Full text of Gold Reserve Act of 1934 : Hearings Before the Committee on Banking and Currency, United States Senate, Seventy-Third Congress, Second Session, on S. 2366, January 19 to 23, 1934

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GOLD RESERVE ACT OF 1934

HEARINGS
BEFORE THE

COMMITTEE ON BANKING AND CURRENCY
UNITED STATES SENATE
SEVENTY-THIRD CONGRESS
SECOND SESSION
ON

S. 2366
A BILL 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

REVISED
JANUARY 19 TO 23, 1934
Printed for the use of the Committee on Banking and Currency

46217

UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1934

COMMITTEE ON BANKING AND CURRENCY
DUNCAN U. FLETCHER, Florida, Chairman
PETER NORBECK, South Dakota
CARTER GLASS, Virginia
PHILLIPS LEE GOLDSBOROUGH, Maryland
ROBERT F. WAGNER, New York
JOHN G. TOWNSEND, JR., Delaware
ALBEN W. BARKLEY, Kentucky
FREDERIC C. WALCOTT, Connecticut
ROBERT J. BULKLEY, Ohio
ROBERT D. CAREY, Wyoming
THOMAS P. GORE, Oklahoma
JAMES COUZENS, Michigan
EDWARD P. COSTIGAN, Colorado
ROBERT R. REYNOLDS, North Carolina FREDERICK STEIWER, Oregon
HAMILTON F. KEAN, New Jersey
JAMES F. BYRNES, South Carolina
JOHN H. BANKHEAD, Alabama
WILLIAM GIBBS McADOO, California
ALVA B. ADAMS, Colorado
WILLIAM L. HILL, Clerk

REUBEN H. SPARKMAN, Acting Clerk
II

CONTENTS
Statement of:
Page
Anderson, Benjamin M., Jr., Dr., economist of the Chase National
Bank, Riverdale, N.Y
112,224
Burgess, W. Randolph, deputy governor Federal Reserve Bank of
New York, New York, N.Y
235
Eisler, Robert, of Vienna. _>
239
Gephart, W. F., vice president of the First National Bank of St. Louis,
Mo., and a member of the committee of the United States Chamber
of Commerce
171
Harriss, Robert, Forest Hills, Long Island, N.Y., partner Harriss
& Vose, New York commodity brokers
335
Janney, John, chairman of the executive board, American Society of
Practical Economists, New York City
364
Kemmer, E. W., Walker professor of international finance, Princeton
University
206
Le Blanc, George, president Inter-State Bank & Trust Co., New
York__
337
Owen, Hon. Robert L.. formerly a United States Senator from the State
of Oklahoma
103
Preston, T. R., president of the Hamilton National Bank, Chattanooga,
Tenn.; representing the United States Chamber of Commerce
167
Rand, James H., Jr., chairman of the board, Remington-Rand Co.,
New York
342
Rogers, James Harvey, Sterling professor of political economy, Yale
University, and fellow of Pierson College, New Haven, Conn
311
Stewart, Walter W., member of the firm of Case, Pomeroy & Co.,
New York City
355
Vanderlip, Frank A., 1107 Fifth Avenue, New York City
173
Warburg, James P., vice chairman of the board of the Bank of Manhattan Co., New York, N.Y
189
Warren, George F., professor of agricultural economics, Cornell University
257
Willis, Henry Parker, economist, New York, N.Y
226
Young, Owen D., General Electric Co., New York, N.Y
322
Young, Roy A., Governor of the Federal Reserve Bank of Boston,
Brookline, Mass
91

TABLE OF EXHIBITS1
No.

1. January 11, 1934, S. 2366, Seventy-third Congress, second session
2. January 11, 1934, Amendment proposed by Senator Fletcher to S.
2366
3. January 15, 1934, Message from the President accompanying the
proposed gold reserve act of 1934
4. January 16, 1934, Secretary Morgenthau's release to the press
5. January 16, 1934, Governor Black's release to the press
6. January 17, 1934, Attorney General's letter of transmittal and opinion
as to constitutionality of S. 2366
7. January 17, 1934, Governor Black's statement relative to S. 2366
8. January 18,1934, Letter of transmittal from Secretary of the Treasury.
9. January 18, 1934, Treasury Department's release to press
10. March 6, 1933, President's proclamation (no. 2039), bank holiday,
March 6 to 9, inclusive
11. March 9, 1933, Emergency Banking Act of March 9, 1933
12. March 9, 1933, President's proclamation (No. 2040), continuing in
force bank holiday proclamation of Mar. 6, 1933
13. March 10,1933, Executive order (No. 6073), regulations concerning the
operation of banks
i The Gold Reserve Act of 1934 is printed in full on pages 382-389.

Ill

1
5
6
8
10
11
13
16
17
18
19
24
25

TABLE OF EXHIBITS
•

No.

14a. March 10, 1933, Treasury release relative to statement " t o the
superintendent of banks of each State "
146. March 11, 1933. Treasury release relative to statement "to the
superintendent of banks of each State "
14c. March 13, 1933, Emergency Banking Regulation No. 25, Treasury
Department
14d. March 18, 1933, Executive order (No. 6080), regulations concerning
appointment of conservators
15. April 5, 1933, Executive order (No. 6102), forbidding the hoarding of
gold coin, gold bullion, and gold certificates
16. April 20, 1933, Executive order (No. 6111), relating to foreign exchange
and the earmarking and export of gold coin or bullion or currency.
17. April 29, 1933, Treasury Department, regulations relating to licensing
the purchase and export of gold
18. July 3, 1933, President's message to economic conference
19. August 28, 1933, Executive order (No. 6260), relating to the hoarding
export, and earmarking of gold coin, bullion, or currency, and to
transactions in foreign exchange
20. August 29, 1933, Executive order, relating to the sale and export of
gold recovered from natural deposits
21. October 22, 1933, Extracts from the "Address of the President delivered by radio from the White House"
22. October 25, 1933, Executive order, relating to gold recovered from
natural deposits
23. October 25, 1933, Treasury release, gold regulations
24. December 21, 1933, Press release on President's silver proclamation.
25. December 21, 1933, President's proclamation (No. 2067), silver
26. December 28, 1933, Release to press pertaining to order of Secretary
of Treasury of this date requiring delivery of gold coin, etc
27. December 28, 1933, Secretary of the Treasury's order relative to delivery of gold coin, gold bullion and gold certificates
28. December 30, 1933, President's proclamation (No. 2070), amending
proclamations of March 6 and 9, 1933, and the Executive order of
March 10, 1933
29. January 11, 1934, Secretary of the Treasury's order, amending the
order of December 28, 1933
30. January 12, 1934, Executive order (No. 6556), amendment of Executive order of August 28, 1933
31. January 15, 1934, Executive Order (No. 6560), regulating transactions
in foreign exchange, transfers of credit, and the export of coin and
currency
32. January 15, 1934, Executive Order (No. 6558), relating to receipt of
gold on consignment by the mints and assay offices
33. January 15, 1934, Executive Order (No. 6559), amending the Executive order of March 10, 1933, and the proclamation of December 30,
1933
34. January 15, 1934, Secretary of the Treasury's order, supplementing
order of December 28, 1933
"
35. January 30, 1934, Public, No. 87, Seventy-third Congress, Gold Reserve Act of 1934
__.
36. March 14, 1900, Gold Standard Act of March 14, 1900
37. March 3, 1863, Were the old gold certificates warehouse receipts?
U.S. Code, title 31, section 428
38. May 12, 1933, Public, No. 10, Seventy-third Congress (H.R. 3835),
(Thomas Amendment) title III
39. June 5, 1933, Public Resolution No. 10, Seventy-third Congress (H.J.
Res. 192) "To assure uniform value to the coins and currencies of
the United States"
40. January 31, 1934, Statement for the press relative to President's
proclamation fixing the weight of the gold dollar under the Gold
Reserve Act of 1934
41. January 31, 1934, Proclamation of the President fixing the weight of
the gold dollar pursuant to the Gold Reserve Act of 1934
42. January 31, 1934, Provisional regulations issued under the Gold Reserve Act of 1934
43. Gold Reserve Act of 1934, approved January 30, 1934

Page

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27
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30
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34
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38
39
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50
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57
60
61
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382

THE GOLD RESERVE ACT OF 1934
FRIDAY, JANUARY 19, 1934
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY.

Washington, D.C.
The committee met, pursuant to call, at 2 p.m., in room no. 301 of
the Senate Office Building, Senator Duncan U. Fletcher presiding.
Present: Senators Fletcher (chairman), Glass, Wagner, Barkley,
Bulkley, Gore, Byrnes, Bankhead, Adams, Goldsborough, Townsend, Walcott, Carey, Couzens, Steiwer, and Kean.
The CHAIRMAN. The committee will come to order, please. This
meeting has been called for a hearing on S. 2366, which will be
made a part of the record.
[S. 3266, 73d Cong., 2d sess.]
A BILL 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

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 indorsed 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

GOLD RESERVE ACT OF 193 4

lawful money of not less than thirty-five per centum against its deposits and
reserves in gold certificates of not less than forty 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."
(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:
"The Federal Reserve Board shall require each Federal Reserve bank to
maintain on deposit in the Treasury of the United States a sum of 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 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 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 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 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 regu-

GOLD RESERVE ACT OF 19 3 4

lations 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
purpose 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 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:
" 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 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 conditions 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. Any 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 act 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,

GOLD RESERVE ACT OF 193 4

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 further, 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.
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 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 3700 of the Revised Statutes (U.S.C., title 31, sec. 734) is
amended to read as follows:
" 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 general fund of the
Treasury."
SEC. 9. Section 3699 of the Revised Statutes (U.S.C., Tit. 31, Sec. 733) is
amended to read as follows:
" 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, 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 or
security 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 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, 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 Secre

GOLD RESERVE ACT OF 193 4

tary 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.
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 III, of the Act approved May
12, 1933 (Public, No. 10, 73d 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
sixty 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."
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. Definitions. As used in this Act the term " 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 Ac<
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 to 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 III, 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. 15. The right to alter, amend, or repeal this Act is hereby expressly
reserved. If *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 provisions to other persons or circumstances, shall not be affected
thereby.
SEC. 16. All Acts and parts of Acts inconsistent with any of the provisions
of this Act are hereby repealed.
[Amendment intended to be proposed by Mr. Fletcher to the bill (S. 2366) 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, viz: On page 14, between lines
23 and 24, insert the following new section]

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) 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."

GOLD RESERVE ACT OF 193 4

(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 from 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."
(b) Section 6 of the Victory Liberty Loan Act (U.S.C., title 31, sec. 767) 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.
Change section numbers of sections 14, 15, and 16 to 15, 16, and 17,
respectively.
The CHAIRMAN. I think it would be proper to insert in the record

the Executive order by the President with reference to gold, which
Executive order was issued last spring; and also another Executive
order by the President; and a statement by the Secretary of the
Treasury, the opinion rendered by the Attorney General, the statement made by Governor Black. These documents have been offered
before the committee when in executive session, and they will be
made a part of the record.
(The papers referred to are as follows:)
[S.Doc. No. 114, 73d Cong., 2d sess.]

To the Congress:
In conformity with the progress we are making in restoring a fairer price level
and with our purpose of arriving eventually at a less variable purchasing power
for the dollar, I ask the Congress for certain additional legislation to improve our
financial and monetary system. By making clear that we are establishing permanent metallic reserves in the possession and ownership of the Federal Government, we can organize a currency system which will be both sound and adequate.
The issuance and control of the medium of exchange which we call "money"
is a high prerogative of government. It has been such for many centuries.
Because they were scarce, because they could readily be subdivided and transported, gold and silver have been used either for money or as a basis for forms
of money which in themselves had only nominal intrinsic value.
In pure theory, of course, a government could issue mere tokens to serve as
money—tokens which would be accepted at their face value if it were certain
that the amount of these tokens were permanently limited and confined to the
total amount necessary for the daily cash needs of the community. Because
this assurance could not always or sufficiently be given, governments have found
that reserves or bases of gold and silver behind their paper or token currency
added stability to their financial systems.
There is still much confusion of thought which prevents a world-wide agreement
creating a uniform monetary policy. Many advocate gold as the sole basis of
currency; others advocate silver; still others advocate both gold and silver whether
as separate bases, or on a basis with a fixed ratio, or on a fused basis.

GOLD RESERVE ACT OF 1934

We hope that, despite present world confusion, events are leading to some
future form of general agreement. The recent London agreement in regard to
silver was a step, though only a step, in this direction.
At this time we can usefully take a further step, which we hope will contribute
to an ultimate world-wide solution.
Certain lessons seem clear. For example, the free circulation of gold coins is
unnecessary, leads to hoarding, and tends to a possible weakening of national
financial structures in times of emergency. The practice of transferring gold
from one individual to another or from the Government to an individual within
a nation is not only unnecessary but is in every way undesirable. The transfer of
gold in bulk is essential only for the payment of international trade balances.
Therefore it is a prudent step to vest in the government of a nation the title to
and possession of all monetary gold within its boundaries and to keep that gold
in the form of bullion rather than in coin.
Because the safe-keeping of this monetary basis rests with the Government,
we have already called in the gold which was in the possession of private individual
or corporations. There remains, however, a very large weight in gold bullion
and coins which is still in the possession or control of the Federal Reserve banks.
Although under existing law there is authority, by Executive act, to take title
to the gold in the possession or control of the Reserve banks, this is a step of such
importance that I prefer to ask the Congress by specific enactment to vest in the
United States Government title to all supplies of American-owned monetary
gold, with provision for the payment therefor in gold certificates. These gold
certificates will be, as now, secured at all times dollar for dollar by gold in the
Treasury—gold for each dollar of such weight and fineness as may be established
from time to time.
Such legislation places the right, title, and ownership to our gold reserves in
the Government itself; it makes clear the Government's ownership of any added
dollar value of the country's stock of gold which would result from any decrease
of the gold content of the dollar which may be made in the public interest. It
would also, of course, with equal justice, cast upon the Government the loss of
such dollar value if the public interest in the future should require an increase in
the amount of gold designated as a dollar.
The title to all gold being in the Government, the total stock will serve as a
permanent and fixed metallic reserve which will change in amount only so far as
necessary for the settlement of international balances or as may be required by a
future agreement among the nations of the world for a redistribution of the world
stock of monetary gold.
With the establishment of this permanent policy, placing all monetary gold in
the ownership of the Government as a bullion base for its currency, the time has
come for a more certain determination of the gold value of the American dollar.
Because of world uncertainties, I do not believe it desirable in the public interest
that an exact value be now fixed. The President is authorized by present legislation to fix the lower limit of permissible revaluation at 50 percent. Careful
study leads me to believe that any revaluation at more than 60 percent of the
present statutory value would not be in the public interest. I, therefore, recommend to the Congress that it fix the upper limit of permissible revaluation at 60
percent.
That we may be further prepared to bring some greater degree of stability to
foreign exchange rates in the interests of our people, there should be added to the
present power of the Secretary of the Treasury to buy and sell gold at home and
abroad, express power to deal in foreign exchange as such. As a part of this
power, I suggest that, out of the profits of any devaluation, there should be
set up a fund of $2,000,000,000 for such purchases and sales of gold, foreign
exchange, and Government securities as the regulation of the currency, the
maintenance of the credit of the Government, and the general welfare of the
United States may require.
Certain amendments of existing legislation relating to the purchase and sale of
gold and to other monetary matters would add to the convenience of handling
current problems in this field. The Secretary of the Treasury is prepared to
submit information concerning such changes to the appropriate committees of
the Congress.
The foregoing recommendations relate chiefly to gold. The other principal
precious metal—silver—has also been used from time immemorial as a metallic
base for currencies as well as for actual currency itself. It is used as such by
probably half the population of the world. It constitutes a very important part
of our own monetary structure. It is such a crucial factor in much of the world's
international trade that it cannot be neglected.

GOLD RESERVE ACT OF 1934

On December 21, 1933, I issued a proclamation providing for the coinage or
our newly mined silver and for increasing our reserves of silver bullion, therebyputting us among the first nations to carry out the silver agreement entered into
by 66 governments at the London Conference. This agreement is distinctly a
step in the right direction and we are proceeding to perform our part of it.
All of the 66 nations agreed to refrain from melting or debasing their silver
coins, to replace paper currency of small denominations with silver coins, and to
refrain from legislation that would depreciate the value of silver in the world
markets. Those nations producing large quantities of silver agreed to take
specified amounts from their domestic production and those holding and using
large quantities agreed to restrict the amount they would sell during the 4 years
covered by the agreement.
If all these undertakings are carried out by the governments concerned, there
will be a marked increase in the use and value of silver.
Governments can well, as they have in the past, employ silver as a basis for
currency, and I look for a greatly increased use. I am, however, withholding any
recommendation to the Congress looking to further extension of the monetary use
of silver because I believe that we should gain more knowledge of the results of
the London agreement and of our other monetary measures.
Permit me once more to stress two principles. Our national currency must be
maintained as a sound currency which, insofar as possible, will have a fairly
constant standard of purchasing power and be adequate for the purposes of daily
use and the establishment of credit.
The other principle is the inherent right of government to issue currency and to
be the sole custodian and owner of the base or reserve of precious metals underlying that currency. With this goes the prerogative of government to determine
from time to time the extent and nature of the metallic reserve. I am confident
that the National will well realize the definite purpose of the Government to
maintain the credit of that Government and, at the same time, to provide a sound
medium of exchange which will serve the needs of our people.
FRANKLIN D. ROOSEVELT.
T H E WHITE HOUSE,

January 15, 1934.
READ TO SENATE COMMITTEE ON BANKING AND CURRENCY BY THE HONORABLE
SECRETARY OF THE TREASURY ON JANUARY 16, 1934
MEMORANDUM

(For guidance of the press but not to be quoted as a Treasury statement)
The following were the chief developments today in the monetary situation:
1. The President sent a message to Congress asking for legislation supplementary to the Thomas amendment which would fix the upper limit of permissible revaluation of the gold content of the dollar at 60 percent of the present
content. The President also asked that the present power of the Secretary of
the Treasury to buy and sell gold at home and abroad should be widened
and should be supplemented by express power to deal in foreign exchange as
such and suggested that out of the proceeds of any devaluation a fund of
$2,000,000,000 be set up for such purchases and sales of gold, foreign exchange,
and Government securities as the regulation of the currency, the maintenance
of the credit of the Government and the general welfare of the United States
may require. The message in addition, while noting that there is under existing
law authority by Executive act to take title to the gold in possession or control
of the Federal Reserve banks, asks Congress by specific enactment to vest in
the United States Government title to all American-owned monetary gold with
provision for the payment therefor in gold certificates which will be as now
secured for each dollar by gold of such weight and fineness as may be established from time to time. It should be noted that under the present law
gold certificates may be used and are being used as backing for note issues
of the Federal Reserve banks and this will continue to be true after the withdrawal to the Treasury of the gold now held by the Federal Reserve banks.
2. In compliance with the request contained in the President's message
there was introduced in Congress today a bill which makes the necessary
amendments to existing law and provides the machinery for carrying out the

GOLD RESERVE ACT OF 19 34

President's suggestion. The provisions of the bill may be summarized as
follows:
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.
Authorizes the Federal Reserve banks to maintain reserves against Federal
Reserve notes entirely in gold certificates.
Clarifies the Government's power to regulate the acquisition, transporting,
melting or treating, import, export, or earmarking of gold.
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.
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.
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.
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.
Clarifies present laws which authorize the purchase and sale of gold by the
Secretary of the Treasury.
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.
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.
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 12, 1933,
3. The President issued an Executive order authorizing the United States
mints and assay offices, subject to regulations of the Secretary of the Treasury, to receive on consignment gold which has not been held in noncompliance
with Executive orders or orders of the Secretary of the Treasury issued under
sections 2 and 3 of the act of March 9, 1933, or in noncompliance with any
regulations or rulings made thereunder, or licenses issued pursuant thereto.
4. The Secretary of the Treasury announced that beginning tomorrow, the
Federal Reserve Bank of New York, instead of the Reconstruction Finance
Corporation, will purchase all domestic newly mined gold received on consignment by the mints and assay offices and the Secretary of the Treasury will
purchase from the bank equivalent amounts of gold coins. The price to be
paid until further notice will be $34.45 per fine ounce, less 1/4 of 1 percent for
handling charges.
5. The Secretary of the Treasury issued an order fixing midnight of Wednesday, January 17, 1934, as the expiration of the period within which any
gold coin, gold bullion, or gold certificates may be delivered to the Treasurer
of the United States in compliance with his order of December 28, 1933.
The order further provides that in the event any such gold or certificates
withheld in noncompliance with the order are offered after January 17, 1934,
there shall be paid therefor only such part or none of the amount otherwise
payable as the Secretary may prescribe, and any balance shall be retained
and applied to the penalty payable for failure to comply with the requirements of the order of December 28, 1933, and of this order.

GOLD RESERVE ACT OF 19 3 4

6. The President issued two Executive orders relating to the subject of
foreign exchange which, in effect, give to the Secretary of the Treasury
authority by regulation further to restrict transactions in foreign exchange
or to lessen from time to time such restrictions. The authority to regulate
such exchange transacions is broadened to include authority over both the
inflow and the outflow of capital or other money claims.

GOVERNOR BLACK'S RELEASE TO THE PRESS JANUARY 16,

1934

Mr. E. R. Black, Governor of the Federal Reserve Board, today issued the
following statement:
For the past several weeks there have been conferences between the President, the Secretary of the Treasury, and representatives of the Reserve System
upon two questions: first, the allocation of the increase in value of the Reserve
System's gold consequent upon devaluation, and second, the transfer of the
title to the Reserve System's gold to the Government prior to devaluation. We
have felt that these two questions were not interdependent.
As to the first question, the Reserve board, after advising with the Governors
of the Reserve banks, has felt that the Reserve banks should not be the beneficiaries of the enhanced value placed upon their gold holdings by a purely
monetary policy of the Government, but on the contrary that such enhanced
value arising solely through such monetary policy of the Government should
enure to the Government. This feeling has been based upon the conviction that
such enhanced value will result solely from a governmental policy and not from
any action or effort on the part of the Reserve banks. This position has been
expressed to the President.
The second question embracing the matter of title to the gold of the Reserve
banks has similarly been discussed with the President and the Secretary of the
Treasury by representatives of the Reserve System. The System has felt and has
urged that this question was of such large import as to demand its determination
by congressional legislation.
In line with this position, on December 29 I wrote the President regarding these
two questions and in the course of that letter set forth the following reasons for
congressional action:
" First. It relieves what is to me a serious difficulty presented to the Secretary
in the question of his right to requisition gold of the Reserve System under the
statute authorizing requisition of gold in protection of the currency system of
the country.
"Second. It presents the opportunity to Congress of granting by congressional action protection to the Reserve System in event of future revaluation
upward of the dollar.
"Third. It gives to Congress the right to allocate the profit upon gold in the
event of devaluation.
"Fourth. It leaves to Congress the full question of legislation relative to the
Reserve System and its currency, both creations of Congress.
"Fifth. It will obviate all chances of criticism upon the Reserve System and
upon the administration in respect to the problem involved, and all uneasiness
and unrest as to Reserve Banks and their credit and currency functions.
"May I earnestly urge that this congressional course is the straight, simple,
legal course to all the ends desired.
" I n conclusion, Mr. President, may I assure you that this suggestion is not
written in the selfish interest of the Reserve banks, but in the interest of your
administration and of- the country, as an evidence of which I desire to repeat
that the question of profit on our gold is not involved, as I have heard no other
suggestion from any member of our Board or any Reserve bank than that any
profit arising from a monetary policy of the Government should go to the
Government."
Following this letter the President decided that the question of the transfer of
the title to the System's gold should be referred to Congress for determination.
I understand that the proposed bill is for this purpose.
The present security of Reserve note issues comprises eligible paper, governments, gold and gold certificates. The proposed bill names the same security,
for note issues except that the gold proposed to be taken from the Reserve banks
by the Treasury is to be replaced by gold certificates issued by the Treasury and

GOLD RESERVE ACT OF 19 3 4

redeemable in gold by the Treasury 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. The
security for the gold certificates is maintained by the Treasury in gold bullion.
Federal Reserve notes under the new bill, as under the old law, are the obligations both of the Reserve bank issuing them and of the United States.

DEPARTMENT OF JUSTICE,

Hon. DUNCAN U. FLETCHER,

Washington, D.C., January 17, 1934.

Chairman Senate Committee on Banking and Currency,
United States Senate, Washington, D.C.
MY DEAR SENATOR FLETCHER : I am informed that your committee is de-

sirous of obtaining my views as to the constitutionality of section 2 (a) of
the proposed gold reserve bill.
My opinion on that question is contained in a communication addressed by
me to the Secretary of the Treasury, and with his permission I take pleasure
in transmitting to you a copy of that letter.
Very truly yours,
HOMER CUMMINGS,
Attorney General.
The SECRETARY OF THE TREASURY.

JANUARY 17, 1934.

