else's gold than the Treasury's, and
there never has been a time since last March when, if the Secretary
of the Treasury had said, "Send me the gold that you have received
from the public", we would not have sent it.
That brings me to the gold that is the property of the Reserve
banks. We are all agreed that the increment or profit developing
from devaluation, being the result not of any ordinary business operations, but purely the result of a governmental act, that that increment or profit should properly go to the Government, and we have
never taken any position in opposition to that nor has there been
any friction or contest or opposition between the Federal Reserve
System and the administration. So that it all boils down to the
question of when and how the thing shall be done.
Our gold, part of it, was deposited by member banks; part of it
has come in in various ways. Under the Federal Reserve Act as it




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stands we are obliged to maintain a reserve of 35 percent, which may
be in either gold or lawful money, against deposits. That may b e
entirely in lawful money, so that as to our deposits which come from the
banks we are not concerned. We are not concerned with the protection of our member banks and we realize that that 35 percent reserve
against deposits we can maintain in lawful money. We need not
have any gold at all against them. The only thing that we are interested in, and deeply interested in, is our $3,000,000,000 of Federal
Reserve currency, Federal Reserve notes that are outstanding. Those*
notes nominally are the obligations of the United States Government.
The Federal Reserve notes read: " T h e United States of America
will p a y " — b u t I take it you gentlemen are all familiar with the
difference of opinion between President Wilson and Mr. Glass on one
side and Mr. Bryan on the other, at the time the Federal Reserve
Act was under discussion in Congress, and the compromise which was
finally effected, by which Mr. Bryan was satisfied through making
the Federal Reserve notes obligations of the United States, he holding
strongly to the view that the note-issuing function should be an
exclusive prerogative of the Government. President Wilson and!
Mr. Glass felt that it was better that notes should be issued by a
bank that was under Government supervision and on the board of
which the Government was represented. So that the compromise
that was made was to say that the United States of America would
pay, but the Federal Reserve banks were required to maintain a
40-percent reserve in gold, not in gold or lawful money but in gold y
and the notes were made, in the language of the act, the first and
paramount lien on all the assets of the issuing banks. So that while
the obligation on the face of the notes is an obligation of the United
States Government, there never has been a day when it was any real
or practical obligation. There never has been a time when anyFederal Reserve bank had less than that 40-percent gold reserve
against them; there never has been a time when the assets of any
Federal Reserve bank were not amply sufficient to retire all of the
notes that were issued; and as a matter of fact, over a period of years
the gold reserve against those notes ran 80 or 90 percent, and in a
number of instances the gold reserve against notes was over 100
percent.
As I say, we are not seeking any advantage here or seeking to be
relieved of any duty or obligation that we owe the United States
Government or to anyone else, but we are very much interested in the
American people who have taken $3,000,000,000 of those notes from
us and hold them today. All through the war, from the day when,
they were first issued in 1915, I suppose, up to the present time, there
never has been a time when a Federal Reserve note was not accepted
at par, was not equal to any other currency issued in this country ;
and not only that, for a great many years in Cuba, in Mexico, and m
southeastern Europe, Federal Reserve notes were accepted and
regarded and sought by the people of those countries as superior to
any other form of currency in the world.
Under those circumstances, with that obligation of the Federal
Reserve Act upon us, which of course, is modified by the act which is
now before you, we have always felt that we were trustees of a very
sacred and important public trust, the beneficiaries of which were
all the people of the United States, and if this gold is to be turned o v e r




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to the Government, we are resigned to the Government taking the
profit on it. There is no conflict or difference of opinion on that.
While we are resigned to that, we do not want to affect the security of
these notes; we do not want at any time to be deprived of the gold
that we now hold, and if it has to be done, if the administration view
is that in order to insure profit on the devaluation of the dollar, it is
necessary that the Government should have both title to and physical
possession of our gold, if that is the view, then I think we should be
told very specifically what we are going to get in return for that gold
we turn in. The act that is before you is very far from explicit on
that point. Section 2 reads:
Sec. 2. (a) U p o n the approval of this A c t , all right, title, and interest, a n d
e v e r y claim of the Federal Reserve Board, of e v e r y Federal Reserve b a n k , a n d
of e v e r y Federal Reserve agent, in and t o a n y a n d all gold coin and gold bullion
shall pass t o and are h e r e b y vested in the United States; and in p a y m e n t therefor
credits in equivalent a m o u n t s in dollars are hereby established in the Treasury
in the accounts authorized under the sixteenth paragraph of section 16 of the
Federal Reserve A c t , as heretofore a n d b y this A c t a m e n d e d (U.S.C., title 12,
sec. 467). Balances in such accounts shall be p a y a b l e in gold certificates, w h i c h
shall be in such f o r m and in such denominations as the Secretary of the T r e a s u r y
m a y determine.
All gold so transferred, n o t in the possession of the U n i t e d
States, shall b e held in c u s t o d y f o r the United States and delivered u p o n t h e
o r d e r of the Secretary of the T r e a s u r y ; and the Federal Reserve B o a r d , t h e
Federal Reserve banks, and the Federal Reserve agents shall give such instruct i o n s and shall take such action as m a y b e necessary t o assure t h a t such g o l d
shall b e so held and delivered.
(b) Section 16 of the Federal Reserve A c t , as a m e n d e d , is further a m e n d e d in
t h e following respects:
(1) T h e third sentence of the first paragraph is a m e n d e d to read as f o l l o w s :
" T h e y shall b e redeemed in lawful m o n e y o n d e m a n d a t the Treasury D e p a r t m e n t of the United States, in the city of Washington, District of C o l u m b i a , o r
a t a n y Federal Reserve b a n k . "
(2) So m u c h of the third sentence of the second paragraph as precedes t h e
p r o v i s o is a m e n d e d t o read as follows: " T h e collateral security thus offered shall
b e notes, drafts, bills of exchange, o r acceptances acquired under the provisions
of section 13 of this A c t , or bills of exchange endorsed b y a m e m b e r b a n k of a n y
Federal R e s e r v e district and purchased under the provisions of section 14 of
this A c t , or bankers' acceptances purchased under the provisions of said section
14, o r g o l d c e r t i f i c a t e s : " .
(3) T h e first sentence of the third paragraph is a m e n d e d t o read as f o l l o w s :
" E v e r y Federal R e s e r v e b a n k shall maintain reserves in gold certificates o r
l a w f u l m o n e y of n o t less than 35 per c e n t u m against its deposits and reserves
in g o l d certificates of n o t less than 40 per c e n t u m against its Federal R e s e r v e
n o t e s in actual circulation: Provided, however, T h a t when the Federal R e s e r v e
a g e n t holds g o l d certificates as collateral f o r Federal Reserve notes issued t o t h e
b a n k such gold certificates shall b e c o u n t e d as part of the reserve which such
b a n k is required t o maintain against its Federal Reserve notes in actual circulation."
(4) T h e fifth and sixth sentences of the third paragraph are a m e n d e d t o read
as follows: " N o t e s presented f o r r e d e m p t i o n at the Treasury of the U n i t e d
States shall b e paid o u t of the redemption f u n d and returned t o the Federal
R e s e r v e banks through which t h e y were originally issued, a n d thereupon such
Federal Reserve b a n k shall, u p o n d e m a n d of the Secretary of the Treasury,
reimburse such r e d e m p t i o n f u n d in lawful m o n e y or, if such Federal R e s e r v e
n o t e s h a v e been redeemed b y the Treasurer in gold certificates, then such f u n d s
shall b e reimbursed t o the extent d e e m e d necessary b y the Secretary of t h e
T r e a s u r y in gold certificates, and such Federal Reserve b a n k shall, so l o n g as
a n y of its Federal Reserve notes remain outstanding, maintain with t h e Treasurer
in g o l d certificates an a m o u n t sufficient in the j u d g m e n t of the Secretary t o p r o v i d e f o r all redemptions to b e m a d e b y the Treasurer. Federal R e s e r v e n o t e s
received b y the Treasurer otherwise than f o r redemption m a y b e exchanged f o r
g o l d certificates o u t of the r e d e m p t i o n f u n d hereinafter p r o v i d e d and returned t o
t h e R e s e r v e bank through which t h e y were originally issued, or t h e y m a y b e
returned t o such bank f o r the credit of the United S t a t e s . "




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(5) T h e fourth, fifth, and sixth paragraphs are a m e n d e d to read as f o l l o w s :
" T h e Federal Reserve Board shall require each Federal Reserve b a n k t o m a i n tain on deposit in the Treasury of the United States a sum in gold certificates
sufficient in the j u d g m e n t of tne Secretary of the Treasury f o r the r e d e m p t i o n
of the Federal Reserve notes issued t o such bank, b u t in no event less than 5
per centum of the total a m o u n t of notes issued less the a m o u n t of gold certificates
held b y the Federal Reserve agent as collateral security; b u t such deposit of
g o l d certificates shall be c o u n t e d a n d included as part of the 40 per c e n t u m
reserve hereinbefore required. T h e B o a r d shall h a v e the right, acting through
the Federal Reserve agent, t o grant in whole or in part, or t o reject entirely t h e
application of a n y Federal Reserve bank f o r Federal Reserve notes; b u t to the
extent that such application m a y be granted the Federal Reserve B o a r d shall,
through its local Federal Reserve agent, supply Federal Reserve notes to the
banks so applying, and such bank shall be charged with the a m o u n t of notes
issued to it and shall p a y such rate of interest as m a y be established b y the
Federal Reserve B o a r d on only that a m o u n t of such notes which equals the total
a m o u n t of its outstanding Federal Reserve notes less the a m o u n t of gold certificates held b y the Federal Reserve agent as collateral security. Federal Reserve
notes issued to a n y such bank shall, u p o n delivery, together with such notes of
such Federal R e s e r v e bank as m a y be issued under section 18 of this A c t u p o n
security of United States 2 per c e n t u m G o v e r n m e n t bonds, b e c o m e a first and
p a r a m o u n t lien o n all the assets of such bank.
" A n y Federal Reserve bank m a y at any time reduce its liability f o r outstanding
Federal Reserve notes b y depositing with the Federal Reserve agent its Federal
Reserve notes, gold certificates, or lawful m o n e y of the LTnited States.
Federal
Reserve notes so deposited shall not be reissued, except upon compliance with
the conditions of an original issue.
" T h e Federal Reserve agent shall hold such gold certificates or lawful m o n e y
available exclusively for exchange f o r the outstanding Federal Reserve notes
when offered b y the reserve bank of which he is a director. U p o n the request
of the Secretary of the Treasury the Federal Reserve Board shall require the
Federal Reserve agent to transmit t o the Treasurer of the United States so m u c h
of the gold certificates held b y him as collateral security for Federal Reserve
notes as m a y be required for the exclusive purpose of the redemption of such
Federal Reserve notes, but such gold certificates when deposited with the Treasurer shall be c o u n t e d and considered as if collateral security on deposit with the
Federal Reserve a g e n t . "
(6) T h e eighth paragraph is amended to read as follows:
" A l l Federal Reserve notes and all gold certificates and lawful m o n e y issued
t o or deposited with any Federal Reserve agent under the provisions of the
Federal Reserve A c t shall hereafter be held for such agent, under such rules
a n d regulations as the Federal Reserve B o a r d m a y prescribe, in the joint custody
of himself and the Federal Reserve bank t o which he is accredited.
Such agent
a n d such Federal Reserve bank shall be jointly liable f o r the safe-keeping of
such Federal Reserve notes, gold certificates, and lawful m o n e y .
Nothing
herein contained, however, shall be construed t o prohibit a Federal Reserve
agent f r o m depositing gold certificates with the Federal Reserve Board, t o b e
held b y such B o a r d subject to his order, or with the Treasurer of the United
States for the purposes authorized b y l a w . "
(7) T h e sixteenth paragraph is a m e n d e d t o read as follows:
" T h e Secretary of the Treasury is hereby authorized and directed t o receive
deposits of gold or of gold certificates with the Treasurer or any Assistant Treasurer of the United States when tendered b y any Federal Reserve bank or Federal
Reserve agent f o r credit to its or his a c c o u n t with the Federal Reserve Board.
T h e Secretary shall prescribe b y regulation the f o r m of receipt t o be issued b y
the Treasurer or Assistant Treasurer t o the Federal Reserve bank or Federal
Reserve agent making the deposit, and a duplicate of such receipt shall be delivered t o the Federal Reserve B o a r d b y the Treasurer at W a s h i n g t o n u p o n proper
advices f r o m any Assistant Treasurer that such deposit has been made.
Deposits
so m a d e shall be held subject to the orders of the Federal Reserve B o a r d and
shall be p a y a b l e in gold certificates on the order of the Federal Reserve B o a r d
t o any Federal Reserve bank or Federal Reserve agent at the Treasury or at
the Subtreasury of the United States nearest the place of business of such Federal
Reserve bank or such Federal Reserve agent.
T h e order used b y the Federal
Reserve Board in making such p a y m e n t s shall be signed b y the G o v e r n o r o r V i c e
G o v e r n o r , or such other officers or members as the B o a r d m a y b y regulation
prescribe.
T h e f o r m of such order shall be a p p r o v e d b y the Secretary of the
Treasury."




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(8) The eighteenth paragraph is amended to read as follows:
" D e p o s i t s made under this section standing to the credit of any Federal
Reserve bank with the Federal Reserve Board shall, at the option of said bank,
be counted as part of the lawful reserve which it is required to maintain against
outstanding Federal Reserve notes, or as a part of the reserve it is required to
maintain against deposits."

It does not state at whose option such balances shall be paid, or
when they shall be payable, but only says, " shall be payable in gold
certificates, which certificates shall be in such form as the Secretary
of the Treasury may determine."
In other words, we have to turn over all our gold and we will get
credit for it, and that credit is to be payable in gold certificates.
Senator Connally assumed that those gold certificates will be issued
to us at once. I hope they will, but I think that it should not be left
open to argument or discussion or doubt; that it should be provided
that that credit should be immediately payable to us in gold certificates, and I think that we ought to have some assurance that those
gold certificates shall be in some reasonable form. Of course, they
will not be made redeemable in gold. Up to this time a gold certificate has always been regarded as a warehouse receipt for gold, the
holder of which could go to the warehouse and get gold for it at any
time. That time has passed, so that if you do get gold certificates
they will not be redeemable in gold for some time, if ever.
I think the wording of that should be clarified, and if we have to
surrender the gold that we have held as a 40-percent reserve for the
protection of noteholders, it should be made very plain that that 40percent gold reserve will be maintained somewhere, if not by us then
in the United States Treasury.
The CHAIRMAN. M a y I interrupt to ask a question? What would
be the advantage to the American people if you could actually redeem
in gold?
M r . N O R R I S . N o n e a t all.

The CHAIRMAN. Then why bother with it?
Mr. N O R R I S . I said that, of course, they would not be redeemable
in gold, but I think there should be evidence of the existence of that
gold somewhere.
The CHAIRMAN. IS it not evidence when they give you a warehouse
receipt?
Mr. N O R R I S . I was just coming to that, the latter part of section 6,
at the foot of page 5, of this bill, says:
The reserves for Federal Reserve notes shall be maintained in gold certificates
or in credits payable in gold certificates maintained with the Treasurer of the
United States.

Now, if we turn in our gold and get certificates for it—I am speaking now of our gold coin and bullion—if we turn in our gold, part of
it is in coin and bullion and part of it is in gold certificates. As to
the coin and bullion that we turn in, I think that a like number of
dollars of that coin and bullion should be maintained in gold, not in
gold certificates or in credits, but in bullion with the Treasury of the
United States.
Now, I think I have covered the few points that I wanted to make,
in less than half an hour—it is only 20 minutes. If there are any
questions I will be glad to answer them if I can.




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Mr. W H I T E . Y O U speak of the Federal Reserve notes outstanding
from your bank being based on 40-percent gold. These notes were
issued on rediscounted paper, were they not?
M r . N O R R I S . T O the extent of 6 0 percent, 40-percent gold.
M r . WHITE. And which was secured b y ample collateral?
M r . NORRIS. Oh, yes; under the Federal Reserve Act the other 60
percent has to be in self-liquidating commercial paper, having maturity of not more than 90 days.
M r . WHITE. There is no paper that you think of that is not amply
secured b y collateral for the banks of issue.
The C H A I R M A N . What is collateral today?
M r . NORRIS. Well, most, of the notes that we get are not secured by
collateral; they are notes of a merchant or business man or farmer or
whatnot, and he discounts his note with the member bank, and then
they rediscount with us. Very few of those notes have any stock or
bond collateral attached to them, but we have the obligation of the
maker of the note, of the endorser, if there is one on it, and of the
bank that discounts it with us.
M r . WHITE. Does the eligibility of the note that you rediscount—
it is based on the worth of what the man owns that issued the paper,
is it not?
M r . N O R R I S . On all notes over originally $ 5 , 0 0 0 , and we have
reduced that now to $ 2 , 5 0 0 , we require a statement from the maker
showing not only that he has assets but that he has current assets;
that he has an excess of quick assets over current liabilities which
justifies his borrowing that amount of money. Then, as I say, we
have the endorsement of the bank that originally discounted that
note and then rediscounted it with us.
Mr. WHITE. Then the security is considered ample, is it not?
Mr. NORRIS. Yes; we think so. Of course, we make mistakes
sometimes. W e do not take any where we do not think so.
The C H A I R M A N . There is the possibility of another objection in
appraising security however, appraising paper during this depression.
Mr. NORRIS. Very grave; yes.
The C H A I R M A N . One or two other questions, if you will permit.
The Federal Reserve System in this country is purely a private banking
system?
M r . NORRIS. I would call it semipublic.
The C H A I R M A N . Owned entirely by private interests?
M r . NORRIS.

Yes.

The C H A I R M A N . It is governed, however, by the Federal Reserve
Board that is responsible to the President of the United States.
M r . NORRIS. I t is not governed b y the Federal Reserve Board;
our operations are supervised b y the Federal Reserve Board.
The C H A I R M A N . N O W tell me this, as I listened to your argument I
got the impression that you feared that you might lose the right to
issue currency under this measure?
M r . N O R R I S . N O ; I do not fear that we will lose the right to issue it,
but I do not want to see the security that we have always had for our
noteholders diminished. I want to see them protected.
T h e C H A I R M A N . H O W much does it cost the American public per
year to maintain the currency of the Federal Reserve System? What
interest does it cost the American people?




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Mr. NORRIS. It does not cost the American people anything.
The C H A I R M A N . Whom would you say it does cost? Somebody
pays interest to you for carrying it. Who pays that interest?
Mr. NORRIS. We pay it out of the interest on the notes that we
rediscount, or the Government bonds that we hold.
The C H A I R M A N . And your profit comes from your charges for
services?
Mr. NORRIS. We do not make any charges for service. We
simply get the discount on the notes that we discount, and the
interest on the securities that we hold.
The C H A I R M A N . Y O U charge for the service of discounting?
Mr. NORRIS. I mentioned that we do not make any special charge
to the banks for special service.
The C H A I R M A N . I cannot compete with you on technical questions
because I do not know
Mr. N O R R I S (interposing). I do not want to answer questions
technically.
The C H A I R M A N . What I am trying to get is for somebody from
your board to admit to me that there is no particular advantage or
security for the banks now carrying Federal Reserve notes as against
Treasury notes, except that you have a thoroughly splendid record
of integrity.
Mr. NORRIS. I do not know whether you gentlemen will agree with
me, but I think that world experience has demonstrated that banking
is better done by people who are not connected with government
than by people who are.
The CHAIRMAN. That is a very good point, and I am glad you
brought it to the attention of this committee. The Bank of England
today is in a very peculiar relationship to its government. It is not
directly owned by its government, and yet it is responsible to the
government; much more so than any central bank or bank in the
Federal Reserve System that we have, and it might be a good thing
if this committee carried in its mind in the future the possibility of
the American people once more getting control of their money and
taking it away from private interests, I do not know whether or not
we are better off since the existence of the Federal Reserve Board
than we were before. I submit that as a thought for this committee
to think about and comment on. I know you do not agree with me,
and I do not intend to engage in argument, but that is just what I
have been thinking for the last 2 or 3 years, and I will appreciate it very much if you can demonstrate by any economic proof
in the world where the banker sees the people or where the people
have benefited by the control of money being in the private hands
of banking individuals.
Mr. NORRIS. Of course, banking is an essential function. It has
got to be done by somebody and expressing the question broadly
that you raise, it is whether it can better be done by individuals or
by the Government. The Federal Reserve System was a very carefully considered effort to answer that question and it was thought
by the framers of that act that the best results would be secured if
the commercial banks were left alone as they then existed, but that
12 Federal Reserve banks should be created, 12 instead of 1 being
decided upon on account of the great area of this country and the
diversity of interests, and that those banks should afford an elastic




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currency and should give member banks in times of seasonal demand
or emergency an opportunity to rediscount their portfolio notes.
The public interest was recognized, and the selection of directors of
the Federal Reserve banks was very carefully safeguarded. It was
provided that there should be three directors who would be bankers,
three who would be business men, and three who would be appointed
by the Federal Reserve Board to represent the public interests. And
in order to prevent the possibility of the 6 elected directors being
selected by large banks who would control the thing, it was provided
that the largest banks would only vote for 2 directors, the medium
sized banks for 2, and the small banks for 2, and that over the
whole system there should be what President Wilson described as an
altruistic reserve board in Washington, composed of 6, 7, or 8 members appointed by the President; and to guard against the intrusion
of politics there it was provided that their terms should be staggered
so that no President would have an opportunity during his term of
office of 4 years of appointing more than 2 members of the Board.
Now, maybe you do not feel that that was a wise solution of it,
but it was a solution that w^as studied with the utmost care. The
committee that framed the bill had before them all the investigations
of the Monetary Commission; they had Senator Aldrich's bill, and
that was the result that they finally worked out. And I do not think
there has ever been any criticism, unless perhaps you would say that
there is at the present time. I do not think I have ever heard any
serious objection to the working out of that plan, or any serious
criticism of it.
Mr. BURKE. Could not the Federal Reserve bank carry on a rediscount function with other functions even if it retired from the noteissuing?
Mr. NORRIS. It would be possible.
Mr. BURKE. Would you think that advisable?
Mr. NORRIS. I do not think anything would be gained by it.
The C H A I R M A N . One more question, and then I shall turn the
witness over to the committee. Suppose we left this gold in your
vaults; suppose the gold therein was revalued, would you want to
have any profit? Would you want to keep it all?
Mr. N O R R I S . N O , I would not want either.
The C H A I R M A N . Then I do not see how we can leave the gold in
your possession.
Mr. PERKINS. What was that question?
The C H A I R M A N . I said if the gold was left in his possession rather
than taking it away and putting it in the Treasury and giving them
warehouse receipts for that gold, if eventually they revalue the gold,
revalue the gold dollar, would the bank be willing to assume the
losses, if there was a loss, or would they accept the profit if there was
a profit—would they or would they not? He said he did not think
they would.
Mr. NORRIS. If you ask me as a business proposition, whether if
you give us a profit of 40 or 50 percent right away would we be willing
to stand any loss on revaluation upward, I would say " Y e s , " but I
do not think we are entitled to any profit, and if we are not entitled
to any profit, I think it is hardly fair for anyone to ask us to stand
the loss.
The C H A I R M A N . Y O U might eventually take a loss on that gold?




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Mr. N O R R I S . We might.
The C H A I R M A N . For any ordinary temporary profit. D o you not
think the Government is treating you pretty well when it does not
insist on your holding that gold?
Mr. N O R R I S . I am not concerned in the question of profits at all.
We have never made any claims to that profit, and are perfectly willing
to yield it.
The C H A I R M A N . Would not warehouse receipts for a quantity of
gold be much better than to hold the gold with the possibility of
revaluing it?
Mr. N O R R I S . If you will carefully impound or segregate or earmark
that gold in theTreasury as being the reserve against Federal Reserve
notes so that it cannot be used for any other purpose.
The C H A I R M A N . I think that is accomplished in a practical way
through the provisions of this bill. The only way you can get gold
out of the United States Treasury under this bill is on trade balances.
Mr. N O R R I S . Are you sure that the Government could not use it
for any other purpose?
The C H A I R M A N . I am positive that the gold could not be used for
any other purpose under this bill than to settle trade balances.
Mr. M C G U G I N . Even if we turn the printing presses loose and make
Government currency worthless, you are carrying the Federal Reserve
currency along the same level.
T h e CHAIRMAN.
Mr. M C G U G I N .

Yes.

That is the real purpose of taking Federal Reserve
gold, is it not, to make sure that if we do have printing-press inflation, Federal Reserve notes will not be worth any more than any
other paper?
Mr. F I E S I N G E R . Can you answer the question?
Mr. N O R R I S . I'did not understand that you were asking me.
Mr. F I E S I N G E R . I want to ask you a couple of questions when Mr.
McGugin has finished. Were you through, Mr. McGugin?
Mr. M C G U G I N . I will just ask one other question, if you will let
me. As I read this bill it provides for taking over Federal Reserve
gold into the hands of the Treasury. Then following out the terms of
the bill it provides that the Secretary of the Treasury shall sustain
an equal parity of all currency issued in the United States. Is not
the one real and only practical purpose of taking this gold into the
Treasury, outside of taking a profit that you are willing to give up,
to see to it that in case we do have a paper inflation, we will not have
Treasury currency floating around over the country at one value, and
Federal Reserve currency being good currency and retaining its value?
Is not that the purpose?
Mr. N O R R I S . I do not know. You will have to have the Administration officials to answer that.
Mr. M C G U G I N . IS not that the practical purpose that you read in
the bill?
Mr. N O R R I S . N O . I suppose that the principal purpose wxmld be
to assure the Government the increment or profit.
Mr. M C G U G I N . They could easily, if they reduced it 4 0 percent,
Just say: "Turn in 40 percent of your gold." That would handle that.
Mr. N O R R I S . There are various ways of doing it, or they could take
it from us as they took half of our surplus for the insurance fund, or
they could impose a franchise tax.




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Mr. M C G U G I N . But if the Government started inflation of Treasury notes, and that began to cheapen the value of Government currency, that would not affect Federal Reserve notes outstanding as
long as those notes were sustained by the gold now in the hands of
the Federal Reserve System, would it?
Mr. N O R R I S . N O ; it would not affect them as much.
Mr. M C G U G I N . It would not affect Federal Reserve notes?
Mr. NORRIS. They would be worth 40 cents anyhow.
Mr. M C G U G I N . In other words, the one principal purpose of this
thing is that if we are going into a tailspin of inflation we are going
to drag Federal Reserve currency down to whatever the level may be
of any other currency.
Mr. F I E S I N G E R . Have you any fears about these Federal Reserve
notes if the Government should take this gold into the Treasury?
Mr. NORRIS. I feel, as I said, that the people of this country and
other countries have taken those notes on the assurance that the
banks that issued them would always have in their possession not
less than 40 percent gold against them; and as a matter of fact they
have had 60 percent, 80 percent, or even 100 percent of gold. Now,
the handling of that thing has been in the hands of the directors
and officers of the Federal Reserve banks. They feel that they are
in the position of trustees for those notes, and they are very reluctant
to agree voluntarily to anything that is to the prejudice of the beneficiaries of that trust. They have avoided and will avoid any conflict
with the administration, and we are simply presenting arguments on
one side and the other.
Mr. F I E S I N G E R . Then you would have some fears—at least you
think the people would have some fears about that note if the gold
were taken into the Treasury?
Mr. NORRIS. I am quite apprehensive as to what would be the
effect of publication of one of the weekly reports, consolidated reports,
of the Federal Reserve System, that would show the Federal Reserve
banks stripped of their gold.
Mr. F I E S I N G E R . N O W , Governor, what would happen—suppose we
revalue the dollar and we retake the profits of the revaluation into
the Treasury, as you have said, you would not object to; suppose that
after we did that the gold should come back again in price to where it
is now, $20.67, what would happen in that event, especially—put it
this way, if the Government had used that windfall, so to speak, and
had lost it so that it could not restore, could not make restoration to
the Federal Reserve, what would happen in that event?
Mr. NORRIS. Well, I suppose the Government would just owe us
something that they could not pay and that we could not collect.
But there is a provision in section 7 that in the event of the weight of
the gold dollar, being increased, the resulting decrease in value of the
gold held as reserve shall be compensated by transfers of gold bullion
from the general fund. I imagine that contemplates that if—of
course, I had nothing to do with the framing of this bill, and I do not
want to go into an explanation of what the authors of the bill intended
by it. They are the people to explain that, but I take it that that
means that if the Government makes this 4 billion dollar profit now
and then revalues upward, then somebody is going to get some benefit
from it.




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M r . F I E S I N G E R . Well, if we decrease the gold content of the dollar
down to, say, 15 grains, and then the value of gold should fall again
back to $20.67, we would have a dollar worth about 60 cents, would
we not?
Mr. NORRIS. I expect that would be about the calculation, yes.
Mr. F I E S I N G E R . Senator Connally made a suggestion when he
was here. He said, if I understood his statement correctly, why not
have these dollars payable in gold of value, say, at the price level
that the President wants to fix it at, the 1926 price level, rather than
in a specific number of grains of gold? What would you say about
that kind of a proposal? He said here that that would be his way of
doing it, if I remember his statement correctly.
Mr. NORRIS. That the gold or unit of value should be payable in
what?
Mr. F I E S I N G E R . That the certificate should be payable in gold of
the value of the 1926 price level of commodities rather than a fixed
number of grains of gold.
Mr. NORRIS. That is the commodity dollar that Prof. Irving
Fisher is advocating.
Mr. F I E S I N G E R . It would be a gold dollar, would it not?
Mr. NORRIS. Yes; and I suppose the amount of gold in that dollar
would depend upon the price level?
M r . FIESINGER.

Yes.

Mr. ELTSE. The dollar would constantly fluctuate?
M r . NORRIS. Y e s .
Mr. F I E S I N G E R . Well,

by putting in a certain number of grains of
gold, you are fixing the dollar rather than regulating the dollar, are
you not? As I understand Senator Connally, he said that the duty
of Congress was to regulate the value of the dollar rather than to fix
the gold content of the dollar. That was my understanding of his
testimony.
Mr. NORRIS. Under the Thomas amendment the President is
given authority to reduce by 50 percent. That was the minimum
fixed. Now, this act fixes 60 as a maximum. That is one step in the
direction of stabilization, and I think all of us in the Federal Reserve
System believe that early stabilization would be one of the most
helpful things toward economic recovery.
T o give you an illustration, one of our directors, who is in the wholesale hide and leather business, and buys his skins in China and Argentina and so forth, said to me the other day that he make a great deal
of money on paper this year but now he was afraid to do any business
at all. From the time he buys his raw materials to the time he gets
them here and gets them worked up and sold, there is an interval of 6
or 8 months, and he does not know what in the world is going to happen
to American currency in that time.
Mr. F I E S I N G E R . If the American Government could control the
value of gold, that man would be pretty well taken care of, would he
not?
Mr. NORRIS. If they could control the value of gold, but is it
possible to hope that the American Government can control the value
of gold?
Mr. F I E S I N G E R . Well, there have been some proposals here to that
effect.




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Mr. NORRIS. There is just about 12 billion of monetary gold in the
world today, and several hundred million being produced every year.
I would not like to take the contract to control the price or value of
that.
Mr. F I E S I N G E R . Y O U could if you relieved the demand for it
throughout the world. The value of gold would diminish, would
it not?
Mr. NORRIS. Naturally, under the law of supply and demand. I
do not know whether any of you gentlemen saw reports of an address
that Mr. Vanderlip made along that line. There are a good many
things about Mr. Vanderlip's views that I do not agree with, but I
think he is entirely correct in this., that the real function of the gold
standard is to balance the excess of exports or imports; that if a country exports $100,000,000 worth of goods in a year, and imports
$110,000,000, then it has got to pay out $10,000,000 of gold to balance,
we will say, and that system for a great many years, for generations, has
worked satisfactorily, and the reason that it has not worked satisfactorily in recent years is because in addition to those exchanges of
goods there has come into existence large transfers of liquid funds
and investment by nationals of one country in the securities of another
country.
So, as he expressed it, a single cable coming across the Atlantic
Ocean may have more influence on the gold situation than the arrival
of 10 ships filled with goods. Now, if a means can be found of restraining or controlling those international movements of credits and
securities, I cannot see any reason why the gold standard should not
perform the functions that it always has before, and perform them
satisfactorily.
Mr. F I E S I N G E R . Would you say that even in the face of the value
of gold being where it is today, that is, about $34 in this country and
around $32 in London?
Mr. NORRIS. Well, I think that is largely artificial.
Mr. F I E S I N G E R . Y O U think it would drop down again to where it
was if we get stabilization?
Mr. NORRIS. I think it would.
Mr. F I E S I N G E R . Then if that is so, is there not quite a good deal
of danger if the Government should take this profit, so to speak,
with reference to these Federal Reserve notes? If they take that
profit and lose it and they do not have it to turn back to the Federal
Reserve to cover the notes, there would be a good deal of danger
about those notes, would there not?
Mr. NORRIS. Yes; there would. I have not been defending the
action of the Government. They are looking out for themselves,
and I am looking out for the holders of the notes.
Mr. F I E S I N G E R . But after all the Government must look out for
the people, and the people own this money.
M r . NORRIS. Y e s .
Mr. F I E S I N G E R . The

duty is just as much on the Government to
see that there is no loss to the people as it is for the Federal reserve
bank.
M r . NORRIS.

Yes.

Mr. F I E S I N G E R . And if the Government takes the gold or the profit,
the responsibility then is upon the Government rather than upon the
Federal Reserve bank.




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Mr. NORRIS. Of course, this whole subject is very important and
very complicated and has all sorts of ramifications, and it is very easy
to say that a certain theory will produce a certain result, but the
question that always arises is, what unexpected results will it produce?
It is very easy to say that you add one chemical to another chemical,
and there will be a certain reaction, but in business and finance what
are the collateral reactions going to be? What are the byproducts?
What is going to be the psychological effect of the thing? And I am
sorry that this was not brought up earlier so that it might have been
very carefully studied by experts. You see, I am no expert. I do not
pretend to be.
Mr. F I E S I N G E R . Y O U are not an expert on money? You are an
expert on banking? Is that it?
Mr. NORRIS. I would not say that I was an expert. I know a little
about banking.
Mr. F I E S I N G E R . D O you not think that the very fact that there is
that possibility, that there will be that possibility in the minds of the
people about this money that the Government may lose this windfall
and that the Government might not be able to make it good, and
therefore our money might be greatly depreciated—I think Mr.
McGugin rather hinted that proposition—we then go to the period
of inflation, that we get into rather extreme inflation, I thought was
his point. What do you think about that? D o you think that is a
likelihood? I mean just from the very fact, not that it might happen,
hot that it has happened, not that it is going to happen, but the very
fact that it might happen.
Mr. NORRIS. Of course, a great many people have that idea.
Mr. F I E S I N G E R . What would you do about it, Mr. Governor?
What would you do to overcome that proposition?
Mr. NORRIS. I do not know how that could be overcome. Of
course, some people in this country have welcomed the idea of inflation, as it would increase the price of merchandise, of real estate, of
equities in stocks, and so on. Other people, people living on fixed
income, people having limited interest bonds, annuities, pensions,
salaries, they all look upon it with great fear and dread, because, of
course, an advance in the price of commodities is bound to be followed
b y a rise in the cost of living.
Mr. F I E S I N G E R . Would not that also, if the Government had to
g o out and get that gold some way, would not that create another
stain upon gold and increase further the value of gold?
Mr. NORRIS. Well, the Government, if it gets the increment on
our gold and on what it has, assuming 50-percent valuation, it will
have 8 billion dollars of gold, 8 billion gold dollars, and I cannot imagine their needing any more than that, even without any devaluation.
W e have the largest stock of gold in the world today.
Mr. F I E S I N G E R . I am just talking about if we should lose the
windfall and go into speculation with this stabilization fund and lose
it, would they not be in pretty hot water with reference to our notes
that we have got out?
M r . NORRIS. If they would have used it. Of course, take any
government at any time, if it has large expenditures to meet, whether
it is for war or any other purpose, they are apt to use what is nearest
at hand.