MY DEAR MR. SECRETARY : I am pleased to comply with your request for an
expression of my views as to the constitutionality of section 2 (a) of the
proposed gold reserve bill.
The section under consideration provides that all right, title, and interest,
and every claim of the Federal Reserve Board, of every Federal Reserve bank,
and 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. Payment is
to be made in gold certificates in equivalent amounts of dollars.
The monetary gold stock may be taken by the Government in the exercise
of its right of eminent domain. Such power extends to every form of property
required for public use.
The Supreme Court observed in Kohl v. United States (91 U.S. 367, 371)
that the right of eminent domain " is inseparable from sovereignty " ; and in
United States v. Jones (109 U.S. 513, 518) that it " belongs to every independent
government."
The manner in which the power is exercised is within the control of the
legislature. This principle was formulated in Secombe v. Railroad Co. (23
Wall. 108, 117), in the following language.
" I t is no longer an open question in this country that the mode of exercising
the right of eminent domain, in the absence of any provision in the organic
law prescribing a contrary course, is within the discretion of the legislature.
There is no limitation upon the power of the legislature in this respect, if the
purpose be a public one, and just compensation be paid or tendered to the
owner for the property taken."
Likewise, the necessity for the exercise of the power is a matter solely for
legislative determination (Monongahela Navigation Co. v. United States, 148
U.S. 312, 327).
Unquestionably, the taking of gold for monetary purposes is for a public use.
The establishment and the regulation of a monetary system is one of the
fundamental functions of government. The power to coin money and regulate
the value thereof is expressely reposed in Congress by article I, section 8,
clause 5, of the Constitution (Veazie Bank v. Fenno, 8 Wall. 533, 549). In
fact, monetary gold is a commodity affected with public interest (Ling Su Fan
v. United States, 218 U.S. 302).
The requirement for just compensation is completely satisfied by the provision for payment in gold certificates in equivalent amounts of dollars. Since
the decision in the Legal Tender Cases (12 Wall. 457), it may no longer be
successfully disputed that Congress may make paper money legal tender for
the payment of all debts, public or private, and that the Government may
discharge its obligations in currency of that type.

GOLD RESERVE ACT OF 193 4

The amount of just compensation is determined as of the time of taking, and
not as of some subsequent date. The mere fact that at a later period the
property may acquire an enhanced value, or that there may be an accretion to
the thing taken, does not increase the compensation to which the owner is
entitled. Thus, in this instance, the value of the gold must be determined as
of the moment that title passes to the United States. The mere fact that, if
thereafter the weight of the gold dollar should be reduced, the value of the
gold would become proportionately greater, does not serve to give the prior owner
any right to secure increased reimbursement (Brooks Scanlon Corp. v. United
States, 265 U.S. 106).
The measure of compensation must be the prevailing price. Vogelstein v.
United States, 262 U.S. 337. The prevailing price of gold coin and gold bullion
in the United States (other than newly mined gold) is fixed by statute. The
act of March 14, 1900 (U.S. Code, title 31, sec. 314) prescribes that the weight
of the gold dollar shall be 258/10grains, nine-tenths fine, which in turn makes
gold worth $20.67 an ounce. That is the price that the owner of gold would
have received at the mint, if he had presented it for deposit, prior to March
4, 1933. That is likewise the price that he would have received at any subsequent time if he surrendered it in accordance with the requirements of the
Executive orders or the orders of the Secretary of the Treasury issued under
the act of March 9, 1933. This is also the price that it is proposed to pay for
the gold to be taken under section 2 of the bill under consideration. The
conclusion seems inescapable that this provision safeguards the owners in their
right to receive as just compensation the value prevailing at the time of
taking.
The fact that the market price of gold in foreign countries is greater than
the statutory price in the United States, avails the owners nothing. An owner
of gold in the United States has no way of shipping the gold abroad, in view
of the prohibition against the export of gold from this country, promulgated
under the act of March 9, 1933. Consequently, an owner of gold in the United
States is in no position to secure the so-called " world price ", and, therefore,
his gold is not worth more than the statutory price.
The 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 from 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.
The question has been raised as to whether the member banks have any
right, title, and interest in the gold coin or bullion held by the Federal Reserve
banks. In my opinion, this inquiry should be answered in the negative. The
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
any of the assets of a corporation any compensation should be paid directly to
the stockholders thereof. Every Federal Reserve bank is now required to maintain a gold reserve against circulating notes and deposits (Federal Reserve Act,
sec. 16; U.S. Code, title 12, sec. 413). Any part of such reserve may be used
as part of the collateral for Federal Reserve notes, which is required to be
deposited with Federal Reserve agents. The mere fact that the source of some
or all of such gold may be deposits made by 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.
The gold reserves of the Federal Reserve banks must not be confused with
the reserve balances which every member is required, by section 19 of the
Federal Reserve Act, to maintain with its Federal Reserve bank. The reserve
balances of the member banks need not be in gold.
In closing, I desire to 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, yet there is attached to
such ownership those limitations which public policy may require by 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 to such coinage a value which
does not attach as a mere consequence of intrinsic value. Their quality as a

GOLD RESERVE ACT OF 1934

legal tender is an attribute of law aside from their bullion value. They bear,
therefore, the impress of sovereign power which fixes value and authorizes
their use in exchange."
The foregoing consideration lead me to the conclusion that section 2 (a)
of the bill is constitutional.
Very truly yours,
HOMER CUMMINGS,
Attorney General.
STATEMENT OF E. R. BLACK, GOVERNOR OF THE FEDERAL RESERVE BOARD, TO THE
SENATE COMMITTEE ON BANKING AND CURRENCY DURING A MEETING ON
WEDNESDAY, JANUARY 17, 1934

I would like to make perfectly clear to the committee the position of the
Federal Reserve Board upon some of the different matters presented in this
bill.
In order to do this it will be necessary to inform the committee of events
leading to consideration of these matters by the Board and the Reserve banks
and the action by the Board upon them.
There are three primary matters involved:
(1) Devaluation of the dollar by changing its gold content.
(2) The allocation of the so-called " profit" in event of devaluation upon the
gold holdings of the Reserve System.
(3) The transfer of the title to the gold of the System from the Reserve
banks to the Treasury.
The Board has recognized that the Congress has expressed itself on the
governmental policy as to devaluation in the Thomas amendment and the
Board has given consideration to that policy only in connection with its effect
in producing the other two questions involved, to wit: So-called " profits " upon
and title to the System's sold holdings. These two questions have been considered with Governmental officials.
I have always maintained that these two questions were not interdependent
and that the solution of one of them was not of necessity involved in the
solution of the other.
On the question of the so-called profits upon our gold I have felt that these
profits arose from a purely monetary policy of the Government, and arising
from such purely monetary policy should and could go to the Government independently of and irrespective of the question of where the title to the Reserve
System's gold was vested.
This conviction has been held irrespective of my knowledge that this gold has
been bought by the System under authority of law to buy and sell gold, and
under the usual practice of Reserve banks authorized by provisions of the Federal Reserve Act, and under the usual practice and procedure of the central
banks of every country.
The fact remains that this enhanced value of the System's gold has resulted
from no work or investment or act or effort on the part of the System, but solely
from a governmental policy, and having so resulted, the profit, or enhanced
value, as I prefer to call it, should enure to the Government. This position was
made plain in my conferences with the Government officials. My conclusion as
to the allocation of this enhanced value of our gold involved in no way the
recessity of a change in the title to that gold.
The profits could be allocated to the Government by a simple amendment
to the Thomas amendment providing that in the event of devaluation such
profit should go to the Government through one o[of]the legal expedients necessary to that end. I have urged that this method be followed in the matter of
such profits. Under such method the profits could be paid over by the Reserve
banks to the Government in any form meeting the Government's requirements.
This would leave the gold in the Reserve banks where it could continue as
the base of the System's currency and credit operations, to be held even under
such restrictions as are now placed upon gold by the Government. At the
same time the Government would have received all enhanced value upon that
gold as the result of devaluation. This is the process followed in France
upon the devaluation of the franc.
On the 14th day of December 1933, at a conference with Government officials,
there arose for the first time the question of the Government's taking title to the
gold of the Reserve banks. The opinion was expressed that the Government
had this right under section 11, paragraph (n) of the Federal Reserve Act,
46217—34

GOLD RESERVE ACT OF 193 4

with which law you gentlemen are familiar, and based on this opinion a plan
was proposed for taking title to the gold under this law.
I objected seriously to the plan and asked time for its consideration. This
time was granted and I thereupon presented in writing my objections to the
plan and to its purpose.
A suggestion was then made that the Reserve banks could voluntarily exchange their gold for gold certificates of the character described in this bill.
A conference of the governors of the Reserve banks was held and the two
plans, namely, the one requisitioning the gold under section 11, paragraph (n)
of the Federal Reserve Act, or the voluntary exchange of the gold for gold
certificates, were considered. The governors asked for an expression of the
Board's views in the matter and these views were expressed as follows :
In event, first, the President should write the Board with respect to the
plan embracing action under the Thomas amendment and the placing of title
of the gold holdings of the Federal Reserve System in the Treasury so that
profits on that gold would accrue to the Government if, as, and when devaluation is effected; and, second, if the Secretary of the Treasury should requisition the gold holdings of the Federal Reserve System under section 11 (n)
of the Federal Reserve Act and should offer gold certificates in payment of
such gold holdings, then the Federal Reserve Board feels—
(1) That it should express its strong conviction that appropriate legislation
by Congress should be had covering this question of profits upon the gold
holdings of the Federal Reserve System, although it is of opinion that this
profit, being the result of the monetary policy of the Government, should ultimately go to the Government,
(2) That neither the Federal Reserve banks nor the Federal Reserve
agents can enter into voluntary agreement covering the transfer of the title
in this gold to the Government because of their responsibility as officers and
directors of the Reserve bank and of their trusteeship in connection with their
duties as such, and
(3) That if demand is made by the Secretary of the Treasury under section
11 (n) of the Federal Reserve Act for the gold holdings of the Federal
Reserve System, then the Federal Reserve banks and the Federal Reserve
agents should yield possession of the gold to the Treasury or its representatives and receive any gold certificates tendered to them, but only under protest,
fully preserving all legal rights.
The conference with Government officials decided at my request that these
two plans should be considered by the directors of the 12 Reserve banks.
The governors returned to their banks and called meetings of their respective
directors.
I had urged all along that this question of the title to the Reserve System's
gold was of such large import and of so great consequence to the Nation
that it should be solved by Congress and that Congres[Congres ]should determine where
the title to this gold should vest, whether in the Reserve banks or in the
Treasury.
This position was taken because—
(1) We were advised by counsel that section 11, paragraph (n) of the
Reserve Act was not applicable under its terms to the Reserve banks and that
under that law the Secretary was not authorized to requisition our gold,
and that there was no other law so empowering him.
(2) That the officers and directors of the Reserve banks, as trustee, should
not exchange their gold for the certificates described in this bill, because as
such trustees they had no right to so change the character of the assets
entrusted to them.
(3) That Congress only could have the right under the law to determine
this question.
(4) That we felt the gold should remain with the central banks of the
Nation for manifest purposes of currency and credit needs.
While the directors of the Reserve banks were considering these matters
I called upon the President and presented the reasons against the two plans
suggested and urged the necessity of congressional action in determination of
these questions. The President agreed with me and on December 29 the
matter was withdrawn from consideration of the Board and the Reserve
banks, and as I understand it has now been presented to Congress for its
determination.

GOLD RESERVE ACT OF 1934

In reference to this gold I will simply state that at present it is pledged
under the law as security for $3,238,810,000 of Federal Reserve notes issued
by the 12 banks and constitutes the reserves required by law upon notes
issued by the Reserve banks and upon deposits made with Reserve banks.
It may be of value to the committee to have before it a statement of the
gold in the Treasury and in the Reserve banks. The following 2 pages give
this information as of recent date.
The gold coin and the gold bullion held by the Reserve banks speak for
themselves. The gold certificates held by the Reserve banks were issued by
the Treasury under authority in the United States Code, title 31, section 429,
the first paragraph of which is as follows:
" The Secretary of the Treasury is hereby authorized and directed to receive
deposits of gold coin with the Treasury, or any Assistant Treasurer of the
United States, in sums of not less than twenty dollars and to issue gold
certificates therefor in denominations of not less than ten dollars, and the
amount so deposited shall be retained in the Treasury and held for the payment
of such certificates on demand and used for no other purpose."
The Reserve banks' gold in the Federal Reserve agents' gold fund deposited
with the Treasury amounts to $1,105,174,000 and is provided for in section 16
of the Reserve Act. This gold is part of the collateral held by the Federal
Reserve agent for Federal Reserve notes and deposited as authorized by law in
the custody of the Treasury.
The gold of the Reserve banks in the gold-redemption fund in the Treasury
amounts to $40,888,000 and is provided for in section 16 of the Reserve Act and
is gold deposited by the Reserve banks with the Treasury for the purpose of
redeeming in gold Federal Reserve notes.
The gold of the Reserve banks in the gold-settlement fund in the custody
of the Treasury amounts to $673,403,000 and is authorized by the same section
of the Reserve Act and is gold placed by the Reserve banks with the Treasury
for clearing purposes between the Reserve banks.
The Board is of opinion that both the allocation of the profits upon the System's gold and the question of title to its gold are properly matters for the
determination of Congress.
Tabulation attached to statement of E. R. Black, governor of Federal Reserve
Board
Total gold in the Treasury and in Federal Reserve banks is
$4, 012, 918, 000
Of this . $4,012,918,000, $3,201,941,000 is held in the different
agencies of the Treasury as follows:
San Francisco Mint
1, 439, 799, 000
New York assay office
879, 610, 000
Philadelphia Mint
503, 075, 000
Denver Mint
365,022, 000
Seattle assay office
2,194, 000
New Orleans assay office
1, 308, 000
Cashier's office, Washington
10, 933, 000
Total
3, 201, 941, 000
The remaining $810,977,000 of gold coin and bullion is located in
the Federal Reserve banks as follows:
New York
$406, 430, 000
Chicago
134, 707, 000
San Francisco
92, 905,000
Boston
47, 616, 000
Richmond
29,443, 000
Cleveland
22, 738, 000
Philadelphia
20, 548, 000
St. Louis
12, 476, 000
Minneapolis
11,
848, 000
Kansas City
11,
289, 000
Atlanta
9,172, 000
Dallas
11,805,000
Total

810, 977, 000

GOLD RESERVE ACT OF 19 3 4

In addition to gold coin and bullion the Federal Reserve banks
hold gold certificates as follows:
New York
$264, 797,000
Chicago
314, 059, 000
San Francisco
29,160, 000
Boston
48, 644, 000
Richmond
23, 717, 000
Cleveland
89, 332, 000
Philadelphia
92, 870, 000
St. Louis
16,180, 000
Dallas
12, 478, 000
Minneapolis
18, 462, 000
Kansas City
18,087, 000
Atlanta
15, 010, 000
Total

942, 796, 000

Gold of the Federal Reserve banks in the Treasury is as follows:
Collateral for gold certificates held by Federal Reserve banks_ $942, 794,000
Federal Reserve agents' gold fund (collateral for Federal
Reserve notes)
1,105,174, 000
Gold settlement fund
673, 403, 000
Gold redemption fund
40, 888, 000
Total
2, 762, 259, 000
The total gold reserves of the 12 Federal Reserve banks are
3, 573, 236, 000
Gold in the Treasury, other than Federal Reserve gold, is
439, 682, 000
Of this, $219,391,000 is collateral for gold certificates in circulation outside of
Federal Reserve banks and $156,039,000 is reserves against United States notes,
$30,329,000 against redemption funds for national bank notes and Federal
Reserve bank notes, and $33,923,000 free gold.
Gold certificates in circulation outside of Federal Reserve banks, $217,391,000,
and gold in circulation outside of Federal Reserve and Treasury, $311,045,000.

T H E SECRETARY OF THE TREASURY,

Washington, January 18, 1934.
Hon. DUNCAN U. FLETCHER,

United States

Senate.

MY DEAR SENATOR FLETCHER : In his message to the Congress, the President

said:
" Certain amendments of existing legislation relating to the purchase and
sale of gold and to other monetary matters would add to the convenience of
handling current problems in this field. The Secretary of the Treasury is
prepared to submit information concerning such changes to the appropriate
committees of the Congress."
The miscellaneous minor matters here referred to are covered by the attached
draft, which is suggested as a new section 14 to the bill now before your committee, sections 14, 15, and 16 becoming sections 15, 16, and 17, respectively.
This addition to the bill is designed to accomplish the following purposes.
(a) To enable the Treasury to make an offering of bonds that will be particularly appealing to certain large investors such as insurance companies.
(b) The proceeds of all other United States obligations may now be deposited
in designated depositories, which arrangement facilitates their sale. It is
desired to include Treasury bills.
(c) It is desired to increase by 21/2billion dollars the amount of Treasury
notes which may be issued, the purpose being to facilitate the marketing of
Government obligations which this will do because of the greater demand for
this type of security.
(d) Treasury notes may now be issued to provide for the purchase or redemption of notes. Certificates and bills may be issued to provide for the
purchase or redemption of certificates or bills. It will facilitate Government
refunding to have authority to purchase any class of Government securities
with the proceeds of any other class.

GOLD RESERVE ACT OF 1934

(e) At the present time, we are authorized to issue only Treasury bills on a
discount basis. Authority is desired to issue any obligations of the United
States with a maturity of not longer than 1 year on a discount basis.
(f) At the present time, the Treasury authority to purchase bonds and notes
for the sinking fund is restricted to bonds and notes which were issued for
refunding purposes or were outstanding on the date named in the statute. It
is desirable to be able to use the sinking fund to purchase bonds or notes
which have been issued for purposes other than refunding.
(g) Gold certificates may not now be issued against gold unless deposited
by private persons for the issuance of gold certificates, except that the Secretary may pay out or issue gold certificates in payment of interest on the
public debt. There should be authority to issue gold certificates against any
gold in the Treasury except the gold reserves.
Very truly yours,
H. MORGENTHAU,

Jr.,

Secretary of the Treasury.
TREASURY DEPARTMENT'S RELEASE TO MORNING PAPERS, JANUARY 18,

1934

The Secretary of the Treasury issued instructions tonight (Jan. 17), authorizing
the Treasurer of the United States, the United States Mints and Assay Offices,
and the Federal Reserve banks to continue, until further notice, to receive gold
coin and gold certificates and to pay therefor in other currency at their face
value. They were also authorized to receive gold bullion and to pay for it at
the statutory rate of $20.67 per ounce.
The instructions issued tonight are made subject to the rights reserved in the
Secretary's order of January 15 setting midnight of January 17 as the final date
on which gold coin, gold certificates, and gold bullion might be delivered in
compliance with the Secretary's order of December 28, 1933.
Inquiries have been received by the Treasury Department from business men
who desire to know whether they may continue to accept gold coin and certificates
in payment for merchandise and services. The instructions which were sent out
tonight will provide a way by which they may dispose of receipts of gold coin and
gold certificates and receive payment for them.
INSTRUCTIONS SENT BY THE SECRETARY OF THE TREASURY ON JANUARY 17, 1934,
TO THE TREASURER OF THE UNITED STATES, THE UNITED STATES MINTS AND
ASSAY OFFICES, AND THE FISCAL AGENTS OF THE UNITED STATES, CONCERNING WRONGFULLY WITHHELD GOLD COIN, GOLD BULLION, AND GOLD CERTIFICATES DELIVERED AFTER JANUARY 17, 1934

The order of the Secretary of the Treasury dated January 15, 1934, supplementing the order of December 28, 1933, requiring the delivery of gold coin,
gold bullion, and gold certificates to the Treasurer of the United States provides,
in part, as follows:
"* * *
HENRY MORGENTHAU, Jr., Secretary of the Treasury, do hereby
fix midnight of Wednesday, January 17, 1934, as the expiration of the period
within which any gold coin, gold bullion, or gold certificates may be paid and
delivered to the Treasurer of the United States in compliance with the requirements contained in such order of December 28, 1933, as amended.
" I n the event that any gold coin, gold bullion, or gold certificates withheld in
noncompliance with said order and of this order are offered after January 17,
1934, to the Secretary of the Treasury, the Treasurer of the United States, any
United States mint or assay office, or to any fiscal agent of the United States,
there shall be paid therefor only such part or none of the amount otherwise
payable therefor as the Secretary of the Treasury may from time to time prescribe and the whole or any balance shall be retained and applied to the penalty
payable for failure to comply with the requirements of such order and of this
order. The acceptance of any such coin, bullion, or certificates after January
17, 1934, whether or not a part or all of the amount otherwise payable therefor
is so retained, shall be without prejudice to the right to collect by suit or otherwise the full penalty provided in section 11 (n) of the Federal Reserve Act, as
amended, less such portion of the penalty as may have been retained as hereinbefore provided."
Subject to the rights reserved in said order of January 15, 1934, supplementing
the order of December 28, 1933, requiring the delivery of gold coin, gold bullion,

GOLD RESERVE ACT OF 193 4

and gold certificates to the Treasurer of the United States, and without prejudice
to the right to alter or amend these instructions from time to time by notice to
the Treasurer of the United States, the United States Mints and Assay Offices,
and the Federal Reserve banks, I do hereby prescribe that in the event that any
gold coin, gold bullion, or gold certificates held in noncompliance with said order
of December 28, 1933, as amended, and said order of January 15, 1934, are
offered after January 17, 1934, to the Secretary of the Treasury, the Treasurer
of the United States, any United States Mint or Assay Office or to any fiscal
agent of the United States, the Secretary of the Treasury, the Treasurer of the
United States, any United States Mint or Assay Office, and the fiscal agents of
the United States shall pay for such gold coin and gold certificates the dollar
face amount thereof, and for gold bullion $20.67 an ounce. Member banks of
the Federal Reserve System may receive such gold coin, gold bullion, and gold
certificates for account of the Treasurer of the United States and forthwith
forward the same to the Secretary of the Treasury, the Treasurer of the United
States, any United States Mint or Assay Office or any fiscal agent of the United
States, whichever is nearest.
H.

MORGENTHAU,

Jr.,

Secretary of the Treasury.
A

PROCLAMATION

BY THE

PRESIDENT

OF THE

UNITED

STATES

AMERICA

(No. 2039)
[BANK HOLIDAY, MAR. 6-9, 11)33, INCLUSIVE]

Whereas there have been heavy and unwarranted withdrawals of gold and
currency from our banking institutions for the purpose of hoarding; and
Whereas continuous and increasingly extensive speculative activity abroad
in foreign exchange has resulted in severe drains on the Nation's stocks of
gold; and
Whereas these conditions have created a national emergency; and
Whereas it is in the best interests of all bank depositors that a period of
respite be provided with a view to preventing further hoarding of coin, bullion
or currency, or speculation in foreign exchange and permitting the application of
appropriate measures to protect the interests of our people; and
Whereas it is provided in section 5(6) of the act of October 6, 1917 (40 Stat.
L. 411), as amended, " That the President may investigate, regulate, or prohibit,
under such rules and regulations as he may prescribe, by means of licenses or
otherwise, any transactions in foreign exchange and the export, hoarding, melting, or earmarkings of gold or silver coin or bullion or currency * * * " ;
and
Whereas it is provided in section 16 of the said act " that whoever shall
willfully violate any of the provisions of this act or of any license, rule, or
regulation issued thereunder, and whoever shall willfully violate, neglect, or
refuse to comply with any order of the President issued in compliance with the
provisions of this act, shall, upon conviction, be fined not more than $10,000, or,
if a natural person, imprisoned for not more than 10 years, or both; * * *" ;
Now, therefore, I, Franklin D. Roosevelt, President of the United States of
America, in view of such national emergency and by virtue of the authority
vested in me by said Act and in order to prevent the export, hoarding, or earmarking of gold or silver coin or bullion or currency, do hereby proclaim,
order, direct, and declare that from Monday, the 6th day of March, to Thursday, the 9th day of March, 1933, both dates inclusive, there shall be maintained and observed by all banking institutions and all branches thereof located
in the United States of America, including the territories and insular possessions, a bank holiday, and that during said period all banking transactions
shall be suspended. During such holiday, excepting as hereinafter provided,
no such banking institution or branch shall pay out, export, earmark, or
permit the withdrawal or transfer in any manner or by any device whatsoever,
of any gold or silver coin or bullion or currency or take any other action
which might facilitate the hoarding thereof; nor shall any such banking
institution or branch pay out deposits, make loans or discounts, deal in foreign
exchange, transfer credits from the United States to any place abroad, or
transact any other banking business whatsoever.

GOLD RESERVE ACT OF 1934

During such holiday, the Secretary of the Treasury, with the approval of the
President and under such regulations as he may prescribe, is authorized and
empowered (a) to permit any or all of such banking institutions to perform
any or all of the usual banking functions; (b) to direct, require, or permit the
issuance of clearing house certificates or other evidences of claims against
assets of banking institutions, and (c) to authorize and direct the creation in
such banking institutions of special trust accounts for the receipt of new
deposits which shall be subject to withdrawal on demand without any restriction or limitation and shall be kept separately in cash or on deposit in Federal
Reserve Banks or invested in obligations of the United States.
As used in this order the term " banking institutions" shall include all
Federal Reserve banks, national banking associations, banks, trust companies,
savings banks, building and loan associations, credit unions, or other corporations, partnerships, associations or persons, engaged in the business of
receiving deposits, making loans, discounting business paper, or transacting any
other form of banking business.
In witness whereof, I have hereunto set my hand and caused the seal of the
United States to be affixed.
Done in the city of Washington this 6th day of March, 1 a.m., in the year of
our Lord 1933, and of the independence of the United States, the one hundred
and fifty-seventh.
[SEAL]

FRANKLIN D. ROOSEVELT.

By the president:
CORDELL HULL,

Secretary of State.
[PUBLIC—No. 1—73D CONGRESS]

[H.R. 1491]
AN ACT To provide relief in the existing national emergency in banking, 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 Congress hereby declares that a serious
emergency exists and that it is imperatively necessary speedily to put into effect
remedies of uniform national application.
TITLE I

SECTION 1. The actions, regulations, rules, licenses, orders and proclamations
heretofore or hereafter taken, promulgated, made, or issued by the President of
the United States or the Secretary of the Treasury since March 4, 1933, pursuant
to the authority conferred by subdivision (b) of section 5 of the Act of October
6, 1917, as amended, are hereby approved and confirmed.
SEC. 2. Subdivision (b) of section 5 of the act of October 6, 1917 (40 Stat.
L. 411), as amended, is hereby amended to read as follows:
" (b) During time of war or during any other period of national emergency
declared by the President, the President may, through any agency that he may
designate, or otherwise, investigate, regulate, or prohibit, under such rules and
regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, transfers of credit between or payments by banking
institutions as defined by the President, and export, hoarding, melting, or earmarking of gold or silver coin or bullion or currency, by any person within the
United States or any place subject to the jurisdiction thereof; and the President
may require any person engaged in any transaction referred to in this subdivision
to furnish under oath, complete information relative thereto, including the production of any books of account, contracts, letters or other papers, in connection
therewith in the custody or control of such person, either before or after such
transaction is completed. Whoever willfully violates any of the provisions of
this subdivision or of any license, order, rule or regulation issued thereunder,
shall, upon conviction, be fined not more than $10,000, or, if a natural person,
may be imprisoned for not more than ten years, or both; and any officer, director,
or agent of any corporation who knowingly participates in such violation may be
punished by a like fine, imprisonment, or both. As used in this subdivision the
term 'person' means an individual, partnership, association, or corporation."

GOLD RESERVE ACT OF 193 4

SEC. 3. Section 11 of the Federal Reserve Act is amended by adding at the end
thereof the following new subsection:
"(n) Whenever in the judgment of the Secretary of the Treasury such action
is necessary to protect the currency system of the United States, the Secretary
of the Treasury, in his discretion, may require any or all individuals, partnerships,
associations and corporations to pay and deliver to the Treasurer of the United
States any or all gold coin, gold bullion, and gold certificates owned by such individuals, partnerships, associations and corporations. Upon receipt of such gold
coin, gold bullion or gold certificates, the Secretary of the Treasury shall pay
therefor an equivalent amount of any other form of coin or currency coined or
issued under the laws of the United States. The Secretary of the Treasury shall
pay all costs of the transportation of such gold bullion, gold certificates, coin, or
currency, including the cost of insurance, protection, and such other incidental
costs as may be reasonably necessary. Any individual, partnership, association,
or corporation failing to comply with any requirement of the Secretary of the
Treasury made under this subsection shall be subject to a penalty equal to twice
the value of the gold or gold certificates in respect of which such failure occurred,
and such penalty may be collected by the Secretary of the Treasury by suit or
otherwise."
SEC. 4. In order to provide for the safer and more effective operation of the
National Banking System and the Federal Reserve System, to preserve for the
people the full benefits of the currency provided for by the Congress through the
National Banking System and the Federal Reserve System, and to relieve interstate commerce of the burdens and obstructions resulting from the receipt on an
unsound or unsafe basis of deposits subject to withdrawal by check, during such
emergency period as the President of the United States by proclamation may
prescribe, no member bank of the Federal Reserve System shall transact any
banking business except to such extent and subject to such regulations, limitations
and restrictions as may be prescribed by the Secretary of the Treasury, with the
approval of the President. Any individual, partnership, corporation, or association, or any director, officer or employee thereof, violating any of the provisions
of this section shall be deemed guilty of a misdemeanor and, upon conviction
thereof, shall be fined not more than $10,000 or, if a natural person, may, in addition to such fine, be imprisoned for a term not exceeding ten years. Each day
that any such violation continues shall be deemed a separate offense.
TITLE

SEC. 201. This title may be cited as the "Bank Conservation Act."
SEC. 202. As used in this title, the term "bank" means (1) any national banking association, and (2) any bank or trust company located in the District of
Columbia and operating under the supervision of the Comptroller of the Currency;
and the term "State" means any State, Territory, or possession of the United
States, and the Canal Zone.
SEC. 203. Whenever he shall deem it necessary in order to conserve the assets
of any bank for the benefit of the depositors and other creditors thereof, the
Comptroller of the Currency may appoint a conservator for such bank and
require of him such bond and security as the Comptroller of the Currency deems
proper. The conservator, under the direction of the Comptroller, shall take
possession of the books, records, and assets of every description of such bank,
and take such action as may be necessary to conserve the assets of such bank
pending further disposition of its business as provided by law. Such conservator shall have all the rights, powers, and privileges now possessed by or hereafter given receivers of insolvent national banks and shall be subject to the obligations and penalties, not inconsistent with the provisions of this title, to which
receivers are now or may hereafter become subject. During the time that such
conservator remains in possession of such bank, the rights of all parties with
respect thereto shall, subject to the other provisions of this title, be the same as
if a receiver had been appointed therefor. All expenses of any such conservatorship shall be paid out of the assets of such bank and shall be a lien thereon which
shall be prior to any other lien provided by this Act or otherwise. The conservator shall receive as salary an amount no greater than that paid to employees
of the Federal Government for similar services.
SEC. 204. The Comptroller of the Currency shall cause to be made such examinations of the affairs of such bank as shall be necessary to inform him as to the
financial condition of such bank, and the examiner shall make a report thereon
to the Comptroller of the Currency at the earliest practicable date.

GOLD RESERVE ACT OF 1934

SEC. 205. If the Comptroller of the Currency becomes satisfied that it may
safely be done and that it would be in the public interest, he may, in his discretion, terminate the conservatorship and permit such bank to resume the transaction of its business subject to such terms, conditions, restrictions, and limitations as he may prescribe.
SEC. 206. While such bank is in the hands of the conservator appointed by
the Comptroller of the Currency, the Comptroller may require the conservator
to set aside and make available for withdrawal by depositors and payment to
other creditors, on a ratable basis, such amounts as in the opinion of the Comptroller may safely be used for this purpose; and the Comptroller may, in his
discretion, permit the conservator to receive deposits, but deposits received while
the bank is in the hands of the conservator shall not be subject to any limitation
as to payment or withdrawal, and such deposits shall be segregated and shall not
be used to liquidate any indebtedness of such bank existing at the time that a
conservator was appointed for it, or any subsequent indebtedness incurred for the
purpose of liquidating any indebtedness of such bank existing at the time such
conservator was appointed. Such deposits received while the bank is in the
hands of the conservator shall be kept on hand in cash, invested in the direct
obligations of the United States, or deposited with a Federal Reserve bank. The
Federal Reserve banks are hereby authorized to open and maintain separate deposit accounts for such purpose, or for the purpose of receiving deposits from
State officials in charge of State banks under similar circumstances.
SEC. 207. In any reorganization of any national banking association under a
plan of a kind which, under existing law, requires the consent, as the case may
be, (a) of depositors and other creditors or (b) of stockholders or (c) of both
depositors and other creditors and stockholders, such reorganization shall become
effective only (1) when the Comptroller of the Currency shall be satisfied that
the plan of reorganization is fair and equitable as to all depositors, other creditors
and stockholders and is in the public interest and shall have approved the plan
subject to such conditions, restrictions, and limitations as he may prescribe and
(2) when, after reasonable notice of such reorganization, as the case may require,
(A) depositors and other creditors of such bank representing at least seventy-five
per centum in amount of its total deposits and other liabilities as shown by the
books of the national banking association or (B) stockholders owning at least two
thirds of its outstanding capital stock as shown by the books of the national
banking association or (C) both depositors and other creditors representing at
least seventy-five per centum in amount of the total deposits and other liabilities
and stockholders owning at least two thirds of its outstanding capital stock as
shown by the books of the national banking association, shall have consented in
writing to the plan of reorganization: Provided, however, That claims of depositors
or other creditors which will be satisfied in full under the provisions of the plan
or reorganization shall not be included among the total deposits and other
liabilities of the national banking association in determining the seventy-five
per centum thereof as above provided. When such reorganization becomes
effective, all books, records, and assets of the national banking association shall
be disposed of in accordance with the provisions of the plan and the affairs of
the national banking association shall be conducted by its board of directors in
the manner provided by the plan and under the conditions, restrictions, and limitations which may have been prescribed by the Comptroller of the Currency.
In any reorganization which shall have been approved and shall have become
effective as provided herein, all depositors and other creditors and stockholders
of such national banking association, whether or not they shall have consented
to such plan of reorganization, shall be fully and in all respects subject to and
bound by its provisions, and claims of all depositors and other creditors shall
be treated as if they had consented to such plan of reorganization.
SEC. 208. After fifteen days after the affairs of a bank shall have been turned
back to its board of directors by the conservator, either with or without a reorganization as provided in section 207 hereof, the provisions of section 206 of this
title with respect to the segregation of deposits received while it is in the hands
of the conservator and with respect to the use of such deposits to liquidate the
indebtedness of such bank shall no longer be effective: Provided, That before the
conservator shall turn back the affairs of the bank to its board of directors he
shall cause to be published in a newspaper published in the city, town, or county
in which such bank is located, and if no newspaper is published in such city, town,
or county, in a newspaper to be selected by the Comptroller of the Currency
published in the State in which the bank is located, a notice in form approved by
the Comptroller, stating the date on which the affairs of the bank will be returned

GOLD RESERVE ACT OF 193 4

to its board of directors and that the said provisions of section 206 will not be
effective after fifteen days after such date; and on the date of the publication of
such notice the conservator shall immediately send to every person who is a
depositor in such bank under section 206 a copy of such notice by registered mail
addressed to the last known address of such person as shown by the records of
the bank, and the conservator shall send similar notice in preferred stock shall
have been paid in full the par value of such stock plus all accumulated dividends.
SEC. 209. Conservators appointed pursuant to the provisions of this title shall
be subject to the provisions of and to the penalties prescribed by section 5209 of
the Revised Statutes (U.S.C., title 12, sec. 592); and sections 112, 113, 114, 115,
116, and 117 of the Criminal Code of the United States (U.S.C., title 18, sees.
202, 203, 204, 205, 206, and 207), insofar as applicable, are extended to apply to
contracts, agreements, proceedings, dealings, claims and controversies by or with
any such conservator or the Comptroller of the Currency under the provisions of
this title.
SEC. 210. Nothing in this title shall be construed to impair in any manner any
powers of the President, the Secretary of the Treasury, the Comptroller of the
Currency, or the Federal Reserve Board.
SEC. 211. The Comptroller of the Currency is hereby authorized and empowered, with the approval of the Secretary of the Treasury, to prescribed such rules
and regulations as he may deem necessary in order to carry out the provisions of
this title. Whoever violates any rule or regulation made pursuant to this section
shall be deemed guilty of a misdemeanor and, upon conviction thereof, shall be
fined not more than $5,000, or imprisoned not more than one year, or both.
TITLE

III

SEC. 301. Notwithstanding any other provision of law, any national-banking
association may, with the approval of the Comptroller of the Currency and by
vote of shareholders owning a majority of the stock of such association, upon not
less than five days' notice, given by registered mail pursuant to action taken by
its board of directors, issue preferred stock in such amount and with such par
value as shall be approved by said Comptroller, and make such amendments to its
articles of association as may be necessary for this purpose; but, in the case of any
newly organized national-banking association which has not yet issued common
stock, the requirement of notice to and vote of shareholders shall not apply. No
issue of preferred stock shall be valid until the par value of all stock so issued
shall be paid in.
SEC. 302. (a) The holders of such preferred stock shall be entitled to cumulative dividends at a rate not exceeding 6 per centum per annum, but shall not
be held individually responsible as such holders for any debts, contracts, or
engagements of such association and shall not be liable for assessments to restore
impairments in the capital of such association as now provided by law with
reference to holders of common stock. Notwithstanding any other provision of
law, the holders of such preferred stock shall have such voting rights, and such
stock shall be subject to retirement in such manner and on such terms and
conditions, as may be provided in the articles of association with the approval
of the Comptroller of the Currency.
(b) No dividends shall be declared or paid on common stock until the cumulative dividends on the preferred stock shall have been paid in full; and, if the
association is placed in voluntary liquidation or a conservator or a receiver is
appointed therefor, no payments shall be made to the holders of the common stock
until the holders of the preferred stock shall have been paid in full the par value
of such stock plus all accumulated dividends.
SEC. 303. The term "common stock" as used in this title means stock of
national-banking associations other than preferred stock issued under the provisions of this title. The term "capital" as used in provisions of law relating
to the capital of national-banking associations shall mean that amount of unimpaired common stock plus the amount of preferred stock outstanding and unimpaired; and the term "capital stock", as used in section 12 of the Act of March
14, 1900, shall mean only the amount of common stock outstanding.
SEC. 304. If in the opinion of the Secretary of the Treasury any national-banking association or any State bank or trust company is in need of funds for capital
purposes either in connection with the organization or reorganization of such
association, State bank, or trust company or otherwise, he may, with the approval
of the President, request the Reconstruction Finance Corporation to subscribe
for preferred stock in such association, State bank, or trust company, or to make

GOLD RESERVE ACT OP 19 34

loans secured by such stock as collateral, and the Reconstruction Finance Corporation may comply with such request. The Reconstruction Finance Corporation may, with the approval of the Secretary of the Treasury, and under such
rules and regulations as he may prescribe, sell in the open market or otherwise
the whole or any part of the preferred stock of any national-banking association,
State bank, or trust company acquired by the Corporation pursuant to this section. The amount of notes, bonds, debentures, and other such obligations which
the Reconstruction Finance Corporation is authorized and empowered to issue
and to have outstanding at any one time under existing law is hereby increased
by an amount sufficient to carry out the provisions of this section.
TITLE IV

SEC. 401. The sixth paragraph of section 18 of the Federal Reserve Act is
amended to read as follows:
"Upon the deposit with the Treasurer of the United States, (a) of any direct
obligations of the United States or (b) of any notes, drafts, bills of exchange,
or bankers' acceptances acquired under the provisions of this Act, any Federal
Reserve bank making such deposit in the manner prescribed by the Secretary of
the Treasury shall be entitled to receive from the Comptroller of the Currency
circulating notes in blank, duly registered and countersigned. When such
circulating notes are issued against the security of obligations of the United States,
the amount of such circulating notes shall be equal to the face value of the direct
obligations of the United States so deposited as security; and, when issued
against the security of notes, drafts, bills of exchange and bankers' acceptances
acquired under the provisions of this act, the amount hereof shall be equal to
not more than 90 per centum of the estimated value of such notes, drafts, bills of
exchange and bankers' acceptances so deposited as security. Such notes shall
be the obligations of the Federal Reserve bank procuring the same, shall be in
form prescribed by the Secretary of the Treasury, shall be receivable at par in
all parts of the United States for the same purposes as are national-bank notes,
and shall be redeemable in lawful money of the United States on presentation
at the United States Treasury or at the bank of issue. The Secretary of the
Treasury is authorized and empowered to prescribe regulations governing the
issuance, redemption, replacement, retirement, and destruction of such circulating notes and the release and substitution of security therefor. Such circulating
notes shall be subject to the same tax as is provided by law for the circulating
notes of national banks secured by 2 per centum bonds of the United States. No
such circulating notes shall be issued under this paragraph after the President has
declared by proclamation that the emergency recognized by the President by
proclamation of March 6, 1933, has terminated, unless such circulating notes are
secured by deposits of bonds of the United States bearing the circulation privilege. When required to do so by the Secretary of the Treasury, each Federal
Reserve agent shall act as agent of the Treasurer of the United States or of the
Comptroller of the Currency, or both, for the performance of any of the functions
which the Treasurer or the Comptroller may be called upon to perform in carrying out the provisions of this paragraph. Appropriations available for distinctive paper and printing United States currency or national-bank currency are
hereby made available for the production of the circulating notes of Federal
Reserve banks herein provided; but the United States shall be reimbursed by the
Federal Reserve bank to which such notes are issued for all expenses necessarily
incurred in connection with the procuring of such notes and all other expenses
incidental to their issue, redemption, replacement, retirement, and destruction."
SEC. 402. Section 10 (b) of the Federal Reserve Act, as amended, is further
amended to read as follows:
"SEC. 10 (b). In exceptional and exigent circumstances, and when any member
bank has no further eligible and acceptable assets available to enable it to obtain
adequate credit accommodations through rediscounting at the Federal Reserve
bank or any other method provided by this Act other than that provided by
section 10 (a), any Federal Reserve bank, under rules and regulations prescribed
by the Federal Reserve Board, may make advances to such member bank on its
time or demand notes secured to the satisfaction of such Federal Reserve bank.
Each such note shall bear interest at a rate not less than 1 per centum per annum
higher than the highest discount rate in effect at such Federal Reserve bank on
the date of such note. No advance shall be made under this section after March
3, 1934, or after the expiration of such additional period not exceeding one year
as the President may prescribe."

GOLD RESERVE ACT OF 1934

SEC. 403. Section 13 of the Federal Reserve Act, as amended, is amended by
adding at the end thereof the following new paragraph:
''Subject to such limitations, restrictions, and regulations as the Federal Reserve
Board may prescribe, any Federal Reserve bank may make advances to any
individual, partnership, or corporation on the promissory notes of such individual,
partnership, or corporation secured by direct obligations of the United States.
Such advances shall be made for periods not exceeding ninety days and shall bear
interest at rates fixed from time to time by the Federal reserve bank, subject to
the review and determination of the Federal Reserve Board."
TITLE V

SEC. 501. There is hereby appropriated, out of any money in the Treasury
not otherwise appropriated, the sum of $2,000,000, which shall be available for
expenditure, under the direction of the President and in his discretion, for any
purpose in connection with the carrying out of this Act.
SEC. 502. The right to alter, amend, or repeal this Act is hereby expressly
reserved. If 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.
Approved March 9, 1933, 8:30 p.m.

A PROCLAMATION BY THE PRESIDENT OF THE UNITED STATES OF AMERICA

No. (2040)
CONTINUING IN FORCE THE BANK HOLIDAY PROCLAMATION OF MARCH 6, 1933

Whereas, on March 6, 1933, I, Franklin D. Roosevelt, President of the
United States of America, by proclamation declared the existence of a national
emergency and proclaimed a bank holiday extending from Monday the 6th
day of March to Thursday the 9th day of March, 1933, both dates inclusive,
in order to prevent the export, hoarding, or earmarking of gold or silver coin,
or bullion or currency, or speculation in foreign exchange; and
Whereas, under the act of March 9, 1933, all proclamations heretofore or
hereafter issued by the President pursuant to the authority conferred by section 5 (b) of the act of October 6, 1917, as amended, are approved and confirmed; and
Whereas, said national emergency still continues, and it is necessary to take
further measures extending beyond March 9, 1933, in order to accomplish such
purposes:
Now, therefore, I, Franklin D. Roosevelt, President of the United States of
America, in view of such continuing national emergency and by virtue of the
authority vested in me by section 5 (b) of the act of October 6, 1917 (40 Stat.L.,
411) as amended by the act of March 9, 1933, do hereby proclaim, order, direct,
and declare that all the terms and provisions of said proclamation of March 6,
1933, and the regulations and orders issued thereunder are hereby continued
in full force and effect until further proclamation by the President.
In witness whereof I have hereunto set my hand and have caused the seal
of the United States to be affixed.
Done in the District of Columbia, this 9th day of March, in the year of
our Lord 1933, and of the independence of the United States the one hundredth
and fifty-seventh.
[SEAL]

FRANKLIN D. ROOSEVELT.

By the President:
CORDELL HULL,

Secretary of State.

GOLD RESERVE ACT OF 19 3 4
EXECUTIVE ORDER NO.

6073

REGULATIONS CONCERNING THE OPERATION OF BANKS

By virtue of the authority vested in me by section 5 (b), of the act of October
6, 1917 (40 Stat.L. 411), as amended by the act of March 9, 1933, and by section
4 of the said act of March 9, 1933, and by virtue of all other authority vested
in me, I hereby issue the following Executive order:
The Secretary of the Treasury is authorized and empowered under such regulations as he may prescribe to permit any member bank of the Federal Reserve
System and any other banking institution organized under the laws of the
United States to perform any or all of their usual banking functions, except
as otherwise prohibited.
The appropriate authority having immediate supervision of banking institutions in each State or any place subject to the jurisdiction of the United States
is authorized and empowered under such regulations as- such authority may
prescribe to permit any banking institution in such State or place, other than
banking institutions covered by the foregoing paragraph, to perform any or
all of their usual banking functions, except as otherwise prohibited.
All banks which are members of the Federal Reserve System, desiring to
reopen for the performance of all usual and normal banking functions, except
as otherwise prohibited, shall apply for a license therefor to the Secretary of
the Treasury. Such application shall be filed immediately through the Federal
Reserve banks. The Federal Reserve bank shall then transmit such applications to the Secretary of the Treasury. Licenses will be issued by the
Federal Reserve bank upon approval of the Secretary of the Treasury. The
Federal Reserve banks are hereby designated as agents of the Secretary of the
Treasury for the receiving of applications and the issuance of licenses in his
behalf and upon his instructions.
Until further order, no individual, partnership, association, or corporation,
including any banking institution, shall export or otherwise remove or permit
to be withdrawn from the United States or any place subject to the jurisdiction
thereof any gold coin, gold bullion, or gold certificates, except in accordance
with regulations prescribed by or under license issued by the Secretary of the
Treasury.
No permission to any banking institution to perform any banking functions
shall authorize such institution to pay out any gold coin, gold bullion, or gold
certificates except as authorized by the Secretary of the Treasury, nor to allow
withdrawal of any currency for hoarding, nor to engage in any transaction in
foreign exchange except such as may be undertaken for legitimate and normal
business requirements for reasonable traveling and other personal requirements, and for the fulfillment of contracts entered into prior to March 6, 1933.
Every Federal Reserve bank is authorized and instructed to keep itself currently informed as to transactions in foreign exchange entered into or consummated within its district and shall report to the Secretary of the Treasury all
transactions in foreign exchange which are prohibited.
FRANKLIN D. ROOSEVELT.
THE WHITE HOUSE,

March 10, 1933
TREASURY DEPARTMENT'S IMMEDIATE RELEASE TO THE SUPERINTENDENTS OF
BANKS OF EACH STATE, MARCH 10, 1933

All banks of the country are now prohibited under the proclamation of March
9 of the President from conducting any banking business except as specifically
authorized by rule, regulation, or license of the Secretary of the Treasury issued
under that proclamation. In view of the passage of the emergency bank bill by
Congress yesterday, and under the terms of that bill, and section 5 of the act of
October 6, 1917, as amended by that bill, the Secretary of the Treasury will be
authorized to permit any sound bank which is a member of the Federal Reserve

GOLD RESERVE ACT OF 193 4

System, whether State or national, to reopen for business as promptly as possible.
It is the intention of the Secretary of the Treasury, however, to permit no member bank to reopen at any time on a full 100-percent basis unless or until the
Secretary is satisfied that such bank is a sound-going institution. Any member
bank not clearly within this category will not be opened unless or until further
investigation discloses that it is a sound-going institution, or unless or until a
reorganization of some character will permit the bank to be classified as a soundgoing institution.
Any member bank not opened 100 percent under this procedure will be permitted to continue to perform only such specific transactions as are now authorized or may hereafter be authorized by specific regulation or license of the
Secretary of the Treasury.
In view of the fact that neither the Treasury nor the Federal Reserve authorities have sufficient information upon which to consider applications for reopening
by such State banks as are not members of the Federal Reserve System, the
President will by decree authorize the appropriate State authorities in each
State to give licenses to banks under their jurisdiction other than members of
the Federal Reserve System, to open for the usual normal business, or in their
judgment, and under the terms of the Presidential proclamation, to permit of
such reopening under such restrictions and limitations as they in their judgment
may deem wise. It is to be expected, however, that State superintendents in
granting licenses under this authority will take under consideration in determining their own policy the general principle to be adopted by the Treasury as
respects member banks that in the interests of the depositors and of the country
as a whole, only sound institutions will be permitted to carry on all of their
usual functions to the end that no bank shall be reopened for business on any
basis that will run the risk of being forced to close again because of demands
which it is not in a position to satisfy.
W. H. WOODIN,

Secretary of the Treasury.
TREASURY DEPARTMENT'S IMMEDIATE RELEASE TO THE SUPERINTENDENTS OF
BANKS OF EACH STATE MARCH 11, 1933

As announced by the President this afternoon, a definite program for the
reopening of banks throughout the country has been determined by the Secretary of the Treasury. In accordance with this program, the Secretary of the
Treasury is prepared upon application through Federal Reserve banks to issue
to banking institutions which are members of the Federal Reserve System,
whether national or State, located in each of the 12 Federal Reserve bank cities
licenses to open Monday morning. The Secretary of the Treasury will not issue
licenses to any member bank, State or national, located outside those 12 cities
to open before Tuesday.
State authorities having supervision over banking institutions located at such
cities which are not members of the Federal Reserve System are requested to
cooperate by permitting such banking institutions to open for business on Monday morning in all cases where they find them qualified to do so on the basis
indicated in previous telegram of March 10. The Secretary of the Treasury
will not permit any member bank, State or national, to open in any such Federal
Reserve city unless opened for normal business on an unrestricted basis, except
so far as affected by legal contracts between the banks and depositors with respect
to withdrawals or notice of withdrawals.
In accordance with the announcement of the President, the Secretary of the
Treasury is prepared upon application through the Federal Reserve banks to
issue licenses to reopen on Tuesday morning to Federal Reserve member banks
located in any city having an active and recognized clearing-house association,
and upon like application licenses to member banks located elsewhere for reopening on Wednesday morning. As previously stated, however, the Secretary of
the Treasury will not permit the reopening of member banks, State or national,
on any of these days except on an unrestricted basis, as above indicated. It
must be understood that the restrictions in the President's proclamation against
the payment of gold, gold certificates, or bullion or the payment of currency for
hoarding purposes and foreign-exchange transactions will apply to all banking
institutions, member and nonmember, State, or national until further notice.