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Mr. PERKINS. M a y I ask a question or two? What is the total
amount of gold now in the Federal Reserve banks that they would
like to retain?
Mr. N O R R I S . $ 3 , 5 0 0 , 0 0 0 , 0 0 0 in round figures.
Mr. PERKINS. What is the total amount of gold in the Treasury?
Mr. NORRIS. The total gold in the Treasury and in the Federal
Reserve banks is $4,013,000,000.
Mr. P E R K I N S . SO that the Federal Reserve bank now has about
$3,000,000,000 and the Treasury has about $1,300,000,000?
Mr. N O R R I S . N O ; I was going over these figures, and they are extremely difficult to analyze—I was going over them this morning.
W e have 3% billion, so apparently the Government only has half a
billion.
Mr. P E R K I N S . SO that at the present time the Federal Reserve
bank has seven times as much gold as the Federal Treasury has?
M r . NORRIS. Y e s .
Mr. P E R K I N S . What

is the amount of Federal Reserve notes outstanding?
Mr. NORRIS. About 3 billion.
Mr. P E R K I N S . SO that you have now more than 100 percent gold
as against your notes?
Mr. N O R R I S . NO—well, if w^e do not use any part of the gold as
part of the 35 percent reserve against deposits. As a matter of fact
in the weekly statements we always deduct 35 percent of our gold
as the reserve against deposits, and then the figure that is given as
the reserve against Federal Reserve notes is after deducting that 35
percent.
Mr. P E R K I N S . Are Federal Reserve notes payable in. gold?
Mr. N O R R I S . A Federal Reserve note at the present time reads:
P a y a b l e in g o l d o n d e m a n d a t t h e United States Treasury, or in g o l d or l a w f u l
m o n e y a t a n y Federal R e s e r v e b a n k .

In other words, the holder of that note—of course, now he cannot do
it, but prior to March, if he had presented it at a Federal Reserve
bank, we always had, up to the end of February, on demand redeemed
them in gold, if anyone wanted it. His legal right was only to have it
redeemed in either gold or lawful money at the Federal Reserve bank,
but if he presented it at the Treasury he was entitled to have it paid
in gold, and we always have kept a gold redemption fund with the
Treasury, and when I speak of the Treasury only having half a
billion, of course, physically they have a great deal more than that,
because they have a great deal of our gold that is deposited in the gold
settlement fund or in the gold redemption fund. There are three
funds, the bulk of which is deposited with the Treasury, in custody
of the Treasury.
Mr. P E R K I N S . The Government owns about half a billion in gold?
M r . NORRIS.

Yes.

Mr. P E R K I N S . And the Federal Reserve banks own about three
and a half billion in gold?
M r . NORRIS. Y e s .
Mr. P E R K I N S . SO that

they own about seven times as much gold as
the Government now owns?
M r . NORRIS.

Yes.

Mr. P E R K I N S . IS it your idea that your banks should retain this
gold to pay it out to meet your obligations?




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Mr. P E R K I N S . N O W then, if you are going to retain it in your
coffers, what difference does it make to the Federal Reserve banks
whether it is in your vaults or in the vaults of the Treasury?
Mr. N O R R I S . A S a mere question of custody it does not make a bit
of difference, but as long as it is with us, it is specifically pledged and
jealously guarded, and if it gets into the Treasury of the United
States I would like to be sure that it is just as carefully guarded and
earmarked as it is with us.
Mr. PERKINS. The only purpose of ear-marking it is so that you
might use it if you need to?
Mr. N O R R I S . SO that it might remain with the same protection to
the noteholder that they have always had in the past.
Mr. P E R K I N S . H O W can there be protection if you cannot pay it to
meet the notes?
Mr. NORRIS. Because everyone anticipates that sooner or later, on
some basis, we will get back on at least a gold bullion standard.
Mr. PERKINS. The only purpose, then, in the Federal Reserve
bank retaining this gold is that in the future it may pay it out upon
certain legal demands?
Mr. NORRIS. Whenever the payment of gold is authorized.
Mr. P E R K I N S . Then would not the retention of $ 3 , 5 0 0 , 0 0 0 , 0 0 0 in
gold in the Federal Reserve banks, with only half a billion in the
United States Treasury defeat the entire purpose of the administration?
Mr. NORRIS. I do not see that it would.
Mr. P E R K I N S . IS it not the purpose of the administration to corral
all the Government gold and use that gold merely for the purpose of
the purchase of exchange?
Mr. NORRIS. I do not know what they propose to do. I do not
think they want to pay it out. Apparently they just want to have
it in there. They are building a new vault at the Treasury. A p parently they want to keep it there. The only reason that has been
giveh to me for their having it has been that they wanted to be sure
of getting the increment or profit. Now, what other reasons they
have in addition to that I do not know. That is the only reason I
know.
Mr. PERKINS. It could not be the mere satisfaction of holding it
in the Treasury?
Mr. F I E S I N G E R . Will you yield just a minute? I am going to let
you go ahead, but I just want to make this announcement to the
committee, that the chairman wants to hold an executive session
just as soon as we get certain word here, and I do not want to shut
off questions, but when that word comes we will have to suspend.
N o w you may proceed.
Mr. ELTSE. In that connection, Mr. Chairman, I would like the
opportunity of asking 3 or 4 questions.
Mr. F I E S I N G E R . I will be glad to give you that time.
The C H A I R M A N . I will say that my executive session is not in a
hurry. I just wanted to let you know so you will not go away until
after we have held the executive session.
Mr. F I E S I N G E R . That is a little different. I did not get it quite
that way. 1 thought you had something that you wanted to take
up with the committee.




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The C H A I R M A N . N O ; I do not want to hurry the committee in its
deliberations. Stay as long as you want to.
Mr. F I E S I N G E R . G O ahead, Mr. Perkins.
M r . PERKINS. Governor, the only purpose that the Federal Reserve
bank could have in retaining actual possession of this $3,500,000,000
in gold is that sometime in the future, when we get back, say, on a
gold-bullion basis, if we do, that they may pay it out?
M r . NORRIS. Yes. But in the meantime the holders of the notes
would know that that gold could always be relied upon as part of the
security of their notes; that it was in the same place, in the same
custody of the same trustees that it always has been.
Mr. ELTSE. The maintenance of confidence?
M r . NORRIS.

Yes.

Mr. P E R K I N S . N O W , Governor, the Federal Reserve banks did not
make any outcry when the President issued his Executive order requiring all individuals to turn over their gold?
Mr. N O R R I S . N O . W e are not making any outcry now.
Mr. P E R K I N S . D O you see any reason why individuals should be
required to turn over their gold and not the banks turn over their
gold?
Mr. NORRIS. The commercial banks, of course, have turned theirs
over. Y o u mean the Federal Reserve banks?
Mr. PERKINS. I am talking about all banks or any banks.
Mr. NORRIS. The commercial banks all have. I see quite a distinction between the individual and the Federal Reserve bank. The
individual holds his gold, or holds his gold or gold certificates as his
individual property, not subject to any trust or pledge. The Federal
Reserve banks hold theirs not as individual property but subject to
a lien and a pledge.
Mr. PERKINS. But many individual holders of gold have obligations to their creditors to pay in gold of a specific weight and fineness,
and notwithstanding that fact they have had to yield up their gold.
M r . NORRIS. Yes, but as—I forget whether it was Senator Connally or someone else—said, while contracts to the amount of millions
of dollars had been made with that gold clause in them, an old gentleman brought me a few weeks ago a book published in Philadelphia
back in the early 1850's in which the author discussed that question,
and he said that while contracts were made in that form, that as a
matter of fact, almost every man was both a debtor and a creditor;
that gold was unhandy to use, and was intended merely as a measure
of value; and he would not ask his debtor to pay him in a medium
that he could not pay to his creditors, and the whole thing was more
or less of a myth, which is perfectly true. Of course, there is this
case in England now, that you are no doubt familiar with, where the
lower courts decided that a Belgian company could pay in depreciated
sterling, and the House of Lords has reversed that and they hold that
a gold contract is a gold contract.
Mr. PERKINS. The Federal Reserve notes are really the obligation
of the Federal Government, are they not?
Mr. NORRIS. In form. I would say only in form.
Mr. P E R K I N S . I S it not the idea of the Federal Reserve banks that
they would rather have the $3,500,000,000 in gold in their vaults to
meet those notes than to have it—that they would rather have the
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gold against- their notes than the promise of the Government to pay
against those notes?
M r . NORRIS. Y e s .
Mr. P E R K I N S . SO

they have a little more faith in gold than they
have in the Government?
Mr. N O R R I S . Y O U will excuse me from answering that question,
will you not?
Mr. PERKINS. I will excuse you. On cross-examination we will
let you off on that.
Mr. ELTSE. Mr. Norris, you stated that you thought that a 60-cent
dollar was too low. Would you be prepared to say what you think
ought to be the low?
Mr. NORRIS. From what information I have on the subject today,
if it were up to me to name, without regard to political or other considerations, a fair amount of depreciation, I would put it about one
third of the value, somewhere between 65 and 70.
Mr. ELTSE. And what do you think, speaking of uncertainties,
what do you think of the Thomas amendment, that particular provision of it, which authorizes the issuance of $3,000,000,000 in greenbacks?
Mr. N O R R I S . D O you want to press that question?
Mr. ELTSE. No,.I will not press it.
Mr. NORRIS. I think you can guess what the answer is.
Mr. ELTSE. That is all I have.
Mr. F I E S I N G E R . Mr. Burke, have you any questions?
M r . B U R K E . N O , sir.
Mr. F I E S I N G E R . Mr.

Murdock?
Mr. MURDOCK. Mr. Governor, do you not think that the reason
the Federal Reserve notes have been desired by all classes of people
is not only the gold behind them, but also because, in form at least,
they were a Government obligation?
Mr. NORRIS. I think that is right.
Mr. MURDOCK. Suppose that they had been governmental oblgations, do you not think that during this crisis from since 1929, the
people understood that the only thing behind them was the Federal
Reserve bank or the gold that you might have, that they would not
have circulated nearly as freely as they have?
Mr. N O R R I S . N O , while I grant—I am not one to belittle the value
of the Government stamp on coins or notes, but I think that they
would have circulated just the same because of their not only being
secured by the gold but being a first lien on all the assets of the bank.
"First and paramount lien" I think is the language of the act, and
while I grant you that it is a desirable thing to have the impress of
the Government on anything, I think they would have circulated
just the same.
Mr. C A R P E N T E R . Governor, do you not think that it is the wish
of the banking interests of this country to fix the value of our money
at some particular figure?
Mr. N O R R I S . I think that all the banks and almost every man
engaged in any business of any size is very anxious to have stabilization.
Mr. C A R P E N T E R . They are not so much particularly interested in
the figure, as long as they do establish some figure that will be more
or less stable?




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M r . NORRIS. Y e s .
Mr. C A R P E N T E R . D O

you feel that the President of the United
States has had the benefit of the best minds in this country in creating
this bill, and that those minds are equally intelligent as compared to
the minds of England, France, and other countries of the world, so
that we are not in any great disadvantage in entering into this
situation?
Mr. NORRIS. Of course, I would not like to make any reflection on
any of the President's advisers that he has consulted. I think that
the large nations of western Europe have had more experience with
this thing and are more familiar with world trade and so on than we
are. W e gave a demonstration of that when we loaned billions of
dollars to South America, most of which is now worth 10 or 20 cents
on the dollar. The English and French stepped out of it.
Mr. C A R P E N T E R . Y O U said you thought that this country would
be in a better position if we left the banking interests of the country
in private hands rather than Government hands. D o not the last 8
years to a certain extent disprove that statement? We might have
been better off if we had the banking interests of the country in Government hands rather than private hands?
Mr. N O R R I S . I do not think it does. You refer, for instance, to
the statement I just made with reference to South America?
M r . CARPENTER.

Yes.

Mr. NORRIS. There was a carnival or orgy of investment at that
time. I was for a number of years in the private investment-banking
business, and there is an old saying there that sometimes you can sell
chromos for the price of oil paintings, and that was the condition
that existed in this country between 1927 and 1929, and some investment bankers took advantage of it and sold chromos for the price of
oil paintings.
Mr. C A R P E N T E R . Both the investment and commercial banks were
pushing and putting forth this program, were they not?
Mr. NORRIS. Not many of the commercial banks. Only a very
few.
Mr. C A R P E N T E R . But those banks represented the leaders of the
banking interests, such as the Chase National and Morgan interests
and concerns of that type that the average bank usually follows in
leadership?
Mr. NORRIS. Yes, that is true, but as I said a little while ago that
was very effectively guarded against in the establishment of the
Federal Reserve System. The control of the member bank is very
limited, and a rather interesting thing that I mentioned incidentally
the other day in the 13 years that I have been in the Philadelphia
bank there never has been a time when there has been any particular
disagreement between the three directors appointed by the Reserve
Board and the six elected by the banks. Of course, there have been
differences of opinion on various subjects in the Board, but they
never divided on those lines.
Mr. C A R P E N T E R . Mr. Warburg, who testified here yesterday, gave
as his opinion that he thought that the American people were at
least on a par with foreign countries in having at their command men
of equal intelligence and ability in these lines that we are talking
about.




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Mr. N O R R I S . Probably. You might get a small group of men whose
experience and knowledge of the subject is equal to the foreigners.
Whether those who have been around the President are of that class
or not I do not know.
Mr. C A R P E N T E R . D O you not assume that that class of men that
are competent along that line of thought will, to a very great extent,
force their views to at least have a hearing with this Administration,
due to the fact that they are more particularly interested in this
legislation than any other group?
Mr. N O R R I S . Well, they are interested, but I know President
Roosevelt personally, admire him very much, supported him, but I
have the thought that perhaps he has been to a certain extent affected
by the disclosures of the grossly unethical and immoral and in some
cases criminal things that bankers have done, and that he has been a
little disposed to look for his advice to people who are not connected
with banking interests. I may be wrong in that.
Mr. C A R P E N T E R . M y sole thought is if we are going along in his
leadership we should have confidence in the President of the United
States and confidence in his ability to surround himself with men of
high intelligence in these matters, so that we would have faith not
only to follow behind his leadership but the leadership of the advisers
that he has.
Mr. N O R R I S . Well, I think that feeling is very general.
Mr. A D A I R . There were many investors in this country, of course,
who invested in securities payable in gold, which was denied them
when we went off the gold standard. Now, would those people who
have invested in notes of your institutions, be any worse off if the
deposit of gold was taken away from them than would those classes
of people who were denied the privilege of receiving gold under
individual indebtedness? Would not your trust protect to a greater
extent? I mean by that, if you were given this gold to hold for their
special advantage, would not that be an advantage to that class
of investors rather than the ones who had invested in equally sound
securities payable in gold which has been taken from them?
Mr. N O R R I S . I think it would. But I consider that we have all of
us, a higher duty to the man, the people of this country, the workingman, everybody else who has taken Federal Reserve notes than to an
investor who has exercised his judgment, a presumably more or less
intelligent one, in purchasing an obligation which has a gold clause
in it. He is presumed to be capable of taking care of himself. I
think we owe a higher moral trust to the depositor in a savings bank
than we do to a corporation that has $100,000 deposited in a New
York bank. Those folks are able to take care of themselves.
Mr. A D A I R . Your institution is private. You have a private
institution, have you not?
Mr. N O R R I S . W e have a charter as a private institution, but we are
fiscal agents of the Government. We perform a great many services
for the Government, and I find constantly that the general public has
a very general idea that we are a Government institution.
Mr. A D A I R . Unfortunately, I think that is true. I know that is
true, but should that man without any further investigation of it,
believing it to be a Government institution—is he not an investor
just the same as the man who invests in any other corporation?




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Mr. NORRIS. Well, perhaps you do not relize the distinction as I
do, but I always have recognized the distinction between a man who
is supposedly able to take care of himself and a man who is utterly
unfamiliar with finance and who relies absolutely upon other people,
without much knowledge on his own part.
Mr. ADAIR. We have a great many investors who invested in the
Federal land bank, which of course, was not a Federal institution,
and a great many losses have occurred therefrom. Now, why would
he not be subject to the same protection that you would ask that we
protect the investor in your interest?
Mr. N O R R I S . N O W you have touched me on a tender spot. I was
the first Farm Loan Commissioner on the first Farm Loan Board.
Mr. ADAIR. I happened to own some stock. That is the reason I
am mad. [Laughter.]
Mr. NORRIS. Outside of the direct obligation to the Government
there is no security that has stood up as well as those.
Mr. ADAIR. I agree with you, but there is a loss in them, is there
not, to many of the farm loan banks?
Mr. N O R R I S . Yes; to the investors in the bonds.
M r . ADAIR.

Yes.

Mr. NORRIS. Well, the only issues that were put out when I was
there were 5 percent issues, and they are 98 today.
Mr. ADAIR. What bank was that in? What Federal farm bank?
Mr. NORRIS. I was Commissioner of the Farm Loan Board, and I
made the first sale of farm loan bonds. I could tell you some stories
about that if time permitted.
Mr. ADAIR. In that particular case now that was known perhaps
as generally as a Federal proposition as is the Federal Reserve.
M r . NORRIS.

Yes.

Mr. ADAIR. But there was no protection to the depositor there,
was there?
Mr. N O R R I S . T O the investor?
Mr. A D A I R . T O the investor; yes.
Mr. F I E S I N G E R . It has been suggested that we are getting out of
the realm of this investigation by going into these other things.
Mr. XIDAIR. If I am out of order, all right.
Mr. F I E S I N G E R . Have you any questions, Dr. Larrabee?
Mr. L A R R A B E E . I have none.
Mr. P E R K I N S . I have asked all I care to.
Mr. F I E S I N G E R . I want to ask one or two more questions of the
Governor, then we will be through.
I was interested in your statement—you said, I believe, that after
all it was only a myth about these notes being payable in gold. I
think that was expressed by some British economist when he said
that after all the redemption is suspicion asleep. I think, that conveys
the same idea. Why would it not be just as well to make these notes
payable—they cannot be paid in gold—make them payable in a gold
equivalent or a value equivalent to gold? Why would not that be
better? Then if we did not have the gold we could pay them in the
equivalent of gold.
Mr. NORRIS. Then if you had a serious depreciation you would
have to pay 120 or 140 or 160 for each hundred.
Mr. F I E S I N G E R . N O ; I say if they are payable in gold, why could
we not pay them, rather than say that we will pay them in gold, which




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is more or less of a myth, you say, why would it not be better to pay
them in the equivalent of gold?
Mr. NORRIS. That would be equivalent—take a hundred-dollar
note, if you pay it in the*equivalent, in something that was equivalent
in value to it, it would be $100 in gold. Then, as I say, if you wanted
to pay them in United States notes, for instance, and they were at a
50-percent discount, you would have to pay $200 for that $100 note.
You could not afford to do that.
Mr. F I E S I N G E R . Would the banks be willing to accept the notes of
the Government backed by the equivalent of the gold? Would you
think that the Federal Reserve banks would be willing to accept the
notes of the Government backed by the equivalent of gold?
Mr. NORRIS. I think that would introduce an element of confusion
and it would be difficult for people to understand. You would have
everybody guessing what that meant and how it would work out.
I think it would be an unfortunate thing to do.
Mr. F I E S I N G E R . It would? Then it really was not a myth? If it
was a myth there is nothing to it.
Mr. NORRIS. There is not much to it in actual practice.
Mr. F I E S I N G E R . Would you think that there would be a disturbing
element there if these notes of the Government were paid in gold or
the equivalent of gold in value?
Mr. NORRIS. I think it would be a dangerous thing for the Government to undertake to do, in view of the enormous expenditures,
to which the Government is pledged, and the uncertainty as to how
they are going to finance their operations during the next year. I
think it would be a dangerous thing for the Government to do.
Mr. F I E S I N G E R . If they have not got the gold, though, it would be
better to pay the equivalent in values, would it not? There would
not be any loss then, wTould there?
Mr. N O R R I S . N O , but if they agree to pay the equivalent of gold
and have a depreciation in paper currency they would be agreeing to
pay a great deal more than the face value of the currency at the time.
Mr. F I E S I N G E R . I am talking about the gold equivalent, the equivalent value of the gold, not depreciated currency but the equivalent of
the value of the gold.
Mr. NORRIS. What would you pay it in?
Mr. F I E S I N G E R . Well, you might pay it in silver, for instance, at
the equivalent value of gold—anything that has a world market.
Mr. NORRIS. Then of course you would have the question of what
is the value of gold? Is it foreign value or domestic value?
Mr. F I E S I N G E R . The world market. I am talking about the world
market.
Mr. NORRIS. I should think that might be fairly satisfactory,
although I do not imagine the Government would ever accept that.
Mr. PERKINS. Just one other question. Would it make a difference whether it was the equivalent in gold at the time of making the
contract or the equivalent in gold at the time of paying under the
contract? If you made it the equivalent of gold at the time of paying you might have to pay two or three times the amount agreed
upon.
M r . NORRIS.




Yes.

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M r . C A R P E N T E R . In the final analysis is is not so much the value
of the gold or anything else as it is the amount of confidence the
American people have in their Government. Is not that true?
M r . NORRIS. Of course, some people regard gold and the gold
standard with superstition. Let me read you two or three sentences
from an annual report of the bank of France, published in January
1932. They speak of the tendency in times of stress to seek exceptional remedies. Then they go on to say:
W e h a v e always refused t o s u p p o r t these easy solutions, f o r we realize their
great danger.
M o r e t h a n ever we are c o n v i n c e d that it is our d u t y t o secure t h e
metallic basis of the franc, which is the o n l y stable f o u n d a t i o n on w h i c h a currency
can be supported.
W e regard convertibility into gold n o t as an a n t i q u a t e d f o r m
of salvery, b u t as a necessary discipline.
W e see in it the o n l y effective guaranty
of the security of contracts and business ethics.

Mr. F I E S I N G E R . Governor, there is just one more question I
want to ask you. W h y do you say that you do not think the Government would do that? It seems to be all right in your mind. W h y
do you say the Government would not do it if you think it is all right?
Mr. NORRIS. I think they would feel that they were assuming a
very uncertain obligation that might prove onerous.
M r . F I E S I N G E R . They would be buying the equivalent of gold and
paying the equivalent out. That would not be any worse than buying
the gold or paying the gold.
Mr. NORRIS. They are perfectly willing to buy the gold and pay
for it in lawful money, dollar for dollar, cent for cent. Whether they
would be willing to assume the responsibility of doing anything else,
I do not know.
Mr. F I E S I N G E R . Y O U think it would be all right, do you not?
Mr. NORRIS. Yes; I think it would be fairly satisfactory, although
I think it would be puzzling to the people, and what the people want
now more than anything else is a clear understanding of the situation
and something stable.
Mr. F I E S I N G E R . W e have got to go through a lot of clarification,
however. W e are in a disturbing field right now. W e have got to
have a lot of clarification before we get through.
I think that is all, Governor. I certainly want to thank you on
behalf of the committee for making this long trip to come here and
give us your enlightening statement. I appreciate it very much.
Mr. NORRIS. I want to thank you and the other members of the
committee, Mr. Chairman, for your courtesy and attention.
M r . F I E S I N G E R . Before we go into executive session I will say
this to the committee: I talked to Mr. Somers a little while ago, and
we are coming back at 9:30 in the morning to hear Mr. Janney.
(Whereupon, at 4:30 p.m., the committee went into executive session, at the conclusion of which the committee adjourned.)
STATEMENT OF JAMES P. WARBURG, VICE CHAIRMAN OF THE
BANK OF MANHATTAN, NEW YORK CITY
FRIDAY JANUARY

19,

1934.

The CHAIRMAN. The committee will be in order. This afternoon
we have called M r . James P. Warburg. He too has been a witness
before the committee on a previous occasion.
I have submitted the bill to Mr. Warburg and he has agreed to give
us his comments on it. However, he is desirous of making a state-




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ment before he proceeds to discuss this bill, which statement we shall
be very glad to have at this time.
Mr. WARBURG. Gentlemen of the committee, your chairman has
asked me to prepare for you a discussion of the best move that the
United States could make to end dislocations in the monetary systems.
I understand that there have appeared before you during the last
few days Dr. Sprague, Dr. James, Mr. Vanderlip, Father Coughlin,
and Professor Fisher. I am, I think, fairly familiar with the views
of all of these gentlemen.
In five published documents, dated November 22, 1933, November 27, 1933, December 1, 1933, December 20, 1933, and January 11,
1934, I have set forth rather fully my own views in regard to the
money question. I have sent printed copies of each of these documents to every member of both Houses of Congress. Not knowing
how many of you gentlemen have done me the honor to peruse these
papers, and being desirous of wasting as little of the committee's
time as possible, I am somewhat at a loss whether to repeat briefly
what I have previously said or to proceed from the assumption that the
gentlemen of this committee have been good enough to examine the
documents I have sent them. I have therefore prepared a condensed
version for the committee, which, if it is your wish, I shall read to you,
or which, if you prefer, I shall place on the record so that you can proceed at once to ask me an}r questions you may desire.
I have not included in this condensation such statements as I have
made concerning the banking and investment business, because I
assume that those two problems lie outside the scope of your present
inquiry. I must stress, however, that as the greatest part of our
money is deposit money—that is, check money—the banking problem
is closely related to this discussion.
Similarly, I have not touched upon the question of the Budget and
the present program of Government expenditure, but I desire to
emphasize that the soundest monetary policy can and will be rendered
void by an unsound Budget policy. I am not prepared to say how
much we can afford to spend. A great deal depends upon the manner
of spending it. I am prepared to say, however, that if we spend
more than we can ultimately pay for out of taxation, we shall have
paper money, in spite of any present resolve to the contrary. Whether
we can accomplish our purpose without paper money depends upon
whether we can sell a huge amount of Government bonds now, and
later retire them; and whether we can sell Government bonds now
depends in large measure on the removal of uncertainty in regard to
the currency.
I present herewith the condensed statement, to which I have
referred, and await your pleasure. Before proceeding to deal with
it as you may direct, may I make the following general statement?
It seems to me that we have 2 major problems, and in regard to
each of these 2 major problems we have, generally speaking, 2 major
schools of thought.
The two problems are, first, the relation of a monetary system to
the general economic system, which means the relation of a monetary
system to a depression, or to the recovery from a depression; and,
second, the kind of a monetary system that seems most desirable and
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In regard to the first problem, there is one school which says that the
break-down of the monetary system lies at the root of the whole
economic depression. This school, to which Professor Fisher and
Professor Warren belong, and to which Mr. Vanderlip belongs also—
in a slightly modified degree—contends that since money was the
primary cause of the depression, money must also be the primary
means to recovery. The other school, to which Professor Sprague
and Dr. James belong, and to which I also subscribe, holds that a
depression is a complicated economic phenomenon and that recovery
cannot be sought by anything so simple as a change in the monetary
system. Furthermore, this school holds that whereas the break-down
of the monetary system undoubtedly added to the severity of the
depression, the break-down of the monetary system was in itself a
result of the depression and not its primary cause.
M y own reason for adhering to this belief is that I am convinced
that the present depression arose primary from the enormous expenditures for nonproductive purposes which were brought about by the
war. I believe that the dislocation of production, consumption,
labor, and working capital was the consequence of millions of people
changing over from their normal peace-time occupations into wartime occupations and, after the war, changing back. I believe that
all this placed a strain upon the monetary system which that system
was unable to support, and that when the monetary system gave
way it added to the existing confusion. It does not follow from this
statement that I believe the monetary system which we had before
the war should be the system to which we now seek a return. On
the contrary, I believe that from the lessons of the last 20 years we
can learn much which will help us to improve our money mechanism,
and I have set forth in the documents to which I have referred what
I believe some of these improvements might be.
When Professor Fisher says that there are only a handful of people
who understand the mystery of money and that all our troubles have
been due to the misunderstood " m o n e y illusion", he means, in effect,
as you will doubtless have seen from his testimony, that prices expressed in money are the fundamental factor, and that cyclical
booms and depressions could be avoided if we had a money with
stable purchasing power, or, inversely expressed, if we had a stable
price level. Neither Professor Fisher nor Professor Warren, nor any
of the small select group that profess to understand the mystery of
money, offer any real proof of this contention.
They do not, for instance, explain how we were able to store up
such a vast quantity of trouble for ourselves in the period of 1923-29,
in spite of the fact that during that period we had, practically speaking, a stable price level. It is not pleasant to attack so eiminent an
authority as Professor Fisher by the means which I used in my
address befor the American Academy of Political Science, but, when
an eminent authority makes a series of caterorical assertions without
offering proof, and merely states that those who disagree are ignorant
and uninitiated into the mysteries, it is necessary to examine how
true previous similar assertions of such an authority have shown
themselves to be. I therefore felt justified in quoting a series of
assertions made by Professor Fisher in 1929, which, in the light of
subsequent developments, do not lead one to take his present-day
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I am not an economist and I do not hold myself out as an authority
on these matters. If the gentlemen of this committee desire authentic refutation of the Fisher-Warren-Vanderlip school of thought, I
would refer them to some very excellent short articles written by
Prof. Rufus Tucker, Prof. Walter Spahr, Prof. Edwin Kemmerer
and Dr. George Roberts.
Now, as to the second problem, namely, what kind of a monetary
standard we should seek to establish. It follows quite naturally that
the two schools of thought would seek a different mechanism, because
they each have a different conception of what that mechanism is
trying to accomplish. The Fisher-Warren school, to which Mr. Vanderlip formerly belonged but which he has recently more or less
deserted in favor of a position considerably nearer to my own, desires
a dollar of variable gold content, while Professor Sprague, Professor
James, and I can see neither the necessity for, nor the practicability
of such a suggestion.
Your other witness, Rev. Charles E. Coughlin, belongs, so far as I
can ascertain, to neither school. I have carefully studied his monetary
proposal in a recent magazine article as well as the printed copies of
his broadcasts. This study recently led me to address an open letter
to Father Coughlin, which is the last of the five documents to which
I have previously referred. After hearing him answer this letter over
the radio last Sunday, I still believe that Father Coughlin's proposal
is based upon a number of fundamental misconceptions.
Apart from the theoretical merits or demerits of the Fisher-Warren
commodity dollar idea, I do not believe in its practical value, because
it presupposes that the same human beings, who failed to manage the
comparatively simple mechanism of the gold standard, will be able
successfully to manage a very much more complicated mechanism.
Furthermore, no one knows better than the gentlemen of this committee what happens to a highly technical and precise proposal when
it is put through the congressional machinery and turned into legislation, and none know better than the gentlemen of this committee
the pressure to which Governmental authorities are always subject
from vociferous groups and special-interest minorities.
It is always difficult for a government or a central bank to apply
the brakes in time of over expansion. It is always unpopular to
attempt to check a boom, and as long as booms are unchecked we
shall always have depressions to follow them. Think of the additional
pressure that can be put upon those who would have to regulate,
under the Fisher-Warren plan, not only the increase or decrease of
the gold content of the dollar, but the selection of the commodities
that are to compose the index, and the relative weighting of these
commodities.
I have set forth in detail, in the documents to which I have referred,
the concrete suggestions that I should like to make to the committee
in regard to the type of modernized gold standard that I think would
best suit our requirements. With some of these proposals Mr.
Vanderlip agrees. He has recently publicly expressed adherence to
the reestablishment of a modernized gold standard, as opposed to the
adoption of a dollar of variable gold content, which is advocated by
his former associates on the committee for the Nation.
Whereas the phrase used by the President last summer, " a dollar
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dollar of variable gold content, I think it is important to note that in
his message in opening the Congress he used words which do not
necessarily imply any such thing. These words were, u a medium of
exchange which will have over the years less variable purchasing and
debt-paying power for our people than that of the p a s t . T h e s e words
represent a purpose with which I can and do declare myself in
thorough sympathy. A modernized gold standard such as I have
proposed would, I believe, give us a medium of exchange whose purchasing power would vary less over a period of years—considerably
less—than under the old pre-war gold standard.
In his monetary message to the Congress 4 days ago the President
made three major recommendations; that all monetary gold be taken
over by the Treasury; that the limits of revaluation be fixed between
50 percent aEd 60 percent of the old dollar; and that a large part of the
profit due to revaluation be set aside as a fund to stabilize the dollar
and the national credit.
I advocated an equalization fund as early as last March. I have
always felt that any profit from devaluation should go to the Government.
When I returned from London at the end of July, I made a written
report in which I stated:
T h e entire recovery p r o g r a m is j e o p a r d i z e d b y uncertainty and d o u b t in the
m o n e t a r y field—

And recommended, among other things—
t h a t the United States G o v e r n m e n t should desire n o t later than O c t o b e r 1 t o fix
the a m o u n t of devaluation desired, in order t o bring a b o u t the necessary adjustm e n t of the price level, allowing f o r a subsequent variation of n o t over 10 percent.

That is exactly what is now proposed. In July the range would
have been 65 percent to 75 percent, instead of 50 percent to 60 percent.
I thought then that a 30 percent devaluation would be sufficient, and
I still think that a devaluation of from 40 percent to 50 percent may
work some injustice, and may store up future trouble; but I bow to the
judgment of the President. He has listened to all sides, and weighed
his decision with the greatest care. In any case I welcome the removal of the two extremes of uncertainty.
I am still in some doubt, after reading the message, whether the
President intends ultimately to return to a fixed gold content or not.
He has again used language which may easily, though not necessarily,
mean a modernized gold standard, rather than a dollar of variable
gold content. I deeply hope that it does.
There are still many dangers that beset our course. Some of them
I have indicated. Others I prefer not to indicate, because I do not
believe in looking for trouble, or in raising doubts, when I do not
know all the factors that have been considered.
I feel, however, that we are now started in the right direction,
away from uncertainty and toward a goal which will in time become
definite, where today it is still somewhat enshrouded in mist. And
I am profoundly convinced that, if you gentlemen will carefully
analyze the experience of the past, if you will build upon that experience a monetary mechanism to carry out the President's high purpose, rather than starting out upon an entirely new conception of
what money is, what money means, and what money can reasonably
be expected to do, you will perform a service for which future genera-




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gold

reserve

act

op

1 9 3 4 154

tions will thank you, as I thank you now for this opportunity to
present my views.
The C H A I R M A N . We thank you very much for your interesting
statement, Mr. Warburg.
THE

MONETARY

PROBLEM

(II)

S U P P L E M E N T COMPILED FOR THE COMMITTEE ON COINAGE, W E I G H T S
AND M E A S U R E S OF THE HOUSE OF R E P R E S E N T A T I V E S
E x c e r p t s f r o m (1) Address, delivered N o v e m b e r 22, 1933, in P h i l a d e l p h i a ,
b e f o r e A m e r i c a n A c a d e m y of Political a n d Social S c i e n c e ; (2) o p e n letter t o
S e n a t o r B o r a h , N o v e m b e r 27, 1933; (3) o p e n letter t o Senator B o r a h , D e c e m b e r
I , 1933; (4) address, delivered D e c e m b e r 20, 1933, in N e w Y o r k , b e f o r e t h e
E c o n o m i c C l u b ; a n d (5) o p e n letter t o the R e v . Charles E. C o u g h l i n , J a n u a r y
I I , 1934, b y J a m e s P. W a r b u r g .
A . M o d e r n i z e d g o l d standard versus c o m m o d i t y dollar.
B . Silver (including a special note f o r the c o m m i t t e e ) .
C. " I n f l a t i o n . "
A.

Modernized
i.

Gold

(from

Standard
speech

of

Versus
november

Commodity

Dollar

22, 1933)

I t seems t o m e t h a t the s u b j e c t of discussion t o n i g h t falls i n t o t w o natural
divisions: ( 1) T h e b r o a d question of w h e t h e r raising prices b y m o n e t a r y m e a n s ,
t h a t is, b y c o n t r o l l e d inflation, is a p r o p e r and desirable p o l i c y , a n d (2) w h e t h e r
w e c a n p r o f i t a b l y a d o p t in the f u t u r e a n e w kind of m o n e y , t h a t is, the dollar of
c o n s t a n t p u r c h a s i n g a n d d e b t p a y i n g p o w e r , instead of the gold s t a n d a r d d o l l a r
t h a t w e h a v e k n o w n in the past.
P u t a n o t h e r w a y , o n e is the p r o b l e m of w h a t constitutes our u l t i m a t e m o n e t a r y
g o a l ; the other is the i m m e d i a t e p r o b l e m of w h a t t o d o t o get o u t s e l v e s o u t of
t h e depression.
L e t m e take first the p r o b l e m of the u l t i m a t e m o n e t a r y goal.
Y o u have heard
P r o f e s s o r Fisher e x p o u n d his w e l l - k n o w n t h e o r y .
I t m i g h t b e well t o m e n t i o n
t h a t w h a t is being considered b y W a s h i n g t o n t o d a y , as far as I u n d e r s t a n d it,
is n o t an a u t o m a t i c index dollar in w h i c h the changes in g o l d c o n t e n t are m a d e
a u t o m a t i c a l l y as the c o m m o d i t y index rises or falls, b u t rather a W a r r e n version,
in w h i c h the g o l d c o n t e n t is c h a n g e d f r o m t i m e t o t i m e b y g o v e r n m e n t a l a c t i o n
t o o f f s e t e x a g g e r a t e d tendencies of the price level to rise or f a l l — i n other w o r d s ,
a m a n a g e d c o m m o d i t y dollar.
I a m n o t an e c o n o m i s t , and f o r t h a t reason I should hesitate in a n y case t o
e m b a r k u p o n a learned discussion of w h e t h e r o r n o t the u n d e r l y i n g t h e o r y u p o n
w h i c h P r o f e s s o r Fisher a n d Professor W a r r e n base their r e c o m m e n d a t i o n s is
c o r r e c t o r n o t , a l t h o u g h I a m n o t afraid t o say t h a t I d o u b t it v e r y m u c h .
As a
p r a c t i c a l b a n k e r , a n d o n e of the m u c h c o n d e m n e d international b a n k e r s a t t h a t ,
I m e r e l y v e n t u r e t o register m y o p i n i o n t h a t the t h e o r y c a n n o t b e d o g m a t i c a l l y
a c c e p t e d as correct.
F o r the p u r p o s e of this discussion, h o w e v e r , I shall l i m i t
m y s e l f as befits a p r a c t i c a l b a n k e r t o an a t t e m p t t o s h o w v e r y briefly t h a t e v e n
if the t h e o r y is c o r r e c t , it c a n n o t w o r k in practice.
I say this p r i m a r i l y f o r t w o
separate a n d distinct reasons.
First, given the elements of the h u m a n e q u a t i o n , a n d given the political i n fluences t o w h i c h a d e m o c r a t i c f o r m of g o v e r n m e n t will a l w a y s b e s u b j e c t , I d o
n o t b e l i e v e t h a t as a p r a c t i c a l m a t t e r there can b e a n y such thing as a dollar o f
constant purchasing power.
If h u m a n intelligence a n d h u m a n i n t e g r i t y w e r e
u n a b l e in t h e p a s t t o m a n a g e the c o m p a r a t i v e l y simple m e c h a n i s m of t h e g o l d
s t a n d a r d , I can see n o reason t o s u p p o s e t h a t t h a t s a m e h u m a n intelligence a n d
s a m e h u m a n integrity will b e able t o c o p e with the v a s t l y m o r e c o m p l i c a t e d
m e c h a n i s m of the m a n a g e d c o m m o d i t y dollar.
This is equally true, in t h e last
analysis, of t h e a u t o m a t i c dollar b u t m o r e o b v i o u s l y true of the m a n a g e d f o r m .
S e c o n d , I d o n o t believe t h a t a n y national c u r r e n c y s y s t e m c a n w o r k satisfact o r i l y if it is n o t a d o p t e d b y a m a j o r i t y of other i m p o r t a n t nations. I can see
a b s o l u t e l y n o reason f o r s u p p o s i n g t h a t o t h e r nations w o u l d b e willing t o a c c e p t
a n y of the various f o r m s of new-fangled m o n e y t h a t h a v e b e e n p r o p o s e d .
If f o r
n o o t h e r reason, I say this b e c a u s e in every nation there is at least o n e p r o m i n e n t




GOLD RESERVE ACT OF 1 9 3 4

155

professor w h o has invented a m o n e t a r y system of his own, and even assuming that
the governments of these nations would each endorse their star inventor, I cannot
picture a conference of these star inventors agreeing on any one plan. E a c h one
of t h e m is reasonably sure that he is on the track of the one perfect m o n e y , and
y e t s o m e of their ideas are so different as t o be completely irreconcilable.
On the other hand, we have had ample evidence at the L o n d o n M o n e t a r y and
E c o n o m i c Conference that a majority of the nations of the world are willing and
anxious t o reestablish an i m p r o v e d and modernized international gold standard.
T h e gold c o m m i t t e e of the conference had m a d e considerable progress in working
o u t economies in the use of gold and safeguarding a future gold standard against
the threat of hoarding and violent m o v e m e n t s of capital between countries.
These are the t w o chief defects in the gold standard against which criticism has
been directed. There is n o d o u b t in m y mind that they can b e o v e r c o m e w i t h o u t
resorting t o any experimentation with untried theories.
F o r these reasons, even if I assume that Professor Warren or someone else is
capable of inventing in theory a m o n e y better than that d e v e l o p e d b y centuries
of experience, I d o n o t believe that as a practical matter anything other than a
gold standard will w o r k satisfactorily. I believe in a r e f o r m of the gold standard,
a reform based upon a careful study of the past b y those best qualified t o m a k e
such a study.
Furthermore, no currency system will work satisfactorily except in conjunction
with a s m o o t h l y functioning banking and investment system. I c a n n o t picture
the savings of the people flowing through normal channels, through the banks
into credit f o r the short-term requirements of business, or through the investment
market into long-term investment t o supply the capital needs of business on the
basis of a currency which it will take generations t o understand. A n d y o u cannot
trust what y o u cannot understand.
I t is frequently said that the gold standard g o t us into our recent trouble. I t is
rarely if ever said that we have had all the periods of prosperity that we have had
under the gold standard, and it w o u l d be m o r e proper to say that a failure t o
modernized the gold standard b y intelligent reform contributed t o the recent
breakdown of our entire credit machinery.
II.

(FROM LETTER TO SENATOR BORAH, NOV. 27, 1933)

Permit m e n o w t o state as briefly as I can, the immediate m o n e t a r y actions
that I think would be m o r e c o n d u c i v e t o recovery than our present policy, and
permit m e thereafter t o a m p l i f y what I m e a n t when I a d v o c a t e d the earliest p o s sible return t o a modernized gold standard. W i t h regard t o the latter, I think
I can convince y o u that I a m n o t simply urging a return t o what we have had in
the past.
Immediate policy — I believe that no single action of our G o v e r n m e n t could c o n tribute m o r e effectively t o r e c o v e r y than the a n n o u n c e m e n t of its intention t o
a b a n d o n further willful depreciation, t o a b a n d o n the c o m m o d i t y - d o l l a r experiment, and t o seek t o bring a b o u t the early revaluation of the dollar in terms of a
modernized gold standard. Such revaluation should not, in m y j u d g m e n t , b e
undertaken at once, and I d o n o t pretend to k n o w at w h a t p o i n t between the
present rate and the old par it should finally be. I d o say, however, that an
intelligent revaluation can best be undertaken in c o n j u n c t i o n with similar action
b y Great Britain, which would, of course, involve the entire so-called " Sterling
bloc."
A n d I further venture the opinion t h a t the best a p p r o a c h t o such j o i n t
action w o u l d be an immediate arrangement f o r cooperative action b y the Federal
Reserve System and the Bank of England t o limit excessive fluctuations of the
t w o currencies in terms of each other. W i t h o u t going into the mechanical
details of such an arrangement, although I shall be glad t o d o so if y o u so desire,
I should h o p e in this w a y , b y trial and error, t o find the point of natural equilibrium between these t w o currencies, which should then enable b o t h nations t o
undertake final revaluation in terms of gold. T h e period of trial a n d error m a y
take m o n t h s or years, depending u p o n h o w rapidly order will c o m e o u t of chaos
o n b o t h sides of the Atlantic.
D u r i n g this intermediate period I should expect t h a t our people w o u l d b e
untroubled b y fear as t o the future of our m o n e t a r y unit, because t h e y w o u l d have,
o n the one hand, the assurance that our G o v e r n m e n t did n o t intend t o seek a n y
further depreciation, and on the other hand, the assurance t h a t our currency
w o u l d eventually be the kind of gold currency t h e y could understand and trust.
T h e y w o u l d further be assured that, whatever p o i n t between the present rate of
depreciation and the old par value of the dollar is ultimately t o be chosen f o r




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GOLD RESERVE ACT OF 1 9 3 4 156

revaluation, this point w o u l d be carefully determined and only fixed as a finality
after it had shown itself t o be consistent with the desired price level and o t h e r
c o n d i t i o n s of living.
Ultimate objective.—That
brings m e t o the last question; namely, w h a t d o I
m e a n b y a modernized gold standard? I a m sorry that s o m e of our m o n e t a r y
theorists did n o t have the o p p o r t u n i t y that I had t o take part in the discussions,
of the " g o l d c o m m i t t e e " of the L o n d o n Conference, because I feel certain that
t h e y w o u l d h a v e c o m e away with the inescapable conclusion that international
agreement on anything other than a modernized gold standard was quite o u t of
the question.
A n d I repeat what I said in Philadelphia, that it is i n c o n c e i v a b l e
t o m e that any national currency system that we might a d o p t could w o r k satisfactorily in the long run unless it were likewise accepted b y a m a j o r i t y of o t h e r
nations.
T h e t w o m a j o r criticisms leveled at the gold standard are, first, that a shortage
or superabundance of gold m a y at any time upset e c o n o m i c conditions b y c a u s ing an exaggerated rise or fall of prices; and, second, that the fiction of currencies
redeemable in gold, to say nothing of bank deposits and securities indirect]y r e deemable in gold, is dangerous because it will always p r o d u c e gold panics in times
of depression.
W i t h this second criticism I thoroughly agree.
A s t o the first, I have f o u n d practically no one w h o fears a superabundance o f
g o l d a n d the consequent exaggerated rise of prices. T h e critics of the g o l d
standard w h o attack it on these lines are almost uniform in their expression that
w h a t t h e y fear is a shortage of gold and a consequent exaggerated fall in prices.
N o o n e has been able to p r o v e to me that there is really a danger of gold shortage,
b u t I a m prepared t o a d m i t that so long as the fear exists, the mere existence of
that fear constitutes a defect in the gold standard. H o w then m e e t it w i t h o u t
resorting t o untried currency schemes?
Various things have been suggested.
T h e basis of the p r o p a g a n d a for bimetallism, the basis of the t h e o r y of s y m metalism, and likewise the basis of Professor Warren's theory, is a desire t o
e m a n c i p a t e prices f r o m the influence of a possible gold shortage.
I n s o f a r as it is possible t o make specific suggestions without knowing w h a t willh a p p e n between the present time and the t i m e when it will b e feasible to reach
international agreement f o r the reestablishment of an iaternational gold s t a n d a r d ,
the f o l l o w i n g thoughts are suggested:
(1) G o l d coin should b e entirely withdrawn f r o m circulation.
(2) T h e holding of m o n e t a r y gold should be confined to central banks o r
banks of issue,, w h o w o u l d use it for the settlement of international balances o f
p a y m e n t resulting f r o m t e m p o r a r y disequilibria in the foreign a c c o u n t , a n d w h o
w o u l d likewise hold it as c o v e r f o r their note issues.
(3) N o t e issues should be redeemable in gold bullion f o r e x p o r t o n l y , and s h i p m e n t s arising f r o m such redemption should be m a d e o n l y between central b a n k s
o r banks of issue. This suggestion involves o v e r c o m i n g French opposition t o w a r d giving u p internal redemption in gold bullion. So long as a n y nation
permits such r e d e m p t i o n , hoarding of gold will b e possible because a n y o n e a n y where can b u y exchange on that nation a n d then present currency a n d obtain
gold.
(4) G o l d miners should be compelled t o offer their o u t p u t to their respective
m o n e t a r y authorities a n d should only sell t o others f o r use in the industries, arts,
a n d professions when permitted to do so b y their respective m o n e t a r y authorities
a n d when the purchasers a^re duly licensed t o b u y .
I t w o u l d seem further that under such a system, the legal m i n i m u m ratio of
metal c o v e r against note circulation might well be reduced to a b o u t 25 percent.
This applies only t o countries like ours where there is such a ratio.
Other
countries, such as England, Sweden, or Japan, might agree t o a c c o m p l i s h t h e
same thing as a matter of practice, although no change in the l a w w o u l d b e
necessary.
These ideas were, as I h a v e said, discussed in a preliminary w a y a t the L o n d o n
Conference.
T h e y w o u l d require further discussion and proper m o d i f i c a t i o n
before international agreement could or should be reached. I state t h e m merely
t o illustrate h o w it w o u l d be perfectly possible t o free the world f r o m the s p e c t r e
of g o l d scarcity and t o free the central banks f r o m the disturbing influence of a
loss of gold due t o hoarding. This is what I mean b y modernization of the g o l d
standard, which w o u l d meet the justifiable criticisms leveled against it w i t h o u t
embarking u p o n new f o r m s of m o n e y which, no matter h o w theoretically p e r f e c t
t h e y m i g h t b e — c o u l d n o t possibly c o m m a n d universal confidence b e c a u s e j t h e y
c o u l d n o t c o m m a n d universal understanding.




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This brief statement would be incomplete if I did not a d d t w o further things:
First, that steps m u s t be taken, no matter what international m o n e t a r y standard is a d o p t e d , t o p r o v i d e for closer and more effective cooperation between t h e
central banks or banks of issue of the various countries.
This means that they
must m a k e m o r e uniform and complete the statistical material and indices u p o n
which they base their judgment.
If they do this, and if they cooperate, there is
no reason t o assume that the familiar methods of contraction and expansion
through central bank discount rates and open market operations will not p r o v e
a m p l y effective in their control upon the short-term m o v e m e n t s of capital.
It
should be stressed in this connection that central banks must use their powers of
contraction in times of inordinate business expansion and not only their powers of
expansion in times of depression.
This is particularly true, if b y e c o n o m i z i n g
in the use of gold, we broaden the basis for a possible over-expansion of credit.
Second, apart f r o m central bank control of normal domestic contraction and
expansion, there must be an adequate and intelligent control of b o t h l o n g - and
It has been clearly shown that this cannot be left to
short-term foreign lending.
the discretion of private bankers.
Such control has been very effectively exercised b y the Bank of England, through guidance rather than law or regulation.
A n d such control must not, under any circumstances, take the f o r m of exchange
restrictions, which experience has shown serve only t o stimulate the flow through
illicit channels of the very transactions that they are designed t o prohibit.
No
artificial barriers will prevent m o n e y f r o m fleeing when it is afraid to remain, or
f r o m going where it hopes to find profitable e m p l o y m e n t .
There is only one w a y
to prevent an undesirable m o v e m e n t of capital, and that is to eliminate the reason
f o r it. R e m o v e fear, p r o v i d e the reasonable h o p e of profitable e m p l o y m e n t , and
capital will always show itself the most timorous of wanderers, the m o s t c o m f o r t able and lazy of h o m e bodies.
As t o the gold-buying program which we are n o w pursuing in our approach
t o a c o m m o d i t y dollar, let me say first, that I believe neither in the theory nor
the practical m e t h o d .
Perhaps I a m wrong.
Perhaps the Warren theory, so
ardently and so dogmatically proclaimed b y the c o m m i t t e e for the Nation and
others, has solved the p r o b l e m that has puzzled economists for generations.
If, over a period of years, a superabundance of gold or a scarcity of gold should
make itself m a n i f e s t - b y exaggerating price trends, in spite of the precautionary
reform that I have outlined (which I venture t o d o u b t , because I f o r one d o n o t
believe that the quantity of gold plays any such direct and important part in a
m o n e y structure such as ours).
T h e n I should be quite prepared t o allow an international b o d y e n d o w e d with
supreme authority t o alter the world price of gold, that is, the gold content of all
the gold currencies, upwards or downwards f r o m time t o time, in order to offset
the effect of gold shortage or superabundance, provided:
1. T h a t I could see the remotest possibility of creating such an international
b o d y , n o t subject t o political influence, and e n d o w e d with supreme p o w e r over
the m o n e t a r y authorities of the various countries, and
2. T h a t I could assume that such a b o d y w o u l d be furnished with complete
and accurate information b y all the various markets, and would use such information intelligently and impartially in reaching its conclusions.
I can see n o reason to consider the creation and successful operation of such a
b o d y anything m o r e than a Utopian dream, and I believe that t o give the p o w e r
of changing the gold content of the currency in each c o u n t r y to its own monetary
authorities, is fraught with the gravest danger. Furthermore, to d o so, would
be t o imply that the price level within any given c o u n t r y depends, not upon the
world supply of gold, b u t upon the supply of gold within that country.
That,
t o m y mind, was the first implication of our present g o l d - b u y i n g p o l i c y , when
our purchases were confined to operations within this country.
T h e second i m plication, when we extended our purchases of gold to the world markets, was
that we were setting o u t t o raise the world price of gold, that is, t o reduce the
gold content, n o t only of our own currency, b u t of the currencies of other nations.
If that is a correct interpretation, it implies acceptance of the belief in a gold
shortage, acceptance of the underlying theory that the price level can be raised
b y counteracting a gold shortage through devaluation of all currencies, and it
would seem t o m e that it implies the entirely unwarranted assumption that other
nations will let us perform our experiment on their currencies.
If that is not a
correct interpretation, then the meaning of our present policy can only be that
we consider the foreign exchange value of the dollar, particularly the sterling
value, the important factor in determining our price level. T h a t is n o t Professor
Warren's view.
It is, I think, the view of Professor Rogers. B u t here again,
one is constrained t o ask,* w h y should other nations, particularly England, let us
arrange things t o suit ourselves? Professor Rogers, I feel sure, would agree that




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GOLD RESERVE ACT OF 19 3 4 158

we can only accomplish our purpose—if that is our p u r p o s e — b y international
agreement and cooperation.
A n d , I repeat, I can see no basis f o r expecting such
agreement or cooperation along any other lines than an intelligent modernization
of the gold standard.
T o this end I should like t o see the labors of the L o n d o n
G o l d C o m m i t t e e taken up where they were interrupted, at the earliest possible
date.
III.

(FROM SECOND LETTER TO SENATOR BORAH, DECEMBER 1, 1933)

Y o u raise f o u r points of criticism against m y letter of N o v e m b e r 27:
(1) T h a t I say revaluation can only be intelligently undertaken in c o o p e r a tion with Great Britain, that such cooperation is unlikely, and that, therefore,
the w h o l e proposal b e c o m e s t o o remote.
(2) T h a t I d o n o t r e m o v e the m u c h criticized uncertainty in m o n e t a r y p o l i c y ,
largely because of the reason stated in (1).
(3) T h a t nothing in m y proposal would remedy the maldistribution of g o l d ;
and
(4) T h a t in m y proposal I left o u t the silver question entirely.
I shall give y o u briefly the best answers that I can to these f o u r points.
(1) I venture to disagree with y o u as to the willingness of Great Britain and
the sterling b l o c to cooperate. I d o n o t deny t h a t there is a conflict of interest
b e t w e e n t h e m and us in m a n y respects, but I believe that they realize t h a t w e
h a v e a mutual interest in establishing international m o n e t a r y stability w h i c h
far outweighs national considerations.
I believe that the same is true of us ,
a l t h o u g h we m a y n o t realize it. M y reason f o r believing t h a t such a willingness
o n the p a r t of Great Britain exists is that I gathered this v e r y distinct impression
f r o m direct c o n t a c t with the various elements of the British G o v e r n m e n t ; otherwise, I should n o t venture to take issue with y o u o n this question.
I t is, in any case, n o t difficult t o ascertain whether m y assumption is correct
or n o t . I a m quite prepared t o say that if m y assumption should p r o v e w r o n g ,
a n d the British should be unwilling to cooperate upon a reasonable basis, I should
then n o t a d v o c a t e delaying our return t o a modernized gold standard until their
c o o p e r a t i o n could be secured." I should then be in f a v o r of doing the best j o b
w e could, either b y ourselves or with the cooperation of such nations as m i g h t wish
t o cooperate. I t m a y be that m y training as an international banker leads m e t o
exaggerate the necessity of international acceptance of a m o n e t a r y standard in
order that such a standard m a y be practically workable.
I h a v e s u b j e c t e d myself
o n this score t o the severest self-criticism of which I a m capable, b u t I still c a n n o t
escape the conclusion that if we revalue alone, we shall be subject t o h a v i n g our
revaluation upset b y the subsequent action of others. I t is precisely f o r this
reason that I think Great Britain w o u l d likewise be unwilling t o revalue alone,
b u t w o u l d b e willing t o revalue in cooperation with us.
(2) Y o u say that m y proposal does not eliminate uncertainty and y o u stress
t h a t y o u m a k e this as an observation rather than a criticism. In part I a d m i t
the truth of this observation, b u t n o t in whole.
W e are suffering t o d a y f r o m
t w o kinds of u n c e r t a i n t y — u n c e r t a i n t y as t o our ultimate m o n e t a r y goal, and u n certainty as t o the m e t h o d b y which we shall reach it and the time it will take t o
get there. B y r e c o m m e n d i n g a b a n d o n m e n t of the present p o l i c y of willful depreciation and the ultimate aim of the c o m m o d i t y dollar, m y proposal seeks t o
eliminate entirely the uncertainty as t o w h a t kind of m o n e y we are ultimately
t o h a v e ; it seeks further t o eliminate m u c h of the uncertainty as t o h o w we are
t o reach this g o a l ; b u t it quite frankly does n o t eliminate the uncertainty as t o
h o w l o n g it will take us t o get there or at what actual ratio we shall eventually
stabilize. This residue of uncertainty, which I admit, is to m y m i n d n o t o n l y
necessary b u t p r o b a b l y desirable, because I believe that hasty action m i g h t easily
d e n y us the fruits of our long and painful quest.
(3) I a d m i t without reservation that there was nothing in m y proposal of the
27th w h i c h w o u l d in itself redistribute the world's holdings of m o n e t a r y gold. I
agree with y o u that the present maldistribution m u s t b e corrected.
In m y
opinion, the establishment of international m o n e t a r y stability is a c o n d i t i o n
precedent t o the redistribution of gold, b u t m o n e t a r y stability will n o t b y itself
cause such redistribution. W h a t then will cause it? T h e reduction and at least
partial elimination of the present artificial barriers a n d restrictions t o the free
flow of trade between nations. If gold is t o be redistributed, this can o n l y be
a c c o m p l i s h e d b y international p a y m e n t f o r g o o d s and services, which is n o w
rendered impossible b y the network of tariffs, embargoes, i m p o r t quotas, e x change restrictions and other artificialties. I realize that this is highly c o n t r o versial ground, b u t I must give y o u the only honest answer that I can give t o a n




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GOLD RESERVE ACT OF 19 3 4

honest question.
T o a v o i d misunderstanding, let m e add that this does n o t
involve the necessity of removing all tariffs and other barriers of trade, b u t it does
involve r e m o v i n g the superstructure of excessive restrictions, which h a v e been
superimposed u p o n w h a t we had c o m e t o regard as the normal structure, b y the
various nations as a matter of national self-defense. I believe that here again the
cure lies in international agreement rather than in the individual policy of a n y one
nation, a n d I m u s t stress that I cannot picture such international agreement unless
there is first a m o r e or less stable international m o n e t a r y standard, because a
depreciated currency will climb over the walls of a n y tariff except an outright
embargo.
B.
I.

(FROM L E T T E R

Silver

TO S E N A T O R

BORAH,

DEC. 1, 1933)

(4) In m y first draft of m y letter of N o v e m b e r 27 to y o u , I had included a
paragraph on silver. I subsequently t o o k it out because I was afraid that the
mere mention of silver in a proposal t o modernize the gold standard w o u l d lead
t o an exaggerated stress being laid u p o n that feature of it. I agree with y o u that
the stabilization in terms of gold of a metal that is used for m o n e y b y more than
half of the world's p o p u l a t i o n is a m o s t i m p o r t a n t element in achieving international m o n e t a r y stability.
I d o n o t go so far as t o say that doubling the price
of silver will d o u b l e the purchasing p o w e r of the Chinese, because I believe that
the purchasing p o w e r of the Chinese depends in the last analysis u p o n the g o o d s
and sevices that China can export.
I d o n o t k n o w what level f o r silver is best
f o r the d e v e l o p m e n t of the Chinese e c o n o m y , but I d o k n o w that it cannot be
g o o d for the Chinese e c o n o m y to have excessive fluctuations in the gold price of
silver.
I k n o w also that the gold price of silver has been depressed b e l o w what is
p r o b a b l y its proper level b y t w o arbitrary factors: T h e debasement of subsidiary
coinages b y m a n y of the so-called " g o l d countries'' and the decision t o p u t India 011
a gold basis. I am in thorough s y m p a t h y with the projected international
agreement between the m a j o r silver-producing countries and the m a j o r silverusing countries, particularly India, which w o u l d p r o v i d e against excessive sales
of silver on the world market during any given year, and which should also p r o vide against the further debasement of subsidiary coinages and, if possible, for
the ultimate remonetization of subsidiary coinages.
If such an agreement b e c o m e s an accomplished fact, I should be prepared to
go even further in studying the possibilities of dignifying silver as a m o n e t a r y
metal b y including it in some f o r m in the gold family. This is n o t to be c o n strued as opening the door t o a consideration of bimetallism.
I t is n o t even t o
be considered as a suggestion that silver be used along with g o l d for the settlement of international balances of p a y m e n t .
W h a t I have in m i n d is merely
this: T h a t some small part, let us say one fifth, of the metal c o v e r required as
legal m i n i m u m reserve against note issue, might be allowed t o consist optionally
of gold or silver p r o v i d e d that a central bank, electing so t o hold silver f o r a
fifth of its metal cover, w o u l d carry it at or b e l o w a price t o be agreed u p o n .
In terms of m y suggestion of N o v e m b e r 27, this w o u l d mean that if central
banks m u s t h a v e a m i n i m u m of 25 percent metal c o v e r against their note circulations, f o u r fifths of this metal c o v e r must be in gold and one fifth m a y be in
gold or optionally in silver if obtainable b e l o w the agreed price.
This proposal is very limited in value, its chief merit consisting in the creation
of a stabilizing f a c t o r in that presumably central banks w o u l d be t e m p t e d t o
b u y , if silver fell below the agreed price, and t o sell if it rose a b o v e . I p u t f o r ward the suggestion very tentatively in m y testimony before the House C o m mittee on Coinage, Weights, and Measures in M a r c h 1932. I still p u t it f o r w a r d
in a purely tentative w a y because, frankly, I a m apprehensive of saying anything
that might be construed as support of those w h o would like to go m u c h further
in " d o i n g something for s i l v e r . "
II.

(FROM L E T T E R TO R E V .

CHARLES

E.

COUGHLIN,

JAN.

11, 1934)

I refer particularly t o t w o proposals y o u have m a d e :
In y o u r broadcasts y o u have frequently attacked the outstanding bonds of our
G o v e r n m e n t , which were sold t o finance the cost of the war, as " b l o o d y b o n d s " ,
sold t o finance a war engineered b y banks and special interests.
Y o u picture
these b o n d s as n o w being held b y the " m i g h t y b a n k s " , drawing interest at the
expense of the innocent taxpayers, and further enriching the bankers. Y o u have

39539—34




11

GOLD RESERVE ACT OF 1 9 3 4 160
p r o p o s e d that, in the interest of justice, these b o n d s should be paid off in currency,
so the banks w o u l d cease t o draw interest f r o m the taxpayer.
I n y o u r article in T o d a y y o u a d v o c a t e symmetalism, " w h i c h m e a n s " , in
y o u r o w n words, " u s i n g gold and silver t o g e t h e r — n o t separate—in one coin.
In
this coin, which we call a dollar, there will be 25 cents w o r t h of gold and 75 cents
w o r t h of silver. Of course, this coin will n o t b e m e a n t f o r circulation.
Paper
m o n e y will b e printed against it. B u t the paper will be b a c k e d b y real gold t o
t h e value of 25 cents, and b y real silver t o the value of 75 cents.
I should like t o d r a w y o u r attention t o the three m a j o r points w h i c h present
themselves t o m e :
First. T h e r e is n o t enough gold and silver obtainable in the w o r l d t o carry
o u t y o u r t w o proposals.
S e c o n d . Irrespective of y o u r currency proposal, there is n o w a y , barring c o n fiscation, in which a g o v e r n m e n t can retire its f u n d e d d e b t b y issuing c u r r e n c y ,
unless t h e currency so issued is unsecured printing-press m o n e y .
T h i r d . Irrespective of y o u r b o n d proposal, y o u r currency proposal is i n c o m p l e t e
a n d n o t clear; therefore, I believe, it is n o t a useful suggestion t o launch u p o n t h e
p u b l i c in its present f o r m .
A s t o the first of these three points, according t o y o u r o w n figures there are in
t h e world t o d a y 550,000,000 ounces of gold, and 8,800,000,000 ounces of silver.
Y o u p r o p o s e d t h a t our currency shoud b e b a c k e d , 25 percent b y gold and 75
p e r c e n t b y silver. W e h a v e outstanding a b o u t 5 billions of p a p e r c u r r e n c y .
T h i s y o u w o u l d retire and presumably replace with the new gold-and-silver-backed
c u r r e n c y . In addition, y o u would issue this n e w currency t o retire the " b l o o d y
bonds."
T h e a m o u n t y o u w o u l d retire is n o t clear, because in y o u r speech of
O c t o b e r 22, 1933, y o u s p o k e of 20 billions of these bonds, while on January 7,
1934, y o u s p o k e of 14 billions. L e t us take the m o r e recent figure.
Y o u propose, then, t o issue at least 19 billions of currency, which means t h a t
y o u need in round numbers nearly 5 billions of gold and f r o m 14 t o 15 billions of
silver!
N o w , if the Treasury takes o v e r the gold f r o m the Reserve banks, as y o u
suggest, we will h a v e a b o u t 4 billions of gold against the 5 billions y o u require.
Y o u m e e t this b y suggesting the revaluation of gold. V e r y well, at t h e m a x i m u m revaluation possible under the law, y o u can m a k e over these 4 billions into
8 billions. Y o u will then h a v e 3 billions m o r e than y o u need. Y o u will then also
h a v e accomplished the desire of those w h o want a 50 percent devaluation of the
dollar.
B u t , w h a t a b o u t silver? T h e Treasury owns, so far as I k n o w , less than half a
billion dollars of silver at m a r k e t value, so y o u must acquire a b o u t 14 billion
dollars more.
W h e r e ? T h e world's total stock of silver, 8,800,000,000 ounces,
is w o r t h less than f o u r a n d a half billions of dollars at t o d a y ' s market.
Probably
y o u wish t o revalue silver also. A t what price? In one of y o u r broadcasts y o u
h a v e indicated 75 cents t o a dollar. A t $1 an ounce the world's stock is n o t e n o u g h
t o c o v e r w h a t y o u w o u l d require for this c o u n t r y alone. A t $2, w h i c h is higher
t h a n a n y figure I h a v e ever heard a d v o c a t e d , y o u would require f o r the United
States all b u t a b o u t
billions of the total of $17,600,000,000.
D o you Relieve
the rest of the world will sit b y and let us take nearly all the silver, particularly
if y o u r plan were a d o p t e d here and seemed t o work successfully, w h i c h y o u m u s t
b e c o n v i n c e d it w o u l d ?
A s s u m i n g the m a x i m u m revaluation of gold, we h a v e j u s t seen t h a t under
y o u r p r o p o s a l the Treasury might h a v e three billions m o r e g o l d t h a n it w o u l d
need. I t w o u l d then h a v e t o b u y fourteen billions of silver.
H o w is the Treasury going t o b u y $14,000,000,000 w o r t h of silver with $3,000,000,000 w o r t h of gold?
T h i s brings m e t o m y second point which has n o t h i n g t o d o with y o u r currency
proposal.
A p a r t f r o m the profit in revaluing g o l d — a profit w h i c h c a n n o t b e
taken again—is it n o t true that the Treasury's f u n d s available f o r retirement of
the " b l o o d y b o n d s " can c o m e only f r o m the excess o v e r expenditure of revenue
raised b y t a x a t i o n — a n excess which does n o t exist?
Is there any other w a y it can obtain f u n d s except, possibly, b y confiscating
private property?
If t h a t is true, is there a n y w a y in which the G o v e r n m e n t can r e d e e m its
f u n d e d d e b t b y issuing currency, except b y printing a currency w h i c h has n o
value other than that of an unsecured promise? A n d does it n o t f o l l o w t h a t
y o u r p r o p o s a l t o retire " b l o o d y b o n d s " b y issuing currency necessarily i n v o l v e s
the issuance of that real printing-press m o n e y , which y o u rightly recognize as
the m o s t cruel and unjust act of which a g o v e r n m e n t is capable?




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GOLD RESERVE A C T OF 193 4

D o e s n o t that p r o v e m y second p o i n t ? A n d , if b y chance y o u d o n o t agree
with m y conclusion, w h y , if the currency is g o o d currency, does it punish a holder
of " b l o o d y b o n d s " t o b e paid off in full?
Finally, I say t h a t y o u r proposal of symmettalism is incomplete and n o t clear.
This is w h y .
Y o u d o n o t state at w h a t prices g o l d and silver are t o be figured in making up
the dollar. T h i s is important, because u p o n these prices will depend h o w m a n y
ounces of gold and silver y o u need t o carry o u t y o u r proposal. U p o n these prices
will d e p e n d also whether enough m e t a l is anywhere obtainable, and h o w m u c h it
will c o s t the G o v e r n m e n t t o obtain it.
Y o u d o n o t state whether these prices are t o be fixed or whether t h e y are t o
b e variable. T h i s t o o is important, f o r it determines whether y o u are a d v o c a t i n g
a rigid c u r r e n c y — m o r e rigid than t h a t which we h a d under the recently a b a n d o n e d g o l d s t a n d a r d — o r whether y o u are a d v o c a t i n g a dollar of variable metal
content, such as the so-called " c o m m o d i t y d o l l a r . "
T h e t w o ideas are basically
different, b u t y o u r proposal might m e a n either.
If y o u r g o l d and silver alloy coin " w i l l n o t be m e a n t f o r circulation", w h y d o
y o u propose going t o the expense of coining it? W h y n o t let the Treasury hold
bar gold and bar silver in the proportions y o u have in m i n d ?
There are m a n y other questions I c o u l d raise, b u t I will give y o u just one more
example t o s h o w w h y I d o n o t think y o u h a v e fully realized the complexities of
the m o n e y p r o b l e m . Y o u h a v e frequently expressed antipathy t o the gold
standard, a n d h a v e characterized it as a device b y which bankers keep the control
of m o n e y a w a y f r o m the people. In y o u r article y o u state: " U n d e r the single
g o l d standard system the p a p e r dollar was b a c k e d b y only 40 cents of gold.
In
one sense it was a real printing-press d o l l a r — a t least 60 cents of it w a s . "
M a y I p o i n t o u t that under the gold standard as we had it in this c o u n t r y ,
40 cents of g o l d was the legal m i n i m u m reserve, b u t that, as y o u yourself h a v e
p o i n t e d o u t in y o u r speeches, the actual g o l d behind the dollar has averaged very
m u c h higher—so high in f a c t as t o cause y o u t o complain, on O c t o b e r 22, 1933,
" a c t u a l l y w e h a v e 110 gold dollars f o r every 100 p a p e r dollars in this c o u n t r y " .
M a y I p o i n t o u t further, that the other 60 cents were not, as y o u i m p l y , unsecured, b u t were compulsorily b a c k e d b y at least 60 cents w o r t h of commercial
p a p e r and G o v e r n m e n t bonds, and that a currency issued against such collateral,
which m a y o r m a y n o t b e g o o d practice, is n o t w h a t is c o m m o n l y m e a n t b y a
i ' printing-press d o l l a r . ' '
I n conclusion, I d o n o t wish t o i m p l y that the whole idea of s y m m e t a l i s m is t o
b e dismissed as " u n s o u n d . "
I t is an idea meriting the m o s t careful study.
It
m a y have practical value in the future in a s o m e w h a t different f o r m , p r o v i d e d the
details can b e p r o p e r l y w o r k e d out, and p r o v i d e d the best minds agree there is a
need f o r it.
iii.

additional

note

on

silver

for

the

committee

I t seems t o m e t h a t silver has three aspects. I t is a c o m m o d i t y .
I t is a
m e d i u m of exchange. I t is a basic m o n e t a r y metal.
A s a c o m m o d i t y it has been depressed b y arbitrary curtailment of d e m a n d b y
governmental actions. T h e proposed international agreement will seek t o offset
this b y curtailing supply, and possibly will increase the d e m a n d , if subsidiary
coinages are gradually remonetized. 1
As a m e d i u m of exchange it has the same relative i m p o r t a n c e as any foreign
exchange unit, t h a t is, its stability or instability affect the world e c o n o m y m u c h
as the stability or instability of the p o u n d or dollar or florin affect it. In the
silver countries it affects the internal economies of those countries, m u c h as t h e
dollar affects our e c o n o m y , although s o m e economies are m u c h m o r e sensitive
than others.
A s a basic m o n e t a r y metal it takes the place of gold in s o m e countries, is used
alongside of g o l d in others, and in still others is used only in subsidiary coinage
or n o t at all.
F r o m the p o i n t of v i e w of this i n q u i r y —
1. A s a c o m m o d i t y , i t w o u l d seem t h a t silver has recently received all the
G o v e r n m e n t help it can reasonably expect, as c o m p a r e d t o other commodities.
2. As a m e d i u m of exchange, it w o u l d seem desirable t h a t silver should be
i Debasement of subsidiary coinages and putting India on a gold basis, thereby releasing her treasury
stocks of silver.




gold reserve act

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19 3 4 162

prevented from fluctuating excessively, just as it is desirable to prevent excessive
fluctuations of the pound or franc, or dollar.
3. It is claimed that silver should be stabilized at a considerably higher price
than it enjoys at present, "because this would increase the purchasing power of
the silver countries." Why should it be good for China to raise her unit's value,
if it is good for the United States to depreciate its dollar? If the gold countries
want higher price levels, why should the silver countries want lower price levels
(assuming that price levels can be raised or lowered in that way)? I have no
opinion on what the right price would be.
4. As a basic monetary metal:
(a) It seems desirable to remonetize subsidiary coinages, provided the respective countries can make funds available under their budgets to buy the necessary
silver.
(b) There is only one real argument for bimetallism or symmetalism, and that
is based upon a shortage of monetary gold. If the economies in the use of gold
which I have suggested, are adopted, I do not believe there would be any shortage
of gold.
5. Those who argue for silver money because they want cheaper money,
might just as well argue for copper money, or iron money, or paper money.
C.