W. H.

WOODIN,

Secretary of the Treasury.

GOLD RESERVE ACT OF 1934

TREASURY DEPARTMENT,
OFFICE OF THE SECRETARY,

March 13, 1933.
EMERGENCY BANKING REGULATION NO. 25:

Under the authority of the President's proclamation of March 6 and March 9,
1933, declaring and continuing a bank holiday, the following regulation is prescribed:
"Pending the determination by the Treasury Department of a suitable procedure for licensing the delivery of gold for use in trade, profession or art, Federal
Reserve banks are hereby authorized to deliver upon request therefor gold in
amounts deemed by such bank to be reasonably required for legitimate and customary uses in trade, profession or art, provided such request is accompanied by
affidavit of the person requesting such gold stating the amount of unmanufactured
gold on hand and the facts making it necessary to obtain such gold for the purpose
of maintaining employment.
"All banks licensed to open for usual and normal functions are permitted to
carry out any transaction necessary to complete the delivery of any gold authorized by any Federal Reserve bank to be delivered in accordance with such request."
EXECUTIVE ORDER NO. 6080
REGULATIONS CONCERNING APPOINTMENT OF CONSERVATORS FOR STATE BANKS,
MEMBERS OF FEDERAL RESERVE SYSTEM

By virtue of the authority vested in me by section 5(6) of the act of October 6,
1917 (40 Stat.L. 411) as amended by the act of March 9, 1933 and by section 4 of
the said act of March 9, 1933, and by virtue of all other authority vested in me, I
hereby issue the following Executive order.
Whenever the appropriate authority having immediate supervision of any
banking institution located in any State or place subject to the jurisdiction of the
United States, which is a member of the Federal Reserve System and which has
not been licensed by the Secretary of the Treasury to resume its usual banking
functions, shall deem it necessary or advisable in order to conserve the assets of
such banking institution for the benefit of the depositors or other creditors, such
authority may, in accordance with the provisions of the applicable laws of such
State or place, appoint such appropriate official as may be authorized under such
laws to conserve the assets of such banking institution pending further disposition
of its business as provided by such laws.
This order shall not authorize any such member bank to reopen for the performance of usual and normal functions until it shall have received a license from the
Secretary of the Treasury as provided in Executive order of March 10, 1933.
FRANKLIN D. ROOSEVELT.
THE WHITE HOUSE,

March 18, 1933.
EXECUTIVE! ORDER NO. 6102
FORBIDDING THE HOARDING OF GOLD COIN, GOLD BULLION, AND GOLD CERTIFICATES

GOLD RESERVE ACT OF 19 3 4

tificates now owned by them or coming into their ownership on or before April
28, 1933, except the following:
(a) Such amount of gold as may be required for legitimate and customary
use in industry, profession, or art within a reasonable time, including gold
prior to refining and stocks of gold in reasonable amounts for the usual trade
requirements of owners mining and refining such gold.
(b) Gold coin and gold certificates in an amount not exceeding in the aggregate $100 belonging to any one person; and gold coins having a recognized
special value to collectors of rare and unusual coins.
(c) Gold coin and bullion earmarked or held in trust for a recognized foreign government or foreign central bank or the Bank of International Settlements.
(d) Gold coin and bullion licensed for other proper transactions (not involving hoarding) including gold coin and bullion imported for reexport or held
pending action on applications for export licenses.
SEC. 3. Until otherwise ordered, any person becoming the owner of any gold
coin, gold bullion, or gold certificates after April 28, 1933, shall, within 3 days
after receipt thereof, deliver the same in the manner prescribed in section 2;
unless such gold coin, gold bullion, or gold certificates are held for any of the
purposes specified in paragraphs (a), (b), or (c) of section 2; or unless such
gold coin or gold bullion is held for purposes specified in paragraph (d) of
section 2 and the person holding it is, with respect to such gold coin or bullion,
a licensee or applicant for license pending action thereon.
SEC. 4. Upon receipt of gold coin, gold bullion, or gold certificates delivered
to it in accordance with sections 2 or 3, the Federal Reserve bank or member
bank will pay therefor an equivalent amount of any other form of coin or
currency coined or issued under the laws of the United States.
SEC. 5. Member banks shall deliver all gold coin, gold bullion, and gold certificates owned or received by them (other than as exempted under the provisions of sec. 2) to the Federal Reserve banks of their respective districts and
receive credit or payment therefor.
SEC. 6. The Secretary of the Treasury, out of the sum made available to the
President by section 501 of the act of March 9, 1933, will in all proper cases pay
the reasonable costs of transportation of gold coin, gold bullion, or gold certificates delivered to a member bank or Federal Reserve bank in accordance with
sections 2, 3, or 5 hereof, including the cost of insurance, protection, and
such other incidental costs as may be necessary, upon production of satisfactory evidence of such costs. Voucher forms for this purpose may be
procured from Federal Reserve banks.
SEC. 7. In cases where the delivery of gold coin, gold bullion, or gold certificates by the owners thereof within the time set forth above will involve extraordinary hardship or difficulty, the Secretary of the Treasury may, in his discretion, extend the "time within which such delivery must be made. Applications for such extensions must be made in writing under oath, addressed to the
Secretary of the Treasury and filed with a Federal Reserve bank. Each application must state the date to which the extension is desired, the amount and
location of the gold coin, gold bullion, and gold certificates in respect of which
such application is made and the facts showing extension to be necessary to
avoid extraordinary hardship or difficulty.
SEC. 8. The Secretary of the Treasury is hereby authorized and empowered
to issue such further regulations as he may deem necessary to carry out the
purposes of this order and to issue licenses thereunder, through such officers or
agencies as he may designate, including licenses permitting the Federal Reserve
banks and member banks of the Federal Reserve System, in return for an
equivalent amount of other coin, currency, or credit, to deliver, earmark, or hold
in trust gold coin and bullion to or for persons showing the need for the same
for any of the purposes specified in paragraphs (a), (c), and (d) of section 2
of these regulations.
SEC. 9. Whoever willfully violates any provision of this Executive order or of
these regulations, or of any rule, regulation, or license issued thereunder may be
fined not more than $10,000, or, if a natural person, may be imprisoned for not
more than 10 years, or both; and any officer, director, or agent of any corporation who knowingly participates in any such violation may be punished by a
like fine, imprisonment, or both.
This order and these regulations may be modified or revoked at any time.
FRANKLIN D. ROOSEVELT.
THE WHITE HOUSE,

April 5, 19S3.

GOLD RESERVE ACT OF 1934
EXECUTIVE ORDER NO.

6111

RELATING TO FOREIGN EXCHANGE AND THE EARMARKING AND EXPORT OF GOLD COIN
OR BULLION OR CURRENCY

By virtue of the authority vested in me by section 5 (b) of the act of October
6, 1917, as amended by section 2 of the act of March 9, 1933, entitled "An act to
provide relief in the existing national emergency in banking, and for other purposes ", in which amendatory act Congress declared that a serious emergency
exists, I, Franklin D. Roosevelt, President of the United States of America, do
declare that said national emergency still continues to exist and pursuant to
said section and by virtue of all other authority vested in me, do hereby issue
the following Executive order:
1. Until further order, the earmarking for foreign account and the export of
gold coin, gold bullion, or gold certificates from the United States or any place
subject to the jurisdiction thereof are hereby prohibited, except that the Secretary of the Treasury, in his discretion and subject to such regulations as he
may prescribe, may issue licenses authorizing the export of gold coin and
bullion (a) earmarked or held in trust for a recognized foreign government or
foreign central bank or the Bank for International Settlements, (b) imported
for reexport or gold in reasonable amounts for usual trade requirements of
refiners importing gold-bearing materials under agreement to export gold, (c)
actually required for the fulfillment of any contract entered into prior to the
date of this order, by an applicant who in obedience to the Executive order of
April 5, 1933, has delivered gold coin, gold bullion, or gold certificates, and (d),
with the approval of the President, for transactions which he may deem necessary to promote the public interest.
2. Until further order, the Secretary of the Treasury is authorized, through
any agency that he may designate, to investigate, regulate, or prohibit, under
such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, transfers of credit from any banking institution within the United States or any place subject to the jurisdiction thereof to any foreign branch or office of such banking institution or to
any foreign bank or banker, and the export or withdrawal of currency from
the United States or any place subject to the jurisdiction of the United States,
by any individual, partnership, association, or corporation within the United
States or any place subject to the jurisdiction thereof; and the Secretary of the
Treasury may require any individual, partnership, association, or corporation
engaged in any transaction referred to herein to furnish under oath, complete
information relative thereto, including the production of any books of account,
contracts, letters, or other papers, in connection therewith in the custody or
control of such individual, partnership, association, or corporation either before
or after such transaction is completed.
3. The provisions relating to foreign exchange transactions contained in the
Executive order of March 10, 1933, shall remain in full force and effect
except as amended or supplemented by this order and by regulations issued
hereunder.
4. Applicants who have gold coin, gold bullion, or gold certificates in their
possession, or who in obedience to the Executive order of April 5, 1933, have
delivered gold coin, gold bullion, or gold certificates shall be entitled to licenses
as provided in section 8 of said Executive order for amounts not exceeding
the equivalent of such coin, bullion, or certificates held or delivered. The
Secretary may in his discretion issue or decline to issue any other licenses
under said Executive order, which shall in all other respects remain in full
force and effect.
5. Whoever willfully violates any provision of this Executive order or of
any rule, regulation, or license issued thereunder may be fined not more than
$10,000, or, if a natural person, may be imprisoned for not more than 10 years,
or both; and any officer, director, or agent of any corporation who knowingly
participates in any such violation may be punished by a like fine, imprisonment,
or both.
This order may be modified or revoked at any time.
FRANKLIN D. ROOSEVELT.
T H E WHITE HOUSE,

April 20, 1933.
46217—34

GOLDRESERVEACT OF 19 3 4

TREASURY DEPARTMENT REGULATIONS RELATING TO LICENSING THE PURCHASE
AND EXPORT OF GOLD, APRIL 29, 1933
ARTICLE I. MISCELLANEOUS PROVISIONS

SECTION 1. Authority for regulations.—In pursuance of the provisions of section 5 (b) of the act of October 6, 1917, as amended by section 2 of the act of
March 9, 1933, and the Executive orders of the President dated March 10, 1933,
April 5, 1933, and April 20, 1933, these regulations are prescribed.
SEC. 2. Definitions.—For the purposes of these regulations, the term "person"
means an individual, partnership, association or corporation; and the term
"United States" means the continental United States, including Alaska.
SEC. 3. Licenses nontransferable.—Licenses or permits issued or granted unde
these regulations shall not be transferred.
SEC. 4. Scope.—These regulations shall be operative within the United States
as defined, unless otherwise indicated.
SEC. 5. Penalties.—Whoever willfully violates any provision of these regulations or of any license issued hereunder may be fined not more than $10,000, or,
if a natural person, may be imprisoned for not more than 10 years, or both; and
any officer, director or agent of any corporation who knowingly participates in
any such violation may be punished by a like fine, imprisonment, or both.
ARTICLE II. PURCHASE OF GOLD FOR USE IN INDUSTRY, PROFESSION OR ART

SECTION 1. Eligible applicants.—Any person having a legitimate and customary
use for gold in industry, profession or art (including research and scientific
work), or any person customarily supplying gold to others for such use (hereinafter called a "dealer"), may file with a Federal Reserve bank an application to
purchase such quantity of gold as may be required for legitimate and customary
use within a reasonable time.
SEC. 2. Applications.—Such application shall be filed in duplicate, executed
under oath and verified before an officer duly authorized to administer oaths,
and shall contain (a) the name and address of the applicant, (b) the industry,
profession or art or business in which the applicant is engaged, (c) the amount
of gold usually required for use in the applicant's business for a period of 90 days,
(d) the amount of gold used or sold during the preceding calendar year, (e) the
amount and a description of all gold on hand at the date of the application, (f)
the amount of gold applied for, (g) a statement that the applicant will use such
gold as he may be permitted to purchase only for the legitimate and customary
requirements of industry, profession or art, or for sale exclusively in industry,
profession, or art, and (h) a statement that no other application is pending.
SEC. 3. Purchase of gold.—Upon receipt of the applicatipn and after making
such investigation of the case as it may deem advisable, the Federal Reserve
bank, if satisfied that the gold is necessary for the legitimate and customary
requirements of the applicant's business, industry, profession, or art, within a
reasonable time, may permit the applicant to purchase such quantity of gold
(not in excess of the amount applied for) as may be necessary for such use upon
payment therefor of an equivalent amount of coin or currency coined or issued
under the laws of the United States. The applicant shall keep an exact record
of the disposition of such gold, and, in the case of a dealer furnishing gold for
use in industry, profession, or art, such dealer shall keep a record which shall
show the amounts and dates of sales and the names and addresses of the purchasers. Such records shall be available for examination by a representative
of the Treasury Department for at least 1 year after date of the disposition of
the gold. The gold so purchased shall be used or disposed of only in accordance
with this article and the Executive order of April 5, 1933. Dealers withdrawing
gold under this article shall require of the persons who purchase gold from them
an affidavit that the gold so purchased will be used exclusively in the industry,
profession, or art in which such purchasers are engaged.
SEC. 4. Prior regulation revoked.—Emergency Banking Regulation No. 25,
issued March 13, 1393, is hereby revoked.
ARTICLE III. EXPORT OF GOLD COIN OR GOLD BULLION

SECTION 1. License required.—No gold coin, gold bullion, or gold certificates
shall be exported from the United States or any place subject to the jurisdiction
thereof, or earmarked for foreign account unless a license therefor shall first

GOLD RESERVE ACT OF 19 3 4

have been obtained from the Secretary of the Treasury in accordance with this
article or article IV of these regulations. Licenses may be issued, in the discretion of the Secretary, authorizing the export of gold coin and gold bullion:
(a) Earmarked or held in trust for a recognized foreign government or foreign
central bank or the Bank for International Settlements; (6) imported for reexport; I
(c) actually required for the fulfillment of any contract calling for payment or
delivery of gold coin or bullion, entered into prior to April 20, 1933, by an applicant who in obedience to the Executive order of April 5, 1933, has delivered gold
coin, gold bullion, or gold certificates in accordance with such order; or (d) with
the approval of the President, for transactions which he may deem necessary
to promote the public interest.
SEC. 2. Application for licenses.—Application for license under section 1 to
export from the United States or any place subject to the jurisdiction thereof any
gold coin or gold bullion shall be made to the Secretary of the Treasury. Each
such application shall be executed in duplicated under oath and verified before
an officer duly authorized to administer oaths, and shall state in detail (a) the
name and address of the applicant, (b) the name and address of the owner of the
gold to be exported, (c) the amount and a description of gold coin or gold bullion
and the location thereof, (d) the port from which export will be made, (e) the
name and address of the consignee, and (/) the nature of the transaction and the
facts making necessary the export. In the case of an application for a license
under section 1 (c) of this article, the application, in addition to the above, shall
gtate in detail, (1) the amount respectively of the gold coin, gold bullion or gold
certificates delivered in obedience to the Executive order of April 5, 1933, and the
date and place of such delivery, and (2) the amount of gold coin or gold bullion
actually required for the fulfilment of the contract. A certified copy of the contract or obligation shall accompany the application.
- SEC. 3. Filing of application.—The application shall be filed with a Federal
Reserve bank, and such bank, after making such investigation of the case as it
may deem necessary, shall transmit the original of such application to the Secretary of the Treasury, together with (a) such supplemental information as it may
deem appropriate and (b) a recommendation as to whether the license should be
granted or denied. A copy of the application shall be retained by the Federal
Reserve bank for its records.
SEC. 4. Issuance of license.-—If the Secretary of the Treasury in his discretion
determines to grant a license upon an application filed under section 3, he will
authorize the Federal Reserve bank through which the application was transmitted to issue on his behalf a license to export a specified amount of gold coin or
gold bullion, and such bank shall thereupon issue such license to the applicant.
If the license applied for is not granted, the bank through which the application
was transmitted will be advised and such bank shall thereupon so notify tl e
applicant.
SEC. 5. License.—Each license for the export of gold coin or bullion shall be
numbered serially and shall bear (a) the date of issue, (b) the name and address
of the licensee, (c) the name and address of the consignee, (d) the amount and
description of the gold licensed, (e) the port of export, and (f) a statement "This
license shall expire 15 days from date of issue".
SEC. 6. Notification of issuance of license.—At the time the license is issued, the
issuing Federal Reserve bank shall transmit a copy thereof to the collector of
customs at the port of export designated thereon. No collector of customs shall
permit the export of any gold coin or bullion under this article except upon
surrender of a license to export, a copy of which has been received by him from
the Federal Reserve bank issuing such license.
SEC. 7. Expiration of license.—All licenses to export gold coin or bullion issued
under this article shall expire 15 days after date of issue and any person holding
a license who fails to export gold coin or bullion in accordance with the terms of
the license shall forthwith deliver such gold coin or bullion to a Federal Reserve
bank.
ARTICLE IV. IMPORT FOR SMELTING AND/OR REFINING AND EXPORT

SECTION 1. Notation upon entry.—Upon the formal entry into the United
States of gold-bearing ores, or any other gold-bearing materials imported into the
United States for smelting and/or refining under an agreement providing for the
export of gold bullion, the importer shall notify the collector of customs at the
1

Export of gold by refiners importing gold-bearing materials is covered by art. IV of these regulations.

GOLDRESERVEACT OF 193 4

port where the gold-bearing ore or material is formally entered that the importation is made under such agreement. The collector shall make a notation on
the entry to this effect and forward a copy of the entry to the United States
Assay Office at New York, N. Y., or to the United States Mint at San Francisco,
Calif., whichever is designated by the importer.
SEC. 2. Sampling and assaying.—Promptly upon the receipt of each importation of gold-bearing ore or material at the plant where it is first to be treated, it
shall be weighed, sampled and assayed for gold content. A reserve commercial
sample shall be retained at such plant for at least one year from the date the importation was received by the plant unless the assay is sooner verified by the
Treasury Department.
SEC. 3. Plant records.—The importer shall cause an exact record, covering each
importation, to be kept at the plant of first treatment. The record shall show
the gross wet weight of the importation, the weight of containers, if any, the net
wet weight, the percentage and weight of moisture, the net dry weight, the gold
content shown by the settlement assay, and the amount of gold bullion required
to be exported under the agreement. An attested copy of such record shall be
filed promptly with the Assay Office or the Mint, whichever has been designated
to receive a copy of the entry.
SEC. 4. Application for export license.—Not later than 15 days from the
date of entry, the importer shall file an application with the Assay Office or the
Mint, whichever has been designated to receive a copy of the entry, for a license
to export gold bullion not in excess of the amount shown by the settlement sheet
covering the importation. Such application shall be filed in duplicate, executed
under oath and verified before an officer duly authorized to administer oaths, and
shall show (a) the name and address of the applicant, (b) the port at which the
importation was formally entered, (c) the entry number, (d) the date of entry,
(e) the plant at which the importation was first treated, (f) the gross wet weight,
(g) the weight of the containers, if any, (h) the net wet weight, (i) the percentage
and weight of moisture, (j) the net dry weight, (k) the gold content, (I) the
amount of gold bullion required to be exported under the agreement, and (m)
the name and address of the proposed consignee of the exportation. The application shall be accompanied by two duly attested conies of the settlement sheet.
SEC. 5. Issuance of serial numbered certificate.—If the superintendent of the
assay office or of the Mint is satisfied as to the accuracy of the data shown on
such application, he shall issue to the importer a dated serial numbered certificate which shall show the amount of gold specified by the application and the
amount specified by the settlement sheet. The Director of the Mint shall prescribe the form of such certificate.
SEC. 6. Issuance of export license.—Upon delivery to the assay office or the
Mint, within 120 days from the date it was issued, of the serial numbered certificate the superintendent of the assay office or Mint shall issue to the importer
a license to export gold bullion in the amount applied for but not in excess of the
amount specified by the settlement sheet as shown on such certificate.
SEC. 7. Licenses.—Each license for the export of gold bullion under this article
shall be numbered serially and shall bear (a) the date of issue, (6) the name and
address of the licensee, (c) the name and address of the consignee, (d) the amount
and description of the gold licensed, (e) the port of export, and (f) a statement
"This license shall expire 15 days from date of issue."
SEC. 8. Notification of issuance of license.—At the time the license is issued,
the issuing assay office or Mint shall transmit a copy thereof to the collector of
customs at the port of export designated thereon. No collector of customs shall
permit the export of any gold bullion under this article except upon surrender of
a license to export, a copy of which has been received by him from the assay
office or Mint issuing the license.
SEC. 9. Expiration of license.—All licenses to export gold bullion issued under
this article shall expire 15 days after date of issue and any person holding a
license who fails to export the gold bullion in accordance with the terms of the
license shall forthwith deliver such bullion to a Federal Reserve bank.
ARTICLE V. ACQUISITION OR RETENTION OF GOLD COIN, GOLD BULLION OR GOLD
CERTIFICATES FOR PROPER TRANSACTIONS NOT INVOLVING HOARDING

SECTION 1. Licenses for proper transactions and for purposes not covered in pre-

ceding articles.—Any person showing the need for gold coin or gold bullion for a
proper transaction not involving hoarding or for gold coin or gold bullion for a

GOLD RESERVE ACT OF 1934

purpose specified in the Executive order of April 5, 1933, and not covered by the
foregoing articles of these regulations, may make application to the Secretary of
the Treasury for a license to purchase, or if such coin or bullion is already in
his possession, to retain such coin or bullion, in amounts as may be reasonably
necessary for such proper transaction or purpose. Applications shall be filed
with any Federal Reserve bank. The application shall be filed in duplicate,
executed under oath and verified before an officer duly authorized to administer
oaths and shall contain (a) the name and address of the applicant, (b) the amount
of gold coin or gold bullion desired to be purchased or retained, (c) the amount
and description of the gold coin or bullion on hand, if any, at the date of the
application, (d) the proper transaction or purpose to which the gold coin or gold
bullion will be devoted and the facts making necessary its purchase or retention, (e) such other facts as will enable the Secretary of the Treasury to determine whether the transaction is proper, and (f) a statement that the applicant
will use such gold coin or gold bullion as he may be permitted to purchase or retain
only for the transaction or purpose set forth in the application. In the case of
an applicant for a license who has delivered in obedience to the Exectuive order
of April 5, 1933, gold coin, gold bullion, or gold certificates, the application, in
addition to the above, shall state in detail (1) the amount of gold coin, gold
bullion or gold certificates delivered in obedience to the Executive order of April
5, 1933, (2) the date of such delivery, and (3) the bank at which delivered.
SEC. 2. Disposition of applications.—On the receipt of any such application, the
Federal Reserve bank shall make such investigation of the case as it may deem
advisable and shall transmit to the Secretary of the Treasury the original of such
application, together with (a) any supplemental information it may deem appropriate and (6) a recommendation whether a license should be granted or denied.
The Federal Reserve bank shall retain a copy of the application for its records.
SEC. 3. Granting or denial of the license.—-Upon receipt of the original application and the recommendation of the Federal Reserve bank transmitting it, the
Secretary of the Treasury will grant or deny the license. A license will be granted
on application for the retention or acquisition of gold coin or bullion made by
any person showing the need for such gold coin or bullion in accordance with the
provisions of section 8 of the Executive order of April 5, 1933, in cases where such
person has gold coin, gold bullion or gold certificates in his possession, or in
obedience to said Executive order, has delivered such coin, bullion or certificates.
A license so granted shall be for an amount of gold coin or bullion not exceeding
the amount of such coin, bullion, or certificates held or delivered. When the
issuance of a license is approved by the Secretary of the Treasury the Federal
Reserve bank through which application was made, will issue a license to the
applicant. If denied, the Federal Reserve bank will be so advised and shall
immediately notify the applicant. The decision of the Secretary of the Treasury
shall be final. The Federal Reserve bank shall note upon the retained copy of
the application whether or not a license has been granted, and, if granted, the
date of the license and the amount of the gold coin or gold bullion covered
thereby.
SEC. 4. Acquisition of gold.—Upon presentation of a license for the acquisition
of gold coin or bullion to a Federal Reserve bank, such bank shall deliver to the
licensee the amount of gold coin or gold bullion authorized in such license upon
payment therefor in an equivalent amount of any form of coin or currency coined
or issued under the laws of the United States.
SEC. 5. Reports required on the disposition of gold coin or bullion.—Any person
holding a license for the retention or acquisition of gold coin or bullion issued under
this article, who shall at any time dispose of such gold coin or bullion in accordance with the terms of the license or otherwise, shall immediately file a written
report in duplicate with the Federal Reserve bank through which the license was
issued. Such report shall be executed under oath and verified before an officer
duly authorized to administer oaths and shall contain (a) the names and addresses
of the person or persons to whom such gold coin or bullion was delivered, (6)
the amounts thereof and whether gold coin or gold bullion, and (c) the reason
for such delivery. On the receipt of any such report, the Federal Reserve bank
receiving it shall immediately transmit the original to the Secretary of the
Treasury in Washington and shall retain a copy for its record. Upon the transfer
of any gold coin or bullion by a person licensed to retain or acquire the same, such
licensee shall advise the transferee of the provisions of the Executive order of
April 5, 1933, and of the penalties for its violation, and such transferee shall
deliver such gold coin or bullion so received to a Federal Reserve bank or branch

GOLD RESERVE ACT OF 193 4

or agent thereof or any member bank of the Federal Reserve System in accordance with the Executive order of April 5, 1933, and shall be subject to the penalties of said Executive order for any violation thereof.
These regulations may be supplemented, modified or revoked at any time.
W.