"Inflation"

i. ( f r o m s p e e c h

of

november

22, 1933)

Now, as to "controlled inflation". No one, so far as I know, is in favor of
"uncontrolled inflation", nor has there been anyone in favor of "uncontrolled
inflation" in any of the various countries where "uncontrolled inflation" has
taken place, but there are a lot of people who are in favor of what they call
"controlled inflation". There have always been such people in all countries in
periods of widespread distress. Senator Thomas has no doubt that inflation
can be controlled and will be controlled in this country. He is indeed the
"Undoubting Thomas". Frankly, I am a very "Doubting Thomas".
Apart from the fact that I am opposed to "controlled inflation", because I
do not believe that there is any such thing, I am also opposed to it even if, contrary to history, it does not become uncontrolled. To raise the price level alone
is, to my mind, not a proper aim of a recovery program. Unless a rise in prices
is accompanied by a rise in incomes, I cannot see that it does anyone any good.
There is only one way that I know of to bring about a rise in prices together with
a rise in National income, and that is by increasing the amount of business done
in the expectation of a reasonable profit. There can be no increase in business
activity so long as there is any uncertainty as to the future of the monetary unit
or as to the future of Government credit.
The advocates of "controlled inflation" base their argument largely on the
debtor-creditor relationship, particularly in regard to the agricultural debtor.
To my mind this is no different than a man who has a damaging letter in his house
and, because he wants to destroy it, sets fire to the whole house.
Depreciation of the currency, and I am speaking now about "controlled depreciation", hurts everyone who is more creditor than debtor, and aids only those who
are preponderantly debtors. If inflation breaks away from control, it ruins all
alike.
Who are the debtors that would be aided, and who are the creditors who would
be hurt? And please remember, there is a creditor for every debtor.
All wage
earners would be hurt because the purchasing power of their wages is reduced
faster than their wages are increased. Every savings bank depositor or holder
of a life insurance policy is hurt. These two categories alone probably comprise
the great majority of the American people.
Now, take the farmer. I am told on good authority that 50 percent of the
farmers in this country have no mortgage debt at all; that another 25 percent
have a mortgage debt of less than 25 percent of the value of their property;
and it is by no means true that every farmer who has a heavy mortgage is
preponderantly a debtor. To the extent that he has cash, receivables, savings
accounts, or insurance policies, he is a creditor.
What troubles the farmer is not the general fall in prices, but the fact that farm
prices have fallen further than the general price level. To the extent that prices
fall evenly, only the farmer who is more debtor than creditor has suffered, but all
farmers have suffered from the excessive fall in farm prices.




gold reserve

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163

Depreciating the currency means raising all prices b y making things sell for
m o r e dollars. T o d o that cannot possibly eliminate the discrepancy between
f a r m prices and other prices. T h a t is w h y I say that the policy of raising prices
b y depreciating the currency is an action of d o u b t f u l value t o a very small minority
of the population, and an action which does definite harm to a large m a j o r i t y of
the population.
T h a t is why I say that it is like burning d o w n the house to burn
the letter.
ii.

(from

speech

of

dec.

20,

1933)

In closing let m e say 1hat during recent d a y s it would seem t o m e that the
fundamental issues have b e c o m e considerably clarified. It is clear that we are
in for a real fight. In his speech tonight Senator T h o m a s has not m a d e his position
very plain. Perhaps I can make it a little clearer. Last week Senator T h o m a s
called at the W h i t e H o u s e and, after his visit, was reported t o have said, " I will
support the President, because I think he knows what is best for the c o u n t r y . "
Later in the same d a y he received a statement f r o m James H . R a n d , chairman of
the C o m m i t t e e for the Nation, stating that " u g l y and discouraging r u m o r s "
(note these adjectives) " a r e finding increasing a c c e p t a n c e in N e w Y o r k and
L o n d o n " to the effect that the administration is negotiating with the B a n k of
England and the B a n q u e de France f o r stabilization of the dollar at a b o u t 62
cents. A c c o r d i n g t o the " T i m e s , " the Senator then m a d e the following statem e n t : " I f the dollar is to be stabilized at the figure these reports indicate, it will
bring on a fight in Congress that will be terrible. T h e monetary group in Congress
or those that have a m a j o r i t y are against any such mild inflationary m o v e .
I
repeat that if the dollar is t o be stabilized at this figure there will be a warfare in
7 disrupt the D e m o c r a t i c Party and lead to making inflation the
Congress that ma}
outstanding issue in the next congressional c a m p a i g n . "
M i n d y o u , this statement came f r o m the same m a n w h o earlier in the same d a y
had said that he w o u l d support the President " b e c a u s e I think he knows what is
best f o r the c o u n t r y . "
T h a t statement came f r o m the same Senator who, on
April 24, 1933, in advocating the T h o m a s amendment, said, a m o n g other things,
" M r . President, it will be m y task to show that if the a m e n d m e n t shall prevail
it has potentialities as follows: It m a v transfer f r o m one class t o another class in
these United States value t o the extent of almost $200,000,000,000.
This value
will be transferred first f r o m those w h o o w n the bank deposits; secondly, this
value will b e transferred f r o m those w h o o w n b o n d s and fixed investments.
If
the a m e n d m e n t carries and the powers are exercised in a reasonable degree, it
m u s t transfer that $200,000,000,000 in the hands of persons w h o n o w have it,
w h o did not b u y it, w h o did not earn it, w h o d o n o t deserve it, w h o must n o t
retain it, back t o the other side, the debtor class of the Republic, the people w h o
o w e the mass debts of the n a t i o n . "
T h a t , ladies and gentlemen, is what Senator
T h o m a s stands f o r — t h e use of the G o v e r n m e n t ' s p o w e r arbitrarily to redistribute
wealth b y the m o s t haphazard and unjust of methods.
A n d again, t o use his
o w n words, this issue " i s the m o s t important proposition that has ever c o m e before
the A m e r i c a n Congress.
I t is the m o s t important proposition that has ever c o m e
before a n y parliamentary b o d y of any nation of the world. Saving the single
issue of the W o r l d W a r , there has been no issue joined in 6,000 years of recorded
history as i m p o r t a n t as this issue pending here t o d a y . "
Some of us m a y n o t
agree that in 6,000 y e a r s — w h i c h I need not remind y o u covers n o t only our o w n
entire history b u t the entire history of civilization as we k n o w it, and takes us
b a c k into the age of prehistoric m o n s t e r s — s o m e of us m a y n o t agree that the
Senator's a m e n d m e n t occupies a place of quite such preeminent i m p o r t a n c e ;
nevertheless, we have his w o r d f o r it that this is the issue on which " t h e r e will
b e a terrible fight in C o n g r e s s " if the President should n o t happen to agree with
the Senator that $200,000,000,000 must be taken away f r o m 67,000,000 holders
of life insurance policies, 44,000,000 savings depositors, and f r o m every thrifty
and prudent living person in the United States, because " t h e y did not b u y it,
t h e y did n o t earn it, they do not deserve it, and they must n o t retain i t . "
T h a t seems to me a fairh^ clear issue. T h a t seems to m e an issue on which
every thoughtful citizen should wake up and realize that apart f r o m justice he is
p r o b a b l y n o t one of that class to w h o m Senator T h o m a s w o u l d give the $200,000,000,000, but that he is one of those, w h o " d i d n o t b u y it, did not earn it,
d o n o t deserve it, and must not retain i t . "
Only a small percentage of what the
Senator calls the mass debts of the Nation are debts of individuals.
B y far the
greater part are debts of governmental authorities and large corporations.
If
the Senator has his w a y — i f the inflationists win their threatened fight in this
C o n g r e s s — i t will n o t be the rich that suffer most.
T h e reckoning will b e paid




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b y t h e v e r y masses of h o n e s t w o r k e r s w h o m a y b e m i s l e d i n t o thinking t h a t t h e y
are helping t h e m s e l v e s b y s u p p o r t i n g d e b a s e m e n t of t h e c u r r e n c y , a n d it m a k e s
n o d i f f e r e n c e w h e t h e r this is d o n e b y p r i n t i n g g r e e n b a c k s , or t h r o u g h a c o n t i n u e d
u n b a l a n c e d b u d g e t , or b y e x h u m i n g the a n c i e n t silver heresies of W i l l i a m J e n nings Bryan.

The C H A I R M A N . Since issuing our invitation to you, Mr. Warburg,
there have developed certain events that have somewhat changed the
course of this committee. We have received a bill embodying the
recommendation of the President, that bill being H.R. 6976, a copy
of which, I believe, is now before you.
Mr. W A R B U R G . I have only just received it; and I am very sorry
that I did not have an opportunity to review it before appearing here.
The C H A I R M A N . I think that, in the main, it covers the three points
you mention and approves the transfer of gold from the Federal R e serve Board to the Treasury of the United States.
Mr. W A R B U R G . I said that I approve of the Government taking over
the profit, if any, from devaluation. If we devalue and a profit arises,
I think the Government is entitled to that profit. I did not say that
I approved the Government's taking over the gold from the Federal
Reserve banks.
The C H A I R M A N . Can you say definitely that you do not approve of
that; that you believe it should remain with the Federal Reserve?
Mr. W A R B U R G . I do not know. I do not know all the considerations that led to that recommendation.
Mr. B U R K E . H O W could the Government acquire that profit without taking over the gold? Is there a feasible way to do that?
Mr. W A R B U R G . If the Federal Reserve banks hold their own gold
and the Government revalues it, it would be possible to have them
declare the book profit they make on revaluation on to the Government. I do not want to say that I disapprove of it. I do not know
what caused the suggestion to be made. The reason I do not like it
is that it implies other things, and, without knowing the full facts,
I do not like to venture an opinion. It implies the possibility of
Treasury notes being issued as currency against Treasury gold, which
would be a removal from the Federal Reserve banks of the noteissuing power; and, seconly, it seems to me, it is doubtful what the
Federal Reserve System has when it has gold certificates, which are
warehouse receipts for an unknown amount of gold. I imagine,
however, that this has been gone into from the legal side. The Federal
Reserve issues its notes against gold, and it now has warehouse receipts for an unknown amount of gold.
The C H A I R M A N . These warehouse receipts under this bill are permitted to be used by the Federal Reserve Board as a basis for its
currency. Possibly the variation in value would not alter the quantity of currency issued.
Mr. W A R B U R G . I do not know about that, because I have not had
an opportunity to study the bill in question.
Mr. D I E S . I should like to ask one question, and no doubt it involves
many questions. In your opinion, is the devaluation of the gold dollar
necessary; and what, in your opinion, would be its effect upon commodity prices; and would devaluation, unaccompanied by the issuance
of more currency, affect the price level?
Mr. W A R B U R G . I may suggest that the answer to the first part of
your question, concerning devaluation, is in the supplement I shall
leave with you.




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Mr. DIES. What would be the effect upon commodity prices?
Mr. WARBURG. That is a long subject. I believe, in the first place,
that devaluation can only be the legal crystallization of an antecedent
fact. In other words, I do not think you can depreciate a currency
by reducing its gold content. Devaluation is the legal recognition of
depreciation.
Mr. DIES. Could you accomplish that after you devaluated by
issuing new currency? Suppose the Government seizes or gets the
Federal Reserve gold and revalues it at 40 cents or 50 cents, and then
issues additional currency based upon that revalued gold dollar; would
not the fact that you double the amount of currency money in circulation effectuate a depreciation of the gold dollar?
Mr. WARBURG. Who would issue the currency, the Treasury?
Mr. DIES. Yes; and base it upon the price of the gold.
Mr. W A R B U R G . Y O U have asked several questions in one. I do
not believe that the issuance of additional currency puts that currency into circulation. It may go into excess reserves.
Mr. DIES. But assume that it is put into circulation, like the public
works of today.
Mr. WARBURG. That does not put the currency into circulation.
It may come back into reserves.
Mr. D I E S . Let us take for example money spent in the C . W . A .
activities.
Mr. WARBURG. Yes; that is putting the money into circulation, for
a time.
Mr. DIES. Assume that the Government would have the right
after revaluing the dollar on the basis of 50 percent, it would then
have the right to issue twice as much currency as it now has in circulation, would it not?
Mr. WARBURG. The Federal Government would not have, as I
understand, the right to issue any currency until you started having
the Treasury issue currency, which it does not do today.
Mr. DIES. Assumng that the Government does issue currency.
What then?
Mr. W A R B U R G . D O you mean what effect would that have on prices.
Mr. DIES. If the additional money should be put into circulation
in the manner I have mentioned.
Mr. WARBURG. It would raise prices for several reasons. It would
actually raise them because people would be afraid of money and
would therefore buy commodities. It would also raise prices from a
purely psychological point of view, because of the announced intention
of raising prices.
Every such move has raised prices because
people
Mr. D I E S . Y O U understand that, under the Thomas amendment,
the President has discretionary power to issue 3 billions of new
currency.
M r . WARBURG.

Yes.

Mr. DIES. Let us assume that the Government does not have the
right to issue any additional currency, would the mere act of Congress in saying that a 50-cent dollar shall be called a dollar double
the prices of commodities?
Mr. W A R B U R G . N O ; it certainly would not.
Mr. DIES. Would it effect a rise in the prices of commodities?




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Mr. W A R B U R G . Let us assume, for instance, that the dollar is
selling in foreign exchange markets at 60 cents. If you then devalue
ultimately and finally at 60 cents, the effect of that action on raising
prices would probably be nil, because you are legally recognizing an
existing fact. The fact that you say you are going to devalue to a
point between 50 and 60, when in reality it is somewhere about 60 at
the present time, will only raise prices to the extent of
Mr. D I E S , (interposing). Let me ask this: Wherein is there any
benefit to be derived from the revaluation of the dollar?
Mr. W A R B U R G . I must not be placed in the position of defending
devaluation, because I have never believed in it. Depreciation of
currency has an initial energizing effect upon the price level in that
it starts a certain amount of speculative buying. That is exactly what
happened last March and April. I have never observed any advantage in going beyond that; and I do not believe in the theory of raising
prices by depreciating the currency. I do not believe that raising
prices alone does anybody any good. A rise in prices that is not
accompanied by a corresponding rise in incomes and wages is not a
benefit.
Mr. M C G U G I N . A S I understand your statement, your theory is
that the currency is already depreciated to the extent of between
30 and 40 percent.
M r . WARBURG.
Mr. M C G U G I N .

Yes.

What, in your judgment, is the amount of depreciation at the present time? What is your estimate?
Mr. W A R B U R G . The only yardstick is the foreign exchange rate in
connection with external depreciation; and as to internal depreciation
the yardstick is the index of prices.
Mr. M C G U G I N . If we depreciate to 60 cents, which would be a
40-percent depreciation, as I understand, the difference between you
and Mr. Dies is that he thinks that if we depreciate the gold dollar 40
percent, we shall have to issue some more currency in order to bring
the currency down to the level of the gold dollar. Your theory is
that the depreciation at 40 is only offsetting the present depreciation
of the currency; is that right?
Mr. W A R B U R G . No; there is not that much difference. We have
not had an internal depreciation of 40 percent, but we have had an
external one. As I see it, our main problem if this program is to
succeed is one of financing an enormous governmental-expenditure
program. That breaks up into two major questions. First, is the
expenditure provided in the program of such a nature that in itself
it is nonrecurring? Are we spending money in such a way that it
does not make it necessary to spend more money in the future? If
the answer is yes, then you can balance your budget, because you are
doing the things you want to do without facing the necessity, say, in
1936 of spending more money. But before we get to the question of
balancing or not balancing the Budget in 1936, we have the question
of disposing of bonds necessary to provide the money for these
expenditures.
I see two elements of doubt that make the disposal of those bonds
more difficult than it would be if those two elements of doubt were
not present. First, there is the possibility under the Thomas amendment of printing notes or greenbacks; and so long as that possibility
exists there will be a doubt in the minds of potential bond buyers as




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to what money is going to be worth when the bonds are paid. Secondly, are we going back to a fixed ratio to gold, within a 10-percent
range, or are we going so have a variable gold content within that
10-percent range?
Mr. M C G U G I N . Speaking about money being put into circulation,
what constitutes money being placed in circulation? D o we start in
such a way that we do not after three or four or five steps finally
become stalled? Let us consider the C.W.A. work, which has a
laudable purpose from a humanitarian standpoint, but from an
economic standpoint of putting money into circulation, it is not
necessarily true.
Mr. W A R B U R G . N O ; it may come back.
Mr. M C G U G I N . The employee gets it today; it is in circulation
between him and the merchant, and between the merchant and the
wholesaler, and between the wholesaler and the manufacturer. It
may be in circulation and there it may stop, because the C.W.A.
worker, unlike the maker of a pair of shoes, has not produced something to sell.
Mr. W A R B U R G . That is right. One must analyze the expenditure
carefully.
Mr. M C G U G I N . Money going into circulation does not mean passing from one man's hand to another man's hand.
M r . WARBURG.
Mr. M C G U G I N .

the while.

NO.

The question is whether the money keeps going all

M r . WARBURG.
Mr. M C G U G I N .

Yes.

M r . WARBURG.
Mr. M C G U G I N .

Yes.
YOU

Coming back to the bill under consideration, I
understand you to say that you feel that the equalization fund is
absolutely necessary.
Mr. W A R B U R G . I feel that an equalization fund has been desirable
ever since last March.
Mr. M C G U G I N . I am talking about page 1 3 of the bill. As I
understand, you feel that an equalization fund is not necessary as a
permanent arrangement, but it is necessary as an emergency measure.
feel that we have been in need of such a fund
since last March. You would not say there was actual need for such
fund in 1926, 1928, or 1929.
Mr. W A R B U R G . I think we would have been better off at any time
after England went off gold if we had possessed an equalization fund.
Mr. M C G U G I N . Pending an emergency you feel that such a fund
is advisable, but once there is a stabilization of the moneys of the
world, you would not believe in it.
Mr. W A R B U R G . N O ; it should then be removed. It is an artificiality.
Mr. M C G U G I N . Not only as a matter of practical legislation, but
of practical finance, i§ it not your opinion that any legislation setting
up such a fund should be limited to a certain period rather than putting the matter in the hands of the Secretary of the Treasury for an
unlimited time?
Mr. W A R B U R G . I would say that the life of such a fund should be
coincidental wnth the period during which the currency is not tied
at a fixed ratio to gold.




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Mr. M C G U G I N . Following that out, do you not think it would be
better for this Congress to limit the life of this fund to, say, 2 years,
and, if there is a necessity, extend it another year as we did the
Reconstruction Finance Corporation only recently?
Mr. WARBURG. That would be one way of doing it. Another way
would be to create the fund and give the President power to use it
until such a time as he is prepared to recommend to the Congress
the establishment of a fixed ratio of the currency to gold.
Mr. M C G U G I N . And when there is a fixed ratio, the thing should
cease to exist.
Mr.

WARBURG.

Yes.

Mr. M C G U G I N . I do deeply appreciate that valuable suggestion
from the witness. It is a most enlightening thought. I have been
skeptical about setting up a fund and placing such great powers in
the hands of the Secretary of the Treasury, which power would be in
the nature, as in this bill, of definite legislation that any Secretary of
the Treasury, even 20 years from now, could use.
Mr. WARBURG. The reason I make an alternative suggestion is
that you are arming the President to protect this country against the
operations of similar funds in other nations. I do not think it would
be advisable to put a time limit on that any more than I think it
would be advisable to create a navy and say it shall not exist after,
say, 2 years.
Mr. M C G U G I N . We are giving the President power to stabilize
between 50 and 60. When he stabilizes, and coincidental with that,
there is no excuse for this fund, in your opinion?
Mr. WARBURG. That is right.
The C H A I R M A N . Would that fund exist if in fact there were no
excuse for it?
Mr. WARBURG. That is pure conjecture. I do not know.
The C H A I R M A N . Wre should have to possess a very selfish motive
to continue that fund after its need should pass if it were a defensive
arm.
Mr. WARBURG. It is always bad practice to establish something
that is in the nature of an emergency measure without clearly defining it as such, because not to do so would be to form bad habits. I
think that to support Government bonds is defensible in an acute
emergency, but I do not think it is a good custom in normal times.
W e might find that such a fund as we have in mind would be used to
unduly support Government bonds, rather than do the work for which
it was created. I think that the suggestion to limit the fund to the
purpose for which it was created is a good one. I would make the
limitation one of conditions rather than of time.
The C H A I R M A N . It is like the bombs we placed in the English
Channel; when the war was over there was no need for them.
Mr. WARBURG. But some of them went off after the war!
Mr. T H U R S T O N . Would you please give us your opinion as to why
the American exchange has depreciated? Is it because of the stabilization fund of Great Britain or our own unfavorable financial condition?
Mr. W A R B U R G . I do not think it is either. The American exchange
has depreciated because we have willfully depreciated it.
Mr. T H U R S T O N . Y O U made a reference to balancing the Budget.
Will the condition of our Budget or the failure to balance our Budget




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continue to play an important part whether or not a bill of the
character of the one before us is passed?
Mr. WARBURG. Decidedly yes. Assume that this bill went further
than it does; assume that this bill fixed a ratio to gold, and devalued
the dollar at, let us say, 50 cents on the dollar, establishing a new parity;
suppose that all uncertainty in regard to the currency so far as theory
is concerned were removed; suppose that we have a series of tremendous
Budget deficits for, say, 5 years. Those deficits would inevitably
force us to go off gold again and would depreciate our currency below
the point at which we now would revalue it, in spite of any monetary
theory we might be working on or the enactment of a measure of this
character.
Mr. T H U R S T O N . IS the foundation of all of this the solvency of our
Government?
Mr. WARBURG. Certainly. The two things go hand in hand.
The national credit is the keystone of the arch, and impairing national
credit will render void any action you may take in whatsoever field
to bring about recovery. Vice versa, national credit can only be
maintained on the basis of a sound currency.
Mr. T H U R S T O N . That theory applies to individuals as it applies to
nations—one must live within his income.
Mr. WARBURG. Yes; except that the individual has not a currency.
The budget part applies to an individual, of course.
Mr. T H U R S T O N . One of the most important, if not the most important, consideration in this matter is the solvency of the Government?
M r . WARBURG. Y e s .
Mr. P E R K I N S . Y O U have

spoken about external currency being
depreciated, and our internal currency not being depreciated.
Mr. W A R B U R G . I said that our currency had depreciated externally
more than it had depreciated internally.
Mr. PERKINS. Have we, then, two values for our dollar?
M r . WARBURG.

Yes.

M r . WARBURG.

Yes.

Mr. PERKINS. The external or foreign value of the dollar is entirely
different from the value we have to pay here?
Mr. WARBURG. Yes; I do no know whether Professor Fisher or
Mr. Vanderlip cited the example of Sweden. It is a favorite example
of the "mystery of money " boys. It is said that Sweden has attained
a stable price level by monetary manipulation; but when one looks
at the level he finds this: That the average curve of all prices has
been fairly stable, but if one breaks that up one finds that the prices
of goods produced in Sweden have fallen in about the same proportion
as the prices of goods imported into Sweden have risen. That means
that the Swedish pay more for what they import and receive less for
what they export; which is not good for Sweden. That is the external
and internal value of money.
Mr. PERKINS. When you spoke of stabilizing the dollar to some
fixed ratio to gold did you mean to have a variable space between
50 and 60 or something absolutely definite?
Mr. WARBURG. I meant something absolutely definite.
Mr. PERKINS. The stabilization fund should exist when we authorize
the President to devalue the dollar to a point anywhere between 50
and 60?




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Mr. PERKINS. And as soon as currency is fixed to some definite
value of gold the stabilization fund ought not to be used.
Mr. WARBURG. That is my idea. There is this possibility: We
might return to a fixed ratio to gold and Great Britain might not
have returned. In that event Great Britain would use her equalization fund to manipulate her exchange or our exchange to our disadvantage, or she might so use it. In that event we would be the bar
upon which Great Britain would chin herself or let herself down.
It is not necessary to tie the lip of the fund to our return, but it is
necessary or desirable to tie it to a return to a fixed ratio of gold on
the part of the major nations.
Mr. P E R K I N S . IS this stabilization fund to defend ourselves against
economic attack?
M r . WARBURG.

Yes.

Mr. PEHKINS. Should we tie to the pound—tie the dollar to the
pound?
Mr. WARBURG. What do you mean by " t i e to the pound''?
Mr. PERKINS. To have an international agreement whereby the
dollar and the pound would have a fixed ratio.
Mr. WARBURG. I have indicated in my open letter of November
27, 1933, to Senator Borah that I think the best way to approach
international stability is by a process of trial and error with the
British, the joint operation of two equalization funds that wxmld tend
to do nothing more or less than eliminate excessive fluctuations in the
dollar-pounc! rate, with the idea that we would gradually find an
equilibrium between those two currencies, and when we reach the
equilibrium we could proceed to revalue both currencies in a fixed
relation to gold, and not until then. That program, however, is
jeopardized somewhat by the fact that we are picking a range of 50
to 60, which is below actuality. If the range were from 55 to 65,
and the rate of today were 60, we would stand a good chance of finding
a natural balance. If we start with a range below^ reality, our equalization fund will have to swim upstream, which is likely to prove
expensive.
Mr. P E R K I N S . IS the problem one of stabilizing the two currencies,
the British currency and ours?
Mr. WARBURG. I do not think we can stabilize our currency intelligently without knowing what the British will do, and I do not
believe the British could do so without knowing what we are doing.
They want to know what we are going to do, and, I think, by way of
exchange, they would tell us what they are going to do.
Mr. PERKINS. They would like to know what is in our hands, but
they want to keep what they have in their hands.
Mr. WARBURG. I think we know each other's hands pretty well.
Mr. C A R P E N T E R . It has been asserted here that the American
people do not have the necessary qualified persons to carry on this
stabilization with Great Britain because of the inferiority of experience and intelligence of these in our country. It is alleged that we
would be at a great disadvantage with Great Britain due to the fact
that she controls more or less the banking of the whole world, which
works to the disadvantage of this country. D o you think this
country has sufficient brains in the financial field to keep the American
Nation on a level with Great Britain?




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Mr. W A R B U R G . I do not think there is lack of talent in the actual
technical operation of such a fund in this country. Our problem, our
handicap, in dealing with such an equalization fund is that we are
trying to attain an end that is doing violence to nature, more so than
are the British. Therefore we have to fight not only the British but
natural equilibrium, because we are trying violently to put our currency belowr where it wants to go. The British have used their fund
to keep their money from fluctuating too far from the middle point.
Our problem is to hold currency down when it wants to go up, and that
is difficult.
Mr. C A R P E N T E R . If it were within your power to devise some way to
regulate our monetary situation for the best advantage, what would
you do?
Mr. WARBURG. Starting here or last March?
Mr. C A R P E N T E R . Starting from here.
Mr. W A R B U R G . I am then starting on an established theory in
which I do not believe—the benefit to be derived from depreciating
the currency. Starting with that, I should first say that the range is
too low.
Mr. M C G U G I N . Y O U think the 5 0 - 6 0 is too low?
M r . WARBURG.
Mr. M C G U G I N .

Yes.

What do you think of Mr. Kemmerer's suggestion
that it should not be below 6 6 . 3 3 ?
Mr. WARBURG. I have no means of picking a figure, and I do not
believe that anybody else has.
Mr. M C G U G I N . In this particular bill it ranges from 5 0 to 6 0 .
Where would you fix it?
Mr. WARBURG. I would not suggest to the Congress that the range
be amended, because I do not know what factors the President had
considered in reaching that ratio. I am acquainted only with the
factors that I know. It seems to me that such a range will require
force so that we will not go over the top of the range. Therefore, if
you should ask what I would do, I would say that I would fix the
bottom at 50 cents or 60 cents—not believing in depreciating currency, I would fix it at 60 cents—I would then leave the top open.
Mr. M C G U G I N . A S it is under the so-called "Thomas amendment"?
Mr. W A R B U R G . I would kill the greenback part of that amendment.
Mr. M C G U G I N . Insofar as it applies to gold, I mean. This bill
would amend the Thomas amendment insofar as it applies to gold.
Mr. WARBURG. Then I would proceed by joint operations to find
the natural point of equilibrium. I do not make that as a recommendation to the committee, because doubtless the President has
fully considered that point, and he has not adopted it. He has chosen
this, and with good reason, no doubt, but I do not know the reason.
I do not want to recommend that you change his recommendation,
because I do not believe I have all the related facts. There must be
many reasons why he has gone the other way.
Mr. C A R P E N T E R . D O you assume that this is one of the many steps
that will be taken before this difficulty is over? This is not final, is it?
Mr. WARBURG. I think there will be several steps in the process.
Mr. C A R P E N T E R . In your estimation, if the Government continues
its rate of expenditures for the things upon which it is spending, what
is the limit of credit of the United States without disrupting the
Nation?




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Mr. WARBURG. I do not know how large a national debt we can
run up. I know we can run up a great deal larger national debt
without going bankrupt on the basis of confidence in the currency
then we can without such confidence.
Mr. C A R P E N T E R . D O you think it would simplify our present situation if we should disregard to some extent the item of international
trade? D o you think it is possible to reestablish those relations to
any great extent?
Mr. WARBURG. If we disregard them, what would it lead to?
Mr. C A R P E N T E R . It is my understanding that the exchange of
international commerce in diminishing due to the fact that other
peoples are rapidly becoming self-contained and taking care of their
own needs. Tliey do not import as they once did. Obviously, our
foreign markets with Europe are rapidly becoming a thing of the past.
Mr. WARBURG. That may be and probably is true. In its relation
to this bill I can only say that I cannot visualize international monetary stability without a free flow of goods and services between
nations. That free flow may be less in volume than it has been in the
past for reasons of national self-sufficiency that you have indicated.
Whether it is more or less does not matter so long as the flow is free.
Gold cannot be redistributed, which redistribution is necessary to
international stability on any other basis, except by making it possible
for countries without gold to sell to countries with gold more than
they buy from those countries.
Mr. C A R P E N T E R . If our trade were equally divided, it would take
care of the situation?
Mr. WARBURG. Yes; if you include invisibles.
Mr. WHITE. The tariff retards foreign trade, does it not?
M r . WARBURG.

Yes.

M r . WARBURG.

Yes.

M r . WARBURG.

Yes.

Mr. WHITE. And a stringency in money metal is also a barrier, is
it not—the shortage or stringency of gold?
Mr. WARBURG. There is a shortage of gold in some nations, but I
do not think there is a world stringency of gold. There is a maldistribution of gold.
Mr. WHITE. There is and has been a shortage of gold in the nations
of central Europe, and if a sale is made to those countries by this
country it is difficult for them to pay.
Mr. WARBURG. There is a shortage of gold in those particular
countries.
Mr. WHITE. And that shortage is a barrier to commerce with those
nations?
Mr. WHITE. I think Dr. Rogers pointed to that as one of the chief
barriers to foreign trade.
Mr. WHITE. Something was said about stabilizing the currency of
the several countries. Under the plan of the Latin Union, adopted
by France, Italy, Greece, and Belgium in or about 1867, T think it was,
there were two standards of money, gold and silver, as to fineness,
value, and size. D o you think that an ideal arrangement, if it could
be effected between the several nations?
1 Mr. WARBURG. That arrangement pertained to metallic coin only.
M r . WHITE. It concerned all currency that have a metallic basis.




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Mr. WARBURG. I think the best arrangement for today is one in
which there is no gold coin. That subject is discussed in the supplementary excerpts I shall leave with the committee.
Mr. W H I T E . That is really a barrier to redemption, is it not? The
individual cannot have his currency redeemed in gold coin, and he is
barred from redemption.
Mr. WARBURG. There are various phases of it. In France one may
have a limited amount of gold bullion, but one cannot get $10 in gold.
He can get only bars worth about $10,000.
Mr. WHITE. In case of threatened war or extreme distress depreciation of the credit of the National Government would act as a factor
in shaking confidence, would it not?
Mr. WARBURG. The fact that one could not get gold?
Mr. W H I T E . It would further depreciate our currency, would it not?
Mr. WARBURG. If there are 10 pies and 10 men, each man knows
there is a pie for him; if there are 10 men and 5 pies, there will be a
scramble; but if there are no pies, nobody will try to get a pie.
Mr. W H I T E . Y O U think that in time of threatened war or national
distress the people would not scramble for gold?
Mr. W A R B U R G . They will not scramble for it if they know there is
no use in scrambling.
Mr. W H I T E . That would bring about a depreciation in our currency, would it not, the fact that one could not get gold?
Mr. W A R B U R G . N O , sir; I do not think it would.
Mr. W H I T E . Y O U are in favor of basing currency upon a metallic,
are you not?
Mr. WARBURG. That is set forth in detail in the supplementary
excerpts I shall leave with the committee. I am in favor of limiting
the holding of gold to central banks and having the central banks use
such gold only for the settlement of temporary disequilibria in the
foreign account and to back their note issues.
Mr. W H I T E . Still you believe in basing the currency upon a metallic?
Mr. W A R B U R G . Yes; but I would have it redeemable in gold for
export only, and then in bullion.
Mr. WHITE. What is the fundamental reason for basing currency
upon a metallic? It is to limit its quantity, is it not?
Mr. WARBURG. Yes; that is true.
Mr. WHITE. And to keep it without control of any group to limit
the quantity of primary money.
Mr. WARBURG. I would say that it prevents the unlimited issuance
of currency.
Mr. WHITE. It automatically controls the limitation of money?
M r . WARBURG.

Yes.

Mr. W H I T E . And so long as we are tied to a metallic base, do you
not believe it should be adequate in volume, adequate for the needs
of business?
Mr. W A R B U R G . The metallic base?
M r . WHITE.

Yes.

Mr. WARBURG. The use of the word adequate makes it difficult to
answer. I do not think that specie redemption of currency in gold
is at all necessary to maintain confidence in currency, so long as the
currency is redeemable in gold for the settlement of international
balances.
Mr. F I E S I N G E R . May I ask a few questions, Mr. Warburg?
Mr. W A R B U R G . Surely.




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Mr. F I E S I N G E R . Y O U have had a lot of experience in foreign exchange and in money and so on.
Mr. W A R B U R G . I have had some.
M r . F I E S I N G E R . I will say you have had a lot more than I have.
Now, we are going to be called upon to vote for this bill in a couple of
days.
Mr. PERKINS. Vote for or against it?
Mr. F I E S I N G E R . Well, for or against the bill. I am just a poor
Congressman from out in the sticks, and I would like to have you
advise me, if you will, how you would vote on this bill if your were
in my place.
Mr. WARBURG. Not having read the bill, it is hard to say. I
would make a speech before I voted, in which I stated that I would
support any bill at this time that the President recommended as being
necessary in the emergency, but that in my opinion it would be very
much better if the range picked with a top limit of 60 were higher. I
would like, if there were time, to be told why that top limit of 60
should be there, why it should not be a higher range; that I would like
the bill very much better, if somewhere in it there were an avowed
intention at the proper time to return to a fixed ratio of gold; that I
did not like voting for a bill which might be a bill ultimately to establish a commodity dollar, that is a dollar of variable gold content,
and that equally might be a bill to establish a fixed ratio of gold
somewhere between 50 and 60 cents; that furthermore I did not like
passing any currency legislation at the present time which did not once
and for all remove the possibility of issuing greenbacks.
Mr. F I E S I N G E R . With those things you have stated, excepting those
things you have stated, would you be for the bill if you were a Congressman?
Mr. W A R B U R G . I would take the view today, that the President
has had a better opportunity to study all of the angles of it than I
have had.
Mr. F I E S I N G E R . Yes, but would you answer the question I asked
you?
Mr. WARBURG. I would be fore the bill purely on the ground of
supporting the President on something I assumed he had carefully
studied, but I do not know whether I would be for the bill as it is
worded.
Mr. F I E S I N G E R . Now, you said in your testimony, I believe, that
the nations use their currencies to establish price levels. Did you
not say that?
Mr. W A R B U R G . I don't believe I did; no, sir.
Mr. F I E S I N G E R . D O you remember what you said on that point?
Mr. W A R B U R G . I don't remember the text. I implied that some
people believe—and I am not one of them—that you can establish a
price level to suit yourselves by arranging a currency to suit yourselves.
Mr. F I E S I N G E R . Y O U can so use a currency if you wish?
Mr. WARBURG. I don't think you can, but some people do think
you can.
Mr. F I E S I N G E R . Y O U don't believe you can, but some people think
you can?
Mr. WARBURG. Yes, that you can arrange the price level to suit
yourself by arranging the currency.




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Mr. F I E S I N G E R . D O you think the value of the pound sterling has
any effect on the price levels?
Mr. WARBURG. Yes, sir. However, I don't think it is the determining factor.
Mr. F I E S I N G E R . It has some effect?
Mr. WARBURG. It has some effect; yes. M a y I make it clear in
this way. Professor Warren, who is the arch deacon of the gold theon^,
produces a chart in which he shows a relationship between the commodity prices and the price of gold.
Professor Warren and I went to Hyde Park together last August
to discuss this thing before the President. I said then, and I say now,
that his chart makes out just as good a case for the foreign exchange
rate as it does for the gold price. The two have been inseparable until
we started in to buy gold.
I said to the President in August: "If you will do what Professor
Warren wants you to do, that is, start buying gold internally only
and raise the price of domestic gold, on the theory that will raise the
domestic price level, you will give me the evidence I now lack—that it
is not only gold, it is not only the exchange rate, but a lot of things
that make the price level, because you will have two dollars; you will
have the foreign exchange dollar and you will have the domestic
(Warren) dollar/'
Mr. F I E S I N G E R . It does have an influence on the price level?
Mr. WARBURG. I don't deny it has some influence.
Mr. F I E S I N G E R . Wouldn't the British use that influence, whatever
it may be, to get a price level in their own interest?
Mr. WARBURG. Yes, there are a great number of British who believe
just as Professor Warren does, that you can do that, and therefore
they are trying to do it.
Mr. F I E S I N G E R . I am talking about the predominant opinion in
Europe; wouldn't they use that to get the price level they want?
Mr. WARBURG. The problems here and in Great Britain are not
the same, because prices in Great Britain depend a great deal more 011
foreign trade than ours do.
Mr. F I E S I N G E R . Foreign trade is a very important thing for the
United States just now.
Mr. WARBURG. Yes; but not relatively with Great Britain.
Mr. F I E S I N G E R . Not relatively, perhaps, but it is an important
thing.
Mr. WARBURG. It is an important thing.
Mr. F I E S I N G E R . If the British can use their currency to depress
the price level, they will get more of the trade of the world than we
will, won't they?
Mr. WARBURG. If the British can use their currency to depress
what price level, their own?
Mr. F I E S I N G E R . Let us see, if they can depress the world price
level through their currency, won't they get more of the trade of the
world than we will? If their currency is high and we have to have
a high price level, won't they get more of the trade of the world?
Mr. WARBURG. I don't see how the British can depress the world
price level by their currency, but they might raise or lower their own
price level.
39539—34




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Mr. F I E S I N G E R . In the economic conferences they wanted a pound
in relation to the dollar of about $3.50 or $4, didn't they?
Mr. WARBURG. In view of the presence of the press, I can't answer
that question as accurately as I could otherwise, because I think that
if confidential information—I mean, the actual figure.
Mr. F I E S I N G E R . Assuming that they did—and I am not saying
you said so—wouldn't that give them an advantage in the markets
of the world, if they could establish a ratio of that kind?
Mr. WARBURG. If the British establish—let's take for argument's
sake, a rate of $3.50, it would give them an advantage in the markets
of the world as against us, as against the dollar, but that does not
mean that you raise or lower the gold-price level.
Mr. F I E S I N G E R . They would have an advantage in world trade
as against the American dollar and against the business of the United
States?
M r . WARBURG. Surely.

Mr. F I E S I N G E R . N O W , if that is so, this is going to. be a competitive
race, is it not, when we get these two stabilization funds in operation?
Mr. WARBURG. It can very easily become one.
M r . F I E S I N G E R . Isn't it human nature for them to struggle to
get the pound tied to the dollar at as low a price as they can for the
pound?
Mr. WARBURG. Just as it is human nature for us to struggle to
get it tied to as high a rate as possible.
Mr. F I E S I N G E R . Therefore, human nature being what it is, we are
probably where there is going to be a titantic struggle between these
two nations on account of the prize of foreign trade throughout the
world?
Mr. WARBURG. I don't view that with such alarm as you apparently
do, because both nations have more to lose by a race for the bottom
by currency depreciation than they have to gain in advantage over
each other in foreign trade.
Mr. F I E S I N G E R . There is an interest, as you can see, between the
two Nations, England wants and requires a lower price level than
we have to have in the United States, having labor at the average
rate we had in the United States 2 years ago, $26, whereas theirs
was $12.
Mr. WARBURG. I am not familiar with the figures, but the English
have a lower level of wages; yes.
Mr. F I E S I N G E R . In order to keep her people satisfied, and in order
to keep that wage level, won't she struggle to keep the pound down,
and make prices cheap for the commodities she buys in the world for
her manufacturing industries and for her business?
Mr. W A R B U R G . N O ; I think there are two contradictory elements.
If she depresses the pound in terms of the dollar, it costs her more
pounds to buy cotton, for instance, and that would be offset by the
fact that she can undersell us in selling textiles to the Orient.
M r . WHITE. Wouldn't it be the same, whatever she depreciates?
Mr. WARBURG. Whatever she imports costs more due to the depreciation of currency, and whatever she sells she can sell for less.
Mr. WHITE. In other words, she would want to keep the pound up
so far as imports are concerned?
Mr. WARBURG. That is why I don't view it with as much alarm as
you do, because no nation will cut its own throat to gain advantage
over another nation.




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Mr. M C G U G I N . That is not true where she practically controls the
market for that commodity?
Mr. W A R B U R G . N O ; it is only true where she has to buy herself.
Mr. M C G U G I N . If she ran the price of cotton down, she would have
to pay more in pounds?
Mr. WARBURG. If she ran the price of the pound down, she would
have to pay more in pounds.
Mr. WHITE. Didn't she lower the price of cotton in dollars when
she enhanced our dollar?
Mr. WARBURG. When who enhanced it?
Mr. WHITE. When the English stabilization fund enhances the
gold dollar and lowered the pound, didn't it decrease the price of
cotton in this country, lower the cost of production and set her idle
cotton factories to work and took our trade in manufactured products?
Mr. WARBURG. Are you talking about the time when England was
off of the gold standard and we were on gold?
M r . WHITE.

Yes.

Mr. WARBURG. England did not raise the price of the dollar, she
depreciated the pound.
Mr. WHITE. It depreciated the price of the pound and the dollar
had greater purchasing power, the people in this country got less for
cotton, and cotton became cheaper in England, and supplied her raw
material that was manufactured at a cheaper cost, which was supplied to the markets in competition with our goods.
Mr. WARBURG. When we were on a fixed ratio of gold and the
pound was depreciated, by the amount that the pound depreciated
cotton became more expensive to the English. That did not raise or
lower the price of cotton here, except insofar as there were fewer
people in England who could afford to pay the higher number of
pounds for cotton, therefore they took less cotton, therefore the
demand for cotton went off, and therefore the price of cotton dropped.
Mr. WHITE. At that time the English cotton manufacturers experienced quite a boom in their business?
Mr. WARBURG. For an entirely different reason, not because of the
price of cotton.
Mr. F I E S I N G E R . When we went off of gold, cotton did rise in price,
and did you say it rose since that time?
Mr. WARBURG. I was talking about when we were on gold. When
we went off of gold, cotton, wheat, and very thing else went up, for
precisely the same reason as the reverse picture in England.
Mr. F I E S I N G E R . I want to pursue that a little further. England,
you concede, wants a low price for commodities that she imports?
M r . WARBURG. Y e s .
Mr. F I E S I N G E R . She
M r . WARBURG. Y e s .
Mr. F I E S I N G E R . She

wants to buy as cheap as she can?
wants to sell for as high a price as she can?

M r . WARBURG. Surely.

Mr. F I E S I N G E R . And you think those two things operating there
would bring them into somewhat of an equilibrium?
Mr. WARBURG. Yes, and there is a somewhat similar thing. England owes a lot of money in dollars, and to the extent the dollar gets
cheaper and the pound gets more expensive, it is easier to pay.
Mr. F I E S I N G E R . Aren't we in the position where we want to get a
high price for the things England buys, and we also want to get a




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good price for the things we sell, so there is a difference in the interests
between the two nations?
Mr. W A R B U R G . There certainly is a difference of interest between
the two nations, but it is not a difference of interest which will drive
those two nations, in my judgment, to a race for suicide.
Mr. F I E S I N G E R . If they drive the pound down, they are going to
get the business of the world, aren't they?
Mr. W A R B U R G . Are you asking if they will drive the pound down
and everybody else sits still?
Mr. F I E S I N G E R . I don't meant down to nothing, but I mean down
to below where we ought to have the pound.
Mr. W A R B U R G . The minute they do that we will drive the dollar
down, then they will drive the pound down some more, and we will
drive the dollar down some more.
Mr. F I E S I N G E R . Y O U mean to say that is a likelihood even when
they have the interest to buy as cheaply as they can, and to sell as
high as they can?
Mr. W A R B U R G . I can say it is a possibility, but not a likelihood.
Mr. F I E S I N G E R . Why do you say then, that if they drive the pound
down we mil drive the dollar down, and then they will drive the
pound down some more?
Mr. W A R B U R G . I say that anybody who seeks advantage by
depreciating his currency must know that the other fellow can do the
same thing. Therefore, they will not do it very much, because they
will say, if I do this, then he will drop and I will have to drop some
more, and the only result will be that it will prostitute labor.
Mr. F I E S I N G E R . They can afford to have some prostitution of their
labor, because they only pay $12, while we pay $26.
Mr. W A R B U R G . I don't know that this comes before the Committee
on Coinage, Weights, and Measures.
The C H A I R M A N . Gentlemen: Mr. Warburg has been answering
questions for something more than an hour, an hour and a half, as a
matter of fact, and I think we have been able to get his reaction to
this bill, and if we haven't it is our fault.
Mr. D I E S . Mr. Chairman, I would like to ask a question to clear
my understanding of the testimony. As I understand, Mr. Warburg, if we fix the dollar at 60 percent, there is no devaluation, it
stands on what already exists?
Mr. W A R B U R G . I don't say there is no devaluation. There is devaluation the moment you reduce the gold content of the dollar,
but there is no depreciation involved in devaluing at this point.
Mr. D I E S . But down to 6 0 or below 6 0 , and to the point of 50,„
you regard that as depreciation?
Mr. W A R B U R G . Yes; but you are not bringing about depreciation
by devaluation. Devaluation cannot precede depreciation.
Mr. D I E S . If you went from 6 0 to 5 0 , you regard that 1 0 percent
to be depreciation?
Mr. W A R B U R G . Yes; I would.
The C H A I R M A N . The hearing is now adjourned, subject to the call
of the chairman.




[ H . R . 6976, 73d Cong., 2d sess.]
A N A C T T o protect the currency system of the United States, to provide for the better use of the monetary
gold stock of the United States, and for other purposes

Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled, T h a t the short title of this A c t shall b e the '4 G o l d
Reserve A c t of 1934."
Sec. 2. (a) U p o n the approval of this A c t all right, title, and interest, and
every claim of the Federal Reserve Board, of every Federal Reserve bank, and
of every Federal Reserve agent, in and t o any and all gold coin and gold bullion
shall pass to and are hereby vested in the United States; and in p a y m e n t therefor
credits in equivalent amounts in dollars are hereby established in the Treasury
in the accounts authorized under the sixteenth paragraph of section 16 of the
Federal Reserve A c t , as heretofore and b y this A c t amended (U.S.C., title 12,
sec. 467). Balances in such accounts shall be p a y a b l e in gold certificates, which
shall be in such f o r m and in such denominations as the Secretary of the Treasury
may determine.
All gold so transferred, not in the possession of the United
States, shall be held in custody f o r the United States and delivered upon the
order of the Secretary of the Treasury; and the Federal Reserve Board, the
Federal Reserve banks, and the Federal Reserve agents shall give such instructions and shall take such action as m a y be necessary to assure that such gold
shall be so held and delivered.
( 1 ) [ ( b ) Section 16 of the Federal Reserve Act, as amended, is further a m e n d e d
b y striking o u t the word " g o l d " where it first appears in the last sentence of the
first paragraph (U.S.C., title 12, sec. 411) of said section 16, and inserting in
lieu thereof the words " l a w f u l m o n e y " ; and b y striking out the phrase " i n gold
or lawful m o n e y " , where it appears in said sentence; b y striking o u t the word
" g o l d " and the ensuing c o m m a , and the words " g o l d o r " wherever in section 16
they are immediately f o l l o w e d b y the words " g o l d c e r t i f i c a t e s " ; b y stiiking o u t
the word " g o l d " in the first sentence of the third paragraph (U.S.C., title 12,
sec. 413) of said section 16 where it follows the words " s h a l l be counted as part
of t h e " , b y inserting after the word " g o l d " the w o r d " c e r t i f i c a t e s " wherever i t
n o w appears in said section 16, n o t immediately f o l l o w e d b y the w r ord " c e r t i f i c a t e s " , except in the sixteenth paragraph (U.S.C., title 12, sec. 467) of said section
16 and except where the same is stricken out b y this section; b y striking o u t the
w o r d " c o i n " where it appears after the phrase " d e p o s i t s of g o l d " in the first
sentence of the sixteenth paragraph; b y striking out the words " g o l d coin o r "
where they appear after the words " s h a l l be p a y a b l e i n " in the third sentence
of the sixteenth paragraph, and b y striking o u t all of the third sentence of the
sixteenth paragraph after the words " s u c h Federal Reserve a g e n t " and inserting
in lieu thereof a period; and b y striking out the words " G o l d d e p o s i t s " in the
eighteenth paragraph and inserting in lieu thereof the words " D e p o s i t s m a d e
under this s e c t i o n . " ]
(b) Section 16 of the Federal Reserve Act, as amended, is further amended in the
following
respects:
(1) The third sentence of the first paragraph is amended to read as follows: " They
shall be redeemed in lawful money on demand at the Treasury Department of the
United States, in the city of Washington, District of Columbia, or at any Federal
Reserve bank.,}
{2) So much of the third sentence of the second paragraph as precedes the proviso
is amended to read as follows: 11 The collateral security thus offered shall be notes,
drafts, bills of exchange, or acceptances acquired under the provisions of section 13
of this Act, or bills of exchange endorsed by a member bank of any Federal Reserve
district and purchased under the provisions of section 14 of this Act, or bankers'
acceptances purchased under the provisions of said section 14, or gold
certificates;".
(3) The first sentence of the third paragraph is amended to read as follows: " Every
Federal Reserve bank shall maintain reserves in gold certificates or lawful money
of not less than 35 per centum against its deposits and reserves in gold certificates
of not less than 4-0 per centum against its Federal Reserve notes in actual circulation:
Provided, however, That when the Federal Reserve agent holds gold certificates as




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collateral for Federal Reserve notes issued to the bank such gold certificates shall be
counted as part of the reserve which such bank is required to maintain against its
Federal Reserve notes in actual circulation
(4) The fifth and sixth sentences of the third paragraph are amended to read as
follows:
" Notes presented for redemption at the Treasury of the United States shall
be paid out of the redemption fund and returned to the Federal Reserve banks through
which they were originally issued, and thereupon such Federal Reserve bank shall,
upon demand of the Secretary of the Treasury, reimburse such redemption fund in
lawful money or, if such Federal Reserve notes have been redeemed by the Treasurer in
gold certificates, then such funds shall be reimbursed to the extent deemed
necessary
by the Secretary of the Treasury in gold certificates, and such Federal Reserve bank
shall, so long as any of its Federal Reserve notes remain outstanding, maintain with
the Treasurer in gold certificates an amount sufficient in the judgment of the Secretary
to provide for all redemptions to be made by the Treasurer.
Federal Reserve notes
received by the Treasurer otherwise than for redemption may be exchanged for gold
certificates out of the redemption fund hereinafter provided and returned to the
Reserve bank through which they were originally issued, or they may be returned to
such bank for the credit of the United States
(5) The fourth, fifth, and sixth paragraphs are amended to read as follows:
u The Federal Reserve Board shall require each Federal Reserve Bank to
maintain
on deposit in the Treasury of the United States a sum in gold certificates
sufficient
in the judgment of the Secretary of the Treasury for the redemption of the Federal
Reserve notes issued to such bank, but in no event less than 5 per centum of the total
amount of notes issued less the amount of gold certificates held by the Federal Reserve
agent as collateral security; but such deposit of gold certificates shall be counted and
included as part of the 40 per centum reserve hereinbefore required.
The Board
shall have the right, acting through the Federal Reserve agent, to grant in whole or in
part, or to reject entirely the application of any Federal Reserve bank for
Federal
Reserve notes; but to the extent that such application
may be granted the Federal
Reserve Board shall, through its local Federal Reserve agent, supply Federal Reserve
notes to the banks so applying, and such bank shall be charged with the amount of
notes issued to it and shall pay such rate of interest as may be established by the
Federal Reserve Board on only that amount of such notes which equals the total
amount of its outstanding Federal Reserve notes less the amount of gold certificates
held by the Federal Reserve agent as collateral security.
Federal Reserve notes issued
to any such bank shall, upon delivery, together with such notes of such Federal Reserve
bank as may be issued under section 18 of this Act upon security of United States
2 per centum Government bonds, become a first and paramount lien on all the assets
of such bank.
11 Any
outstanding
Federal Reserve bank may at any time reduce its liability for
Federal Reserve notes by depositing with the Federal Reserve agent its Federal Reserve
notes, gold certificates, or lawful money of the United States.
Federal Reserve notes
so deposited shall not be reissued, except upon compliance with the conditions of an
original issue.
" The Federal Reserve agent shall hold such gold certificates or lawful money available exclusively for exchange for the outstanding Federal Reserve notes when offered
by the Reserve bank of which he is a director.
Upon the request of the Secretary of
the Treasury the Federal Reserve Board shall require the Federal Reserve agent to
transmit to the Treasurer of the United States so much of the gold certificates held
by him as collateral security for Federal Reserve notes as may be required for the exclusive purpose of the redemption of such Federal Reserve notes, but such gold certificates when deposited with the Treasurer shall be counted and considered as if collateral security on deposit with the Federal Reserve
agent"
(6) The eighth paragraph is amended to read as follows:
" All Federal Reserve notes and all gold certificates and lawful money issued to or
deposited with any Federal Reserve agent under the provisions of the Federal Reserve
Act shall hereafter be held for such agent, under such rules and regulations as the
Federal Reserve Board may prescribe, in the joint custody of himself and the Federal
Reserve bank to which he is accredited.
Such agent and such Federal Reserve bank
shall be jointly liable for the safe-keeping of such Federal Reserve notes, gold certificates,and
lawful money.
Nothing herein contained, however, shall be construed to
prohibit a Federal Reserve agent from depositing gold certificates with the Federal
Reserve Board, to be held by such Board subject to his order, or with the Treasurer of
the United States for the purposes authorized by law."
(7) The sixteenth paragraph is amended to read as follows:
" The Secretary of the Treasury is hereby authorized and directed to receive deposits
of gold or of gold certificates with the Treasurer or any Assistant Treasurer of the




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United States when tendered by any Federal Reserve bank or Federal Reserve agent
for credit to its or his account with the Federal Reserve Board.
The Secretary shall
prescribe by regulation the form of receipt to be issued by the Treasurer or Assistant
Treasurer to the Federal Reserve bank or Federal Reserve agent making the deposit
and a duplicate of such receipt shall be delivered to the Federal Reserve Board by the
Treasurer at Washington upon proper advices from any Assistant Treasurer that such
deposit has been made.
Deposits so made shall be held subject to the orders of the
Federal Reserve Board and shall be payable in gold certificates on the order of the
Federal Reserve Board to any Federal Reserve bank or Federal Reserve agent at the
Treasury or at the Subtreasury of the United States nearest the place of business of
such Federal Reserve bank or such Federal Reserve agent. The order used by the Federal Reserve Board in making such payments shall be signed by the governor or vice
governor, or such other officers or members as the Board may by regulation
prescribe.
The form of such order shall be approved by the Secretary of the Treasury "
(.8) The eighteenth paragraph is amended to read as follows:
il Deposits
made under this section standing to the credit of any Federal Reserve
bank with the Federal Reserve Board shall, at the option of said bank, be counted as
part of the lawful resurve which it is required to maintain against outstanding
Federal
Reserve notes, or as a part of the reserve it is required to maintain against deposits.''
Sec. 3. T h e Secretary of the Treasury shall, b y regulations issued hereunder,
with the a p p r o v a l of the President, prescribe the conditions under which gold
m a y be acquired and held, transported, melted or treated, i m p o r t e d , exported,
or earmarked: (a) f o r industrial, professional, and artistic use; (b) b y the Federal
Reserve banks f o r the purpose of settling international balances; and, (c) f o r such
other purposes as in his j u d g m e n t are n o t inconsistent with the purposes of this
Act.
G o l d in a n y f o r m m a y be acquired, transported, melted or treated, imported
exported, or earmarked or held in c u s t o d y for foreign or domestic a c c o u n t (except
on behalf of the United States) only t o the extent permitted b y , and subject t o the
conditions prescribed in, or pursuant to, such regulations. Such regulations m a y
e x e m p t f r o m the provisions of this section, in whole or in part, gold situated in the
Philippine Islands or other places b e y o n d the limits of the continental United
States.
Sec. 4. A n y g o l d withheld, acquired, transported, melted or treated, imported,
exported, or earmarked or held in custody, in violation of this A c t or of any
regulations issued hereunder, or licenses issued pursuant thereto, shall be f o r feited t o the United States, and m a y be seized and c o n d e m n e d b y like proceedings
as those p r o v i d e d b y law f o r the forfeiture, seizure, and c o n d e m n a t i o n of p r o p e r t y
i m p o r t e d into the United States contrary t o l a w ; and in addition a n y person
failing t o c o m p l y with the provisions of this A c t or of any such regulations or
licenses, shall be subject t o a penalty equal t o twice the value of the g o l d in respect
of which such failure occurred.
Sec. 5. N o gold shall hereafter be coined, and n o gold coin shall hereafter b e
paid o u t or delivered b y the United States: Provided, hoivever, T h a t coinage m a y
continue t o be executed b y the mints of the United States f o r foreign countires
in a c c o r d a n c e with the A c t of January 29, 1874 (U.S.C., title 31, sec. 367).
All
gold coin of the United States shall be withdrawn f r o m circulation, and, together
with all other gold o w n e d b y the United States, shall be f o r m e d into bars of such
weights and degrees of fineness as the Secretary of the Treasury m a y direct.
Sec. 6. E x c e p t t o the extent permitted in regulations w h i c h m a y be issued
hereunder b y the Secretary of the Treasury with the a p p r o v a l of the President,
n o currency of the United States shall be redeemed in gold: Provided,
however,
T h a t gold certificates o w n e d b y the Federal Reserve banks shall be redeemed at
such times and in such a m o u n t s as, in the j u d g m e n t of the Secretary of the
Treasury, are necessary t o maintain the equal purchasing p o w e r of every kind
of currency of the United States: And provided further, T h a t the reserve f o r
U n i t e d States notes and f o r Treasury notes of 1890, and the security f o r gold
certificates (including the gold certificates held in the Treasury f o r credits p a y a b l e
therein) shall be maintained in gold bullion equal to the dollar a m o u n t s required
b y law, and the reserve f o r Federal Reserve notes shall be maintained in gold
certificates, or in credits p a y a b l e in gold certificates maintained with the Treasurer
of the United States under section 16 of the Federal Reserve A c t , as heretofore
and b y this A c t a m e n d e d .
N o redemptions in gold shall be m a d e except in g o l d bullion bearing the stamp
of a United States mint or assay office in an a m o u n t equivalent at the time of
r e d e m p t i o n t o the currency surrendered f o r such purpose.
Sec. 7. In the event that the weight of the gold dollar shall at a n y time b e
r e d u c e d , the resulting increase in value of the gold held b y the United States




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(including the gold held as security f o r gold certificates a n d as a reserve for any
United States notes a n d f o r Treasury notes of 1890) shall be c o v e r e d into the
T r e a s u r y as a miscellaneous receipt; and, in the event that the weight of the gold
dollar shall at any time be increased, the resulting decrease in value of the gold
held as a reserve f o r a n y United States notes and f o r Treasury notes of 1890,
a n d as security f o r gold certificates shall be c o m p e n s a t e d b y transfers of g o l d
bullion f r o m the general fund, and there is hereby appropriated an a m o u n t sufficient t o p r o v i d e f o r such transfers and t o cover the decrease in value of the gold
in the general f u n d .
Sec. 8. Section 3700 of the R e v i s e d Statutes (U.S.C., title 31, sec. 734) is
a m e n d e d t o read as follows:
" S e c . 3700. W i t h the a p p r o v a l of the President, the Secretary of the Treasury
m a y purchase gold in any amounts, at h o m e or a b r o a d , with a n y direct o b l i g a tions, coin, or currency of the United States, authorized b y law, or with a n y
f u n d s in the Treasury n o t otherwise appropriated, at such rates a n d u p o n such
terms and conditions as he m a y d e e m m o s t advantageous t o the p u b l i c interest;
a n y provision of law relating t o the maintenance of parity, or limiting the p u r poses f o r which a n y of such obligations, coin, or currency, m a y be issued, or requiring any such obligations t o be offered as a popular loan or on a c o m p e t i t i v e
basis, o r t o be offered or issued at n o t less than par, t o the contrary n o t w i t h standing. All gold so purchased shall be included as an asset of the general
f u n d of the T r e a s u r y . "
Sec. 9. Section 3699 of the Revised Statutes (U.S.C., title 31, sec. 733) is
a m e n d e d t o read as follows:
" S e c . 3699. T h e Secretary of the Treasury m a y anticipate the p a y m e n t of
interest on the public debt, b y a period n o t exceeding one year, f r o m t i m e t o time,
either with or w i t h o u t a rebate of interest u p o n the c o u p o n s , as to h i m m a y seem
e x p e d i e n t ; and he m a y sell gold in a n y amounts, at h o m e or a b r o a d , in such
m a n n e r and a t such rates and u p o n such terms and conditions as he m a y d e e m
m o s t a d v a n t a g e o u s t o the public interest, and the proceeds of a n y gold so sold
shall be c o v e r e d into the general f u n d of the Treasury: Provided, however, T h a t
the Secretary of the Treasury m a y sell the gold which is required t o b e maintained
as a reserve or as security f o r currency issued b y the United States, o n l y t o the
extent necessary t o maintain such currency at a parity with the gold d o l l a r . "
Sec. 10. (a) F o r the purpose of stabilizing the exchange value of the dollar,
the Secretary of the T i e a s u r y , (2) with the approval of the President, directly o r
t h r o u g h such agencies as he m a y designate, is authorized, f o r the a c c o u n t of the
f u n d established in this section, t o deal in gold and foreign exchange and such
other instruments of credit and securities as he m a y deem necessary t o carry o u t
the purpose of this section. A n annual audit of such f u n d shall be m a d e and a
report thereof submitted t o the President (3) and a general report on the operation
of the f u n d shall be m a d e b y the President to the Congress within the period
beginning ninety days before and ending ninety days after the expiration of three
years f r o m the date of e n a c t m e n t of this A c t .
(b) T o enable the Secretary of the Treasury to carry o u t the provisions of this
section there is hereby appropriated, out of the receipts which are directed to be
c o v e r e d into the Treasury under section 7 hereof, the sum of $2,000,000,000,
w h i c h sum when available shall be deposited with the Treasurer of the United
States in a stabilization f u n d (hereinafter called the " f u n d " ) under the exclusive
c o n t r o l of the Secretary of the Treasury, (j£)with the approval of the President,
whose decisions shall be final and n o t be subject t o review b y any other officer of
the United States. T h e f u n d shall be available for expenditure, under the
direction of the Secretary of the Treasury and in his discretion, for any purpose
in connection with carrying out the provisions of this section, including the
i n v e s t m e n t and reinvestment in direct obligations of the United States of any
portions of the f u n d which the Secretary of the Treasury, with the approval of
the President, m a y f r o m time to time determine are n o t currently required f o r
stabilizing the exchange value of the dollar. T h e proceeds of all sales and
investments and all earnings and interest accruing under the operations of this
section shall be paid into the fund and shall be available f o r the purposes of the
fund.
(5)(c)
All the powers conferred by this section shall expire two years after the date
of enactment of this Act, unless the President shall sooner declare the existing emergency ended and the operation of the stabilization fund terminated; but the President
may extend such period for not more than one additional year after such date by proclamation recognizing the continuance of such emergency.




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Sec. 11. The Secretary of the Treasury is hereby authorized to issue, with
the approval of the President, such rules and rgeulations as the Secretary may
deem necessary or proper to carry out the purposes of this Act.
Sec. 12. Paragraph (b) (2), of section 43, title III, of the Act approved May
12, 1933 (Public, Numbered 10, Seventy-third Congress), is amended by adding
two new sentences at the end thereof, reading as follows:
" N o r shall the weight of the gold dollar be fixed in any event at more than 60
per centum of its present weight. The powers of the President specified in this
paragraph shall be deemed to be separate, distinct, and continuing powers, and
may be exercised by him, from time to time, severally or together, whenever
and as the expressed objects of this section in his judgment may require
except that such powers shall expire two years after the date of enactment of the Gold
Reserve Act of 1984 unless the President shall sooner declare the existing emergency
ended, but the President may extend such period for not more than one additional
year after such date by proclamation recognizing the continuance of such emergency."
( 7 ) Paragraph (2) of subsection (b) of section 4$, title III, of an Act entitled
"An Act to relieve the existing national economic emergency by increasing agricultural purchasing power, to raise revenue for extraordinary expenses incurred by
reason of such emergency, to provide emergency relief with respect to agricultural
indebtedness, to provide for the orderly liquidation of joint-stock land banks, and
for other purposes'approved May 12, 1988, is amended by adding at the end of
said paragraph (2) the following:
" The President, in addition to the authority to provide for the unlimited coinage
of silver at the ratio so fixed, under such terms and conditions as he may prescribe,
is further authorized to cause to be issued and delivered to the tenderer of silver for
coinage, silver certificates in lieu of the standard silver dollars to which the tenderer
would be entitled and in an amount in dollars equal to the number of coined standard
silver dollars that the tenderer of such silver for coinage would receive in standard
silver dollars.
" The President is further authorized to issue silver certificates in such denominations as he may prescribe against any silver bullion, silver, or standard silver dollars
in the Treasury not then held for redemption of any outstanding silver certificates,
and to coin standard silver dollars or subsidiary currency for the redemption of such
silver certificates.
" The President is authorized, in his discretion, to prescribe different terms and
conditions and to make different chargest or to collect different seigniorage, for the
coinage of silver of foreign production than for the coinage of silver produced in the
United States or its dependencies. The silver certificates herein referred to shall be
issued, delivered, and circulated substantially in conformity with the law now governing existing silver certificates, except as may herein be expressly provided to the
contrary, and shall have and possess all of the privileges and the legal tender characteristics of existing silver certificates now in the Treasury of the United States, or in
circulation.
" The President is authorized^ in addition to other powers, to reduce the weight of
the standard silver. dollar in the same percentage that he reduces the weight of the gold
dollar.
" The President is further authorized to reduce and fix the weight of subsidiary
coins so as to maintain the parity of such coins with the standard silver dollar and
with the gold dollar."
Sec. 13. All actions, regulations, rules, orders, and proclamations heretofore
taken, promulgated, made or issued by the President of the United States or the
Secretary of the Treasury, under the Act of March 9, 1933, or under section 43
or section 45 of title III of the Act of May 12, 1933, are hereby approved, ratified,
and confirmed.
Sec. 14. (a) The Second Liberty Bond Act, as amended, is further amended as
follows:
(1) By adding at the end of section 1 (U.S.C., title 31, sec. 752; Supp. VII,
title 31, sec. 752), a new paragraph as follows:
"Notwithstanding the provisions of the foregoing paragraph, the Secretary of
the Treasury may from time to time, when he deems it to be in the public interest,
offer such bonds otherwise than as a popular loan and he may make allotments in
full, or reject or reduce allotments upon any applications whether or not the
offering was made as a popular loan."
(2) By inserting in section 8 (U.S.C., title 31, sec. 771), after the words "certificates of indebtedness", a comma and the words "Treasury bills".




gold reserve act

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op

^ (3) B y striking out the figures " $ 7 , 5 0 0 , 0 0 0 , 0 0 0 " where they appear in section
18 (U.S.C., title 31, sec. 753) and inserting in lieu thereof the figures " $ 1 0 , 0 0 0 , 000,000."
(4) B y adding thereto two new sections, as follows:
" S e c . 19. Notwithstanding any other provisions of law, any obligations authorized b y this A c t m a y be issued for the purchase, redemption, or refunding, at or
before maturity, of any outstanding bonds, notes, certificates of indebtedness, or
Treasury bills, of the United States, or t o obtain funds for such purchase, redemption, or refunding, under such rules, regulations, terms, and conditions as the
Secretary of the Treasury may prescribe.
" S e c . 20. T h e Secretary of the Treasury may issue any obligations authorized
b y this A c t and maturing not more than one year f r o m the date of their issue on a
discount basis and payable at maturity without interest. A n y such obligations
m a y also be offered for sale on a competitive basis under such regulations and
upon such terms and conditions as the Secretary of the Treasury m a y prescribe,
and the decisions of the Secretary in respect of any issue shall be final."
(b) Section 6 of the Victory Liberty Loan A c t (U.S.C., title 31, sec. 767; Supp.
V I I , title 31, sees. 767-767a) is amended b y striking out the words " f o r refunding
p u r p o s e s " , together with the preceding comma, at the end of the first sentence
of subsection (a).
(c) T h e Secretary of the Treasury is authorized to issue gold certificates in
such f o r m and in such denominations as he may determine, against any gold held
b y the Treasurer of the United States, except the gold fund held as a reserve f o r
any United States notes and Treasury notes of 1890. T h e amount of gold certificates issued and outstanding shall at no time exceed the value, at the legal
standard, of the gold so held against gold certificates.
C8)

[definitions]

Sec. 15. As used in this act the term " U n i t e d S t a t e s " means the G o v e r n m e n t
of the United States; the term " t h e continental United S t a t e s " means the
States of the United States, the District of Columbia, and the Territory of Alaska;
the term " c u r r e n c y of the United S t a t e s " means currency which is legal tender
in the United States, and includes United States notes, Treasury notes of 1890,
gold certificates, silver certificates, Federal Reserve notes, and circulating notes
of Federal Reserve banks and national banking associations; and the term " p e r s o n " means any individual, partnership, association, or corporation, including
the Federal Reserve Board, Federal Reserve banks, and Federal Reserve agents.
Wherever reference is made in this act to equivalent as between dollars or currency of the United States and gold, one dollar or one dollar face amount of any
currency of the United States equals such a number of grains of gold, nine tenths
fine, as, at the time referred to, are contained in the standard unit of value, that
is, so long as the President shall not have altered b y proclamation the weight of the
gold dollar under the authority of section 43, title I I I , of the A c t approved M a y
12, 1933, as heretofore and b y this act amended, twenty-five e n d eight tenths
grains of gold, nine tenths fine, and thereafter such a number of grains of gold,
nine tenths fine, as the President shall have fixed under such authority.
Sec. 16. T h e right to alter, amend, or repeal this act is hereby expressly
reserved. If any provision of this act, or the application thereof t o any person
or circumstances, is held invalid, the remainder of the Act, and the application
of such provision to other persons or circumstances, shall not be affected thereby.
Sec. 17. All acts and parts of acts inconsistent with any of the provisions of
this A c t are hereby repealed.
Passed the House of Representatives January 20, 1934.
Attest:
SOUTH T R I M B L E ,
Passed the Senate January 27, 1934.
Attest:




Clerk.