WOODIN,

Secretary of the Treasury.
PRESIDENT'S MESSAGE TO ECONOMIC CONFERENCE, JULY 3,

1933

The Secretary of State, Mr. Cordell Hull, at London, in his capacity as Secretary of State, today made public the following message to him from the President
of the United States, dated July 2, 1933:
" I would regard it as a catastrophe amounting to a world tragedy if the great
conference of nations, called to bring about a more real and permanent financial
stability and a greater prosperity to the masses of all nations, should, in advance
of any serious effort to consider these broader problems, allow itself to be diverted
by the proposal of a purely artificial and temporary experiment affecting the
monetary exchange of a few nations only. Such action, such diversion, shows a
singular lack of proportion and a failure to remember the larger purposes for which
the economic conference originally was called together.
" I do not relish the though that insistence on such action should be made an
excuse for the continuance of the basic economic errors that underlie so much of
the present world wide depression.
"The world will not long be lulled by the specious fallacy of achieving a temporary and probably an artificial stability in foreign exchange on the part of a few
large countries only.
"The sound internal economic system of a nation is a greater factor in its well
being than the price of its currency in changing terms of the currencies of other
nations.
" I t is for this reason that reduced cost of government, adequate government
income, and ability to service government debts are all so important to ultimate
stability. So too, old fetishes of so-called international bankers are being replaced by efforts to plan national currencies with the objective of giving to those
currencies a continuing purchasing power which does not greatly vary in terms of
the commodities and need of modern civilization. Let me be frank in saying that
the United States seeks the kind of a dollar which a generation hence will have the
same purchasing and debt paying power as the dollar value we hope to attain in
the near future. That objective means more to the good of other nations than a
fixed ratio for a month or two in terms of the pound or franc.
"Our broad purpose is the permanent stabilization of every nation's currency.
Gold or gold and silver can well continue to be a metallic reserve behind currencies
bu[but]this is not the time to dissipate gold reserves. When the world works out
concerted policies in the majority of nations to produce balanced budgets and
living within their means, then we can properly discuss a better distribution of the
world's gold and silver supply to act as a reserve base of national currencies.
Restoration of world trade is an important partner, both in the means and in the
result. Here also temporary exchange fixing is not the true answer. We must
rather mitigate existing embargoes to make easier the exchange of products which
one nation has and the other nation has not.
"The Conference was called to better and perhaps to cure fundamental
economic ills. It must not be diverted from that effort."

EXECUTIVE ORDER NO. 6260
RELATING TO THE HOARDING, EXPORT, AND EARMARKING OF GOLD COIN, BULLION,
OR CURRENCY, AND TO TRANSACTIONS IN FOREIGN EXCHANGE

By virtue of the authority vested in my by section 5 (b) of the act of
October 6, 1917, as amended by section 2 of the act of March 9, 1933, entitled
"An act to provide relief in the existing national emergency in banking and
for other purposes ", I, Franklin D. Roosevelt, President of the United States
of America, do declare that a period of national emergency exists, and by virtue

GOLD RESERVE ACT OF 19 34

of said authority and of all other authority vested in me, do hereby prescribe
the following provisions for the investigation and regulation of the hoarding,
earmarking, and export of gold coin, gold bullion, and gold certificates by any
person within the United States or any place subject to the jurisdiction thereof;
and for the investigation and regulation of transactions in foreign exchange
and transfers of credit and the export or withdrawal of currency from the
United States or any place subject to the jurisdiction thereof by any person
within the United States or any place subject to the jurisdiction thereof.
SEC. 2. Definitions.—As used in this order the term " person" means an
individual, partnership, association, or corporation; and the term " the United
States" means the United States and any place subject to the jurisdiction
thereof.
SEC. 3. Returns.—Within 15 days from the date of this order every person in
possession of and every person owning gold coin, gold bullion, or gold certificates
shall make under oath and file as hereinafter provided a return to the Secretary of the Treasury containing true and complete information relative thereto,
including the name and address of the person making the return; the kind and
amount of such coin, bullion, or certificates held and the location thereof; if
held for another, the capacity in which held and the person for whom held, together with the post-office address of such person; and the nature of the transaction requiring the holding of such coin, bullion, or certificates and a statement explaining why such transaction cannot be carried out by the use of currency other than gold certificates; provided that no returns are required to be
filed with respect to—
(a) Gold coin, gold bullion, and gold certificates in an amount not exceeding
in the aggregate $100 belonging to any one person;
(b) Gold coin having a recognized special value to collectors of rare and
unusual coin;
(c) Gold coin, gold bullion, and gold certificates acquired or held under a
license heretofore granted by or under authority of the Secretary of the
Treasury; and
(d) Gold coin, gold bullion, and gold certificates owned by Federal Reserve
banks.
Such return required to be made by an individual shall be filed with the
collector of internal revenue for the collection district in which such individual
resides, or, if such individual has no legal residence in the United States, then
with the collector of internal revenue at Baltimore, Md. Such return required
to be made by a partnership, association, or corporation shall be filed with
the collector of internal revenue of the collection district in which is located
the principal place of business or principal office or agency of such partnership,
association, or corporation, or, if it has no principal place of business or
principal office or agency in the United States, then with the collector of internal revenue at Baltimore, Md. Such return required to be made by an
individual residing in Alaska shall be filed with the collector of internal
revenue at Seattle, Wash. Such return required to be made by a partnership,
association, or corporation having its principal place of business or principal
office or agency in Alaska shall be filed with the collector of internal revenue
at Seattle, Wash.
The Secretary of the Treasury may grant a reasonable extension of time for
filing a return, under such rules and regulations as he shall prescribe. No such
extension shall be for more than 45 days from the date of this Executive order.
An extension granted hereunder shall be deemed a license to hold for a period
ending 15 days after the expiration of the extension.
The returns required to be made and filed under this section shall constitute
public records; but they shall be open to public inspection only upon order of
the President and under rules and regulations prescribed by the Secretary
of the Treasury.
A return made and filed in accordance with this section by the owner of the
gold coin, gold bullion, and gold certificates described therein, or his duly
authorized agent, shall be deemed an application for the issuance under section
5 hereof of a license to hold such coin, bullion, and certificates.

SEC. 4. Acquisition of gold coin and gold bullion.—No person other than a
Federal Reserve bank shall after the date of this order acquire in the United
States any gold coin, gold bullion, or gold certificates except under license
therefor issued pursuant to this Executive order, provided that member banks
of the Federal Reserve System may accept delivery of such coin, bullion, and
certificates for surrender promptly to a Federal Reserve bank, and provided

GOLD RESERVE ACT OF 193 4

further that persons requiring gold for use in the industry, profession, or art
in which they are regularly engaged may replenish their stocks of gold up to an
aggregate amount of $100, by acquisitions of gold bullion held under licenses
issued under section 5 (b), without necessity of obtaining a license for such
acquisitions.
The Secretary of the Treasury, subject to such further regulations as he may
prescribe, shall issue licenses authorizing the acquisition of—
(a) Gold coin or gold bullion which the Secretary is satisfied is required
for a necessary and lawful transaction for which currency other than gold
certificates cannot be used, by an applicant who establishes that since March
9, 1933, he has surrendered an equal amount of gold coin, gold bullion, or gold
certificates to a banking institution in the continental United States or to the
Treasurer of the United States;
(b) Gold coin or gold bullion which the Secretary is satisfied is required
by an applicant who holds a license to export such an amount of gold coin
or gold bullion issued under subdivisions (c) or (d) of section 6 hereof; and
(c) Gold bullion which the Secretary, or such agency as he may designate,
is satisfied is required for legitimate and customary use in industry, profession,
or art by an applicant regularly engaged in such industry, profession, or art,
or in the business of furnishing gold therefor.
Licenses issued pursuant to this section shall authorize the holder to acquire
gold coin and gold bullion only from the sources specified by the Secretary of
the Treasury in regulations issued hereunder.
SEC. 5. Holding of gold coin, gold bullion, and gold certificates.—After 30
days from the date of this order no person shall hold in his possession or retain
any interest, legal or equitable, in any gold coin, gold bullion, or gold certificates
situated in the United States and owned by any person subject to the jurisdiction of the United States, except under license therefor issued pursuant to this
Executive order: Provided, however, That licenses shall not be required in order
to hold in possession or retain an interest in gold coin, gold bullion, or gold
certificates with respect to which a return need not be filed under section 3
hereof.
The Secretary of the Treasury, subject to such further regulations as he may
prescribe, shall issue licenses authorizing the holding of—
(a) Gold coin, gold bullion, and gold certificates, which the Secretary is
satisfied are required by the person owning the same for necessary and lawful
transactions for which currency, other than gold certificates, cannot be used;
(b) Gold bullion which the Secretary, or such agency as he may designate, is satisfied is required for legitimate and customary use in industry,
profession, or art by a person regularly engaged in such industry, profession,
or art or in the business of furnishing gold therefor ;
(c) Gold coin and gold bullion earmarked or held in trust since before April
20, 1933, for a recognized foreign government or foreign central bank or the
Bank for International Settlements; and
(d) Gold coin and gold bullion imported for reexport or held pending action
upon application for export licenses.
SEC. 6. Earmarking and export of gold coin and gold bullion.—After the date
of this order no person shall earmark or export any gold coin, gold bullion, or
gold certificates from the United States, except under license therefor issued
by the Secretary of the Treasury pursuant to the provisions of this order.
The Secretary of the Treasury, in his discretion and subject to such regulations as he may prescribe, may issue licenses authorizing—
(a) The export of gold coin or gold bullion earmarked or held in trust since
before April 20, 1933, for a recognized foreign government, foreign central bank,
or the Bank for International Settlements;
(b) The export of gold, (i) imported for reexport, (ii) refined from goldbearing materials imported by the applicant under an agreement to export
gold, or (iii) in bullion containing not more than 5 ounces of gold per ton;
(c) The export of gold coin or gold bullion to the extent actually required
for the fulfillment of a contract entered into by the applicant prior to April 20?
1933; but not in excess of the amount of the gold coin, gold bullion, and gold
certificates surrendered by the applicant on or after March 9, 1933, to a banking
institution in the continental United States or to the Treasurer of the United
States; and
(d) The earmarking for foreign account and/or export of gold coin or gold
bullion, with the approval of the President, for transactions which the Secretary
of the Treasury may deem necessary to promote the public interest.

GOLD RESERVE ACT OF 19 34

SEC. 7. United States possessions—Shipments thereto.—The provisions of sections 3 and 5 of this order shall not apply to gold coin, gold bullion, or gold
certificates which is situated in the Philippine Islands, American Samoa,
Guam, Hawaii, Panama Canal Zone, Puerto Rico, or the Virgin Islands of the
United States, and is owned by a person not domiciled in the continental
United States. The provisions of section 4 shall not apply to acquisitions
by persons within the Philippine Islands, American Samoa, Guam, Hawaii,
Panama Canal Zone, Puerto Rico, or the Virgin Islands of the United States
of gold coin or gold bullion which has not been taken or sent thereto since
April 5, 1933, from the continental United States or any place subject to the
jurisdiction thereof.
SEC. 8. Until further order, the Secretary of the Treasury is authorized,
through any agency that he may designate, to investigate, regulate, or prohibit,
under such rules and regulations as he may prescribe, by means of licenses
or otherwise, any transactions in foreign exchange, transfers of credit from
any banking institution within the United States to any foreign branch or
office of such banking institution or to any foreign bank or banker, and the
export or withdrawal of currency from the United States, by any person within
the United States; and the Secretary of the Treasury may require any person
engaged in any transaction referred to herein to furnish under oath complete
information relative thereto, including the production of any books of account,
contracts, letters, or other papers, in connection therewith in the custody
or control of such person either before or after such transaction is completed.
SEC. 9. The Secretary of the Treasury is hereby authorized and empowered
to issue such regulations as he may deem necessary to carry out the purposes
of this order. Such regulations may provide for the detention in the United
States of any gold coin, gold bullion, or gold certificates sought to be transported
beyond the limits of the continental United States, pending an investigation to
determine if such coin, bullion, or certificates are held or are to be acquired in
violation of the provisions of this Executive order. Licenses and permits
granted in accordance with the provisions of this order and the regulations
prescribed thereunder may be issued through such officers or agencies as the
Secretary may designate.
SEC. 10. Whoever willfully violates any provision of this Executive order or
of any license, order, rule, or regulation issued or prescribed hereunder shall,
upon conviction, be fined not more than $10,000, or, if a natural person, may be
imprisoned for not more than 10 years, or both; and any officer, director, or
agent of any corporation who knowingly participates in such violation may be
punished by a like fine, imprisonment, or both.
SEC. 11. The Executive orders of April 5, 1933, forbidding the hoarding of
gold coin, gold bullion, and gold certificates, and April 20, 1933, relating to foreign exchange and the earmarking and export of gold coin or bullion or currency, respectively, are hereby revoked. The revocation of such prior Executive
orders shall not affect any act done, or any right accruing or accrued, or any
suit or proceeding had or commenced in any civil or criminal cause prior to
said revocation, but all liabilities under said Executive orders shall continue
and may be enforced in the same manner as if said revocation had not been
made. This Executive order and any regulations or licenses issued hereunder
may be modified or revoked at any time.
FRANKLIN D. ROOSEVELT.
T H E W H I T E HOUSE,

August 28, 193S.
EXECUTIVE ORDER
RELATING TO THE SALE AND EXPORT OF GOLD RECOVERED FROM NATURAL DEPOSITS

By virtue of the authority vested in me by section 5 (b) of the act of October
6,1917, as amended by section 2 of the act of March 9, 1933, entitled "An Act
to Provide Relief in the Existing National Emergency in Banking and for other
Purposes ", I, Franklin D. Roosevelt, President of the United States of America,
do declare that a period of national emergency exists, and by virtue of said
authority and of all other authority vested in me, do hereby issue the following
Executive order:

GOLD RESERVE ACT OF 193 4

The Secretary of the Treasury is hereby authorized to receive on consignment
for sale, subject to such rules and regulations and upon such conditions as he
shall prescribe, gold recovered from natural deposits in the United States or any
place subject to the jurisdiction thereof. Sales may be made:
(a) To persons licensed to acquire gold for use in the arts, industries, or
professions, or
(b) By export to foreign purchasers.
Such sales shall be made at a price which the Secretary shall determine to be
equal to the best price obtainable in the free gold markets of the world after
taking into consideration any incidental expenses such as shipping costs and
insurance.
Such sales may be made through the Federal Reserve banks or such other
agents as the Secretary may from time to time designate and shall be subject to
such charges as the Secretary may from time to time in his judgment determine.
Every person depositing gold for sale as provided herein shall be deemed
to have agreed to accept as conclusive without any right of recourse or review,
the determination of the Secretary or his duly authorized agent as to the
amount due such person as a result of any sale.
Consignments shall be sold as nearly as may be in the order of their receipt.
The Secretary of the Treasury, in his discretion and subject to such regulations as he may prescribe, is hereby authorized to issue licenses permitting the
export of articles fabricated from gold sold pursuant to this Executive order.
This Executive order may be modified or revoked at any time.
FRANKLIN D. ROOSEVELT.
THE WHITE HOUSE,

August 29, 1933.
EXTRACTS FROM THE "ADDRESS OF THE PRESIDENT DELIVERED BY RADIO FROM
THE WHITE HOUSE, OCTOBER 22,
1933"

The last pillar of which I speak is that of the money of the country in the banks
of the country. There are two simple facts.
First, the Federal Government is about to spend $1,000,000,000 as an immediate loan on the frozen or nonliquid assets of all banks closed since January
1, 1933, giving a liberal appraisal to those assets. This money will be in the
hands of the depositors as quickly as it is humanly possible to get it out.
Secondly, the Government bank deposit insurance on all accounts up to $2,500
goes into effect on January 1. We are now engaged in seeing to it that on or
before that date the banking capital structure will be built up by the Government
to the point that the banks will be in sound condition when the insurance goes
into effect.
Finally, I repeat what I have said on many occasions, that ever since last
March the definite policy of the Government has been to restore commodity
price levels. The object has been the attainment of such a level as will enable
agriculture and industry once more to give work to the unemployed. It has
been to make possible the payment of public and private debts more nearly at
the price level at which they were incurred. It has been gradually to restore a
balance in the price structure so that farmers may exchange their products for
the products of industry on a fairer exchange basis. It has been and is also the
purpose to prevent prices from rising beyond the point necessary to attain these
ends. The permanent welfare and security of every class of our people ultimately
depends on our attainment of these purposes.
Obviously, and because hundreds of different kinds of crops and industrial
occupations in the huge territory that makes up this Nation are involved, we
cannot reach the goal in only a few months. We may take 1 year or 2 years or
3 years.
No one who considers the plain facts of our situation believes that commodity
prices, especially agricultural prices, are high enough yet.
Some people are putting the cart before the horse. They want a permanent
revaluation of the dollar first. It is the Government's policy to restore the price
level first. I would not know, and no one else could tell, just what the permanent
valuation of the dollar will be. To guess at a permanent gold valuation now would
certainly require later changes caused by later facts.
When we have restored the price level, we shall seek to establish and maintain
a dollar which will not change its purchasing and debt paying power during the

GOLD RESERVE ACT OF 19 34

succeeding generation. I said that in my message to the American delegation
in London last July. And I say it now once more.
Because of conditions in this country and because of events beyond our control
in other parts of the world, it becomes increasingly important to develop and
apply the further measures which may be necessary from time to time to control
the gold value of our own dollar at home.
Our dollar is now altogether too greatly influenced by the accidents of international trade, by the internal policies of other nations and by political disturbance in
other continents. Therefore the United States must take firmly in its own hands
the control of the gold value of our dollar. This is necessary in order to prevent
dollar disturbances from swinging us away from our ultimate goal, namely, the
continued recovery of our commodity prices.
As a further effective means to this end, I am going to establish a Government
market for gold in the United States. Therefore, under the clearly defined
authority of existing law, I am authorizing the Reconstruction Finance Corporation to buy gold newly mined in the United States at prices to be determined from
time to time after consultation with the Secretary of the Treasury and the President. Whenever necessary to the end in view, we shall also buy or sell gold in
the world market.
My aim in taking this step is to establish and maintain continuous control.
This is a policy and not an expedient.
It is not to be used merely to offset a temporary fall in prices. We are thus
continuing to move toward a managed currency.
You will recall the dire predictions made last spring by those who did not
agree with our common policies of raising prices by direct means. What actually
happened stood out in sharp contrast with those predictions. Government credit
is high, prices have risen in part. Doubtless prophets of evil still exist in our
midst. But Government credit will be maintained and a sound currency will
accompany a rise in the American commodity price level.
I have told you tonight the story of our steady but sure work in building our
common recovery. In my promises to you both before and after March 4, I
made two things plain: First, that I pledged no miracles and, second, that I
would do my best.
I thank you for your patience and your faith. Our troubles will not be over
tomorrow, but we are on our way and we are headed in the right direction.

RELATING TO GOLD RECOVERED FROM NATURAL DEPOSITS
By virtue of the authority vested in me by section 5 (b) of the act of October 6,
1917, as amended by section 2 of the act of March 9, 1933, entitled "An Act to
provide relief in the existing national emergency in banking, and for other
purposes", I, Franklin D. Roosevelt, President of the United States of America,
do declare that a period of national emergency exists, and by virtue of said
authority and of all other authority vested in me, do hereby issue the following
Executive order:
SECTION 1. The Executive order of August 29, 1933, relating to the sale and
export of gold recovered from natural deposits is hereby revoked; Provided,
however, That the Secretary of the Treasury is authorized to sell in accordance
therewith gold received on consignment for sale on or before the date of this
Executive order.
SEC. 2. The United States mints and assay offices are hereby authorized, subject to such regulations as may from time to time be prescribed by the Secretary
of the Treasury, to receive on consignment gold which the mint or assay office to
which the gold is delivered is satisfied has been recovered from natural deposits
in the United States or any place subject to the jurisdiction thereof.
SEC. 3. The Reconstruction Finance Corporation is authorized, subject to such
regulations as may from time to time be prescribed by the Secretary of the
Treasury, to acquire gold which has been received on consignment by a United
States mint or assay office, and to hold, earmark for foreign account, export,
or otherwise dispose of such gold.
SEC. 4. The Excutive order of August 28, 1933, relating to the hoarding,
export, and earmarking of gold coin, bullion, or currency, and to transactions
in foreign exchange, is hereby amended to permit, subject to such regulations
as may from time to time be prescribed by the Secretary of the Treasury, the
export of articles fabricated from gold.

GOLD RESERVE ACT OF 193 4

SEC. 5. The Secretary of the Treasury is hereby authorized and empowered to
issue such regulations as he may deem necessary to carry out the purpose of this
Executive order.
SEC. 6. This Executive order and any regulations issued hereunder may be
modified or revoked at any time.
FRANKLIN D. ROOSEVELT.
THE WHITE HOUSE,

October 25, 1938.
TREASURY DEPARTMENT'S IMMEDIATE RELEASE, GOLD REGULATIONS, OCTOBER

25, 1933
Issued under the authority of section 5 (b) of the act of October 6, 1917, as
amended by section 2 of the act of March 9, 1933, and the Executive order of
October 25, 1933, relating to gold recovered from natural deposits.
Part II and part III of the gold regulations issued by the Seecrtary[Secretary]of the
Treasury September 12, 1933, under the authority of section 5 (b) of the act of
October 6, 1917, as amended by section 2 of the act of March 9, 1933, and the
Executive orders of August 28, 1933, relating to the hoarding, export, and earmarking of gold coin, bullion, or currency and to transactions in foreign exchange,
and of August 29, 1933, relating to the sale and export of gold recovered from
natural deposits, are hereby amended to read as follows:
PART II—EXECUTIVE ORDER OF OCTOBER 25,

1933

By virtue of the authority vested in me by section 5 (b) of the act of October 6,
1917, as amended by section 2 of the act of March 9, 1933, entitled "An Act to
provide relief in the existing national emergency in banking, and for other
purposes", I, Franklin D. Roosevelt, President of the United States of America,
do declare that a period of national emergency exists, and by virtue of said authority and of all other authority vested in me, do hereby issue the following
Executive order:
SECTION 1. The Executive order of August 29, 1933, relating to the sale and
export of gold recovered from natural deposits, is hereby revoked: Provided,
however, That the Secretary of the Treasury is authorized to sell in accordance
therewith gold received on consignment for sale on or before the date of this
Executive order.
SEC. 2. The United States mints and assay offices are hereby authorized, subject to such regulations as may from time to time be prescribed by the Secretary
of the Treasury, to receive on consignment gold which the mint or assay office to
which the gold is delivered is satisfied has been recovered from natural deposits
in the United States or any place subject to the jurisdiction thereof.
SEC. 3. The Reconstruction Finance Corporation is authorized, subject to such
regulations as may from time to time be prescribed by the Secretary of the
Treasury, to acquire gold which has been received on consignment by a United
States mint or assay office, and to hold, earmark for foreign account, export, or
otherwise dispose of such gold.
SEC. 4. The Executive order of August 28, 1933, relating to the hoarding,
export, and earmarking of gold coin, bullion, or currency and to transactions in
foreign exchange, is hereby amended to permit, subject to such regulations as
may from time to time be prescribed by the Secretary of the Treasury, the export
of articles fabricated from gold.
*
*
*
*
*
*
*
ART. 29. Gold received on consignment.—The United States Mint and Assay
Offices under the conditions specified in this and the following articles of these
Regulations and subject to the appropriate regulations governing any United
States mint or assay office, will receive on consignment for delivery to the Reconstruction Finance Corporation gold which such mint or assay office is satisfied
has been recovered from natural deposits in the United States or any place subject
to the jurisdiction thereof: Provided, however, That no gold shall be received
under the provisions hereof which in the opinion of the mint was held at any time
in noncompliance with the act of March 9, 1933, and the Executive orders and
regulations issued thereunder: And provided, further, That no mint or assay office
shall receive on consignment any gold which in its opinion has theretofore entered
into industrial or monetary use.