E D W I N A. H A L S E Y ,

Secretary*

7 3 D CONGRESS

2d Session

)

j

HOUSE

OF REPRESENTATIVES

J

REPORT

( N o .

292

T O P R O T E C T T H E C U R R E N C Y SYSTEMS OF T H E U N I T E D
STATES A N D T O P R O V I D E FOR T H E B E T T E R USE OF
T H E M O N E T A R Y GOLD STOCK

J a n u a r y 18, 1 9 3 4 / — C o m m i t t e d t o the C o m m i t t e e of t h e W h o l e H o u s e on the
s t a t e of the U n i o n a n d o r d e r e d t o b e p r i n t e d

Mr.

SOMERS

of New York, from the Committee on Coinage, Weights,
and Measures, submitted the following

REPORT
[ T o a c c o m p a n y H . R . 6976]

The Committee on Coinage, Weights, and Measures to which was
referred the bill (H.R. 6976) to protect the currency systems of the
United States, to provide for the better use of the monetary gold
stock of the United States, and for other purposes, having had the
same under consideration, reports it back to the House with amendments and recommends that the bill do pass as amended.
This bill carries out the recommendation of the President of the
United States in his message to the Congress of January 15, 1934,
in which he urged additional legislation to improve the country's
financial and monetary system by establishing, for currency purposes, permanent metallic reserves under the control and in the possession of the Federal Government.
The committee has been unable to conduct extensive hearings on
this particular bill, due to the necessity of immediate action. However, during the first and second sessions of the Seventy second Congress, this committee, under H.Res. 72, conducted exhaustive hearings
on the monetary situation which involved much of the subject matter
of this bill. At that time, the committee invited and received the
opinions of the leading monetary experts of the world on the subject matter now presented to the House. At a later period, this committee conducted a hearing on H.R. 14374, a tyill which had as its
purpose the revaluation of the gold dollar by reducing its content
33% percent. At the time, the bill was referred to the committee,
it was conducting hearings on this subject, and a number of-eminent
authorities have discussed the question of gold dollar revaluation,
the creat'on of a stabilization fund, the transfer of gold from the




18E

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Federal Reserve banks to the Treasury of the United States, and the
purchase of gold on the markets of the world.
GENERAL PURPOSES OF THE

BILL

This bill is designed to enable the administration to restore a fairer
price level, to arrive eventually at a less variable dollar and to improve our financial and monetary system. It gives the United States
Treasury possession of all the monetary gold stock in the United
States, part of which now rests in private or quasi-private control.
In this way the Government gains complete control over this metal
and at the same time provides a permanent metallic reserve upon
which to build a currency system which will be both sound and adequate in the future. The import of this may be appraised in the
realization that all authorities seem to agree that the salvation of the
country lies in our ability to control our price level. All commodities
are measured in gold, hence the first step in our control must be the
acquisition of gold stocks. The bill, therefore, transfers to the
United States all gold now held by the Federal Reserve bank and
pays for it in gold certificates. These gold certificates are to be used
by the Federal Reserve bank as a substitute for their present gold
stocks in issuing currency. In order to protect the Government's
power over gold, the bill gives it the right to regulate the acquisition,
transportation, etc., of the metal, and to further the Government's
position, provisions are made for the forfeiture of gold withheld or
acquired in violation of this act. In addition the gold supply is.
further protected by alterations in the former method of redemption.
The gold coin which was a part of the older system will now be withdrawn from circulation and melted into bars for use in adjusting the
balance of foreign trade.
The bill specifically states that the future currency of the United
States shall not be redeemed in gold, except as authorized by the
Secretary of the Treasury and the President of the United Slates,,
but the parity of the gold certificates which now come into possession
of the Federal Reserve bank will be maintained by redeeming them
at such time and in such amounts as the Secretary of the Treasury
deems necessary. Section 7 of the bill simply establishes a method
of handling the gain or loss attending any future alterations in the
value of Treasury gold. Sections 8 and 9 are amendments to existing
laws so that the operations of the stabilization fund establishes in
section 10 will become more flexible than if operated under the present
regulations. This stabilization fund is a new and most interesting
development. It is new in this country, although it has operated
very successfully for many months in the monetary systems of our
principal competitor in international trade. The sum set aside for
maintenance of this fund amounts to $2,000,000,000. This sum is
appropriated from the profits accruing to the Government upon
acquiring the gold now held by the Inderal Reserve bank. It is
interesting because it is the most ingenious instrument ever developed
in the monetary systems. It is equally effective in attack and defense..
The reason for its establishment in this case is to defend the American
dollar and our gold stocks against the invasion of similar funds
operated by competitor nations. To understand its operation we
must, realize that since the world depression nearly all nations have




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been forced off gold and swollen budgets along with disturbing internal
conditions have depreciated their currencies; consequently, they
could deal to better advantage with other low currency nations rather
than with the high currency nations. Great Britain whose existence
depends upon world trade found this trade dissipated because her
currency had a high tendency and in order to check this tendency
she set aside the equivalent of $175,000,000 with which to purchase
American dollars and other gold-redemption currencies. She sold
pounds and bought dollars. When you sell large quantities of a
thing you cheapen it but when you buy large quantities the tendency
is to enhance the value of the article purchased.
The equilization fund was so effective in driving our dollar up that
we were forced off the gold standard. It is to prevent a repetition
of this experience that we create the stabilization fund preparatory
to the return to gold redemption.
DOLLAR

REVALUATION

The upward flight of the American dollar meant a correspondent
decline in commodity prices, the debtor was at a distinct disadvantage.
Commodities were his only source of income. If he borrowed in high
commodities and had to pay in low commodities his task became exceedingly difficult. This led to repudiation on the part of the debtor
and bankruptcy for the creditor. To meet this situation the Congress,
through the medium of what is commonly called the "Thomas amendm e n t ' i m p o w e r e d the President to save the debtor and creditor alike
by vesting in him the authorization to cut the gold content of our
monetary unit providing he did not exceed a 50 percent limitation.
The succeeding events now make it advisable to once more make the
American dollar a constant unit. One can not definitely say what
that value should be at the moment. It is the opinion of the administration however that its proper value lies somewdiere between 50 and
60 percent of its former value.
If the gold dollar is revalued at 50 percent, this will double the
statutory value of our monetary gold and broaden the basis for our
currency and credit system. It will raise the price level and restore
the normal purchasing power of the dollar. The salutary effect of
this must be appreciated by everyone who has considered that we are
staggering under an enormous public and private indebtedness, aggregating approximately $200,000,000,000, incurred principally when
the purchasing power of the dollar was much less than now prevails.
The purpose of this bill is not to depreciate the dollar below the
normal purchasing power that prevailed when these debts were contracted, but to merely restore the dollar from its enhanced and
appreciated purchasing power to normalcy. This bill will not only
lighten and make bearable our public and private debts, but it will
stimulate domestic and foreign trade by permitting the dollar to
seek a level that will more nearly approximate the purchasing power
of foreign currencies. Due to our appreciated dollar and the depreciated currencies of other nations, we have suffered a tremendous
disadvantage in the markets of the world. As a consequence, our
export trade, like Great Britain's, prior to the past few months, has
fallen off steadily. Other nations with depreciated currencies have
captured our markets. The same is true of domestic trade. Low




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commodity prices and heavy fixed charges have curtailed production,
accumulated surpluses, and produced widespread distress and suffering. It is believed that the restoration of the normal purchasing
power of the dollar will contribute to the rise in price level and to the
restoration of normal business, commercial, agricultural, and industrial activities. It is interesting to note that other nations have gone
much further than this bill contemplates. France, Italy, Germany,
and Great Britain also have depreciated their currencies below
their normal purchasing power, and what we seek to accomplish by
this bill is to a certain extent necessary on account of such action
on the part of foreign powers.
It cannot be insisted that we are seeking to inflate when it is borne
in mind that we are merely restoring the normal purchasing power of
the dollar. Neither can it be said that we are seeking to repudiate
honest debts, because the creditor will receive a dollar which will have
approximately the same purchasing power as the one he loaned.
But if these reasons were not sufficient for the enactment of this
bill, there is another one which should silence opposition. It must
be admitted by everyone that we have a right to defend ourselves and
protect the interests of our own people against the depreciated currencies of other nations, and when other nations realize that we are
determined to do this and to make it impossible for them to enjoy
the advantages of a depreciated currency, this will hasten the stabilization of all currencies upon a permanent basis. It is not contended
that this bill will miraculously and automatically restore the necessary price level and normal business and industrial activity, but it is
believed that it will greatly contribute to this end.
Section 13 is simply a ratification of the action taken by the President and the Secretary of the Treasury under the act of March 9,1933,
and sections 43 and 45 of the act of May 12, 1933.
AMENDMENTS TO THE

BILL

The amendments to the bill consist of inserting a new section 14
and renumbering sections 14, 15, and 16 as sections 15, 16, and 17.
The new section 14 is as follows:
Sec. 14. (a) T h e S e c o n d Liberty B o n d A c t , as a m e n d e d , is further a m e n d e d
as follows:
(1) B y adding at the end of section 1 ( U . S . C . , title 31, sec. 752; Sup. V I I ,
title 31, sec. 752) a n e w paragraph as follows:
" N o t w i t h s t a n d i n g the provisions of the foregoing p a r a g r a p h , the Secretary of
the Treasury m a y f r o m t i m e t o time, when he deems it t o be in t h e p u b l i c interest, offer such b o n d s otherwise than as a popular loan and he m a y m a k e allotm e n t s in full, or reject or reduce allotments u p o n any applications whether o r
n o t the offering was m a d e as a p o p u l a r l o a n . "
(2) B y inserting in section 8 ( U . S . C . , title 31, sec. 771), after the w o r d s " c e r tificates of i n d e b t e d n e s s " , a c o m m a and the words " T r e a s u r y bills."
(3) B y striking o u t the figures " $ 7 , 5 0 0 , 0 0 0 , 0 0 0 " where t h e y appear in section
18 ( U . S . C . , title 31, sec. 753), and inserting in lieu thereof the
figures

"$10,000,000,000".

(4) B y adding thereto t w o new sections, as follows:
" S e c . 19. N o t w i t h s t a n d i n g any other provisions of law, a n y obligations authorized b y this a c t m a y be issuedlfor the purchase, r e d e m p t i o n , or refunding, at o r
b e f o r e m a t u r i t y , of any outstanding b o n d s , notes, certificates of indebtedness, or
Treasury bills, of the United States, or t o obtain f u n d s f o r such purchase, r e d e m p tion, or refunding, under such rules, regulations, terms, and conditions as the
Secretary of the Treasury m a y prescribe.




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" Sec. 20. T h e Secretary of the Treasury m a y issue any obligations authorized
b y this a c t and maturing n o t more than one year f r o m the date of their issue on a
discount basis and p a y a b l e at maturity w i t h o u t interest. A n y such obligations
m a y also be offered f o r sale on a c o m p e t i t i v e basis under such regulations and
u p o n such terms and conditions as the Secretary of the Treasury m a y prescribe,
a n d the decisions of the Secretarv in respect of any issue shall b e final."
0b) Section 6 of the V i c t o r y Liberty L o a n A c t (U.S. C o d e , title 31, sec. 767;
Sup. V I I , title 31, sees. 767 and 767 (a)) is amended b y striking o u t the w o r d s
" f o r refunding p u r p o s e s " , together with the preceding c o m m a , at the end of the
first sentence of subsection (a).
(c) T h e Secretary of the Treasury is authorized to issue gold certificates in
such f o r m and in such denominations as he m a y determine, against a n y gold
held b y the Treasurer of the United States, e x c e p t the gold f u n d held as a reserve
f o r a n y United States notes and Treasury notes of 1890. T h e a m o u n t of gold
certificates issued and outstanding shall at no time exceed the value, at the legal
standard, of the gold so held against gold certificates.
CHANGES IN EXISTING

LAW

In compliance with paragraph 2a of rule X I I I of the Rules of the
House of Representatives, changes in existing law made by the bill
are shown as follows: Existing law proposed to be omitted is enclosed
in black brackets; new matter is printed in italics; existing law in
which no change is proposed is shown in roman.
note

issues

[Federal Reserve

Act]

Sec. 16. Federal Reserve notes, t o be issued at the discretion of the Federal
R e s e r v e B o a r d for the purpose of m a k i n g advances t o Federal Reserve banks
through the Federal Reserve agents as hereinafter set f o r t h and f o r no other
purpose, are hereby authorized.
T h e said notes shall be obligations of the
United States and shall be receivable b y all national and m e m b e r banks and
Federal Reserve banks and f o r all taxes, customs, and other public dues.
They
shall be redeemed in [ g o l d ] lawful money on d e m a n d at the Treasury D e p a r t m e n t of the United States, in the city of Washington, District of C o l u m b i a , o r
[ i n gold or lawful m o n e y J at a n y Federal Reserve bank.
A n y Federal Reserve b a n k m a y m a k e application t o the local Federal Reserve
agent f o r such a m o u n t of the Federal Reserve notes hereinbefore p r o v i d e d for
as it m a y require. Such application shall be a c c o m p a n i e d with a tender t o the
local Federal Reserve agent of collateral in a m o u n t equal t o the sum of the Federal
Reserve notes thus applied f o r and issued pursuant t o such application.
The
collateral security thus offered shall b e notes, drafts, bills of exchange, or a c c e p t ances acquired under the provisions of section 13 of this A c t , or bills of exchange
indorsed b y a m e m b e r b a n k of a n y Federal Reserve district a n d purchased under
the provisions of section 14 of this A c t , or bankers' acceptances purchased under
the provisions of said section 14, or [ g o l d o r ] gold certificates: Provided, however,
T h a t until M a r c h 3, 1934, should the Federal Reserve B o a r d d e e m it in the p u b l i c
interest, it m a y , u p o n the affirmative v o t e of not less than a m a j o r i t y of its m e m bers, authorize the Federal Reserve banks t o offer, and the Federal Reserve agents
t o accept, as such collateral security, direct obligations of the United States.
On M a r c h 3, 1934, or sooner should the Federal Reserve B o a r d so decide, such
authorization shall terminate and such obligations of the United States be retired
as security f o r Federal Reserve notes.
In no e v e n t shall such collateral security
be less than the a m o u n t of Federal Reserve notes applied for. T h e Federal
Reserve agent shall each d a y n o t i f y the Federal Reserve B o a r d of all issues a n d
withdrawals of Federal Reserve notes t o and b y the Federal R e s e r v e b a n k t o
which he is accredited.
T h e said Federal Reserve B o a r d m a y at a n y time call
u p o n a Federal Reserve b a n k f o r additional security t o p r o t e c t the Federal Reserve
notes issued t o it.
E v e r y Federal Reserve bank shall maintain reserves in g o l d or lawful m o n e y
of n o t less t h a n thirty-five per c e n t u m against its deposits and reserves in gold
certificates of n o t less than f o r t y per c e n t u m against its Federal Reserve notes in
actual circulation: Provided, however, T h a t when the Federal Reserve agent holds
[ g o l d or] x gold certificates as collateral f o r Federal Reserve notes issued t o the




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bank such [gold or] gold certificates shall be counted as part of the [gold]
reserve which such bank is required to maintain against its Federal Reserve notes
in actual .circulation. »Notes so paid out shall bear upon their faces a distinctive
letter and serial number which shall be assigned by the Federal Reserve Board
to each Federal Reserve bank. Whenever Federal Reserve notes issued through
one Federal Reserve bank shall be received by another Federal Reserve bank,
they shall be promptly returned for credit or redemption to the Federal Reserve
bank through which they were originally issued or, upon direction of such Federal
Reserve bank, they shall be forwarded direct to the Treasurer of the United States
to be retired. No Federal Reserve bank shall pay out notes issued through
another under penalty of a tax of ten per centum upon the face value'of notes
so paid out. Notes presented for redemption at the Treasury of the United
States shall be paid out of the redemption fund and returned to the Federal Reserve banks through which they were originally issued, and thereupon such
Federal Reserve bank shall, upon demand of the Secretary of the Treasury,
reimburse such redemption fund in lawful money or, if such Federal Reserve notes
have been redeemed by the Treasurer in [gold or] gold certificates, then such
funds shall be reimbursed to the extent deemed necessary by the Secretary of the
Treasury in [gold or] gold certificates, and such Federal Reserve bank shall, so
long as any of its Federal Reserve notes remain outstanding, maintain with the
Treasurer in gold certificates an amount sufficient in the judgment of the Secretary
to provide for all redemptions to be made by the Treasurer. Federal Reserve
notes received by the Treasurer otherwise than for redemption may be exchanged
for gold certificates out of the redemption fund hereinafter provided and returned
to the Reserve bank through which they were originally issued, or they may be
returned to such bank for the credit of the United States. Federal Reserve notes
unfit for circulation shall be returned by the Federal Reserve agents to the
Comptroller of the Currency for cancellation and destruction.
The Federal Reserve Board shall require each Federal Reserve bank to maintain on deposit in the Treasury of the United States a sum in gold certificates
sufficient in the judgment of the Secretary of the Treasury for the redemption
of the Federal Reserve notes issued to such bank, but in no event less than five
per centum of the total amount of notes issued less the amount of [gold or]
gold certificates held by the Federal Reserve agent as collateral security; but such
deposit of gold certificates shall be counted and included as part of the forty
per centum reserve hereinbefore required. The board shall have the right,
acting through the Federal Reserve agent, to grant in whole or in part, or to reject
entirely the application of any Federal Reserve bank for Federal Reserve notes;
but to the extent that such application may be granted the Federal Reserve Board
shall, through its local Federal Reserve agent, supply Federal Reserve notes to
the banks so applying, and such bank shall be charged with the amount of notes
issued to it and shall pay such rate of interest as may be established by the Federal Reserve Board on only that amount of such notes which equals the total
amount of its outstanding Federal Reserve notes less the amount of [gold or]
gold certificates held by the Federal Reserve agent as collateral security. Federal Reserve notes issued to any such bank shall, upon delivery, together with
such notes of such Federal Reserve bank as may be issued under section eighteen
of this act upon security of United States two per centum Government bonds,
become a first and paramount lien on all the assets of such bank.
Any Federal Reserve bank may at any time reduce its liability for outstanding
Federal Reserve notes by depositing with the Federal Reserve agent its Federal
Reserve notes, [gold,] gold certificates, or lawful money of the United States.
Federal Reserve notes so deposited shall not be reissued, except upon compliance
with the conditions of an original issue.
i
The Federal Reserve agent shall hold such [gold,] gold certificates, or lawful
money available exclusively for exchange for the outstanding Federal Reserve
notes when offered by the reserve bank of which he is a director. Upon the
request of the Secretary of the Treasury the Federal Reserve Board shall require
the Federal Reserve agent to transmit to the Treasurer of the United States so
much of the gold certificates held by him as collateral security for Federal Reserve
notes as may be required for the exclusive purpose of the redemption of such
Federal Reserve notes, but such gold certificates when deposited with the Treasurer shall be counted and considered as if collateral security on deposit with the
Federal Reserve agent.
Any Federal Reserve bank may at its discretion withdraw collateral deposited
with the local Federal Reserve agent for the protection of its Federal Reserve
notes issued to it and shall at the same time substitute therefor other collateral*




gold reserve a c t of

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191

of equal amount with the approval of the Federal Reserve agent under regulations to be prescribed by the Federal Reserve Board. Any Federal Reserve
bank may retire any of its Federal Reserve notes by depositing them with the
Federal Reserve agent or with the Treasurer of the United States, and such
Federal Reserve bank shall thereupon be entitled to receive back the collateral
deposited with the Federal Reserve agent for the security of such notes. Federal
Reserve banks shall not be required to maintain the reserve or the redemption
fund heretofore provided for against Federal Reserve notes which have been
retired. Federal Reserve notes so deposited shall not be reissued except upon
compliance with the conditions of an original issue.
All Federal Reserve notes and all [gold,] gold certificates, and lawful money
issued to or deposited with any Federal Reserve agent under the provisions of
the Federal Reserve Act shall hereafter be held for such agent, under such rules
and regulations as the Federal Reserve Board may prescribe, in the joint custody
of himself and the Federal Reserve bank to which he is accredited. Such agent
and such Federal Reserve bank shall be jointly liable for the safe-keeping of
such Federal Reserve notes, [gold,] gold certificates, and lawful money. Nothing herein contained, however, shall be construed to prohibit a Federal Reserve
agent from depositing [gold or] gold certificates with the Federal Reserve Board,
to be held by such board subject to his order, or with the Treasurer of the United
States for the purposes authorized by law.
In order to furnish suitable notes for circulation as Federal Reserve notes, the
Comptroller of the Currency shall, under the direction of the Secretary of the
Treasury, cause plates and dies to be engraved in the best manner to guard against
counterfeits and fraudulent alterations, and shall have printed therefrom and
numbered such quantities of such notes of the denominations of $5, $10, $20, $50,
$100, $500, $1,000, $5,000, $10,000 as may be required to supply the Federal Reserve banks. Such notes shall be in form and tenor as directed by the Secretary
of the Treasury under the provisions of this Act and shall bear the distinctive
numbers of the several Federal Reserve banks through which they are issued.
When such notes have been prepared, they shall be deposited in the Treasury
or in the subtreasury or mint of the United States nearest the place of business of
each Federal Reserve bank and shall be held for the use of such bank subject to
the order of the Comptroller of the Currency for their delivery, as provided by
this Act.
The plates and dies to be procured by the Comptroller of the Currency for the
printing of such circulating notes shall remain under his control and direction,
and the expenses necessarily incurred in executing the lawrs relating to the procuring of such notes, and all other expenses incidental to their issue and retirement, shall be paid by the Federal Reserve banks, and the Federal Reserve Board
shall include in its estimate of expenses levied against the Federal Reserve banks
a sufficient amount to cover the expenses herein provided for.
The examination of plates, dies, bed pieces, and so forth, and regulations relating to such examination of plates, dies, and so forth, of national-bank notes provided for in section fifty-one hundred and seventy-four Revised Statutes, is
hereby extended to include notes herein provided for.
Any appropriation heretofore made out of the general funds of the Treasury
for engraving plates and dies, the purchase of distinctive paper, or to cover any
other expense in connection with the printing of national-bank notes or notes
provided for by the Act of May thirtieth, nineteen hundred and eight, and any
distinctive paper that may be on hand at the time of the passage of this Act may
be used in the discretion of the Secretary for the purposes of this Act, and should
the appropriations heretofore made be insufficient to meet the requirements of
this Act in addition to circulating notes provided for by existing law, the Secretary
is hereby authorized to use so much of any funds in the Treasury not otherwise
appropriated for the purpose of furnishing the notes aforesaid: Provided, however,
That nothing in this section contained shall be construed as exempting national
banks or Federal Reserve banks from their liability to reimburse the United States
for any expenses incurred in printing and issuing circulating notes.
Every f ederal Reserve bank shall receive on deposit at par from member banks
or from Federal Reserve banks checks and drafts drawn upon any of its depositors, and when remitted by a Federal Reserve bank, checks and drafts drawn by
any depositor in any other Federal Reserve bank or member bank upon funds
to the credit of said depositor in said reserve bank or member bank. Nothing
herein contained shall be construed as prohibiting a member bank from charging
its actual expense incurred in collecting and remitting funds, or for exchange
sold to its patrons. The Federal Reserve Board shall, by rule, fix the charges

39539—34




-13

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t o b e collected b y the m e m b e r banks f r o m its patrons whose checks are cleared
through the Federal Reserve bank and the charge which m a y be i m p o s e d for the
service of clearing or collection rendered b y the Federal Reserve bank.
T h e Federal Reserve B o a r d shall m a k e and promulgate f r o m time t o time
regulations governing the transfer of f u n d s and charges therefor a m o n g Federal
Reserve banks and their branches, and m a y at its discretion exercise the functions
of a clearing house f o r such Federal Reserve banks, or m a y designate a Federal
Reserve b a n k t o exercise such functions, and m a y also require each such b a n k t o
exercise the functions of a clearing house f o r its m e m b e r banks.
T h a t the Secretary of the Treasury is hereby authorized and directed t o
receive deposits of gold [ c o i n ] or of gold certificates with the Treasurer or any
assistant treasurer of the United States when tendered b y any Federal Reserve
b a n k or Federal Rfeserve agent f o r credit t o its or his account with the Federal
Reserve Board. T h e Secretary shall prescribe b y regulation the f o r m of receipt
t o b e issued b y the Treasurer or Assistant Treasurer t o the Federal R e s e r v e ba*:k
or Federal Reserve agent making the deposit, and a duplicate of such receipt shall
b e delivered t o the Federal Reserve Board b y the Treasurer at Washington upon
p r o p e r advices f r o m any assistant treasurer that such deposit has been made.
D e p o s i t s so m a d e shall b e held subject t o the orders of the Federal Reserve Board
and shall b e p a y a b l e in [ g o l d coin o r ] gold certificates on the order of the Federal
Reserve B o a r d t o any Federal Reserve bank or Federal Reserve agent at the
Treasury or at the Subtreasurv of the United States nearest the place of business
of such Federal Reserve bank or such Federal Reserve agent: [Provided, however,
T h a t any expense incurred in shipping gold t o or f r o m the Treasury or subtreasuries in order t o m a k e such payments, or as a result of making such p a y m e n t s ,
shall b e paid b y the Federal Reserve Board and assessed against the Federal
Reserve b a n k s ] .
T h e order used b y the Federal Reserve Board in making such
p a y m e n t s shall b e signed b y the governor or vice governor, or such other officers
o r members as the b o a r d m a y b y regulation prescribe. T h e f o r m of such order
shall b e a p p r o v e d b y the Secretary of the Treasury.
T h e expenses necessarily incurred in carrying o u t these provisions, including
the cost of the certificates or receipts issued for deposits received, and all expenses
incident t o the handling of such deposits shall be paid b y the Federal Reserve
B o a r d and included in its assessments against the several Federal Reserve banks.
[ G o l d d e p o s i t s ] Deposits made under this section standing to the credit of any
Federal Reserve bank with the Federal Reserve Board shall, at the option of
said bank, be counted as part of the lawful reserve which it is required t o maintain
against outstanding Federal Reserve notes, or as a part of the reserve it is required
t o maintain against deposits.
N o t h i n g in this section shall b e construed as amending section six of the act
of M a r c h fourteenth, nineteen hundred, as amended b y the acts of M a r c h f o u r t h ,
nineteen hundred and seven, M a r c h second, nineteen hundred a n d eleven, and
June twelfth, nineteen hundred and sixteen, nor shall the provisions of this
section be construed t o a p p l y t o the deposits m a d e or t o the receipts or certificates
issued under those acts.
[Revised Statutes, sec. 3700]

T h e Secretary of the Treasury m a y purchase coin with any of the b o n d s o r
notes of the United States, authorized b y law, at such rates and u p o n such terms
as he m a y deem m o s t advantageous t o the public interest.
With the approval of the President, the Secretary of the Treasury may purchase
gold in any amounts, at home or abroad, with any direct obligations, coin, or currency
of the United States9 authorized by law, or with any funds in the Treasury not otherwise appropriated, at such rates and upon such terms and conditions as he may
deem most advantageous to the public interest; any provisio7i of law relating to the
maintenance of parity, or limiting the purposes for which any of such obligations,
coin, or currency may be issued, or requiring any such obligations to be offered as a
popular loan or on a competitive basis, or to be offered or issued at not less than
par, to the contrary notwithstanding. All gold so purchased shall be included as an
asset of the general fund of the. Treasury.
[Revised Statutes, sec. 3699]

T h e Secretary of the Treasury m a y anticipate the p a y m e n t of interest on the
public debt, b y a period n o t exceeding one year, f r o m time t o time, either with
or w i t h o u t a rebate of interest u p o n the coupons, as t o him m a y seem expedient;
[ a n d he is authorized t o dispose of any gold in the Treasury of the United States,
n o t necessary f o r the p a y m e n t of interest of the public debt. T h e obligation t o




gold reserve act

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create the sinking f u n d shall not, however, b e impaired t h e r e b y ] and he may
sell gold in any amounts, at home or abroad, in such manner and at such rates and
upon such terms and conditions as he may deem most advantageous to the public
interest, and the proceeds of any gold so sold shall be covered into the general fund
of the Treasury: Provided, however? That the Secretary of the Treasury may sell
the gold which is required to be maintained as a reserve or as security for currency
issued by the United States, 07ily to the extent necessary to maintain such currency
at a parity with the gold dollar.
[Sec. 43 of title III of the act approved May 12, 1933j

Sec. 43. W h e n e v e r the President finds, u p o n investigation, that (1) the foreign
c o m m e r c e of the United States is adversely affected b y reason of the depreciation
in the value of the currency of any other government or governments in relation
t o the present standard value of gold, or (2) action under this section is necessary
in order t o regulate and maintain the parity of currency issues of the United
States, or (3) an e c o n o m i c emergency requires an expansion of credit, or (4) an
expansion of credit is necessary t o secure b y international agreement a stabilization at proper levels of the currencies of various governments, the President is
authorized, in his discretion—
(a) T o direct the Secretary of the Treasury t o enter into agreements with the
several Federal Reserve banks and with the Federal Reserve Board whereby
the Federal Reserve B o a r d will, and it is hereby authorized to, notwithstanding
any provisions of law or rules and regulations to the contrary, permit such reserve
banks t o agree that they will (1) c o n d u c t , pursuant t o existing law, throughout
specified periods, open market operations in obligations of the United States
G o v e r n m e n t or corporations in which the United States is the m a j o r i t y stockholder, and (2) purchase directly and hold in portfolio for an agreed period or
periods of time Treasury bills or other obligations of the United States Governm e n t in an aggregate sum of $3,000,000,000 in addition t o those they m a y then
hold, unless prior t o the termination of such period or periods the Secretary shall
consent t o their sale. N o suspension of reserve requirements of the Federal
Reserve banks, under the terms of section 11 (c) of the Federal Reserve Act,
necessitated b y reason of operations under this section, shall require the imposition
of the graduated tax upon any deficiency in reserves as provided in said section
11 (c). N o r shall it require any automatic increase in the rates of interest or
discount charged b y any Federal Reserve bank, as otherwise specified in that
section. T h e Federal Reserve Board, with the approval of the Secretary of the
Treasury, m a y require the Federal Reserve banks to take such action as m a y be
necessary, in the j u d g m e n t of the B o a r d and of the Secretary of the Treasury, t o
prevent undue credit expansion.
(b) If the Secretary, when directed by the President, is unable t o secure the
assent of the several Federal Reserve banks and the Federal Reserve Board t o
the agreements authorized in this section, or if operations under the a b o v e provisions p r o v e t o be inadequate t o meet the purposes of this section, or if f o r any
other reason additional measures are required in the j u d g m e n t of the President
t o meet such purposes, then the President is authorized—
(1) T o direct the Secretary of the Treasury t o cause t o be issued in such
a m o u n t or a m o u n t s as he m a y f r o m time t o time order, United States notes, as
provided in the A c t entitled " A n A c t t o authorize the issue of United States
notes and f o r the redemption of funding thereof and for funding the floating
debt of the United S t a t e s " , a p p r o v e d February 25, 1862, and Acts supplementary
thereto and a m e n d a t o r y thereof, in the same size and of similar color t o the
Federal Reserve notes heretofore issued and in denominations of $1, $5, $10, $20,
$50, $100, $500, $1,000, and $10,000; b u t notes issued under this subsection shall
be issued only f o r the purpose of meeting maturing Federal obligations t o repay
sums borrowed b y the United States and f o r purchasing United States bonds and
other interest-bearing obligations of the United States: Provided, T h a t when
any such notes are used f o r such purpose the b o n d or other obligation so acquired
or taken up shall be retired and canceled. Such notes shall be issued at such
times and in such amounts as the President m a y approve, b u t the aggregate
a m o u n t of such notes outstanding at any time shall not exceed $3,000,000,000.
There is hereby appropriated, out of any m o n e y in the Treasury n o t otherwise
appropriated, an a m o u n t sufficient t o enable the Secretary of the Treasury t o
retire and cancel 4 per c e n t u m annually of such outstanding notes, and the Secretary of the Treasury is hereby directed t o retire and cancel annually 4 per
centum* of such outstanding notes. Such notes and all other coins and curren j
cies heretofore or hereafter coined or issued b y or under the authority of the
United States shall b e legal tender f o r all debts, public and private.




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(2) B y proclamation t o fix the weight of the gold dollar in grains nine tenths
fire and also t o fix the weight of the silver dollar in grains nine tenths fine at a
deli nit e fixed ratio in relation t o the gold dollar at such amounts as he finds necessary f r o m his investigation t o stabilize domestic prices or t o p r o t e c t t h e foreign
c o m m e r c e against the adverse effect of depreciated foreign currencies, and t o p r o vide for the unlimited coinage of such gold and silver at the ratio so fixed, or in
case the G o v e r n m e n t of the United States enters into an agreement with a n y g o v ernment or governments under the terms of which the ratio between the value of
gold and other currency issued b y the United States and b y a n y such g o v e r n m e n t
or governments is established, the President m a y fix the weight of the g o l d dollar
in accordance with the ratio so agreed upon, and such gold dollar, the weight of
which is so fixed, shalf b e the standard unit of value, and all f o r m s of m o n e y issued
or coined b y the United States shall b e maintained at a parity with this standard
and it shall b e the d u t y of the Secretary of the Treasury t o maintain such parity,
b u t in n o event shall the weight of the gold dollar b e fixed so as t o reduce its present weight b y m o r e than 50 percentum.

Nor shall the weight of the gold dollar be fixed in any event at more than 60 per
centum of its present weight. The powers of the President specified in this paragraph shall be deemed to be separate and distinct powers, and may be exercised by
him, from time to time, severally or together, whenever and as the expressed objects
of this section, in his judgment, may require.
*

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[Sec. 1 of Second Liberty Bond Act, as amended]

T h a t the Secretary of the Treasury, with the a p p r o v a l of the President, is
hereby authorized t o borrow, f r o m t i m e t o time, o n the credit of t h e U n i t e d
States for the purposes of this A c t , a n d t o meet expenditures authorized f o r t h e
national security and defense and other public purposes authorized b y law, n o t
exceeding in the aggregate $20,000,000,000, and t o issue therefor b o n d s of the
United States, in addition t o the $2,000,000,000 b o n d s already issued or offered
f o r subscription under authority of the A c t a p p r o v e d April t w e n t y - f o u r t h , nineteen hundred and seventeen, entitled " A n A c t t o authorize an issue of b o n d s t o
m e e t expenditures f o r the national security and defense, and, f o r the purpose of
assisting in the prosecution of the war, t o extend credit t o foreign governments,
a n d for other p u r p o s e s " : Provided, T h a t of this sum $3,063,945,460 shall be in
lieu of that a m o u n t of the unissued b o n d s authorized b y sections one and f o u r
of the A c t a p p r o v e d April twenty-fourth, nineteen hundred and seventeen,
$225,000,000 shall be in lieu of that a m o u n t of the unissued b o n d s authorized b y
section thirty-nine of the A c t a p p r o v e d August fifth, nineteen hundred and nine,
$150,000,000 shall be in lieu of the unissued b o n d s authorized b y the j o i n t resolution a p p r o v e d M a r c h fourth, nineteen hundred and seventeen, a n d $100,000,000
shall b e in lieu of unissued b o n d s authorized b y section f o u r hundred of the A c t
a p p r o v e d M a r c h third, nineteen hundred and seventeen.
T h e b o n d s herein authorized shall b e in such f o r m or f o r m s a n d denomination
or denominations and subject t o such terms and conditions of issue, conversion,
redemption, maturities, p a y m e n t , and rate or rates of interest, n o t exceeding f o u r
and one-quarter per centum per annum, and time or times of p a y m e n t of interest,
as the Secretary of the Treasury f r o m time t o time at or before the issue thereof
m a y prescribe. T h e principal and interest thereof shall be p a y a b l e in United
States gold coin of the present standard of value.
T h e b o n d s herein authorized shall f r o m time t o time first b e offered at n o t
less than par as a popular loan, under such regulations, prescribed b y the Secretary of the Treasury f r o m time t o time, as will in his opinion, give the people of
the United States, as nearly as m a y be, an equal o p p o r t u n i t y t o participate
therein, b u t he m a y m a k e allotment in full upon applications f o r smaller amounts
of b o n d s in advance of a n y date which he m a y set f o r the closing of subscriptions
a n d m a y reject or reduce allotments upon later applications and applications f o r
larger amounts, and m a y reject or reduce allotments u p o n applications f r o m
incorporated banks and trust companies f o r their o w n a c c o u n t and m a k e allotm e n t in full or larger allotments t o others, and m a y establish a graduated scale
of allotments, and m a y f r o m time t o time a d o p t any or all of said methods, should
a n y such action be deemed b y him t o b e in the public interest: Provided, T h a t
such reduction or increase of allotments of such b o n d s shall b e m a d e under
general rules to be prescribed b y said Secretary and shall a p p l y t o all subscribers
similarly situated. A n d any portion of the b o n d s so offered and n o t taken m a y
be otherwise disposed of b y the Secretary of the Treasury in such manner and
at such price or prices, noteless than par, as he m a y determine. T h e Secretary




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m a y m a k e special arrangements f o r subscriptions at n o t less than par f r o m
persons in the military or naval forces of the United States, b u t a n y b o n d s issued
t o such persons shall b e in all respects the same as other b o n d s of the same
issue.