GOLD RESERVE ACT OF 19 34

Gold will be received in amounts of not less than 2 ounces of fine gold and in
the following forms: Bars, kings, buttons, retort sponge, lumps, grains, and dust,
in their native state free from earth and stone, or nearly so. Consignments shall
not contain less than 200 parts of gold in 1,000 by assay. In the case of gold
forwarded to a mint by mail or express, the original package will not be opened
until an invoice of the description and weight of each such package shall have
been received. When there is a material discrepancy between the actual and
invoice weights of a consignment, further action with regard to it will be deferred
pending communication with the consignor.
ART. 30. Rejection of gold by mint.—Consignments which are unsuitable for
mint treatment shall be rejected and returned to the person delivering the same
at his risk and expense. Any consignment of gold which the mint is not satisfied meets the requirements of these regulations will be disposed of in accordance
with applicable law.
ART. 31. Affidavits and agreements to accompany delivery of gold.—Persons delivering gold to a mint for sale under the provisions of the Executive order of
October 25, 1933, shall accompany each such delivery with a properly executed
affidavit and consignment agreement in duplicate as follows:
An affidavit and consignment agreement on form TG-7A shall be filed with
each delivery of gold by persons who have recovered such gold by mining or
panning in the United States or any place subject to the jurisdiction thereof.
An affidavit and consignment agreement on form TG-8A shall be filed with
each delivery of gold by persons who have recovered such gold from gold-bearing
materials in the regular course of their business of operating a custom mill,
smelter, or refinery.
An affidavit and consignment agreement on form TG-8A, together with a
statement also under oath giving (a) the names of the persons from whom the
gold was purchased, (b) amount and description of each lot of gold purchased,
(c) the location of the mine or placer deposit from which each lot was taken,
and (d) the period within which such gold was taken from the mine or placer
deposit, shall be filed with each such delivery of gold by persons who have purchased such gold directly from persons who have mined or panned such gold.
ART. 32. Records and reports.—Every person delivering gold on consignment
in accordance with article 29 of these regulations shall keep accurate records of
all gold mined or acquired, and such records shall be available for examination
by a representative of the Treasury Department for at least 1 year after such
delivery. Such person shall also file with the Director of the Mint, on or before
the 25th day of each month after the date the first consignment is made, a report covering the period of the preceding calendar month: Provided, That the
first report shall cover the period from April 1, 1933, to the end of the calendar
month preceding the date of the report. Such report shall be made under oath
and on the appropriate form as follows:
If the consignor has recovered such gold by mining or panning in the United
States or any place subject to the jurisdiction thereof such report shall be made
on form TGR-7A.
If the consignor has recovered such gold from gold-bearing materials in the
regular course of his business of operating a custom mill, smelter, or refinery
such report shall be made on form TGR-8A.
If the consignor (other than a person operating a custom mill, smelter, or
refinery) has purchased such gold directly from persons who have mined or
panned such gold such report shall be made on form TGR-8B.
ART. 33. Agreement by consignor.—A mint shall not receive gold on consignment under the provisions of the Executive order of October 25, 1933, unless
full compliance with these regulations is shown to its satisfaction, and until the
person owning the gold, or his duly authorized agent, has signed a written agreement to accept as conclusive without any right of recoure[recourse]or review, the determination of the Reconstruction Finance Corporation or its duly authorized agent
as to the face amount of its notes due such person in consideration of the gold
deposited.
ART. 34. Disposition of gold received on consignment.—When, after a delivery
of gold as provided in article 29, the mint is satisfied that the same may properly
be accepted under the provisions of the Executive order of October 25, 1933, and
of these regulations, and that the consignor has fully complied with the same, and
after assay and receipt of mint charges, it shall certify to the Federal Reserve
bank in the district in which the mint is located that is has available, in accordance with the Executive order of October 25, 1933, for the account of the person
by whom or on whose behalf the gold was consigned, the amount of gold shown

GOLD RESERVE ACT OF 193 4

by such assay. Upon receipt of information from the Federal Reserve banks that
gold has been accepted by the Reconstruction Finance Corporation, the mint
shall dispose of such gold in accordance with instructions from the Reconstruction
Finance Corporation or its agent.
ART. 35. Export of fabricated gold.—Articles fabricated from gold may be
exported without the necessity of obtaining a license for such export if the collector of customs at the port of export or the postmaster at the place of mailing
is satisfied that the export of such articles is in the course of a usual and normal
business transaction and is not being made for the purpose of selling the gold
content of such articles for the bullion value.
ART. 36. Forms available.—Any form, the use of which is prescribed in these
regulations, may be obtained at United States mints and assay offices and Federal Reserve banks and at the Treasury Department, Washington.
ART. 37. Modification of regulations.—The provisions of these regulations may
be revoked or modified at any time.
W. H. WOODIN,

Secretary of the Treasury,

Approved.

FRANKLIN D. ROOSEVELT.
THE WHITE HOUSE,

October 25, 1933.
PRESS

RELEASE

OF THE

PRESIDENT'S

SILVER

PROCLAMATION,

DECEMBER

21, 1933
Under the clear authority granted to me by the last session of the Congress, I
have today, by proclamation, preceeded[preceded]to ratify the London agreement with
regard to silver, which has already been put into effect by the Government of
India, and which I understand other nations concerned are about to act on.
This proclamation, in accordance with the act of Congress, opens our mints to
the coinage of standard silver dollars from silver hereafter produced in the United
States or its possessions, subject to the depositors of such silver surrendering to
the Government one half of it as seigniorage and to cover all usual charges and
expenses. The dollars coined from half of such newly mined silver will be returned to the depositor. The half surrendered to the Government will be
retained in the Treasury.
It will be remembered that at the London conference 66 governments unanimously adopted the silver resolution proposed by our Government, providing
in substance that these governments would refrain from the policy and practice
of melting up and debasing silver coins; that they would replace low-valued paper
money with silver coins; and that they would not enact legislation that would
depreciate the value of silver in the world market. This resolution, however,
was contingent upon an agreement between the governments of those countries
producing large quantities of silver and the governments of those countries holding or using large quantities, looking to the elimination of an unnatural oversupply
of silver on the markets of the world. This agreement, of course, was for the
purpose of allowing demand and supply to govern the price of silver by the
limitation and neutralization of this oversupply derived from the melting up of
silver coins.
India had the power to dispose of, on the markets of the world, at any time,
and at any price, hundreds of millions of ounces of silver. In fact, India had the
power and capacity to dump silver derived from the melting up of Indian silver
coins in an amount equal to the world's production from the mines for the period
of 2 years. This power and the uncertainty attending its execution was destructive of the value and stability of silver throughout the world.
China agreed, during the period of 4 years commencing January 1, 1934, and
ending January 1, 1938, not to permit the sale of any silver derived from the
debasing or melting up of silver coins. India agreed to limit the sales of such
silver to a maximum of 35,000,000 ounces annually during such period and Spain
agreed not to sell in excess of 5,000,000 ounces of such silver annualy[an ual y]during such
period. After such sales, these governments are to be bound by the general
resolution adopted at the London conference to which I have heretofore referred.
As a condition of the agreement, China, India, and Spain, however, it was
required that Australia, Canada, Mexico, Peru, and the United States should take

GOLD RESERVE ACT OF 19 3 4

silver from the production of their respective mines to the gross amount of
35,000,000 ounces annually for such period of four years. The United States,
by reason of its large population and its large silver production, agreed to take
from its mines annually at least 24,421,410 ounces of silver during such period.
The production of the United States for 1932 was approximately 24,000,000
ounces of silver.

COINAGE OF SILVER
A PROCLAMATION BY THE PRESIDENT OF THE UNITED STATES OF AMERICA

(No. 2067)
Whereas, by paragraph (2) of section 43, title III, of the act of Congress,
approved May 12, 1933 (Public, No. 10), the President is authorized "By proclamation to fix the weight of the gold dollar in grains nine tenths fine and also to fix
the weight of the silver dollar in grains nine tenths fine at a definite fixed ration in
relation to the gold dollar at such amounts as he finds necessary from his investigation to stabilize domestic prices or to protect the foreign commerce against the adverse effect of depreciated foreign currencies, and to provide for the unlimited
coinage of such gold and silver at the ration so fixed, * * * " ; and
Whereas, from investigations made by me, I find it necessary, in acid of the
stabilization of domestic prices and in accordance with the policy and program
authorized by Congress, which are now being administered, and to protect our
foreign commerce against the adverse effect of depreciated foreign currencies, that
the price of silver be enhanced and stabilized; and
Whereas, a resolution presented by the delegation of the United States of
America was unanimously adopted at the World Economic and Monetary Conference in London on July 20, 1933, by the representatives of 66 governments,
which in substance provided that said governments will abandon the police and
practice of melting up or debasing silver coins; that low-valued silver currency be
replaced with silver coins and that no legislation should be enacted that will depreciate the value of silver; and
Whereas, a separate and supplemental agreement was entered into, at the
instance of the representatives of the United States, between China, India, and
Spain, the holders and users of large quantities of silver, on the one hand, and
Australia, Canada, Mexico, Peru, and the United States on the other hand, as the
chief producers of silver, wherein China agreed not to dispose of any silver derived
from the melting up or debasement of silver coins, and India agreed not to dispose
of over 35,000,000 ounces of silver per annum during a period of 4 years commencing January 1, 1934, and Spain agreed not to dispose of over 5,000,000
ounces of silver annually during said period, and both of said governments agreed
that at the end of said period of 4 years they would then subject themselves to the
general resolution adopted at the London conference, and in consideration of such
limitation it was agreed that the governments of the five producing countries
would each absorb from the mines in their respective countries a certain amount
of silver, the total amount to be absorbed by said producing countries being
35,000,000 ounces per annum during the 4 years commencing the 1st day of
January 1934; that such silver so absorbed would be retained in each of said
respective countries for said period of 4 years, to be used for coinage purposes or as
reserves for currency, or to otherwise be retained and kept off the world market
during such period of time, it being understood that of the 35,000,000 ounces the
United States was to absorb annually at least 24,421,410 ounces of the silver
produced in the United States during such period of time.
Now, therefore, finding it proper to cooperate with other governments and
necessary to assist in increasing and stabilizing domestic prices, to augment the
purchasing power of peoples in silver-using countries, to protect our foreign commerce against the adverse effect of depreciated foreign currencies, and to carry out
the understanding between the 66 governments that adopted the resolution hereinbefore referred to; by virtue of the power in me vested by the act of Congress
above cited, the other legislation designated for national recovery, and by virtue of
all other authority in me vested;
I, Franklin D. Roosevelt, President of the United States of America, do proclaim and direct that each United States coinage mint shall receive for coinage
into standard silver dollars any silver which such mint, subject to regulations prescribed hereunder by the Secretary of the Treasury, is satisfied has been mined,

GOLD RESERVE ACT OF 193 4

subsequently to the date of this proclamation, from natural deposits in the
United States or any place subject to the jurisdiction thereof. The Director of
the Mint, with the voluntary consent of the owner, shall deduct and retain of such
silver so received 50 percent as seigniorage and for services performed by the
Government of the United States relative to the coinage and delivery of silver
dollars. The balance of such silver so received, that is, 50 percent thereof, shall
be coined into standard silver dollars and the same, or an equal number of other
standard silver dollars, shall be delivered to the owner or depositor of such silver.
The 50 percent of such silver so deducted shall be retained as bullion by the
Treasury and shall not be disposed of prior to the 31st day of December 1937,
except for coining into United States coins.
The Secretary of the Treasury is authorized to prescribe regulations to carry
out the purposes of this proclamation. Such regulations shall contain provisions
substantially similar to the provisions contained in the regulations made pursuant
to the act of Congress, approved April 23, 1918 (40 Stat.L., p. 535), known as the
Pittman Act, with such changes as he shall determine prescribing how silver
mined, subsequently to the date of this proclamation from natural deposits in
the United States or any place subject to the jurisdiction thereof, shall be
identified.
This proclamation shall remain in force and effect until the 31st day of December 1937, unless repealed or modified by act of Congress or by subsequent
proclamation.
The present ratio in weight and fineness of the silver dollar to the gold dollar
shall, for the purposes of this proclamation, be maintained until changed by
further order or proclamation.
Notice is hereby given that I reserve the right by virtue of the authority vested
in me to revoke or modify this proclamation as the interest of the United States
may seem to require.
In witness whereof, I have hereunto set my hand and caused the seal of the
United States to be affixed.
Done at the city of Washington this 21st day of December, in the year of our
Lord 1933, and of the Independence of the United States of America the one
hundred and fifty-eighth.
[SEAL]

FRANKLIN D. ROOSEVELT.

By the President:
WILLIAM PHILLIPS,

Acting Secretary of State.

TREASURY DEPARTMENT'S IMMEDIATE RELEASE DECEMBER 28, 1933

Supplementing the President's order of August 28, 1933, the Secretary of the
Treasury has today issued an order under section 3 of the act of March 9, 1933,
requiring every person to deliver all gold coin, gold bullion, and gold certificates
owned by such person, with certain exceptions stated in the order. This order
further carries out the purpose of Congress as expressed in the Emergency Banking Act of March 9, to mobilize the gold coin, gold bullion, and gold certificates
of the country to protect the currency system for the benefit of all citizens. Itapplies to the small holders and to those relatively few large holders who have not
complied with the law.
The former order of the President was issued under section 2 of the same act
of Congress, requiring all persons to file returns relative to the gold coin, gold
bullion, and gold certificates owned by them or in their possession. This order
provided that the return should constitute an application for a license to hold
such gold and gold certificates but provided that after a specified period of time
no person could lawfully hold, without a license, any gold coin, gold bullion or
gold certificates, except as specifically provided in the order.
For the convenience of holders of gold and gold certificates the order provides
that delivery shall be made by placing the gold and gold certificates in custody of
a Federal Reserve bank or branch, or of a bank which is a member of the Federal
Reserve System, to be held by such bank exclusively for the account of the Treasurer of the United States. Upon receipt of the gold coin, gold bullion, or gold
certificates, or receipt of the confirmation, payment will be made for the gold
and gold certificates in an equivalent amount of any form of coin or currency
coined or issued under the laws of the United States. Payment for any gold
bullion will be made at the rate of $20.67 an ounce.

GOLD RESERVE ACT OF 1 9 3 4

ORDER OF THE SECRETARY OF THE TREASURY REQUIRING THE DELIVERY OF GOLD
COIN, GOLD BULLION, AND GOLD CERTIFICATES TO THE TREASURER OF THE UNITED
STATES 1

Whereas section 11 of the Federal Reserve Act of December 23, 1913, as
amended by section 3 of the act of March 9, 1933, entitled "An act to provide
relief in the existing national emergency in banking, and for other purposes ",
provides in subsection (n) as follows:
"Whenever in the judgment of the Secretary of the Treasury such action
is necessary to protect the currency system of the United States, the Secretary
of the Treasury, in his discretion, may require any or all individuals, partnerships, associations, and corporations to pay and deliver to the Treasurer
of the United States any or all gold coin, gold bullion, and gold certificates
owned by such individuals, partnerships, associations, and corporations. Upon
receipt of such gold coin, gold bullion, or gold certificates the Secretary of the
Treasury shall pay therefor an equivalent amount of any other form of coin
or currency coined or issued under the laws of the United States. The Secretary of the Treasury shall pay all costs of the transportation of such gold
bullion, gold certificates, coin, or currency, including the cost of insurance,
protection, and such other incidental costs as may be reasonably necessary.
Any individual, partnership, association, or corporation failing to comply with
any requirement of the Secretary of the Treasury made under this subsection
shall be subject to a penalty equal to twice the value of the gold or gold certificates in respect of which such failure occurred, and such penalty may be
collected by the Secretary of the Treasury by suit or otherwise " ; and
Whereas in my judgment such action is necessary to protect the currency
system of the United States:
Now, therefore, I, Henry Morgenthau, Jr., Acting Secretary of the Treasury,
do hereby require every person subject to the jurisdiction of the United States
forthwith to pay and deliver to the Treasurer of the United States all gold
coin, gold bullion, and gold certificates situated in the United States, owned
by such person, except as follows:
A. Gold bullion owned by a person now holding such gold under a license
heretofore granted by or under authority of the Secretary of the Treasury,
pursuant to the Executive order of August 28, 1933, relating to the hoarding,
export, and earmarking of gold coin, bullion, or currency, and to transactions
in foreign exchange;
B. Gold coin having a recognized special value to collectors of rare and
unusual coin (but not including quarter eagles, otherwise known as $2.50
pieces)2;
C. Unmelted scrap gold and gold sweepings in an amount not exceeding in
the aggregate $100, belonging to any one person; and gold which has been put
through a process of fabrication for a specific and customary industrial, professional, or ornamental use;
D. Gold coin, gold bullion, and gold certificates owned by a Federal Reserve
bank or the Reconstruction Finance Corporation; and
E. Gold bullion and foreign gold coin now situated in the Philippine Islands,
American Samoa, Guam, Hawaii, Panama Canal Zone, Puerto Rico, or the
Virgin Islands of the United States, owned by a person not domiciled or doing
business in the continental United States.
SEC. 2. Delivery.—The gold coin, gold bullion, and gold certificates herein
required to be paid and delivered to the Treasurer of the United States shall
be delivered by placing the same forthwith in the custody of a Federal Reserve
bank or branch or a bank member of the Federal Reserve System for the
account of the United States and by forwarding confirmation that the gold
coin, gold bullion, and gold certificates have been so placed in custody for the
account of the United States and are held subject to the order of the Treasurer
of the United States, signed by such bank and the person making the delivery
(or the authorized agent of such person) to the Treasurer of the United States.
Washington, D.C., in a postage-prepaid envelope bearing a postmark dated
prior to midnight of the day the gold coin, gold bullion, and gold certificates
are so placed in custody.
1
Amended by order of the Secretary of the Treasury, Jan. 11, 1934; see table of
exhibits; and supplemented by order of the Secretary of the Treasury, Jan. 15, 1934 ;
see table of exhibits.
2
Amended by order of the Secretary of the Treasury, Jan. 11, 1934 ; see table of exhibits.
46217—34
4

GOLD RESERVE ACT OF 193 4

SEC. 3. Payment and reimbursement of costs.—Upon receipt of the confirmation signed and delivered as required under section 2, the Secretary of the
Treasury will pay for the gold coin, gold bullion, and gold certificates placed
in custody for the account of the United States in accordance with section 2,
an equivalent amount of any form of coin or currency coined or issued under
the laws of the United States designated by the Secretary of the Treasury.
The Secretary of the Treasury will pay all costs of the transportation of such
gold coin, gold bullion, and gold certificates to the Federal Reserve bank or
branch or bank member of the Federal Reserve System in the city or
town nearest to the place where such gold coin, gold bullion, and gold certificates are now situated, including the cost of insurance, protection, and such
other incidental costs as may be reasonably necessary. Persons desiring reimbursement for such costs actually incurred shall submit their accounts on
voucher forms which may be obtained by writing to the Treasurer of the United
States, Washington, D.C.
SEC. 4. Definitions.—As used in this order, the term " person " means any
individual, partnership, association, or corporation; the term "United States"
means the United States and any place subject to the jurisdiction thereof; the
term " continental United States " means the States of the United States, the
District of Columbia, and the Territory of Alaska; the term "gold coin"
means any coin containing gold, including foreign gold coin; and the term
" gold bullion " means any gold which has been put through a process of smelting or refining that is in such form that its value depends upon the gold content and not upon the form, but does not include gold coin or metals containing less than five troy ounces of fine gold per short ton.
SEC. 5. Any individual, partnership, association, or corporation failing to
comply with any requirement hereof or of any rules or regulations issued by
the Secretary of the Treasury hereunder shall be subject to the penalty provided in section 11 (n) of the Federal Reserve Act, as amended.
This order may be modified or revoked at any time.
H. MORGENTHAU,

Jr.,

Acting Secretary of the Treasury.
Approved.
FRANKLIN D. ROOSEVELT.
T H E WHITE HOUSE,

December 28, 1933.

AMENDING PROCLAMATIONS OF MARCH 6 AND 9, 1933, AND THE EXECUTIVE ORDER
OF MARCH 10, 1933, AND ALL ORDERS AND REGULATIONS PURSUANT THERETO
A PROCLAMATION BY THE PRESIDENT OF THE UNITED STATES OF AMERICA

(No. 2070)
Whereas, on March 6, 1933, I, Franklin D. Roosevelt, President of the United
States of America, by virtue of authority vested in me by the act of October 6,
1917 (40 Stat.L. 411), as amended, issued a proclamation declaring that an
emergency existed and that a national banking holiday be observed;
Whereas, on March 9, 1933, I issued a proclamation continuing the terms
and conditions of said proclamation of March 6, 1933, in full force and effect
Until further proclamation by the President;
Whereas, on March 10, 1933, I issued an Executive order authorizing the
appropriate authority having immediate supervision of banking institutions
in each State or any place subject to the jurisdiction of the United States to
permit any banking institution not a member of the Federal Reserve System to
perform any or all of its usual banking functions except as otherwise provided;
Whereas, the Secretary of the Treasury, pursuant to authority granted by
other provisions of the said Executive order of March 10, 1933, has acted upon
all requests for licensing of banks members of the Federal Reserve System;
Whereas, the Federal Deposit Insurance Corporation has acted upon all
applications to it for membership in the Temporary Federal Deposit Insurance
Fund as provided for in section 12B (y) of the Federal Reserve Act as amended
by section 8 of the act of June 16, 1933 (Public, No. 66, 73d Cong.), and has
admitted to the said fund all applicant banks which are duly and properly
qualified; and

GOLD RESERVE ACT OF 1934

Whereas, it is now appropriate that the banking authority in each State
and any place subject to the jurisdiction of the United States should have any
exercise the sole responsibility for, and control over, banking institutions not
members of the Federal Reserve System;
Now, therefore, I, Franklin D. Roosevelt, President of the United States, in
order to assure that the banking authority in each State and in any place
subject to the jurisdiction of the United States shall have and exercise the sole
responsibility for, and control over, banking institutions which are not members
of the Federal Reserve System, do hereby proclaim, order, direct, and declare
that the proclamations of March 6, 1933, and March 9, 1933, and the Executive
order of March 10, 1933, and all orders and regulations pursuant thereto, are
amended, effective the first day of January, 1934, to exclude from their scope
banking institutions which are not members of the Federal Reserve System.
Provided, however, That no banking institution shall pay out any gold coin, gold
bullion, or gold certificates, except as authorized by the Secretary of the Treasury, nor allow the withdrawal of any currency for hoarding, nor engage in any
transactions in foreign exchange except such as may be undertaken for legitimate and normal business requirements, for reasonable traveling and other
personal requirements, and for the fulfillment of contracts entered into prior to
March 6, 1933.
•, In witness whereof, I have hereunto set my hand and caused the seal of the
United States to be afiixed.
Done in the city of Washington this 30th day of December in the year of
our Lord 1933, and of the independence of the United States the one hundred
and fifty-eighth.
[SEAL]

FRANKLIN D. ROOSEVELT.

By the President:
WILLIAM PHILLIPS,

Acting Secretary of State.

ORDER OF THE SECRETARY OF THE TREASURY AMENDING THE ORDER OF DECEMBER
28, 1933, REQUIRING THE DELIVERY OF GOLD COIN, GOLD BULLION, AND GOLD
CERTIFICATES TO THE TREASURER OF THE UNITED STATES

Whereas in my judgment the order of December 28, 1933, requiring the delivery of gold coin, gold bullion, and gold certificates to the Treasurer of the
United States, may be amended as hereinafter provided without adversely
affecting the purposes thereof.
Now, therefore, I, Henry Morgenthau, Jr., Secretary of the Treasury, do
hereby amend said order of December 28, 1933, by inserting after the word
" pieces" in the parenthetical phrase in paragraph (B) of the first section
thereof a comma and the following: " unless held, together with rare and
unusual coin, as part of a collection for historical, scientific, or numismatic
purposes, containing not more than four quarter eagles of the same date and
design, and struck by the same mint."
This order may be modified or revoked at any time.
H. MORGENTHAU,

Jr.,

Secretary of the Treasury.

Approved.