Notwithstanding the provisions of the foregoing paragraph, the Secretary of the
Treasury may from time to time, when he deems it to be in the public interest, offer
such bonds otherwise than as a popular loan and he may make allotments in full, or
reject or reduce allotments upon any applications whether or not the offering was
made as a popular loan.
*

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[Second Liberty B o n d Act, as amended]

Sec. 8. T h a t the Secretary of the Treasury, in his discretion, is hereby authorized to deposit, in such incorporated banks and trust companies as he m a y designate, the proceeds, or any part thereof, arising f r o m the sale of the b o n d s and
certificates of [ i n d e b t e d n e s s ] indebtedness, Treasury bills, and war-savings certificates authorized b y this A c t , and arising f r o m the p a y m e n t of income and excess profits taxes, and such deposits shall bear such rate or rates of interest, and shall
be secured in such manner, and shall be m a d e u p o n and subject t o such terms and
conditions as the Secretary of the Treasury m a y f r o m time t o time prescribe:
Provided, T h a t the provisions of section fifty-one hundred and ninety-one of the
Revised Statutes, as a m e n d e d b y the Federal reserve Act, and the amendments
thereof, with reference t o the reserves required t o be kept b y national banking
associations and other m e m b e r banks of the Federal Reserve System, shall n o t
a p p l y t o deposits of public m o n e y s b y the United States in designated depositaries.
T h e Secretary of the Treasury is hereby authorized t o designate depositaries in
foreign countries with which shall b e deposited all public m o n e y which it m a y be
necessary or desirable t o have on deposit in such countries t o provide f o r current
disbursements t o the military and naval forces of the United States and t o the
diplomatic and consular and other representatives of the United States in and
a b o u t such countries until six m o n t h s after the termination of the war between
the United States and the Imperial German G o v e r n m e n t , and t o prescribe the
terms and conditions of such deposits."
Sec. 18* (a) T h a t in addition to the bonds and certificates of indebtedness and
war-savings certificates authorized b y this A c t and amendments thereto, the
Secretary of the Treasury, with the approval of the President, is authorized t o
borrow f r o m time t o time on the credit of the United States f o r the purposes of
this Act, t o provide f o r the purchase or redemption of any notes issued hereunder,
and to meet public expenditures authorized b y law, not exceeding in the aggregate [ $ 7 , 5 0 0 , 0 0 0 , 0 0 0 ] $10,000,000,000 at any one time outstanding, and t o issue
therefor notes of the United States at not less than par in such f o r m or f o r m s and
denomination or denominations, containing such terms and conditions, and at
such rate or rates of interest, as the Secretary of the Treasury m a y prescribe,
and each series of notes so issued shall be payable at such time not less than one
year nor m o r e than five years f r o m the date of its issue as he m a y prescribe, and
m a y be redeemable before maturity (at the option of the United States) in whole
or in part, u p o n n o t m o r e than one year's nor less than four m o n t h s ' notice, and
under such rules and regulations and during such period as he m a y prescribe.
(b) T h e notes herein authorized m a y be issued in a n y one or m o r e of the following series as the Secretary of the Treasury m a y prescribe in connection with
the issue thereof:
(1) E x e m p t , b o t h as t o principal and interest, f r o m all taxation (except estate
or inheritance taxes) n o w or hereafter imposed b y the United States, any State,
or any of the possessions of the United States, or b y any local taxing authority;
(2) E x e m p t , b o t h as t o principal and interest, f r o m all taxation n o w or hereafter imposed b y the United States, any State, or any of the possessions of the
United States, or b y any local taxing authority, except (a) estate or inheritance
taxes, and (b) graduated additional income taxes, c o m m o n l y known as surtaxes,
and excess-profits and war-profits taxes, nowT or hereafter imposed b y the United
States, upon the income or profits of individuals, partnerships, associations, or
corporations;
(3) E x e m p t , both as t o principal and interest, as provided in paragraph ( 2 ) ;
and with an additional exemption f r o m the taxes referred t o in clause (b) of such
paragraph, of the interest on an a m o u n t of such notes the principal of which does
n o t exceed $30,000, owned b y any individual, partnership, association, or c o r p o ration; or




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(4) Exempt, 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) estate or inheritance
taxes, and (b) all income, excess-profits and war-profits taxes, now or hereafter
imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations.
(c) If the notes authorized under this section are offered in more than one
series bearing the same date of issue, the holder of notes of any such series shall
(under such rules and regulations as may be prescribed by the Secretary of the
Treasury) have the option of having such notes held by him converted at par
into notes of any other such series offered bearing the same date of issue.
(d) None of the notes authorized by this section shall bear the circulation
privilege. The principal and interest thereof shall be payable in United States
gold coin of the present standard of value. The word " b o n d " or "bonds"
where it appears in sections 8, 9, 10, 14, and 15 of this Act as amended, and sections 3702, 3703, 3704, and 3705 of the Revised Statutes, and section 5200 of the
Revised Statutes as amended, but in such sections only, shall be deemed to
include notes issued under this section.
SEC. 19. Notwithstanding any other provisions of law, any obligations authorized
by this Act may be issued for the purchase, redemption, or refunding, at or before maturity, of any outstanding bonds, notes, certificates of indebtedness, or Treasury bills,
of the United States, or to obtain funds for such purchase, redemption, or refunding,
under such rules, regulations, terms, and conditions as the Secretary of the Treasury
may prescribe.
SEC. 20. The Secretary of the Treasury may issue any obligations authorized by
this Act and maturing not more than one year from the date of their issue on a discount basis and payable at maturity without interest. Any such obligations may also
be offered for sale on a competitive basis under such regulations and upon such terms
and conditions as the Secretary of the Treasury may prescribe, and the decisions of
the Secretary in respect of any issue shall be final.
*

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*

*

[Victory Liberty Loan Act, as amended!

Sec. 6. (a) That there is hereby created in the Treasury a cumulative sinking
fund for the retirement of bonds and notes issued under the First Liberty Bond
Act, the Second Liberty Bond Act, the Third Liberty Bond Act, the Fourth
Liberty Bond Act, or under this act, and outstanding on July 1, 1920, and of
bonds and notes thereafter issued, under any of such acts or under any of such
acts as amended[, for refunding purposes]. The sinking fund and all additions
thereto are hereby appropriated for the payment of such bonds and notes at
maturity, or for the redemption of purchase thereof before maturity by tie
Secretary of the Treasury at such prices and upon such terms and conditiors
as he shall prescribe, and shall be available until all such bonds and notes are
retired. The average cost of the bonds and notes purchased shall not exceed par
and accrued interest. Bonds and notes purchased, redeemed, or paid out of the
sinking fund shall be canceled and retired and shall not be reissued. For the
fiscal year beginning July 1, 1920, and for each fiscal year thereafter, until all such
bonds"and notes are retired there is hereby appropriated, out of any money in the
Treasury not otherwise appropriated, for the purposes of such sinking fund, an
amount equal to the sum of (1) 2}{ per centum of the aggregate amount of such
bonds and notes outstanding on July 1, 1920, less an amount equal to the par
amount of any obligations of foreign governments held by the United States on
July 1, 1920, and (2) the interest which would have been payable during the fiscal
year for which the appropriation is made on the bonds and notes purchased, redeemed, or paid out of the sinking fund during such year or in previous years.
The Secretary of the Treasury shall submit to Congress at the beginning of
each regular session a separate annual report of the action taken under the
authority contained in this section.
(b) Sections 3688, 3694, 3695, and 3696 of the Revised Statutes, and so much
of section 3689 of the Revised Statutes as provides a permanent annual appropriation of 1 per centum of the entire debt of the United States to be set apart as a
sinking fund, are hereby repealed.




73D CONGRESS

2d Session

)

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H O U S E OF R E P R E S E N T A T I V E S

f KEPT. 292

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Part 2

T O P R O T E C T T H E C U R R E N C Y S Y S T E M S OF T H E U N I T E D S T A T E S
A N D T O P R O V I D E F O R T H E B E T T E R USE OF T H E M O N E T A R Y
GOLD STOCK

January 19, 1934.-—Committed t o the C o m m i t t e e of the W h o l e H o u s e o n the
state of the Union and ordered t o be printed

Mr.

MCGUGIN,

from the Committee on Coinage, Weights, and
Measures, submitted the following

MINORITY REPORT
[ T o a c c o m p a n y H . R . 6976]

We, the undersigned members of the Committee on Coinage,
Weights, and Measures, make the following report to the House of
Representatives on H.R. 6976.
It is generally understood by the Congress and the country that
the main part and purpose of this bill is to stabilize the American
dollar at some fixed level. There is so much fear and apprehension
as to the future value of the dollar that it is highly desirable that it
be fixed at some established level. The Congress, the press, and the
country in general are laboring under the impression that it is necessary to enact this bill in order to fix the value of the dollar. It is also
the general impression that the mere enactment of this bill will
stabilize the value of the dollar at not less than 50 percent and not
more than 60 percent of its normal gold value. The enactment of
this bill does nothing of the kind. The enactment of this bill is not
necessary in order for the President to fix the value of the dollar.
All that there is in this bill pertaining to the actual fixing of the
value of the dollar is in section 12. Under the Thomas amendment
enacted in the special session of the Seventy-third Congress, the
President has the authority by Executive order to fix and establish
the gold content of the dollar at any point not to exceed a 50 percent
reduction. When section 12 of this bill is considered in line with the
Thomas amendment here is what this bill provides on the' question
of fixing the value of the dollar: It simply provides that in the event
the President exercises the authority granted him under the Thomas
amendment and devalues the dollar, he must do so at a point between




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50 and 60 percent of its present established value. Even with this
legislation enacted, there is no obligation on the part of the President
to stabilize the dollar. The legislation does not stabilize the dollar.
With the enactment of this legislation, it still remains within the
power of the President to leave the gold dollar at its present content
or reduce the gold content to any point between 50 and 60 percent
of its present content. Without this legislation, the President can
place the content of the gold dollar to any point between 50 and 100
percent of the present established gold content. If he wants to
reduce it he can do it now by Executive order under the Thomas
amendment and needs no additional legislation. This bill neither
compels the President to fix the gold content of the dollar nor does the
bill itself fix the gold content of the dollar.
The first nine sections of this bill pertain to the control and disposition of the gold now held by the Federal Reserve. The Federal
Reserve obtained this gold from various sources. A part of this gold
held by the Federal Reserve came from individuals who by the banking act of 1933 were forced to turn their gold into the Federal Reserve.
We believe that such gold as was taken from the people and is now
held by the Federal Reserve should be delivered over to the Treasury
of the United States.
A part of the gold held by the Federal Reserve is the outright
property of the Federal Reserve bank and is used as security for
Federal Reserve notes which are outstanding as currency of the
United States. We believe that such gold which actually belongs to
the Federal Reserve banks and is held by the Federal Reserve banks
as security back of outstanding Federal Reserve curreiic}r, which is
in the possession of citizens of the United States, should be retained
by the Federal Reserve, not so much for the particular interest of
the Federal Reserve banks but in justice to the people who hold
Federal Reserve notes as currency. We do believe that if and when
the President, under the authority given to him under the so-called
''Thomas amendment", depreciates the content of the gold dollar that
whatever percent the depreciation may be a corresponding percent
of the gold held by the Federal Reserve banks to secure outstanding
currency should be delivered over on to the Treasury of the United
States. In other words, we do not believe that either the Federal
Reserve banks or any citizen of the United States should be able to
make any profit on gold holdings as the direct result of Government
depreciation in the gold content of the dollar. We believe that all
profits measured in dollars that may be derived from the decreasing
of the gold content of the dollar should revert to the Treasury of the
United States for the benefit of the country as a whole. We do not
believe that the Treasury Department should be directed to take
over from the Federal Reserve bank the entire stock of gold held by
the Federal Reserve bank, leaving no gold with the bank to protect
the value of outstanding Federal Reserve currency.
As a substitute for the Federal Reserve holding gold as a security
for its outstanding currency, the first nine sections of this bill provide
that all the gold shall be taken over by the Treasur}^ of the United
States and that the Secretary of the Treasury shall use it to retain
the equal value of all outstanding currency, whether it be Treasury
currency or Federal Reserve currency. It is our judgment that it
would be better to follow the provisions of the Federal Reserve Act




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and permit the Federal Reserve banks to hold their own gold in
support of their own currency, however, we realize that if the Treasury
Department actually sustains the equal value of all outstanding
currency, that there may be no serious wrrong come to the country
as a result of the Treasury Department's holding this gold rather than
the Federal Reserve bank holding enough of it to support their own
outstanding currency. We find that it is utterly impossible to obtain
any amendments in the committee which would change the program
outlined in the first nine sections of this bill. We also realize the
futility in any hope of trying to obtain any amendments on the floor
which would change the program outlined in the first nine sections
of the bill, therefore, we are offering no amendments to change the
provisions of these sections, vet, at the same time we are not endorsing
the first nine sections in their entirety. We believe that part of the
provisions set forth in the first nine sections are highly desirable and
that a part of the provisions are establishing a policy which we believe
that the country might well afford not to establish.
We are of the opinion that this legislation is going to pass the
House of Representatives. We believe that it is wise and practical
to level our most strenuous opposition toward provisions in this bill
which we believe are most dangerous and are contrary to traditional
American government and are economically unsound. The section
which contains such provisions is section 10. Section 10 provides
for a $2,000,000,000 fund for the purpose of dealing in gold in foreign
exchange and such other instruments of credit or security as the
Secretary of the Treasury may deem to be advisable, to carry out
the purpose of this act. The act specifically states:
T h e sum of 2 billion dollars which sum when available shall be deposited with
the Treasury of the United States in a stabilization fund under the exclusive
control of the Secretary of the Treasury whose decision shall be final and not be
subject to review b y a n y other officer of the United States.

The one direct purpose of providing that the decisions of the
Secretary of the Treasury shall be final and not subject to review by
any other officer of the United States is to excuse the Secretary of the
Treasury in the handling of this fund from any obligation to the
Comptroller General of the United States. This, in fact, means that
the Secretary of the Treasury shall be under no obligation to comply
with general laws of the United States in the handling of this fund.
Under the provisions of this act, the Secretary of the Treasury in
handling this fund would even be independent of the President, and
his act would be final. The only thing which the act requires him
to do is merely to make an annual audit of the fund and submit it to
the President.
W"e believe that such power placed in the hands of the Secretary
of the Treasury over a $2,000,000,000 fund places autocratic and
dictatorial power in the hands of one man over directly the control
of the value of money and credit and indirectly over prices. In
short, it places the economic destiny of the American people in the
hands of one man.
This section places in the Secretary of the Treasury the power to
deal in foreign exchange with this $2,000,000,000 fund. That places
in his hands the power to run up or down the value of the currency
of every other country of the world as well as to run up or down the
value of American currency. We believe that this is too great a




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power to place in the hands of any one man. We believe that it is
contrary to every true principle of American Government. We
believe that it is economically unwise to place this power in the hands
of any one man thereby depending upon the judgment of one person.
We are told by the executive department that it is absolutely
necessary that such a fund be established. We are further told that
the fund must be had to meet a national and international emergency.
We have no way of obtaining personal information as to whether or
not such a fund is absolutely necessary to meet an existing emergency.
Therefore, we cannot and do not personally recommend that such a
fund be or not be established. We do believe that under such circumstances and under the statements presented to us by the executive
department that we, the Congress and the country have no other
alternative except to accept on faith the statements of those in high
authority in the executive department, therefore, we are willing to
support the creation of the fund.
We do upon our own responsibility state that placing the control
of such a fund in the hands of one man is economically unwise and a
repudiation of the true principles of American Government, therefore,
we recommend and insist that before this bill be enacted into law
that section 10 be amended so as to provide that the proposed $2,000,000,000 equalization fund shall be under the control of a board of 5
men, 3 of whom shall be the President, the Secretary of the Treasury,
and the Governor of the Federal Reserve Board, and 2 men to be
named by the President, whose appointments shall be confirmed by
the United States Senate. With this amendment then under all the
circumstances, we are willing that the powers provided in section 10
entrusted into the Secretary of the Treasury shall be carried out by
this board instead of the Secretary of the Treasury.
We also insist that the duties of this board shall terminate on
March 15, 1935, except to liquidate in an orderly manner at the discretion of the board such assets as it may possess on March 15, 1935.
The extraordinary powers provided for in this act are being granted
upon the insistence of the Executive department that they are necessary in order to meet an existing emergency. This being true there is
no excuse for creating such legislation as permanent and lasting
legislation. There is no excuse for such fund operating after the
duration of the present emergency. No material harm can come from
limiting the operating life of this fund to March 15, 1935. If at that
time an emergency exists, the then Congress and President may very
well in their wisdom continue the existence of the operation of such
fund for such length of time as is needed.
Placing this fund in the hands of a board of 5 men instead of in the
arbitrary power of 1 man is more in keeping with constitutional
government and gives to the country the benefit of the wisdom and
caution of 5 men instead of 1 man. It cannot be said that such an
amendment unduly embarrasses or ties the hands of the President in
meeting an emergency. The board will be of his making. The
majority of the board will consist of the President and two appointees,
which have heretofore been made b}^ him. The remaining two members of the board will be of his appointment with no restriction other
than 'confirmation by the Senate. Confirmation by the Senate
cannot be accepted as any unreasonable restriction upon the President.
It is in perfect keeping with the appointment of other Presidential
appointees to important offices of the Government.




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It is generally understood that the United States needs this equalization fund in order to compete with a similar fund which Great
Britain has and is using. The British fund is not under the control
of the chancellor of the exchequer. It is not under the control of
one man. It is under the control of a board of three men, who
operate with the utmost secrecy and caution. If the United States
is to have such a fund, we concede as to the necessity of deviating
from some of the principles of free and open government incident
to democracy. We therefore recommend the utmost secrecy, care,
and caution in the operation of such a fund. The amendment to
section 10 permits this secrecy and caution. We concede to this
secrecy with reluctancy on the ground of constitutional government
but accept it on the grounds of necessity. This fund in operation will
largely be a gigantic struggle between the British fund and the
American fund. When that great international game is played,
England will have the advantage of the wisdom of three men highly
qualified in the world of finance. We cannot press too seriously
upon the House our sincere belief that it is highly important that in
that great international currency struggle, the interests of the United
States will be more wisely protected with the United States acting
upon the wisdom of five men than merely acting upon the wisdom
of the present Secretary of the Treasury or another Secretary of
the Treasury who may hereafter follow him in this or any other
administration.
We recommend that section 13 be stricken from the bill. This
section simply provides that all actions, regulations, rules, orders,
and proclamations heretofore taken, promulgated, made, or issued by
the President of the United States or the Secretary of the Treasury,
under the act of March 9, 1933, or under section 43 or section 45 of
title III of the act of May 12, 1933, are hereby approved, ratified, and
confirmed.
We have been wholly unable to find anyone who can give us any
reason why the enactment of this section is necessary. Such orders
as the President or the Secretary of the Treasury have made under
these acts, if in keeping with the acts, require no confirmation to
assure their validity. If such orders are not in keeping with the acts,
it is our opinion that this confirmation by the Congress in this bill
would give them no added validity. Further, we have been unable
to find out what is the contents of all the actions, regulations, rules,
orders, and proclamations heretofore taken, promulgated, made, or
issued by the President or the Secretary of the Treasury of the United
States. Therefore, we do not know what is being ratified in this
section. None of the members of the committee knows what is being
ratified. We make more bold the assertion, no Member of Congress
actually knows what is being ratified if this section is left in the bill.
We recommend changing figures " 6 0 " in line 2, page 10, to the
figures "66%".
CONCLUSION

With section 10 amended as outlined in this report and section 13
stricken from the bill, we recommend the passage of the bill.
Respectfully submitted.




HAROLD MCGUGIN.
RALPH E . ELTSE.

Calendar No. 227
73D CONGRESS

2d Session

V

)

GOLD

SENATE

RESERVE

ACT

J

(

OF

REPORT

No. 201

1934

J a n u a r y 23, 1 9 3 4 . — O r d e r e d t o be printed

Mr.

FLETCHER,

from the Committee on Banking and Currency, submitted the following
R E P O R T
[ T o a c c o m p a n y H . R . 6976]

The Committee on Banking and Currency, to whom was referred
the bill (H.R. 6976) to protect the currency system of the United
States, to provide for the better use of the monetary gold stock of the
United States, and for other purposes, having considered the same,
report thereon with amendments, and recommend that the bill, as
amended, do pass.
The bill which the committee is reporting corresponds in its general
purposes to the bill (S. 2366) introduced by Senator Fletcher on
January 17, 1934. The committee has made the following substantial changes in the text of the House bill, to wit:
First. Section 2 (b) of the House bill amends section 16 of the
Federal Reserve Act in several respects, but the paragraphs which
are amended are not set out. The committee feels that it would
be preferable to show more clearly the changes that are made in the
existing law and consequently it is proposing a substitute for section
2 (b) for that purpose.
Second. Section 10 of the House bill establishes a stabilization
fund of $2,000,000,000 to be used by the Secretary of the Treasury,
under his exclusive control, for the purpose of stabilizing the exchange
value of the dollar. It is required that an annual audit of the fund
be made and submitted to the President and in addition that a general
report on the operation of the fund be made by the President to the
Congress within a period beginning 90 days before and ending 90
days after the expiration of 3 years from the date of enactment of
the act. No time limit was included in the House bill in connection
with the use of the stabilization fund.
The committee adopted an amendment providing, instead of having
the Secretary of the Treasury administer the fund, that a Foreign
Exchange Board be established for that purpose, consisting of the
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Secretary of the Treasury, the Comptroller of the Currency, the Governor, of the Federal Reserve Board, and two members appointed by
the President, by and with the advice and consent of the Senate.
The committee also eliminates the provision requiring a general report
on the operation of the fund to be made to the Congress, and limits the
use of the fund to a period of 2 years from the date of the enactment of
the act, unless the President sooner declares by proclamation that the
existing emergency has ended, but the President is given the authority to extend the use of the fund for 1 additional year if he declares that
the emergency continues.
Third. Section 12 of the House bill amends section 43 of the act of
May 12, 1933 (the so-called " Thomas amendment"), so as to authorize
the President to fix the weight of the gold dollar from time to time
between 50 and 60 percent of its present weight, but does not impose
any time limitation upon the exercise of such authority.
The committee amends this section so that the power to so fix the
weight of the gold dollar be limited to a period of 2 years from the date
of enactment of the act unless the President sooner declares that the
existing emergency is ended, but gives him the right to extend such use
for an additional 1-year period if the emergency continues.
The following is an excerpt from the House Report (no. 292) explaining the general purposes of the bill:
general

purposes

of

the

bill

This bill is designed to enable the administration to restore a fairer price level,
to arrive eventually at a less variable dollar, and to improve our financial and
m o n e t a r y system. It gives the United States Treasury possession of all the
monetary gold stock in the United States, part of which now rests in private or
quasi-private control. In this way the G o v e r n m e n t gains complete control over
this metal and at the same time provides a permanent metallic reserve upon
which to build a currency system which will be both sound and adequate in the
future. T h e import of this m a y be appraised in the realization that all authorities
seem to agree that the salvation of the country lies in our ability to control our
price level. All commodities are measured in gold, hence the first step in our
control must be the acquisition of gold stocks. T h e bill, therefore, transfers to the
United States all gold n o w held b y the Federal Reserve bank and pays for it in
gold certificates. These gold certificates are to be used b y the Federal Reserve
bank as a substitute for their present gold stocks in issuing currency. In order to
protect the G o v e r n m e n t ' s power over gold, the bill gives it the right to regulate
the acquisition, transportation, etc., of the metal, and to further the G o v e r n m e n t ' s position, provisions are m a d e for the forfeiture of gold withheld or acquired
in violation of this act. In addition the gold supply is further protected b y alterations in the former m e t h o d of redemption. T h e gold coin which was a part of the
older system will n o w be withdrawn f r o m circulation and melted into bars for use
in adjusting the balance of foreign trade.
T h e bill specifically states that the future currency of the United States shall
n o t be redeemed in gold, except as authorized b y the Secretary of the Treasury
and the President of the United States, but the parity of the gold certificates
which n o w come into possession of the Federal Reserve bank will be maintained
b y redeeming them at such time and in such amounts as the Secretary of the
Treasury deems necessary. Section 7 of the bill simply establishes a method of
handling the gain or loss attending any future alterations in the value of Treasury
gold. ' Sections 8 and 9 are amendments to existing laws so that the operations of
the stabilization f u n d established in section 10 will b e c o m e more flexible than if
operated under the present regulations. This stabilization f u n d is a new and
m o s t interesting development.
It is new in this country, although it has operated
very successfully f o r m a n y months in the monetary systems of our principal
competitor in international trade. T h e sum set aside for maintenance _of this
fund amounts to $2,000,000,000. This sum is appropriated f r o m the profits
accruing to the G o v e r n m e n t upon acquiring the gold n o w held b y the Federal
Reserve bank. I t is interesting because it is the m o s t ingenious instrument ever




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developed in the monetary systems.
It is equally effective in attack and defense.
T h e reason for its establishment in this case is to defend the American dollar and
our gold stocks against the invasion of similar funds operated b y competitor
nations. , T o understand its operation we must realize that since thg world depression nearly all nations have been forced off gold and swollen budgets along
with disturbing internal conditions have depreciated their currencies; consequently, they could deal to better advantage with other low-currency nations
rather than with the high-currency nations.
Great Britain whose "existence
depends upon world trade found this trade dissipated because her currency had
a high tendency and in order to check this tendency she set aside the equivalent
of $175,000,000 with which to purchase American dollars and other g o l d - r e d e m p tion currencies.
She sold pounds and b o u g h t dollars. When y o u sell large
quantities of a thing y o u cheapen it, but when y o u buy large quantities the
tendency is to enhance the value of the article purchased.
T h e equilization fund was so effective in driving our dollar up that we were
forced off the gold standard.
It is to prevent a repetition of this experience that
we create the stabilization fund preparatory to the return to gold redemption.
dollar

revaluation

T h e upward flight of the American dollar meant a correspondent decline in
c o m m o d i t y prices, the debtor was at a distinct disadvantage. C o m m o d i t i e s were
his only source of income. If he borrowed in high commodities and had to p a y
in low commodities his task became exceedingly difficult. This led t o repudiation
on the part of the debtor and bankruptcy for the creditor. T o meet this situation
the Congress, through the medium of what is c o m m o n l y called the " T h o m a s a m e n d m e n t " , empowered the President to save the debtor and creditor alike b y vesting
in him the authorization to cut the gold content of our monetary unit providing
he did not exceed a 50 percent limitation. T h e succeeding events n o w m a k e it
advisable to once more make the American dollar a constant unit. One cannot
definitely say what that value should be at the moment. It is the opinion of the
administration, however, that its proper value lies somewhere between 50 and
60 percent of its former value.
If the gold dollar is revalued at 50 percent, this will double the statutory value
of our monetary gold and broaden the basis for our currency and credit system.
It will raise the price level and restore the normal purchasing power of the dollar.
T h e salutary effect of this must be appreciated b y everyone who has considered
that we are staggering under an enormous public and private indebtedness, aggregating approximately $200,000,000,000, incurred principally when the purchasing
power of the dollar was much less than now prevails.
T h e purpose of this bill is not to depreciate the dollar below the normal purchasing power that prevailed when these debts were contracted, but to merely
restore the dollar f r o m its enhanced and appreciated purchasing power to normalcy. This bill will not only lighten and make bearable our public and private
debts, but it will stimulate domestic and foreign trade b y permitting the dollar
to seek a level that will more nearly approximate the purchasing power of foreign
currencies. D u e to our appreciated dollar and the depreciated currencies of other
nations, we have suffered a tremendous disadvantage in the markets of the world.
As a consequence, our export trade, like Great Britain's, prior to the past few
months, has fallen off steadily. Other nations with depreciated currencies have
captured our markets. T h e same is true of domestic trade. L o w c o m m o d i t y
prices and heavy fixed charges have curtailed production, accumulated surpluses,
and produced widespread distress and suffering. It is believed that the restoration of the normal purchasing power of the dollar will contribute t o the rise in
price level and to the restoration of normal business, commercial, agricultural,
and industrial activities. It is interesting t o note that other nations have gone
m u c h further than this bill contemplates. France, Italy, Germany, and Great
Britain also have depreciated their currencies below their normal purchasing
power, and what we seek to accomplish b y this bill is to a certain extent necessary
on account of such action on the part of foreign powers.
It cannot be insisted that we are seeking t o inflate when it is borne in mind
that we are merely restoring the normal purchasing power of the dollar.
Neither
can it be said that we are seeking t o repudiate honest debts, because the creditor
will receive a dollar which will have approximately the same purchasing p o w e r
as the one he loaned.




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But if these reasons were not sufficient for the enactment of this bill, there is
another one which should silence opposition.
It must be admitted b y everyone that we have a right t o defend ourselves and protect the interests of our own
people against the depreciated currencies of other nations, and when other
nations realize that we are determined t o do this and to make it impossible for
t h e m t o e n j o y the advantages of a depreciated currency, this will hasten the
stabilization of all currencies upon a permanent basis. It is not contended that
this bill will miraculously and automatically restore the necessary price level and
normal business and industrial activity, but it is believed that it will greatly
contribute to this end.
Section 13 is simply a ratification of the action taken b y the President and the
Secretary of the Treasury under the act of March 9, 1933, and sections 43 and 45
of the act of M a y 12, 1933.




[PUBLIC—No. 87—73D

CONGRESS]

[H.R. 6976]
AN ACT
T o protect the currency system of the United States, to provide for the better
use of the monetary gold stock of the United States, and for other purposes.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That the short
title of this Act shall be the " Gold Reserve Act of 1934."
SEC. 2. (a) Upon the approval of this Act all right, title, and
interest, and every claim of the Federal Reserve Board, of every
Federal Reserve bank, and of every Federal Reserve agent, in and
to any and all gold coin and gold bullion shall pass to and are
hereby vested in the United States; and in payment therefor credits
in equivalent amounts in dollars are hereby established in the Treasury in the accounts authorized under the sixteenth paragraph
of section 16 of the Federal Reserve Act, as heretofore and by this
Act amended (U.S.C., title 12, sec. 467).
Balances in such
accounts shall be payable in gold certificates, which shall be in such
form and in such denominations as the Secretary of the Treasury
may determine. All gold so transferred, not in the possession of
the United States, shall be held in custody for the United States
and delivered upon the order of the Secretary of the Treasury;
and the Federal Reserve Board, the Federal Reserve banks, and the
Federal Reserve agents shall give such instructions and shall take
such action as may be necessary to assure that such gold shall be
so held and delivered.
(b) Section 16 of the Federal Reserve Act, as amended, is further
amended in the following respects:
(1) The third sentence of the first paragraph is amended to read
as follows: " They shall be redeemed in lawful money on demand at
the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank."
(2) So much of the third sentence of the second paragraph as
precedes the proviso is amended to read as follows: " The collateral
security thus offered shall be notes, drafts, bills of exchange, or
acceptances acquired under the provisions of section 13 of this Act,
or bills of exchange endorsed by a member bank of any Federal
Reserve district and purchased under the provisions of section 14 of
this Act, or bankers' acceptances purchased under the provisions
of said section 14, or gold certificates: ".
(3) The first sentence of the third paragraph is amended to read
as follows: " Every Federal Reserve bank shall maintain reserves in
gold certificates or lawful money of not less than 35 per centum
against its deposits and reserves in gold certificates of not less than
40 per centum against its Federal Reserve notes in actual circulation: Provided, however. That when the Federal Reserve agent
holds gold certificates as collateral for Federal Reserve notes issued
to the bank such gold certificates shall be counted as part of the
reserve which such bank is required to maintain against its Federal
Reserve notes in actual circulation."
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(4) The fifth and sixth sentences of the third paragraph are
amended to read as follows: " Notes presented for redemption at
the Treasury of the United States shall be paid out of the redemption fund and returned to the Federal Reserve banks through which
they were originally issued, and thereupon such Federal Reserve
bank shall, upon demand of the Secretary of the Treasury, reimburse
such redemption fund in lawful money or, if such Federal Reserve
notes have been redeemed by the Treasurer in gold certificates, then
such funds shall be reimbursed to the extent deemed necessary by
the Secretary of the Treasury in gold certificates, and such Federal
Reserve bank shall, so long as any of its Federal Reserve notes
remain outstanding, maintain with the Treasurer in gold certificates
an amount sufficient in the judgment of the Secretary to provide
for all redemptions to be made by the Treasurer. Federal Reserve
notes received by the Treasurer otherwise than for redemption may
be exchanged for gold certificates cut of the redemption fund hereinafter provided and returned to the Reserve bank through which
they were originally issued, or they may be returned to such bank
for the credit of the United States."
(5) The fourth, fifth, and sixth paragraphs are amended to read
as follows:
u The Federal Reserve Board shall require each Federal Reserve
bank to maintain on deposit in the Treasury of the United States
a sum in gold certificates sufficient in the judgment of the Secretary
of the Treasury for the redemption of the Federal Reserve notes
issued to such bank, but in no event less than 5 per centum of the
total amount of notes issued less the amount of gold certificates held
by the Federal Reserve agent as collateral security; but such deposit
of gold certificates shall be counted and included as part of the 40
per centum reserve hereinbefore required. The Board shall have the
right, acting through the Federal Reserve agent, to grant in whole
or in part, or to reject entirely the application of any Federal
Reserve bank for Federal Reserve notes; but to the extent that such
application may be granted the Federal Reserve Board shall,
through its local Federal Reserve agent, supply Federal Reserve
notes to the banks so applying, and such bank shall be charged with
the amount of the notes issued to it and shall pay such rate of
interest as may be established by the Federal Reserve Board on only
that amount of such notes which equals the total amount of its
outstanding Federal Reserve notes less the amount of gold certificates held by the Federal Reserve agent as collateral security.
Federal Reserve notes issued to any such bank shall, upon delivery,
together with such notes of such Federal Reserve bank as may be
issued under section 18 of this Act upon security of United States
2 per centum Government bonds, become a first and paramount
lien on all the assets of such bank.
"Any Federal Reserve bank may at any time reduce its liability
for outstanding Federal Reserve notes by depositing with the Federal Reserve agent its Federal Reserve notes, gold certificates, or
lawful money of the United States. Federal Reserve notes so deposited shall not be reissued, except upon compliance with the conditions of an original issue.
" The Federal Reserve agent shall hold such gold certificates or
lawful money available exclusively for exchange for the outstanding
39539—34




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Federal Reserve notes when offered by the Reserve bank of which he
is a director. Upon the request of the Secretary of the Treasury
the Federal Reserve Board shall require the Federal Reserve agent
to transmit to the Treasurer of the United States so much of the
gold certificates held by him as collateral security for Federal Reserve
notes as may be required for the exclusive purpose of the redemption
of such Federal Reserve notes, but such gold certificates when
deposited with the Treasurer shall be counted and considered as if
collateral security on deposit with the Federal Reserve agent."
(6) The eighth paragraph is amended to read as follows:
" A l l Federal Reserve notes and all gold certificates and lawful
money issued to or deposited with any Federal Reserve agent under
the provisions of the Federal Reserve Act shall hereafter be held
for such agent, under such rules and regulations as the Federal
Reserve Board may prescribe, in the joint custody of himself and
the Federal Reserve bank to which he is accredited. Such agent
and such Federal Reserve bank shall be jointly liable for the safekeeping of suCjji Federal Reserve notes, gold certificates, and lawful
money- Nothing herein contained, however, shall be construed t o
prohibit a Federal Reserve agent from depositing gold certificates
with the Federal Reserve Board, to be held by such Board subject
to his order, or with the Treasurer of the United States for the
purposes authorized by law."
(7) The sixteenth paragraph is amended to read as follows:
" The Secretary of the Treasury is hereby authorized and directed
to receive deposits of gold or of gold certificates with the Treasurer
or any Assistant Treasurer of the United States when tendered by
any Federal Reserve bank or Federal Reserve agent for credit ta
its or his account with the Federal Reserve Board. The Secretary
shall prescribe by regulation the form of receipt to be issued by the
Treasurer or Assistant Treasurer to the Federal Reserve bank o r
Federal Reserve agent making the deposit, and a duplicate of such
receipt shall be delivered to the Federal Reserve Board by the
Treasurer at Washington upon proper advices from any Assistant
Treasurer that such deposit has been made. Deposits so made shall
be held subject to the orders of the Federal Reserve Board and shall
be payable in gold certificates on the order of the Federal Reserve
Board to any Federal Reserve bank or Federal Reserve agent at the
Treasury or at the Subtreasurv of the United States nearest the place
of business of such Federal Reserve bank or such Federal Reserve
agent. The order used by the Federal Reserve Board in making
such payments shall be signed by the governor or vice governor, or
such other officers or members as the Board may by regulation prescribe. The form of such order shall be approved by the Secretary
of the Treasury."
(8) The eighteenth paragraph is amended to read as follows:
" Deposits made under this section standing to the credit of any
Federal Reserve bank witli the Federal Reserve Board shall, at the
option of said bank, be counted as part of the lawful reserve which
it is required to maintain against outstanding Federal Reserve
notes, or as a part of the reserve it is required to maintain against
deposits."
SEC. 3. The Secretary of the Treasury shall, by regulations issued
hereunder, with the approval of the President, prescribe the eondi-




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tions under which gold may be acquired and held, transported,
melted or treated, imported, exported, or earmarked: (a) for industrial, professional, and artistic use; (b) by the Federal Reserve banks
for the purpose of settling international balances; and, (c) for such
other purposes as in his judgment are not inconsistent with the purposes of this Act. Gold in any form may be acquired, transported,
melted or treated, imported, exported, or earmarked or held in custody for foreign or domestic account (except on behalf of the United
States) only to the extent permitted by, and subject to the conditions prescribed in, or pursuant to, such regulations. Such regulations may exempt from the provisions of this section, in whole or in
part, gold situated in the Philippine Islands or other places beyond
the limits of the continental United States.
SEC. 4. A n y gold withheld, acquired, transported, melted or
treated, imported, exported, or earmarked or held in custody, in
violation of this Act or of any regulations issued hereunder, or
licenses issued pursuant thereto, shall be forfeited to the United
States, and may be seized and condemned by like proceedings as
those provided by law for the forfeiture, seizure, and condemnation
of property imported into the United States contrary to law; and in
addition any person failing to comply with the provisions of this
Act or of any such regulations or licenses, shall be subject to a penalty
equal to twice the value of the gold in respect of which such failure
occurred.
SEC. 5. No gold shall hereafter be coined, and no gold coin shall
hereafter be paid out or delivered by the United States: Provided,
however, That coinage may continue to be executed by the mints
of the United States for foreign countries in accordance with the
A c t of January 29, 1874 (U.S.C., title 31, sec. 367). All gold coin
of the United States shall be withdrawn from circulation, and.
together with all other gold owned by the United States, shall be
formed into bars of such weights and degrees of fineness as the
Secretary of the Treasury may direct.
SEC. 6. Except to the extent permitted in regulations which may
be issued hereunder by the Secretary of the Treasury with the
approval of the President, no currency of the United States shall
be redeemed in gold : Provided, however, That gold certificates owned
by the Federal Reserve banks shall be redeemed at such times and in
such amounts as, in the judgment of the Secretary of the Treasury,
are necessary to maintain the equal purchasing power of every kind
of currency of the United States: And "provided f urther, That the
reserve for United States notes and for Treasury notes of 1890, and
the security for gold certificates (including the gold certificates held
in the Treasury for credits payable therein) shall be maintained
in gold bullion equal to the dollar amounts required by law, and
the reserve for Federal Reserve notes shall be maintained in gold
certificates, or in credits payable in gold certificates maintained with
the Treasurer of the United States under section 16 of the Federal
Reserve Act, as heretofore and by this Act amended.
No redemptions in gold shall be made except in gold bullion bearing the stamp of a United States mint or assay office in an amount
equivalent at the time of redemption to the currency surrendered
for such purpose.