FRANKLIN D. ROOSEVELT.
T H E WHITE HOUSE,

January 11, 19SJh

EXECUTIVE ORDER NO. 6556
AMENDMENT OF EXECUTIVE ORDER NO. 6260 OF AUGUST 28, 1933

The first paragraph of section 4 of Executive Order No. 6260 of August 28,
1933, relating to the hoarding, export, and earmarking of gold coin, bullion, or
currency, and to transactions in foreign exchange is hereby amended to read
as follows:
SEC. 4. Acquisition of gold coin and gold 'bullion.—No person other than a
Federal Reserve bank shall, after the date of this order, acquire in the United

GOLD EESERVE ACT OF 19 3 4

States any gold coin, gold bullion, or gold certificates except under licensetherefor issued pursuant to this Executive order, provided that member banks
of the Federal Reserve System may accept delivery of such coin, bullion, and
certificates for surrender promptly to a Federal Reserve bank, and provided
further that persons requiring gold fo use in the industry, profession, or art
in which they are regularly engaged may replenish their stocks of gold up to
an aggregate amount of $100, by acquisitions of gold bullion held under licenses
issued under section 5 (b), without necessity of obtaining a license for such
acquisitions, and provided further that collectors of rare and unusual coin may
acquire from one another and hold without necessity of obtaining a license
therefor gold coin having a recognized special value to collectors of rare and
unusual coin (but not including quarter eagles, otherwise known as $2.50 pieces,
unless held, together with rare and unusual coin, as part of a collection for
historical, scientific, or numismatic purposes, containing not more than four
quarter eagles of the same date and design and struck by the same mint).
Section 6 of the aforesaid order is hereby amended by adding thereto the
following subparagraph:
(e) Through any agency that he may designate, the export of gold coin
having a recognized special value to collectors of rare and unusual coin (but
not including quarter eagles, otherwise known as $2.50 pieces, unless held,
together with rare and unusual coin, as part of a collection for historical,
scientific, or numismatic purposes, containing not more than four quarter
eagles of the same date and design and struck by the same mint).
FRANKLIN D. ROOSEVELT.
T H E WHITE HOUSE,

January 12, 1934.
EXECUTIVE ORDER NO. 6560
REGULATING TRANSACTIONS IN FOREIGN EXCHANGE, TRANSFERS OF CREDIT, AND THE
EXPORT OF COIN AND CURRENCY

By virtue of the authority vested in me by section 5 (b) of the act of
October 6, 1917 (40 Stat.L. 411) as amended by section 2 of the act of March
9, 1933, entitled "An act to provide relief in the existing national emergency in
banking and for other purposes ", I, Franklin D. Roosevelt, President of the
United States of America, do declare that a period of national emergency continues to exist, and by virtue of said authority and of all other authority
vested in me, do hereby prescribe the following regulations for the investigation, regulation, and prohibition of transactions in foreign exchange, transfers
of credit between or payments by banking institutions as herein defined, and
export of currency or silver coin, by any person within the United States or any
place subject to the jurisdiction thereof:
SECTION 1. Every transaction in foreign exchange, transfer of credit between
any banking institution within the United States and any banking institution
outside of the United States (including any principal, agent, home ofiice, branch,
or correspondent outside of the United States of a banking institution within
the United States), and the export or withdrawal from the United States of
any currency or silver coin which is legal tender in the United States, by any
person within the United States, is hereby prohibited, except under license
therefor issued pursuant to this Executive order: Provided, however, That, except as prohibited under regulations prescribed by the Secretary of the Treasury, foreign exchange transactions and transfers of credit may be carried out
without a license for (a) normal commercial or business requirements, (o)
reasonable traveling and other personal requirements, or (c) the fulfillment
of legally enforceable obligations incurred prior to March 9, 1933.
SEC. 2. Possessions of the United) States.—Except as prohibited in regulations
prescribed by the Secretary of the Treasury, transfers of credit between banking institutions in the continental United States and banking institutions in
other places subject to the jurisdiction of the United States (including principals, agents, home offices, branches, or correspondents in such other places,
of banking institutions within the continental United States), may be carried
out without a license.
SEC. 3: Licenses.—The Secretary of the Treasury, acting directly or through
any agencies that he may designate, and the Federal Reserve banks, acting in
accordance with such rules and regulations as the Secretary of the Treasury

GOLD BESERVE ACT OF 193 4

?may from time to time prescribe, are hereby designated as agencies for the
granting of licenses as hereinafter provided. Licenses may be granted authorizing such transactions in foreign exchange, transfers of credit, and exports
of currency (other than gold certificates) or silver coin in such specific cases
or classes of cases as the Secretary of the Treasury may determine in regulations prescribed hereunder and rulings made pursuant thereto.
SEC. 4. Reports.—The Federal Reserve banks shall keep themselves currently informed as to foreign exchange transactions entered into or consummated, and transfers of credit made between banking institutions outside of
the continental United States and banking institutions, in their districts, and
report to the Secretary of the Treasury all transactions in foreign exchange and
all such transfers of credit not permitted under sections 1 or 2 hereof which are
effected or attempted in their districts without a license.
SEC. 5. Regulations.—The Secretary of the Treasury is authorized and empowered to prescribe from time to time regulations to carry out the purposes
of this order, and to provide in such regulations or by rulings made pursuant
thereto, the conditions under which licenses may be granted by the Federal
Reserve banks and by such other agencies as the Secretary of the Treasury
may designate; and the Secretary of the Treasury may require any person
engaged in any transaction, transfer, export, or withdrawal referred to in this
Executive order to furnish under oath complete information relative thereto,
including the production of any books of account, contracts, letters, or other
papers, in connection therewith in the custody or control of such person either
before or after such transaction, transfer, export, or withdrawal is completed.
SEC. 6. Penalties.—Whoever willfully violates or knowingly participates in
the violation of any provision of this Executive order or of any license, order,
rule, or regulation issued or prescribed hereunder, shall be subject to the penalties provided in section 5 (b) of the act of October 6, 1917, as amended by
section 2 of the act of March 9, 1933.
SEO. 7. Definitions.—As used in this Executive order the term " United
States" means the United States and any place subject to the jurisdiction
thereof; the term "continental United States" means the States of the United
States, the District of Columbia, and the Territory of Alaska; the term "person " means an individual, partnership, association, or corporation; and the term
" banking institution " includes any person engaged primarily or incidentally in
the business of banking, or granting or transferring credits, or of purchases and
selling foreign exchange or procuring purchasers and sellers thereof, as principal or agent; and for the purposes of this order, each home office, branch,
principal, agent, or correspondent of any person so engaged shall be regarded
as a separate " banking institution."
SEC. 8. Section 8 of the Executive order of August 28, 1933, relating to the
hoarding, export, and earmarking of gold coin, bullion, or currency and to
transactions in foreign exchange, is hereby revoked.
This Executive order and any rules, regulations, or licenses prescribed or
issued hereunder may be modified or revoked at any time.
FRANKLIN D. ROOSEVELT.
THE WHITE HOUSE,

January 15, 193 4.
EXECUTIVE ORDER NO. 6558
RELATING TO RECEIPT OF GOLD ON CONSIGNMENT BY THE MINTS AND ASSAY OFFICES

By virtue of the authority vested in me by section 5 (b) of the act of
October 6, 1917, as amended by section 2 of the act of March 9, 1933, entitled
""An act to provide relief in the existing national emergency in banking and
for other purposes ", I, Franklin D. Roosevelt, President of the United States
of America, do declare that a period of national emergency exists, and by
virtue of said authority and of all other authority vested in me, do hereby
prescribe the following regulations for receiving gold on consignment for sale:
SECTION 1. The United States mints and assay offices are hereby authorized,
subject to such regulations as may from time to time be prescribed by the
Secretary of the Treasury, to receive on consignment gold which the mint or
assay office concerned is satisfied has not been held in noncompliance with the
Executive orders, or the orders of the Secretary of the Treasury, issued under

GOLD EESERVE ACT OF 19 3 4

sections 2 and 3 of the act of March 9, 1933, or in noncompliance with any
regulations or rulings made thereunder or licenses issued pursuant thereto.
SEC. 2. The Secretary of the Treasury is hereby authorized and empowered
to issue such regulations as he may deem necessary to carry out the purposes
of this Executive order.
SEC. 3. This Executive order and any regulations issued hereunder may be
modified or revoked at any time.
FRANKLIN D. ROOSEVELT,
THE WHITE HOUSE,

January IS, 1934.
EXECUTIVE ORDER NO.

6559

AMENDING THE EXECUTIVE ORDER OF MARCH 10, 1933, AND THE PROCLAMATION OF
DECEMBER 30, 1933, CONCERNING THE OPERATION OF BANKS

By virtue of the authority vested in me by section 5 (b) of the act of October
6, 1917 (40 Stat. L. 411), as amended by the act of March 9, 1933, and by
section 4 of said act of March 9, 1933, and by virtue of all other authority
vested in me, I, Franklin D. Roosevelt, President of the United States of
America, do hereby issue the following Executive order:
SECTION- 1. The last two paragraphs of the Executive order of March 10, 1933,
concerning the operation of banks, are amended, effective from the date of
this order, by striking out the following:
" nor to engage in any transaction in foreign exchange except such as may be
undertaken for legitimate and normal business requirements, for reasonable
traveling and other personal requirements, and for the fulfillment of contracts
entered into prior to March 6, 1933.
" Every Federal Reserve bank is authorized and instructed to keep itself
currently informed as to transactions in foreign exchange entered into or
consummated within its district and shall report to the Secretary of the
Treasury all transactions in foreign exchange which are prohibited."
The Secretary of the Treasury is authorized to amend the licenses heretofore
issued with his approval by the Federal Reserve banks under the Executive
order of March 10, 1933, by issuing through the Federal Reserve banks
amendatory licenses removing the restriction upon transactions in foreign
exchange contained in the licenses heretofore issued.
SEC. 2. The proclamation of December 30, 1933, relating to the licensing of
banking institutions which are not members of the Federal Reserve System,
is amended, effective from the date of this order, by striking out the following:
" nor to engage in any transaction in foreign exchange except such as may be
undertaken for legitimate and normal business requirements, for reasonable
traveling and other personal requirements, and for the fulfillment of contracts
entered into prior to March 6, 1933."
SEC. 3. The amendment of such Executive order of March 10, 1933, or of
any licenses issued thereunder, and the amendment of such proclamation of
December 30, 1933, shall not affect any act done, or any order, decision, or
finding made, or relieve any person from the consequences of any unauthorized
act committed prior to the date of this Executive order; nor shall the amendment of the Executive order of March 10, 1933, or the proclamation of December 30, 1933, relieve any person from the obligation of complying with the
terms of the Executive order of January 15, 1934, relating to the export of
coin and currency and transactions in foreign exchange, or the regulations or
licenses issued thereunder, or of any other provision of law affecting transactions in foreign exchange.
FRANKLIN D. ROOSEVELT..
THE WHITE HOUSE,

January 15, 193Jh
ORDER OF THE SECRETARY OF THE TREASURY SUPPLEMENTING THE ORDER OF DECEMBER 28, 1933, REQUIRING THE DELIVERY OF GOLD COIN, GOLD BULLION, AND
GOLD CERTIFICATES TO THEI TREASURER OF THE UNITED STATES

Whereas on December 28, 1933, I, Henry Morgenthau, Jr., as Acting Secretary
of the Treasury, issued an order under authority of section 11 of the Federal
Reserve Act of December 23, 1913, as amended by section 3 of the Act of March

GOLD EESERVE ACT OF 1934

9, 1933, entitled "An act to provide relief in the existing national emergency in
banking, and for other purposes " ;
Whereas said order, as amended by an order of January 11, 1934, required
every person subject to the jurisdiction of the United States forthwith to pay
and deliver to the Treasurer of the United States all gold coin, gold bullion, and
gold certificates situated in the United States, owned by such person, except as
follows:
A. Gold bullion owned by a person now holding such gold under a license
heretofore granted by or under authority of the Secretary of the Treasury,
pursuant to the Executive order of August 28, 1933, relating to the hoarding,
export, and earmarking of gold coin, bullion, or currency and to transactions
in foreign exchange;
B. Gold coin having a recognized special value to collectors of rare and
unusual coin (but not including quarter eagles, otherwise known as $2.50
pieces, unless held, together with rare and unusual coin, as part of a collection
for historical, scientific, or numismatic purposes containing not more than four
quarter eagles of the same date and design and struck by the same mint) ;
O. Unmelted scrap gold and gold sweepings in an amount not exceeding in
the aggregate $100 belonging to any one person; and gold which has been put
through a process of fabrication for a specific and customary industrial, professional, or ornamental use;
D. Gold coin, gold bullion, and gold certificates owned by a Federal Reserve
bank or the Reconstruction Finance Corporation; and
E. Gold bullion and foreign gold coin now situated in the Philippine Islands,
American Samoa, Guam, Hawaii, Panama Canal Zone, Puerto Rico, or the
Virgin Islands of the United States owned by a person not domiciled or doing
business in the continental United States.
Whereas a reasonable time has elapsed within which any person required
to deliver gold coin, gold bullion, and gold certificates could pay and deliver to
the Treasurer of the United States in the manner provided in said Order of
December 28, 1933 the gold coin, gold bullion, and gold certificates situated
in the United States, owned by such person; and
Whereas in my judgment such action is necessary to protect the currency
system of the United States;
Now, therefore, I Henry Morgenthau, Jr., Secretary of the Treasury, do
hereby fix midnight of Wednesday, January 17, 1934 as the expiration of the
period within which any gold coin, gold bullion, or gold certificates may be
paid and delivered to the Treasurer of the United States in compliance with
the requirements contained in such Order of December 28, 1933, as amended.
In the event that any gold coin, gold bullion, or gold certificates withheld
in noncompliance with said order and of this order are offered after January
17, 1934, to the Secretary of the Treasury, the Treasurer of the United States,
any United States mint or assay office, or to any fiscal agent of the United
States, there shall be paid therefor only such part or none of the amount
otherwise payable therefor as the Secretary of the Treasury may from time to
time prescribe and the whole or any balance shall be retained and applied to
the penalty payable for failure to comply with the requirements of such order
and of this order. The acceptance of any such coin, bullion, or certificates
after January 17, 1934, whether or not a part or all of the amount otherwise
payable therefor is so retained, shall be without prejudice to the right to
collect by suit or otherwise the full penalty provided in section 11 (n) of the
Federal Reserve Act, as amended, less such portion of the penalty as may
have been retained as hereinbefore provided.
The definitions of the terms "person", "United States", "gold coin", and
" gold bullion" contained in section 4 of said order, of December 28, 1933,
apply equally to such terms as used in this order.
H. MORGENTHAU,

Jr.,

Secretary of the Treasury.
Approved.
FRANKLIN D. ROOSEVELT.
THE WHITE HOUSE,

January 15, 1934.

GOLD RESERVE ACT OF 193 4
[PUBLIC—No. 87—73D CONGRESS]

[H.R. 6976]
AN ACT 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.
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 therefore 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."
(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 the}^ 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:
"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 percent 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

GOLD EESERVE ACT OF 193 4

certificates shall be counted and included as part of the 40 percent 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 percent 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 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 safekeeping 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:
" T h e 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 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:
" 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 to maintain against outstanding
Federal Reserve notes, or as a part of the reserve it is required to maintain against
deposits."

GOLD RESERVE ACT OF 193 4

SEC. 3. The Secretary of the Treasury shall, by regulations issued hereunder,
with the approval of the President, prescribe the conditions 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. Any 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.
IW^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 Act 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.
Hi 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 Unites 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 powder of every kind of
currency of the United States: And provided further, 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.
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 fiind, 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 3700 of tiie Revised Statutes (U.S.C., title 31, sec. 734) is
amended to read as follows:
"SEC. 3700. 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

GOLD RESERVE ACT OF 19 3 4

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."
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 seil 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 Security 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
Teport 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 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 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:
"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, 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 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, 1933, is amended by adding
at the end of said paragraph (2) the following:

GOLD EESERVE ACT OF 193 4

"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 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 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, wThen 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 w^ords "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:
" S E C . 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 ruoes, regulations, terms, and conditions
as the Secretary of the Treasury may prescribe.
%m
" S E C . 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 issueon 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.
VII, 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 cer

GOLD RESERVE ACT OF 1934

tificates 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 "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 III, 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. If 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.
[PUBLIC?—No. 30—56TH CONGRESS]
AN ACT To define andfixthe standard of value, to maintain the parity of all forms of money issued or
coined by the United States, to refund the public debt, 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 dollar consisting of twenty-five and eighttenths grains of gold nine-tenths fine, as established by section thirty-five hundred
and eleven of the Revised Statutes of the United States, shall be the standard
unit of value, and all forms of money issued or coined by the United States shall
be maintained at a parity of value with this standard, and it shall be the duty of
the Secretary of the Treasury to maintain such parity.
SEC. 2. That United States notes, and Treasury notes issued under the act of
July fourteenth, eighteen hundred and ninety, when presented to the Treasury
for redemption, shall be redeemed in gold coin of the standard fixed in the first
section of this act, and in order to secure the prompt and certain redemption of
such notes as herein provided it shall be the duty of the Secretary of the Treasury
to set apart in the Treasury a reserve fund of one hundred and fifty million
dollars in gold coin and bullion, which fund shall be used for such redemption
purposes only, and whenever and as often as any of said notes shall be redeemed
from said fund it shall be the duty of the Secretary of the Treasury to use said
notes so redeemed to restore and maintain such reserve fund in the manner following, to wit: First, by exchanging the notes so redeemed for any gold coin in
the general fund of the Treasury; second, by accepting deposits of pold coin at
the Treasury or at any subtreasury in exchange for the United States notes so
redeemed; third, by procuring gold coin by the use of said notes, in accordance
with the provisions of section thirty-seven hundred of the Revised Statutes of the
United States. If the Secretary of the Treasury is unable to restore and maintain the gold coin in the reserve fund by the foregoing methods, and the amount of
such gold coin and bullion in said fund shall at any time fall below one hundred
million dollars, then it shall be his duty to restore the same to the maximum sum
of one hundred and fifty million dollars by borrowing money on the credit of the
United States, and for the debt thus incurred to issue and sell coupon or registered
bonds of the United States, in such form as he may prescribe, in denominations of
fifty dollars or any multiple thereof, bearing interest at the rate of not exceeding
three per centum per annum, payable quarterly, such bonds to be payable at the
pleasure of the United States after one year from the date of their issue, and to be
payable, principal and interest, in gold coin of the present standard value and to

GOLD RESERVE ACT OF 193 4

be exempt from the payment of all taxes or duties of the United States, as well a,&
from taxation in any form by or under State, municipal, or local authority; and
the gold coin received from the sale of said bonds shall first be covered into the general fund of the Treasury and then exchanged, in the manner hereinbefore provided, for an equal amount of the notes redeemed and held for exchange, and the
Secretary of the Treasury may, in his discretion, use said notes in exchange for
gold, or to purchase or redeem any bonds of the United States, or for any other
lawful purpose the public interests may require, except that they shall not be
used to meet deficiencies in the current revenues. That United States notes
when redeemed in accordance with the provisions of this section shall be reissued,
but shall be held in the reserve fund until exchanged for gold, as herein provided;
and the gold coin and bullion in the reserve fund, together with the redeemed
notes held for use as provided in this section, shall at no time exceed the maximum
sum of one hundred and fifty million dollars.
SEC. 3. That nothing contained in this act shall be construed to affect the legaltender quality as now provided by law of the silver dollar, or of any other money
coined or issued by the United States.
SEC. 4. That there be established in the Treasury Department, as a part of
the office of the Treasurer of the United States, divisions to be designated and
known as the division of issue and the division of redemption, to which shall be
assigned, respectively, under such regulations as the Secretary of the Treasury
may approve, all records and accounts relating to the issue and redemption of
United States notes, gold certificates, silver certificates, and currency certificates.
There shall be transferred from the accounts of the general fund of the Treasury
of the United States, and taken up on the books of said divisions, respectively,
accounts relating to the reserve fund for the redemption of United States notes
and Treasury notes, the gold coin held against outstanding gold certificates, the
United States notes held against outstanding currency certificates, and the silver
dollars held against outstanding silver certificates, and each of the funds represented by these accounts shall be used for the redemption of the notes and certificates for which they are respectively pledged, and shall be used for no other
purpose, the same being held as trust funds.
SEC. 5. That it shall be the duty of the Secretary of the Treasury, as fast as
standard silver dollars are coined under the provisions of the acts of July fourteenth, eighteen hundred and ninety, and June thirteenth, eighteen hundred and
ninety-eight, from bullion purchased under the Act of July fourteenth, eighteen
hundred and ninety, to retire and cancel an equal amount of Treasury notes
whenever received into the Treasury, either by exchange in accordance with the
provisions of this act or in the ordinary course of business, and upon the cancelation of Treasury notes silver certificates shall be issued against the silver dollars
so coined.
SEC. 6. That the Secretary of the Treasury is hereby authorized and directed
to receive deposits of gold coin with the Treasurer or any assistant treasurer of the
United States in sums of not less than twenty dollars, and to issue gold certificates
therefor in denominations of not less than twenty dollars, and the coin so deposited
shall be retained in the Treasury and held for the payment of such certificates on
demand, and used for no other purpose. Such certificates shall be receivable for
customs, taxes, and all public dues, and when so received may be reissued, and
wThen held by any national banking association may be counted as a part of its
lawful reserve: Provided, That whenever and so long as the gold coin held in the
reserve fund in the Treasury for the redemption of United States notes and
Treasury notes shall fall and remain below one hundred million dollars the
authority to issue certificates as herein provided shall be suspended: And provided
further. That whenever and so long as the aggregate amount of United States notes
and silver certificates in the general fund of the Treasury shall exceed sixty million
dollars the Secretary of the Treasury may, in his discretion, suspend the issue of
the certificates herein provided for: And provided further, That of the amount of
such outstanding certificates one-fourth at least shall be in denominations of
fifty dollars or less: And provided further, That the Secretary of the Treasury may,
in his discretion, issue such certificates in denominations of ten thousand dollars,
payable to order. And section fifty-one hundred and ninety-three of the Revised'
Statutes of the United States is hereby repealed.
SEC. 7. That hereafter silver certificates shall be issued only of denominations
of ten dollars and under, except that not exceeding the aggregate ten per centum
of the total volume of said certificates, in the discretion of the Secretary of the
Treasury, may be issued in denominations of twenty dollars, fifty dollars*, and
one hundred dollars; and silver certificates of higher denomination than ten.

GOLD RESEKVE ACT OF 1934

dollars, except as herein provided, shall, whenever received at the Treasury or
redeemed, be retired and canceled, and certificates of denominations of ten dollars
or less shall be substituted therefor, and after such substitution, in whole or in
part, a like volume of United States notes of less denomination than ten dollars
shall from time to time be retired and canceled, and notes of denominations of
ten dollars and upward shall be reissued in substitution therefor, with like qualities
and restrictions as those retired and canceled.
SEC. 8. That the Secretary of the Treasury is hereby authorized to use, at his
discretion, any silver bullion in the Treasury of the United States purchased
under the Act of July fourteenth, eighteen hundred and ninety, for coinage into
such denominations of subsidiary silver coin as may be necessary to meet the
public requirements for such coin: Provided, That the amount of subsidiary silver
coin outstanding shall not at any time exceed in the aggregate one hundred millions of dollars. Whenever any silver bullion purchased under the Act of July
fourteenth, eighteen hundred and ninety, shall be used in the coinage of subsidiary
silver coin, an amount of Treasury notes issued under said Act equal to the cost
of the bullion contained in such coin shall be canceled and not reissued.
SEC. 9. That the Secretary of the Treasury is hereby authorized and directed
to cause all worn and uncurrent subsidiary silver coin of the United States now
in the Treasury, and hereafter received, to be recoined, and to reimburse the
Treasurer of the United States for the difference between the nominal or face
value of such coin and the amount the same will produce in new coin from any
moneys in the Treasury not otherwise appropriated.
SEC. 10. That section fifty-one hundred and thirty-eight of the Revised
Statutes is hereby amended so as to read as follows:
"Section 5138. No association shall be organized with a less capital than one
hundred thousand dollars, except that banks with a capital of not less than
fifty thousand dollars may, with the approval of the Secretary of the Treasury,
be organized in any place the population of which does not exceed six thousand
inhabitants, and except that banks with a capital of not less than twenty-five
thousand dollars may, with the sanction of the Secretary of the Treasury, be
organized in any place the population of which does not exceed three thousand
inhabitants. No association shall be organized in a city the population of which
exceeds fifty thousand persons with a capital of less than two hundred thousand
dollars."
SEC. 11. That the Secretary of the Treasury is hereby authorized to receive
at the Treasury any of the outstanding bonds of the United States bearing interest
at five per centum per annum, payable February first, nineteen hundred and four,
and any bonds of the United States bearing interest at four per centum per annum,
payable July first, nineteen hundred and seven, and any bonds of the United
States bearing interest at three per centum per annum, payable August first,
nineteen hundred and eight, and to issue in exchange therefor an equal amount
of coupon or registered bonds of the United States in such form as he may prescribe, in denominations of fifty dollars or any multiple thereof, bearing interest
at the rate of two per centum per annum, payable quarterly, such bonds to be
payable at the pleasure of the United States after thirty years from the date of
their issue, and said bonds to be payable, principal and interest, in gold coin of
the present standard value, and to be exempt from the payment of all taxes or
duties of the United States, as well as from taxation in any form by or under
State, municipal, or local authority: Provided, That such outstanding bonds may
be received in exchange at a valuation not greater than their present worth to
yield an income of two and one-quarter per centum per annum; and in consideration of the reduction of interest effected, the Secretary of the Treasury is authorized to pay to the holders of the outstanding bonds surrendered for exchange,
out of any money in the Treasury not otherwise appropriated, a sum not greater
than the difference between their present worth, computed as aforesaid, and
their par value, and the payments to be made hereunder shall be held to be payments on account of the sinking fund created by section thirty-six hundred and
ninety-four of the Revised Statutes: And provided further, That the two per centum
bonds to be issued under the provisions of this Act shall be issued at not less than
par, and they shall be numbered consecutively in the order of their issue, and
when payment is made the last numbers issued shall be first paid, and this order
shall be followed until all the bonds are paid, and whenever any of the outstanding
bonds are called for payment interest thereon shall cease three months after such
call; and there is hereby appropriated out of any money in the Treasury not
otherwise appropriated, to effect the exchanges of bonds provided for in this

GOLD RESERVE ACT OF 193 4

Act, a sum not exceeding one-fifteenth of one per centum of the face value of
said bonds, to pay the expense of preparing and issuing the same and other expenses incident thereto.
SEC. 12. That upon the deposit with the Treasurer of the United States, by
$ny national banking association, of any bonds of the United States in the manner provided by existing law, such association shall be entitled to receive from the
Comptroller of the Currency circulating notes in blank, registered and countersigned as provided by law, equal in amount to the par value of the bonds so deposited; and any national banking association now having bonds on deposit for
the security of circulating notes, and upon which an amount of circulating notes
has been issued less than the par value of the bonds, shall be entitled, upon due
application to the Comptroller of the Currency, to receive additional circulating
notes in blank to an amount which will increase the circulating notes held by
such association to the par value of the bonds deposited, such additional notes to
be held and treated in the same way as circulating notes of national banking
associations heretofore issued, and subject to all the provisions of law affecting
such notes: Provided, That nothing herein contained shall be construed to modify
or repeal the provisions of section fifty-one hundred and sixty-seven of the
Revised Statutes of the United States, authorizing the Comptroller of the Currency to require additional deposits of bonds or of lawful money in case the market
value of the bonds held to secure the circulating notes shall fall below the par
value of the circulating notes outstanding for which such bonds may be deposited
as security: And provided further, That the circulating notes furnished to national banking associations under the provisions of this Act shall be of the denominations prescribed by law, except that no national banking association shall
after the passage of this Act, be entitled to receive from the Comptroller of the
Currency, or to issue or reissue or place in circulation, more than one-third in
amount of its circulating notes of the denomination of five dollars: And provided
further, That the total amount of such notes issued to any such association may
equal at any time but shall not exceed the amount at such time of its capital
stock actually paid in: And provided further, That under regulations to be prescribed by the Secretary of the Treasury any national banking association may
substitute the two per centum bonds issued under the provisions of this Act for
any of the bonds deposited with the Treasurer to secure circulation or to secure
deposits of public money; and so much of an Act entitled "An Act to enable
national banking associations to extend their corporate existence, and for other
purposes," approved July twelfth, eighteen hundred and eighty-two, as prohibits
any national bank which makes any deposit of lawful money in order to withdraw its circulating notes from receiving any increase of its circulation for the
period of six months from the time it made such deposit of lawful money for the
purpose aforesaid, is hereby repealed, and all other Acts or parts of Acts inconsistent with the provisions of this section are hereby repealed.
SEC. 13. That every national banking association having on deposit, as provided by law, bonds of the United States bearing interest at the rate of two per
centum per annum, issued under the provisions of this act, to secure its circulating notes, shall pay to the Treasury of the United States, in the months of January and July, a tax of one-fourth of one per centum each half year upon the average amount of such of its notes in circulation as are based upon the deposit of
said two per centum bonds; and such taxes shall be in lieu of existing taxes on its
notes in circulation imposed by section fifty-two hundred and fourteen of the
Revised Statutes.
SEC. 14. That the provisions of this Act are not intended to preclude the
accomplishment of international bimetallism whenever conditions shall make it
expedient and practicable to secure the same by concurrent action of the leading
commercial nations of the world and at a ratio which shall insure permanence of
relative value between gold and silver.
Approved, March 14, 1900.
[U.S. CODE—TITLE 31—SEC. 428]
SECTION" 428. Gold certificates in exchange for gold bullion.—The Secretary of

the Treasury is authorized to receive deposits of gold bullion with the Treasurer
or any agencies designated under section 476 of this title, in sums not less than
$20, and to issue certificates therefor, in denominations of not less than $20 each,
corresponding with the denominations of the United States notes. The bullion
deposited for or representing the certificates of deposit shall be retained in the

GOLD KESERVE ACT OF 1934

Treasury for the payment of the same on demand. And certificates representing coin in the Treasury may be issued in payment of interest on the public debt,
which certificates, together with those issued for coin and bullion deposited,
shall not at any time exceed 20 per centum beyond the amount of coin and bullion in

the Treasury. (R.S., sec. 254.)
Act Mar. 3, 1863, ch. 73, sec. 5, 12 Stat. 711.