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SEC. 7. In the event that the weight of the gold dollar shall at
any time be reduced, the resulting increase in value of the gold held
by the United States (including the gold held as security for gold
certificates and as a reserve for any United States notes and for
Treasury notes of 1890) shall be covered into the Treasury as a miscellaneous receipt; and, in the event that the weight of the gold
dollar shall at any time be increased, the resulting decrease in value
of the gold held as a reserve for any United States notes and for
Treasury notes of 1890, and as security for gold certificates shall be
compensated by transfers of gold bullion from the general fund, and
there is hereby appropriated an amount sufficient to provide for such
transfers and to cover the decrease in value of the gold in the general
fund.
SEC. 8. Section 3 7 0 0 of the Revised Statutes (U.S.C., title 3 1 ,
sec. 734) is amended to read as follows:
" SEC. 3 7 0 0 . With the approval of the President, the Secretary of
the Treasury may purchase gold in any amounts, at home or abroad,
with any direct obligations, coin, or currency of the United States,
authorized by law, or with any funds in the Treasury not otherwise
appropriated, at such rates and upon such terms and conditions as
he may deem most advantageous to the public interest; any provision
of law relating to the maintenance of parity, or limiting the purposes
for which any of such obligations, coin, or currency, may be issued,
or requiring any such obligations to be offered as a popular loan or
on a competitive basis, or to be offered or issued at not less than
par, to the contrary notwithstanding. All gold so purchased shall
be included as an asset of the ereneral fund of the Treasury."
SEC. 9. Section 3699 of the Revised Statutes (U.S.C., title 31, sec.
733) is amended to read as follows:
" SEC. 3699. The Secretary of the Treasury may anticipate the
payment of interest on the public debt, by a period not exceeding
one year, from time to time, either with or without a rebate of interest upon the coupons, as to him may seem expedient; and he may
sell gold in any amounts, at home or abroad, in such manner and
at such rates and upon such terms and conditions as he may deem
most advantageous to the public interest, and the proceeds of any gold
so sold shall be covered into the general fund of the Treasury:
Provided, however, That the Secretary of the Treasury may sell the
gold which is required to be maintained as a reserve or as security
for currency issued by the United States, only to the extent necessary
to maintain such currency at a parity with the gold dollar."
SEC. 10. (a) For the purpose of stabilizing the exchange value of
the dollar, the Secretary of the Treasury, with the approval of the
President, directly or through such agencies as he may designate, is
authorized, for the account of the fund established in this section,
to deal in gold and foreign exchange and such other instruments of
credit and securities as he may deem necessary to carry out the purpose of this section. An annual audit of such fund shall be made and
a report thereof submitted to the President.
(b) To enable the Secretary of the Treasury to carry out the provisions of this section there is hereby appropriated, out of the
receipts which are directed to be covered into the Treasury under
section 7 hereof, the sum of $2,000,000,000, which sum when available




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shall be deposited with the Treasurer of the United States in a stabilization fund (hereinafter called the " fund " ) under the exclusive
control of the Secretary of the Treasury, with the approval of the
President, whose decisions shall be final and not be subject to review
by any other officer of the United States. The fund shall be available
for expenditure, under the direction of the Secretary of the Treasury
and in his discretion, for any purpose in connection with carrying
out the provisions of this section, including the investment and reinvestment in direct obligations of the United States of any portions
of the fund which the Secretary of the Treasury, with the approval
of the President, may from time to time determine are not currently
required for stabilizing the exchange value of the dollar. The proceeds of all sales and investments and all earnings and interest accruing under the operations of this section shall be paid into the fund
and shall be available for the purposes of the fund.
(c) All the powers conferred by this section shall expire two years
after the date of enactment of this Act, unless the President shall
sooner declare the existing emergency ended and the operation of the
stabilization fund terminated; but the President may extend such
period for not more than one additional year after such date by proclamation recognizing the continuance of such emergency.
SEC. 11. The Secretary of the Treasury is hereby authorized to
issue, with the approval of the President, such rules and regulations
as the Secretary may deem necessary or proper to carry out the
purposes of this Act.
SEC. 12. Paragraph (b) (2), of section 43, title I I I , of the Act
approved May 12, 1933 (Public. Numbered 10, Seventy-third Congress), is amended by adding two new sentences at the end thereof,
reading as follows:
" Nor shall the weight of the gold dollar be fixed in any event at
more than G per centum of its present weight. The powers of the
O
President, specified in this paragraph shall be deemed to be separate,
distinct, and continuing powers, and may be exercised by him, from
time to time, severally or together, whenever and as the expressed
objects of this section in his judgment may require; except that such
powers shall expire two years after the date of enactment of the
Gold Reserve Act of 1934 unless the President shall sooner declare
the existing emergency ended, but the President may extend such
period for not more than one additional year after such date by proclamation recognizing the continuance of such emergency." "
Paragraph (2) of subsection (b) of section 43, title I I I , of an
Act entitled " A n Act to relieve the existing national economic emergency by increasing agricultural purchasing power, to raise revenue
for extraordinary expenses incurred by reason of such emergency, to
provide emergency relief with respect to agricultural indebtedness,
to provide for the orderly liquidation of joint-stock land banks, and
for other purposes
approved May 12, 1933, is amended by adding
at the end of said paragraph (2) the following:
" T h e President, in addition to the authority to provide for the
unlimited coinage of silver at the ratio so fixed, under such terms
and conditions as he may prescribe, is further authorized to cause
to be issued and delivered to the tenderer of silver for coinage, silver
certificates in lieu of the standard silver dollars to which the tend-




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erer would be entitled and in an amount in dollars equal to the
number of coined standard silver dollars that the tenderer of such
silver for coinage would receive in standard silver dollars,
" The President is further authorized to issue silver certificates
in such denominations as he may prescribe against any silver
bullion, silver, or standard silver dollars in the Treasury not then
held for redemption of any outstanding silver certificates, and to
coin standard silver dollars or subsidiary currency for the redemption of such silver certificates.
" T h e President is authorized, in his discretion, to prescribe different terms and conditions and to make different charges, or to
collect different seigniorage, for the coinage of silver of foreign
production than for the coinage of silver produced in the United
States or its dependencies. The silver certificates herein referred to
shall be issued, delivered, and circulated substantially in conformity
with the law now governing existing silver certificates, except as
may herein be expressly provided to the contrary, and shall have
and possess all of the privileges and the legal tender characteristics
of existing silver certificates now in the Treasury of the United
States, or in circulation.
" The President is authorized, in addition to other powers, to
reduce the weight of the standard silver dollar in the same percentage
that he reduces the weight of the gold dollar.
" The President is further authorized to reduce and fix the weight
of subsidiary coins so as to maintain the parity of such coins with
the standard silver dollar and with the gold dollar."
SEC. 13. All actions, regulations, rules, orders, and proclamations
heretofore taken, promulgated, made or issued by the President
of the United States or the Secretary of the Treasury, under the
Act of March 9, 1933, or under section 43 or section 45 of title I I I
of the Act of May 12, 1933, are hereby approved, ratified, and
confirmed.
SEC. 14. (a) The Second Liberty Bond Act, as amended, is further
amended as follows:
(1) By adding at the end of section 1 (U.S.C., title 31, sec. 752:
Supp. V I I , title 31, sec. 752), a new paragraph as follows:
" Notwithstanding the provisions of the foregoing paragraph, the
Secretary of the Treasury may from time to time, when he deems
it to be in the public interest, offer such bonds otherwise than as a
popular loan and he may make allotments in full, or reject or reduce
allotments upon any applications whether or not the offering was
made as a popular loan."
(2) By inserting in section 8 (U.S.C., title 31, sec. 771), after the
words " certificates of indebtedness", a comma and the words
" Treasury bills ".
(3) By striking out the figures "$7,500,000,000" where they
appear in section 18 (U.S.C., title 31, sec. 753) and inserting in lieu
thereof the figures " $10,000,000,000."
(4) By adding thereto two new sections, as follows:
" SEC. 19. Notwithstanding any other provisions of law, any obligations authorized by this Act may be issued for the purchase,
redemption, or refunding, at or before maturity, of any outstanding
bonds, notes, certificates of indebtedness, or Treasury bills, of the




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United States, or to obtain funds for such purchase, redemption, or
refunding, under such rules, regulations, terms, and conditions as
the Secretary of the Treasury may prescribe.
" SEC. 20. The Secretary of the Treasury may issue any obligations authorized by this Act and maturing not more than one year
from the date of their issue on a discount basis and payable at
maturity without interest. Any such obligations may also be offered
for sale on a competitive basis under such regulations and upon such
terms and conditions as the Secretary of the Treasury may prescribe,
and the decisions of the Secretary in respect of "any issue shall
be final."
(b) Section 6 of the Victory Liberty Loan Act (U.S.C., title 31,
sec. 767; Supp. V I I , title 31, sees. 767-767a) is amended by striking
out the words " for refunding purposes together with the preceding
comma, at the end of the first sentence of subsection ( a ) .
(c) The Secretary of the Treasury is authorized to issue gold
certificates in such form and in such denominations as he may determine, against any gold held by the Treasurer of the United States,
except the gold fund held as a reserve for any United States notes
and Treasury notes of 1890. The amount of gold certificates issued
and outstanding shall at no time exceed the value, at the legal
standard, of the gold so held against gold certificates.
SEC. 15. As used in this Act the term 44 United States " means
the Government of the United States; the term " the continental
United States " means the States of the United States, the District
of Columbia, and the Territory of Alaska; the term "currency of
the United States " means currency which is legal tender in the
United States, and includes United States notes, Treasury notes of
1890, gold certificates, silver certificates, Federal Reserve notes, and
circulating notes of Federal Reserve banks and national banking
associations; and the term " person " means any individual, partnership, association, or corporation, including the Federal Reserve
Board, Federal Reserve banks, and Federal Reserve agents. Wherever reference is made in this Act to equivalents as between dollars
or currency of the United States and gold, one dollar or one dollar
face amount of any currency of the United States equals such a
number of grains of gold, nine tenths fine, as, at the time referred to,
are contained in the standard unit of value, that is, so long as the
President shall not have altered by proclamation the weight of the
gold dollar under the authority of section 43, title I I I , of the Act
approved May 12, 1933, as heretofore and by this Act amended,
twenty-five and eight tenths grains of gold, nine tenths fine, and
thereafter such a number of grains of gold, nine tenths fine, as the
President shall have fixed under such authority.
SEC. 16. The right to alter, amend, or repeal this Act is hereby
expressly reserved. I f any provision of this Act, or the application
thereof to any person or circumstances, is held invalid, the remainder
of the Act, and the application of such provision to other persons
or circumstances, shall not be affected thereby.
SEC. 17. All Acts and parts of Acts inconsistent with any of the
provisions of this Act are hereby repealed.
Approved, January 30, 1934.




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J a n u a r y 17,

T h e honorable the S e c r e t a r y

of t h e

1934.

Treasury.

M y D e a r M r . S e c r e t a r y : I a m pleased t o c o m p l y with y o u r request f o r an
expression of m y views as t o the constitutionality of section 2 (a) of the p r o p o s e d
g o l d reserve bill.
T h e section under consideration provides that all right, title, and interest, and
e v e r y claim of the Federal Reserve B o a r d , of e v e r y Federal R e s e r v e b a n k , and
e v e r y Federal Reserve agent, in and t o a n y and all gold coin a n d gold bullion
shall pass t o and are hereby vested in the United States. P a y m e n t is t o b e m a d e
in g o l d certificates in equivalent a m o u n t s of dollars.
T h e m o n e t a r y gold stock m a y be taken b y the G o v e r n m e n t in the exercise
of its right of eminent domain. Such p o w e r extends t o every f o r m of p r o p e r t y
required f o r public use.
T h e Supreme C o u r t observed in Kohl v. United States (91 U.S. 367, 371) t h a t
t h e right of eminent d o m a i n " i s inseparable f r o m s o v e r e i g n t y " ; a n d in United
States v . Jones (109 U.S. 513, 518) t h a t it " b e l o n g s t o every independent g o v ernment. "
T h e manner in which the p o w e r is exercised is within the control of the legislature. T h i s principle was formulated in Secombe v . Railroad Co. (23 W a l l . 108,
117), in the following language:
" I t is n o longer an open question in this c o u n t r y that the m o d e of exercising
the right of eminent d o m a i n , in the absence of a n y provision in the organic l a w
prescribing a contrary course, is within the discretion of the legislature.
There
is n o limitation u p o n the p o w e r of the legislature in this respect, if the purpose b e
a p u b l i c one, and just compensation b e paid or tendered t o the owner f o r t h e
property taken."
Likewise the necessity f o r the exercise of the p o w e r is a matter solely f o r legislative determination.
Monongahela
Navigation Co. v. United States (148 U.S.
312, 327).
U n q u e s t i o n a b l y , the taking of gold f o r m o n e t a r y purposes is f o r a p u b l i c use.
T h e establishment and the regulation of a m o n e t a r y system is one of the f u n d a m e n t a l functions of G o v e r n m e n t . T h e p o w e r t o coin m o n e y a n d regulate t h e
value thereof is expressly reposed in Congress b y article I, section 8, clause 5, o f
t h e Constitution.
Veazie Bank v . Fenno (8 Wall. 533, 549). In f a c t m o n e t a r y
g o l d is a c o m m o d i t y affected with a public interest. Ling Su Fan v. United States
(218 U.S. 302).
T h e requirement f o r just compensation is completely satisfied b y the provision
f o r p a y m e n t in gold certificates in equivalent a m o u n t s of dollars. Since the
decision in the Legal Tender Cases (12 Wall. 457), it m a y n o longer b e successfully
disputed that Congress m a y m a k e paper m o n e y legal tender f o r the p a y m e n t of'
all debts, public or private, and that the G o v e r n m e n t m a y discharge its obligations in currency of that t y p e .
T h e a m o u n t of just compensation is determined as of the t i m e of taking, a n d
n o t as of s o m e subsequent date. T h e mere f a c t that at a later period the p r o p e r t y
m a y acquire an enhanced value, or t h a t there m a y b e an accretion t o the thing
t a k e n , does n o t increase the compensation t o w h i c h the owner is entitled.
Thus,
in this instance, the value of the gold m u s t b e determined as of the m o m e n t t h a t
title passes t o the United States. T h e mere f a c t that, if thereafter the weight of
t h e g o l d dollar should be reduced, the value of the g o l d w o u l d b e c o m e p r o p o r t i o n ately greater, does n o t serve t o give the prior owner a n y right t o secure increased
reimbursement. Brooks Scanlon Corporation v . United States, (265 U.S. 106).
T h e measure of compensation m u s t be the prevailing price.
Vogelstein
v.
United States (262 U.S. 337). T h e prevailing price of gold coin and g o l d bullion
in the United States (other than newly m i n e d gold) is fixed b y statute.
The
a c t of M a r c h 14, 1900 (U.S. C o d e , title 31, sec. 314) prescribes t h a t the w e i g h t
8 lo grains, nine tenths fine, w h i c h in turn m a k e s
of t h e g o l d dollar shall be 2o
g o l d w o r t h $20.67 an ounce. T h a t is the price that the owner of gold w o u l d
h a v e received at the mint, if he had presented it f o r deposit, prior t o M a r c h 4,
1933. T h a t is likewise the price t h a t he w o u l d h a v e received at a n y subsequent
t i m e if he surrendered it in a c c o r d a n c e with the requirements of the E x e c u t i v e
orders or the orders of the Secretary of the Treasury issued under t h e a c t of
M a r c h 9, 1933. This is also the price t h a t it is p r o p o s e d t o p a y f o r the g o l d t o
b e t a k e n under section 2 of the bill under consideration. T h e conclusion seems
inescapable t h a t this provision safeguards the owners in their right t o receive as
j u s t c o m p e n s a t i o n the value prevailing at the time of taking.
T h e f a c t t h a t the m a r k e t price of g o l d in foreign countries is greater t h a n t h e
s t a t u t o r y price in the United States, avails the owners nothing. A n o w n e r of
g o l d in the United States has n o w a y of shipping the g o l d a b r o a d , in v i e w of t h e




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prohibition against the export of gold f r o m this country, promulgated under
the act of M a r c h 9, 1933. Consequently, an owner of gold in the United States
is in n o position t o secure the so-called " w o r l d p r i c e " , and, therefore, his gold
is not worth more than the statutory price.
T h e prohibition of the export of gold is constitutional. Thus, in Ling Su Fan
v . United States, (218 U.S. 302) the Supreme Court upheld the validity of an
act placing an embargo on the export of silver coin f r o m the Philippine Islands,
in spite of the contention that the result was a taking of property, because of
the fact that in China silver bullion had a higher market value than its nominal
coinage value in the Philippines.
T h e question has been raised as t o whether the member banks have any right,
title, and interest in the gold coin or bullion held b y the Federal Reserve banks.
In m y opinion, this inquiry should be answered in the negative. T h e member
banks have no claim against the assets of the Federal Reserve banks except as
stockholders, and, of course, it cannot be contended that in taking a n y of the
assets of a corporation, a n y compensation should be paid directly t o the stockholders thereof. E v e r y Federal Reserve bank is n o w required t o maintain a
gold reserve against circulating notes and deposits (Federal Reserve Act, sec.
16, U.S. Code, title 12, sec. 413). A n y part of such reserve m a y be used as
part of the collateral f o r Federal Reserve notes, which is required t o be deposited
with Federal Reserve agents. T h e mere fact that the source of some or all of
such gold m a y be deposits made b y member banks with the Federal Reserve
banks, is immaterial. As soon as the gold is deposited with the Federal Reserve
bank, it loses its identity, and the relationship between the Federal Reserve
bank and the member bank becomes that of debtor and creditor.
T h e gold reserves of the Federal Reserve banks must not be confused with the
reserve balances which every member is required, b y section 19 of the Federal
Reserve Act, t o maintain with its Federal Reserve bank. T h e reserve balances
of the member banks need not be in gold.
In closing, I desire t o call to your attention the following expressions of the
Supreme Court in Ling Su Fan v. United States (218 U.S. 302, 310):
" Conceding the title of the owner of such coins, y e t there is attached t o such
ownership those limitations which public policy m a y require b y reason of their
quality as a legal tender and as a medium of exchange. These limitations are
due to the fact that public law gives t o such coinage a value which does not
attach as a mere consequence of intrinsic value. Their quality as a legal tender
is an attribute of law aside f r o m their bullion value. T h e y bear, therefore, the
impress of sovereign power which fixes value and authorizes their use in exchange."
T h e foregoing considerations lead me to the conclusion that section 2 (a) of
the bill is constitutional.
Very truly yours,
Homer

Cummings,

Attorney General.

T h e principal proclamations, Executive orders, and orders referred to in section 13 of H . R . 6976 are as follows:
The proclamation of March 9, 1983.—This proclamation continued the banking
holiday until further order of the President.
Executive order of March 10, 1933.—This is the Executive order which authorized the Secretary of the Treasury t o license banks to resume banking functions.
This order provided that no license should authorize any bank t o p a y out gold
coin or gold certificates or engage in foreign exchange transactions, except f o r
normal business requirements, reasonable traveling requirements, and the fulfillment of contracts entered into prior to March 6.
Executive order of April 5, 1933.—This is the Executive order which required
the delivery of gold coin, gold bullion, and gold certificates t o the Federal Reserve
banks. There were certain exceptions to permit the holding of gold f o r industrial
purposes and f o r other proper transactions.
Executive order of April 20, 1933.—This order prohibited the export of gold
coin, gold bullion, or gold certificates except under license. T h e order limited
the cases in which licenses could be granted.
Executive order of August 28, 1933.—This order consolidated the provisions of
the April 5 and April 20 Executive orders; required all holders of gold t o file returns
relative to their holdings; and prohibited the holding of gold except under a
license issued pursuant thereto. T h e order enumerated the instances in which
licenses should be issued.
Executive order of August 29, 1933.—This order authorized the mints and assay
offices to receive under consignment f o r sale t o industries, professions, and the




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arts gold recovered from natural deposits in the United States. The order permitted the sale abroad of such an amount of this gold as was not purchased for
domestic industrial, professional, and artistic uses.
Executive order of October 25, 1988.—This order revoked the Executive order of
August 29, and provided that newly minted gold could be received by the mints
and assay offices on consignment for sale to the Reconstruction Finance Corporation. The order further amended the Executive order of August 28 by permitting
the export of fabricated gold under certain restrictions.
The order of the Secretary of the Treasury of December 28, 1988.—This order
was issued under section 3 of the Emergency Banking Act of March 9,1933.
The
order required all persons owning gold and gold certificates to deliver the same to
the Treasurer of the United States by depositing to his account in the Federal
Reserve bank or banks members of the Federal Reserve System. This order
buttressed the Executive order of August 28, 1933.
Proclamation of December 80, 1938.—This proclamation referred back to the
Executive order of March 10, 1933, and was designed to make clear to the banking authorities in the different States that responsibility for the supervision of
State banking institutions not members of the Federal Reserve System rested with
such authority.
Order of the Secretary of the Treasury of January lly 1984-—This order contained
a simple amendment to the Secretary's order of December 28 to clarify the
exemption contained in that order with respect to rare coins.
Executive order of January 12, 1984•—This order amended the Executive order
of August 28, 1933, with respect to the rare coin exemptions contained in that
order.
Executive orders of January 15, 1984-—There were three of these: The first
provided for the regulation of foreign exchange transactions and related matters;
the second amended the foreign exchange provisions in the Executive order of
March 10, and the third broadened the scope of the Executive order of October
25, 1933.
Order of the Secretary of the Treasury of January 15, 1984•—This order fixed
midnight of January 17 as the expiration of the time within which gold and gold
certificates could be delivered in compliance with the Secretary's order of December 28.
Where Federal Reserve bank gold came from.—Under
the Federal Reserve Act
there are six primary ways in wiiich the Federal Reserve banks have acquired the
gold they now have:
(а) Section 15 of the Federal Reserve Act allows the Secretary of theTreasury
to deposit moneys held in the general funds of the Treasury, with the exception of
funds held for the redemption of national bank notes. Under this authority the
Government has placed large amounts of gold in the Federal Reserve banks.
(б) The recent Executive orders requiring all other persons and firms to surrender gold and gold certificates directed that this gold and these certificates be
delivered to the Federal Reserve banks. A very substantial amount of gold and
gold certificates has been acquired in this manner.
(c) Section 14 of the Federal Reserve Act give the Federal Reserve banks
broad powers to acquire and otherwise deal in gold coin and bullion at home and
abroad. The Federal Reserve banks at the present time own no gold abroad.
(d) Gold and gold certificates were acquired by the payment of subscription
to the capital stock of the Federal Reserve banks. Subscriptions by both
national banks and State banks had to be paid in gold or gold certificates and this
accordingly furnished the Federal Reserve banks with a certain amount of gold.
(Federal Reserve Act, sees. 2-9.) Banks hereafter becoming members of the
Federal Reserve System can continue to acquire gold certificates to pay their
subscription.
(e) Before the enactment of the Federal Reserve Act, national banks had to
maintain a certain percentage of funds as reserves against their deposits. The
reserve required did not have to consist entirely of gold, but gold was very largely
held as a reserve. The United States, shortly after the Federal Reserve Act
went into effect, found itself attracting a large amount of gold from abroad as
a result of the European war, and the Federal Reserve authorities felt that not
enough of this gold was finding its way into the Federal Reserve banks. Under
the Federal Reserve Act as originally passed, a large portion of the reserves of
member banks was permitted to be kept in their vaults and accordingly the
supply of monetary gold was scattered throughout the country. For this reason
the act of June 21, 1917, amended the Federal Reserve Act to require all member
bank reserves to consist of credits on the books of the Federal Reserve bank.




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(J) Under the original Federal Reserve Act, Federal Reserve notes could n o t
be issued dollar f o r dollar against deposits of gold. T h e a m e n d m e n t of June 21,
1917, permitted this. In consequence large amounts of gold certificates and gold
currency were retired f r o m circulation t o be used as the basis f o r the issuance of
Federal Reserve notes (Federal Reserve A c t , sees. 1 6 - 1 9 ) .
Present value of gold held by Federal Reserve banks.—All of the gold n o w o w n e d
b y the Federal Reserve banks is carried on their b o o k s at $20.67. This is the
value fixed b y law and is what the Federal Reserve banks paid f o r it.
After
M a r c h 6, 1933, banks could p a y out gold f o r export only under license, and, after
April 20, n o b o d y could export gold except with a license. As a result the dollar
declined in the foreign exchange market, and, because of this decline, a n y b o d y
purchasing gold outside of the United States had t o use m o r e dollars t o get the
currency with which t o purchase the gold.
This does n o t m e a n that gold in the United States increased in value in terms
of dohars. Such gold is n o t worth the world price because it does n o t h a v e the
privilege of being exported. This applies t o gold o w n e d b y Federal Reserve
banks as well as b y other persons. A substantial a m o u n t of the gold n o w owned
b y Federal Reserve banks was acquired after the export embargo. T h e Federal
Reserve banks paid $20.67 for this gold because the gold did n o t have the privilege
of export.
F r o m April t o the end of August the Federal Reserve banks sold millions of
dollars of gold f o r use in industry, the professions, and arts. T h e y sold this gold
f o r $20.67 and did n o t complain that they were n o t receiving just compensation.
T h e Federal Reserve banks are still selling gold at $20.67 t o persons licensed to
acquire gold under the August 28 E x e c u t i v e order.
Effect, of devaluation on value of gold.—If the value of gold in the United States
increases because of devaluation, it will n o t be the result of action b y the Federal
Reserve banks b u t of the action of the G o v e r n m e n t in regulating the value of the
m o n e y of the United States. After the gold of the Federal Reserve banks is taken
o v e r b y the G o v e r n m e n t , it will continue t o be w o r t h only $20.67 so long as the
G o v e r n m e n t does n o t devalue. If the President should lift the e m b a r g o on gold,
g o l d could be purchased abroad with Federal Reserve notes or any other currency
a t $20.67. T h e m o n e y the Federal Reserve banks receive f o r their gold will
always be worth as m a n y dollars as the gold they o w n is n o w w o r t h t o them.
Payment for the gold.—Because
the Federal Reserve banks are, b y a c t of G o v ernment, banks of issue t h e y will be paid in m o n e y (gold certificates) which will
always be secured 100 percent with gold. T h e Federal Reserve A c t n o w p r o vides that the reserve f o r Federal Reserve notes and f o r Federal Reserve deposits
m a y be in gold certificates; approximately $900,000,000 of these reserves is n o w
in gold certificates. T h e Federal Reserve A c t n o w provides that the collateral
deposited with the Federal Reserve agents m a y be eligible paper, gold, or gold
certificates and that the Federal Reserve banks m a y at any time exchange gold
certificates f o r the gold with the Federal Reserve agents. T h e proposed bill
continues this provision that gold certificates m a y be held as a reserve f o r F e d eral Reserve notes and deposits and m a y be deposited as collateral. T h e p r o posed bill eliminates the provision that gold m a y be held as a reserve f o r Federal
Reserve notes and deposits and m a y be deposited as collateral. T h e proposed
bill eliminates the provision that gold m a y be held as a part of the reserve or
deposited as collateral with Federal Reserve notes, b u t provides that the Secretary of the Treasury shall redeem gold certificates o w n e d b y the Federal Reserve
banks to the extent necessary to enable Federal Reserve banks t o maintain their
Federal Reserve notes along with other kinds of currency of the United States
a t a parity with o n e another. In other words, the Federal Reserve banks shall
h a v e a right to obtain as m a n y dollars w o r t h of gold as they nowT h a v e to the
extent needed f o r the purposes f o r which they n o w h a v e gold.
Gold certificates will be redeemed in gold for Federal Reserve banks in all cases
where there is any letigimate reason for redemption.—The
bill expressly provides
f o r redemption f o r such purposes and f o r the holding of gold for the settlement
of international balances, f o r industry and the arts a n d if necessary t o maintain
parity of purchasing p o w e r of all f o r m s of currency including, of course, Federal
R e s e r v e notes and Federal R e s e r v e b a n k notes.
The gold certificates which the Federal Reserve banks now hold and will receive for
their gold are, like other kinds of currency of the United States, legal
tender.—True,
because of the E x e c u t i v e orders issued under the a c t of M a r c h 9, 1933, for the
purpose of protecting the reserves of the Federal Reserve banks, t h e y m a y n o t
n o w circulate except a m o n g the Federal Reserve banks, the Federal Reserve
agents, and the Treasury.
Should these orders be lifted, gold certificates m a y
again circulate like all other kinds of currency. Federal Reserve banks m a y b e




GOLD RESERVE ACT o r

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expected, however, to hold these certificates for use as a reserve or collateral for
Federal Reserve notes.
Ownership of gold of Federal Reserve banks.—The. Federal Reserve banks are
corporations; and the corporations, not the stockholders, have title to the gold.
Indeed the member banks as stockholders of the Federal Reserve banks have a
more limited interest than do stockholders in most corporations. The Federal
Reserve Act provided that, after payment of a 6 percent dividend and the establishment of a specified surplus, the profits should go to the United States (as an
excise tax) and that likewise on dissolution, all surplus after paying stockholders
and creditors should go to the National Government. Congress didaway with the
excise tax last year, but the dissolution provision remains. Nor do the member
banks have a property interest in the gold by reason of their deposits. The
Federal Reserve Act has, since its enactment, provided that the 35 percent reserve for deposits may be in gold, gold certificates, or lawful money.
The Federal Reserve Act provides that Federal Reserve notes "shall be obligations of the United States." This is the locus of the ultimate responsibility for
maintaining Federal Reserve notes at a parity with other kinds of currency of
the United States; and it is appropriate that the gold should be held by the
Treasury.
Summary of P r o v i s i o n s of B i l l N o w B e f o r e t h e C o n g r e s s t o G i v e E f f e c t
t o R e q u e s t s C o n t a i n e d i n t h e P r e s i d e n t ' s M e s s a g e o f J a n u a r y 15,
1934, o n t h e S u b j e c t o f t h e N a t i o n a l M o n e t a r y P o l i c y

1. Transfers to the United States the ownership and possession of all Federal
Reserve bank gold (including that held by the Federal Reserve Board and Federal
Reserve agents) and provides for payment therefor in gold certificates.
2. Authorizes the Federal Reserve banks to maintain reserves against Federal
Reserve notes entirely in gold certificates.
3. Clarifies the Government's power to regulate the acquisition, transporting,
melting or treating, import, export, or earmarking of gold.
3. Clarifies the Government's power to regulate the acquisition, transporting,
melting or treating, import, export, or earmarking of gold.
4. Provides forfeiture of gold withheld, acquired, transported, melted or treated,
imported, exported, or earmarked in violation of this bill or regulations of the
Secretary of the Treasury, and also a penalty equal to twice the value of the gold.
5. Provides that no gold shall hereafter be coined, and that no gold coin shall
hereafter be paid out or delivered by the United States, and that all gold coin of
the United States shall be withdrawn from circulation and formed into bars.
There is provision for releasing gold bars to pay foreign balances, and for industrial, professional, and artistic uses, and for other purposes not inconsistent with
this bill.
6. Provides that no currency of the United States shall be redeemed in gold
except to the extent permitted in regulations issued by the Secretary of the Treasury with the approval of the President but that gold certificates owned by Federal
Reserve banks shall be redeemed at such times and in such amounts as in the judgment of the Secretary of the Treasury are necessary to maintain equal purchasing
power of every kind of currency of the United States and that the reserve for
United States notes and for Treasury notes of 1890 and the security for gold certificates shall be maintained in gold bullion equal to the dollar amounts required
by present law.
7. Establishes a method of accounting for the gain or loss in value of Treasury
gold occasioned by any change in the weight of the gold dollar.
8. Clarifies present laws which authorize the purchase and sale of gold by the
Secretary of the Treasury.
9. Establishes a stabilization fund and appropriates $2,000,000,000 for the
purpose, but only out of the profits on devaluation, which are directed to be covered into the Treasury under this bill; and provides that the President shall cause
an audit to be made of such fund and a full report thereof included in the next
succeeding annual report of the Secretary of the Treasury.
10. Limits the President's power to fix the weight of the gold dollar to weights
between 50 and 60 percent of the present weight and makes it clear that his
various powers under paragraph (b) (2) of the Thomas amendment are continuing and distinct.
11. Approves and confirms action taken by the President and the Secretary of
the Treasury under the act of March 9, 1933, and sections 43 and 45 of the act of
May 1 2 , 1933.

X





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102