[ P U B L I C — N o . 1 0 — 7 3 D CONGRESS]

[H.R. 3835]
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

Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled, * * *
TITLE III—FINANCING—AND EXERCISING POWER CONFERRED BY SECTION 8 OF
ARTICLE I OF THE CONSTITUTION : To COIN MONEY AND TO REGULATE THE VALUE
THEREOF

SEC. 43. Whenever the President finds, upon investigation, that (1) the foreign commerce of the United States is adversely affected by reason of the depreciation in the value of the currency of any other government or governments in
relation to the present standard value of gold, or (2) action under this section
is necessary in order to regulate and maintain the parity of currency issues of
the United States, or (3) an economic emergency requires an expansion of
credit, or (4) an expansion of credit is necessary to secure by international
agreement a stabilization at proper levels of the currencies of various governments, the President is authorized, in his discretion—
(a) To direct the Secretary of the Treasury to enter into agreements with
the several Federal Reserve banks and with the Federal Reserve Board whereby
the Federal Reserve Beard will, and it is hereby authorized to, notwithstanding
any provisions of law or rules and regulations to the contrary, permit such
reserve banks to agree that they will, (1) conduct, pursuant to existing law,
throughout specified periods, open market operations in obligations of the
United States Government or corporations in which the United States is the
majority 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 Government in an aggregate sum of $3,000,000,000 in addition to
those they may then hold, unless prior to the termination of such period or
periods the Secretary shall consent to their sale. No suspension of reserve
requirements of the Federal Reserve banks, under the terms of section 11 (c)
of the Federal Reserve Act, necessitated by 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). Nor shall it require any automatic increase in the rates of interest or discount charged by any Federal Reserve
bank, as otherwise specified in that section. The Federal Reserve Board, with
the approval of the Secretary of the Treasury, may require the Federal Reserve
banks to take such action as may be necessary, in the judgment of the Board
and of the Secretary of the Treasury, to prevent undue credit expansion.
(b) If the Secretary, when directed by the President, is unable to secure
the assent of the several Federal Reserve banks and the Federal Reserve Board
to the agreements authorized in this section, or if operations under the above
provisions prove to be inadequate to meet the purposes of this section, or if
for any other reason additional measures are required in the judgment of the
President to meet such purposes, then the President is authorized—
(1) To direct the Secretary of the Treasury to cause to be issued in such
amount or amounts as he may from time to time order, United States notes,
as provided in the Act entitled "An Act to authorize the issue of United States
notes and for the redemption of funding thereof and for funding the floating
debt of the United States", approved February 25, 1862, and Acts supplementary thereto and amendatory thereof, in the same size and of similar color
to the Federal Reserve notes heretofore issued and in denominations of $1, $5,
46217

GOLD EESEBVE ACT OF 19 3 4

$10, $20, $50, $100, $500, $1,000, and $10,000; but notes issued under this!
subsection shall be issued only for the purpose of meeting maturing Federal
obligations to repay sums borrowed by the United States and for purchasing
United States bonds and other interest-bearing obligations of the United
States: Provided, That when any such notes are used for such purpose the
bond or other obligations 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 may approve but the aggregate amount of such notes outstanding
at any time shall not exceed $3,000,000,000. There is hereby appropriated, out
of any money in the Treasury not otherwise appropriated, an amount sufficient
to enable the Secretary of the Treasury to retire and cancel 4 per centum
annually of such outstanding notes, and the Secretary of the Treasury is
hereby directed to retire and cancel annually 4 per centum of such outstanding
notes. Such notes and all other coins and currencies heretofore or hereafter
coined or issued by or under the authority of the United States shall be legal
tender for all debts public or private.
(2) By proclamation to fix the weight of the gold dollar in grains nine
tenths fine and also to fix the weight of the silver dollar in grains nine tenths
fine at a definite fixed ratio in relation to the gold dollar at such amounts as
he finds necessary from his investigation to stabilize domestic prices or to protect the foreign commerce against the adverse effect of depreciated foreign
currencies, and to provide for the unlimited coinage of such gold and silver at
the ratio so fixed, or in case the Government of the United States enters into
an agreement with any government or governments under the terms of which
the ratio between the value of gold and other currency issued by the United
States and by any such government or governments is established, the President
may fix the weight of the gold dollar in accordance with the ratio so agreed
upon, and such gold dollar, the weight of which is so fixed, shall be the standard unit of value, and all forms of money issued or coined by the United
States shall be maintained at a parity with this standard and it shall be the
duty of the Secretary of the Treasury to maintain such parity, but in no
event shall the weight of the gold dollar be fixed so as to reduce its present
weight by more than 50 per centum.
SEC. 44. The Secretary of the Treasury, with the approval of the President,
is hereby authorized to make and promulgate rules and regulations covering
any action taken or to be taken by the President under subsection (a) or (b)
of section 43.
SEC. 45. (a) The President is authorized, for a period of six months from
the date of the passage of this Act, to accept silver in payment of the whole
or any part of the principal or interest now due, or to become due within
six months after such date, from any foreign government or governments on
account of any indebtedness to the United States, such silver to be accepted
at not to exceed the price of 50 cents an ounce in United States currency. The
aggregate value of the silver accepted under this section shall not exceed
$200,000,000.
(b) The silver bullion accepted and received under the provisions of this
section shall be subject to the requirements of existing law and the regulations
of the mint service governing the methods of determining the amount of pure
silver contained, and the amount of the charges or deductions, if any, to be
made; but such silver bullion shall not be counted as part of the silver bullion
authorized or required to be purchased and coined under the provisions of
existing law.
(c) The silver accepted and received under the provisions of this section
shall be deposited in the Treasury of the United States, to be held, used, and
disposed of as in this section provided.
(d) The Secretary of the Treasury shall cause silver certificates to be issued
in such denominations as he deems advisable to the total number of dollars
for which such silver was accepted in payment of debts. Such silver certificates
shall be used by the Treasurer of the United States in payment of any
obligations of the United States.
(e) The silver so accepted and received under this section shall be coined
into standard silver dollars and subsidiary coins sufficient, in the opinion of
the Secretary of the Treasury, to meet any demands for redemption of such
silver certificates issued under the provisions of this section, and such coins
shall be retained in the Treasury for the payment of such certificates on
demand. The silver so accepted and received under this section, except so much

GOLD RESERVE ACT OF 1934

thereof as is coined under the provisions of this section, shall be held in the
Treasury for the sole purpose of aiding in maintaining the parity of such certificates as provided in existing law. Any such certificates or reissued certificates, when presented at the Treasury, shall be redeemed in standard silver
dollars, or in subsidiary silver coin, at the option of the holder of the certificates : Provided, That, in the redemption of such silver certificates issued
under this section, not to exceed one third of the coin required for such redemption may in the judgment of the Secretary of the Treasury be made in subsidiary
coins, the balance to be made in standard silver dollars.
(f) When any silver certificates issued under the provisions of this section
are redeemed or received into the Treasury from any source whatsoever, and
belong to the United States, they shall not be retired, canceled, or destroyed,
but shall be reissued and paid out again and kept in circulation; but nothing
herein shall prevent the cancel a tion and destruction of mutilated certificates
and the issue of other certificates of like denomination in their stead, as provided by law.
(g) The Secretary of the Treasury is authorized to make rules and regulations for carrying out the provisions of this section.
SEO. 46. Section 19 of the Federal Reserve Act, as amended, is amended by
inserting immediately after paragraph (c) thereof the following new paragraph :
" Notwithstanding the foregoing provisions of this section, the Federal Reserve Board, upon the affirmative vote of not less than five of its members and:
with the approval of the President, may declare that an emergency exists by
reason of credit expansion, and may by regulation during such emergency
increase or decrease from time to time, in its discretion, the reserve balances;
required to be maintained against either demand or time deposits."
Approved May 12, 1933.
[PUBLIC RESOLUTION—No. 10—73D CONGRESS]
[H.J.Res. 1921
JOINT RESOLUTION To assure uniform value to the coins and currencies of the United States

Whereas the holding of or dealing in gold affect the public interest, and are
therefore subject to proper regulation and restriction; and
Whereas the existing emergency has disclosed that provisions of obligations
which purport to give the obligee a right to require payment in gold or a particular kind of coin or currency of the United States, or in an amount in money
of the United States measured thereby, obstruct the power of the Congress to
regulate the value of the money of the United States, and are inconsistent with
the declared policy of the Congress to maintain at all times the equal power of
every dollar, coined or issued by the United States, in the markets and in the
payment of debts. Now, therefore, be it
Resolved by the Senate and House of Representatives of the United States of
America in Congress assembled, That (a) every provision contained in or made
with respect to any obligation which purports to give the obligee a right to require payment in gold or a particular kind of coin or currency, or in an amount
in money of the United States measured thereby, is declared to be against public
policy; and no such provision shall be contained in or made with respect to any
obligation hereafter incurred. Every obligation, heretofore or hereafter incurred, whether or not any such provision is contained therein or made with
respect thereto, shall be discharged upon payment, dollar for dollar, in any coin
or currency which at the time of payment is legal tender for public and private
debts. Any such provision contained in any law authorizing obligations to be
issued by or under authority of the United States, is hereby repealed, but the
repeal of any such provision shall not invalidate any other provision or authority
contained in such law.
(b) As used in this resolution, the term "obligation" means an obligation
(including every obligation of and to the United States, excepting currency)
payable in money of the United States; and the term "coin or currency" means
coin or currency of the United States, including Federal Reserve notes and circulating notes of Federal Reserve banks and national banking associations.
SEC. 2. The last sentence of paragraph (1) of subsection (b) of section 43 of
the act entitled "An act to relieve the existing national economic emergency by
increasing agricultural purchasing power, to raise revenue for extraordinary ex-

GOLD EESERVE ACT OF 193 4

penses 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 to read as follows:
"All coins and currencies of the United States (including Federal Reserve
notes and circulating notes of Federal Reserve banks and national banking
associtions) heretofore or hereafter coined or issued, shall be legal tender for all
debts, public and private, public charges, taxes, duties, and dues, except that
gold coins, when below the standard weight and limit of tolerance provided by
law for the single piece, shall be legal tender only at valuation in proportion to
their actual weight."
Approved, June 5, 1933, 4:40 p.m.

STATEMENT FOR THE PRESS RELATIVE TO PRESIDENT'S PROCLAMATION FIXING
THE WEIGHT OF THE GOLD DOLLAR UNDER THE GOLD RESERVE ACT OF 1934,
JANUARY 31, 1934

1. Acting under the powers granted by title 3 of the act approved May 12,
1933 (Thomas amendment to the Farm Relief Act), the President today issued a
proclamation fixing the weight of the gold dollartat 15%i grains nine tenths fine.
This is 59.06 plus percent of the former weight of'25^o grains, nine tenths fine, as
fixed by section 1 of the act of Congress of March 14, 1900. The new gold content
of the dollar became effective immediately on the signing of the proclamation by
the President.
Under the Gold Reserve Act of 1934, signed by the President Tuesday, January
30, title to the entire stock of monetary gold in the United States, including the
gold coin and gold bullion heretofore held by the Federal Reserve banks and the
claim upon gold in the Treasury represented by gold certificates, is vested in the
United States Government and the " profit" from the reduction of the gold content
of the dollar, made effective by today's proclamation, accrues to the United States
Treasury. Of this ''profit" 2 billion dollars, under the terms of the Gold Reserve
Act and of today's proclamation, constitutes a stabilization fund under the
direction of the Secretary of the Treasury. The balance will be covered into the
general fund of the Treasury.
Settlement for the gold coin, bullion and certificates taken over from the
Federal Reserve banks on Tuesday upon the approval of the act was made in the
form of credits set up on the Treasury's books. This credit due the Federal
Reserve banks is to be paid in the new form of gold certificates now in course of
production by the Bureau of Engraving and Printing. These certificates bear on
their face the wording:
"This is to certify that there is on deposit in the Treasury of the United States
of America
dollars in gold, payable to bearer on demand as authorized
by law."
They also will carry the standard legal tender clause, which is as follows:
"This certificate is a legal tender in the amount thereof in payment of all
debts and dues public and private."
The new gold certificates will be of the same size as other currency in circulation, and the only difference, other than the changes in wording noted above, is
that the backs of the new certificates will, as used to be done, be printed in yellow
ink. The certificates will be in denominations up to $100,000.
In his proclamation of today the President gives notice that he reserves the
right, by virtue of the authority vested in him, to alter or modify the present
proclamation as the interest of the United States may seem to require. The
authority by later proclamations to accomplish other revlauations of the dollar
in terms of gold is contained in the Gold Reserve Act signed on Tuesday.
2. The Secretary of the Treasury, with the approval of the President, issued
a public announcement that beginning February 1, 1934, he will buy through the
Federal Reserve Bank of New York as fiscal agent, for the account of the United
States, any and all gold delivered to any United States Mints or the assay offices
in New York or Seattle, at the rate of $35 per fine troy ounce, less the usual mint
charges and less one-fourth of 1 percent for handling charges. Purchases, however, are subject to compliance with the regulations issued under the Gold Reserve
Act of 1934.

GOLD RESERVE ACT OF 1934

3. The Secretary of the Treasury today promulgated new regulations with
respect to the purchase and sale of gold by the mints. Under these regulations
the mints are authorized to purchase gold recovered from natural deposits in the
United States or any place subject to its jurisdiction. Unmelted scrap gold,
gold imported into the United States after January 30, 1934, and such other gold
as may be authorized from time to time by rulings of the Secretary of the Treasury.
No gold, however, may be purchased which has been held in noncompliance with
previous acts or orders, or noncompliance with the Gold Reserve ActT of 1934, or
these regulations. Affidavits as to the source from which the gold w as obtained
are required, except in the case of nuggets or dust of less than 5 ounces, where a
statement under oath will suffice. In the case of imported gold, the mints may
purchase only that which has been in customs custody after its arrival in the
Continental United States.
The price to be paid for gold purchased by the mints is to be $35 per troy ounce
of fine gold, less one fourth of 1 percent and less mint charges. This price may
be changed by the Secretary of the Treasury at any time without notice.
The mints are authorized to sell gold to persons licensed to acquire it for use
in the industries, professions, or arts, but not to sell more than is required for a
3 months' supply for the purchaser. The price at which gold is to be sold by the
mints will be $35 per troy ounce, plus one fourth of 1 percent. This price also
may be changed by the Secretary of the Treasury without notice.
JANUARY 31, 1934, PROCLAMATION OF THE PRESIDENT FIXING THE WTEIGHT OF THE
GOLD DOLLAR PURSUANT TO THE GOLD RESERVE ACT OF 1934
A PROCLAMATION BY THE PRESIDENT OF THE UNITED STATES OF AMERICA

Whereas, by virtue of section 1 of the act of Congress approved March 14, 1900
(31 Stat.L. 45), the present weight of the gold dollar is fixed at 25|Ko grains of
gold nine tenths fine; and
Whereas, by section 43, title III of the act approved May 12, 1933 (Public,
No. 10, 73d Cong.), as amended by section 12 of the Gold Reserve Act of 1934, it
is provided in part as follows:
" Whenever the President finds, upon investigation, that (1) the foreign
commerce of the United States is adversely affected by reason of the depreciation
in the value of the currency of any other government or governments in relation
to the present standard value of gold, or (2) action under this section is necessary
in order to regulate and maintain the parity of currency issues of the United States,
or (3) an economic emergency requires an expansion of credit, or (4) an expansion
of credit is necessary to secure by international agreement a stabilization at
proper levels of the currencies of various governments, the President is authorized,
in his discretion—
•" (a) To direct the Secretary of the Treasury to enter into agreements with
the several Federal Reserve banks and with the Federal Reserve Board whereby
the Federal Reserve Board will, and it is hereby authorized to, notwithstanding
any provisions of law or rules and regulations to the contrary, permit such reserve
banks to agree that they will, (1) conduct, pursuant to existing law, throughout
specified periods, open-market operations in obligations of the United States
Government or corporations in which the United States is the majority 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 Government in an aggregate sum of $3,000,000,000 in addition to those they may then
hold, unless prior to the termination of such period or periods the Secretary shall
consent to their sale. No suspension of reserve requirements of the Federal
Reserve banks, under the terms of section 11 (c) of the Federal Reserve Act,
necessitated by 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). Nor shall it require any automatic increase in the rates of interest
or discount charged by any Federal Reserve bank, as otherwise specified in that
section. The Federal Reserve Board, with the approval of the Secretary of the
Treasury, may require the Federal Reserve banks to take such action as may be
necessary, in the judgment of the Board and of the Secretary of the Treasury, to
prevent undue credit expansion.

GOLD RESERVE ACT OF 193 4

"(b). If the Secretary, when directed by the President, is unable to secure the
assent of the several Federal Reserve banks and the Federal Reserve Board to
the agreements authorized in this section, or if operations under the above provisions prove to be inadequate to meet the purposes of this section, or if for any
other reason additional measures are required in the judgment of the President
to meet such purposes, then the President is authorized—
*
*
*
*
*
*
*
" (2) By proclamation to fix the weight of the gold dollar in grains nine tenths
fine and also to fix the weight of the silver dollar in grains nine tenths fine at a
•definite fixed ratio in relation to the gold dollar at such amounts as he finds necessary from his investigation to stabilize domestic prices or to protect the foreign
commerce against the adverse effect of depreciated foreign currencies, and to
provide for the unlimited coinage of such gold and silver at the ratio so fixed, or in
case the Government of the United States enters into an agreement with any
government or governments under the terms of which the ratio between the value
of gold and other currency issued by the United States and by any such government or governments is established, the President may fix the weight of the gold
dollar in accordance with the ratio so agreed upon, and such gold dollar, the weight
of which is so fixed, shall be the standard unit of value, and all forms of money
issued or coined by the United States shall be maintained at a parity with this
standard and it shall be the duty of the Secretary of the Treasury to maintain
such parity, but in no event shall the weight of the gold dollar be fixed so as to
reduce its present weight by more than 50 per centum. . 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, 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"; and
Whereas, I find, upon investigation, that the foreign commerce of the United
States is adversely affected by reason of the depreciation in the value of the currencies of other governments in relation to the present standard value of gold, and
that an economic emergency requires an expansion of credit; and
Whereas, in my judgment, measures additional to those provided by subsection (a) of said section 43 are required to meet the purposes of such section;
and
Whereas I find, from my investigation, that, in order to stabilize domestic
prices and to protect the foreign commerce against the adverse effect of depreciated
foreign currencies, it is necessary to fix the weight of the gold dollar at 15 5/21
grains nine tenths fine,
Now, therefore, be it known that I, Franklin D. Roosevelt, President of the
United States, by virtue of the authority vested in me by section 43, title III of
said act of May 12, 1933, as amended, and by virtue of all other authority vested
in me, do hereby proclaim, order, direct, declare and fix the weight of the gold
dollar to be 15 5/21 grains nine tenths fine, from and after the date and hour of
this proclamation. The weight of the silver dollar is not altered or affected in any
manner by reason of this proclamation.
This proclamation shall remain in force and effect until and unless repealed or
modified by act of Congress or by subsequent proclamation; and notice is hereby
given that I reserve the right by virtue of the authority vested in me to alter or
modify this proclamation as the interest of the United States may seem to require.
In Witness Whereof I have hereunto set my hand and have caused the seal of
the United States to be affixed.
Done in the city of Washington at 3:10 o'clock in the afternoon, Eastern
Standard time, this 31st day of January, in the year of our Lord 1934, and of the
Independence of the United States the one hundred and fifty-eighth.
[SEAL]
FRANKLIN D. ROOSEVELT.

By the President:
CORDELL HULL, Secretary of State.

GOLD RESERVE ACT OF 1 9 3 4

TREASURY DEPARTMENT,
OFFICE OF THE SECRETARY,

January SI, 193%

PROVISIONAL REGULATIONS
ISSUED UNDER THE

GOLD RESERVE ACT OF 1934
ARTICLE I. GENERAL PROVISIONS
SECTION 1. Authority for regulations.—These regulations, deemed
necessary and proper by the Secretary of the Treasury to carry out
the purposes of the Gold Keserve Act of 1934, approved January 30,
1934, are issued by the Secretary of the Treasury, with the approval
of the President, under authority of said Act.
SEC. 2. Scope.—Articles II, I I I , IV, and V of these regulations
refer particularly to section 3 of the Gold Eeserve Act of 1934; and
articles VI and VII refer particularly to sections 8 and 9, respectively,
thereof.
The provisions of these regulations may be revoked or modified
at any time and any license outstanding at the time of such revocation or modification shall be modified thereby to the extent provided
in such revocation or modification.
SEC. 3. Titles and subtitles.—The titles and subtitles of these regulations are inserted for purposes of ready reference and are not to be
construed as constituting a part of these regulations.
SEC. 4. Definitions.—As used in these regulations, the term—
"Act" means the Gold Reserve Act of 1934, approved January 30,
1934.
" United States " means the Government of the United States, or,
where used to denote a geographical area, means the continental
United States and all other places subject to the jurisdiction of the
United States.
" Continental United States" means the States of the United
States, the District of Columbia, and the Territory of Alaska.
" Currency of the United States " means currency which is legal
tender in the continental 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.
" Person " means any individual, partnership, association, or corporation, including the Federal Reserve Board, Federal Reserve
banks, and Federal Reserve agents.

GOLD RESERVE ACT OF 193 4

" Mint" means a United States mint or assay office, and wherever
authority is conferred upon a " mint" such authority is conferred
upon the person locally in charge of the respective United States
mint or assay office acting in accordance with the instructions of
the Director of the Mint or the Secretary of the Treasury.
" Mint district " means one of the following areas:
The mint district of Philadelphia, which for the purposes of these
regulations consists of the States of Illinois, Indiana, Kentucky,
Maryland, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, Virginia, and West Virginia, and the District of Columbia.
The mint district of New York, which for the purposes of these
regulations consists of the States of Connecticut, Delaware, Maine,
Massachusetts, Michigan, New Hampshire, New Jersey, New York,
Rhode Island, Vermont, and Wisconsin, and Puerto Rico, the Virgin
Islands of the United States, and the Panama Canal Zone.
The mint district of Denver, which for the purposes of these regulations consists of the States of Colorado, Iowa, Kansas, Minnesota,
Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota,
Utah, and Wyoming.
The mint district of San Francisco, which for the purposes of these
regulations consists of the States of Arizona, California, and Nevada,
and the Territories and possessions of the United States not specifically included in other mint districts.
The mint district of Seattle, which for the purposes of these regulations consists of the States of Idaho, Montana, Oregon, and Washington, and the Territory of Alaska.
The mint district of New Orleans, which for the purposes of these
regulations consists of the States of Alabama, Arkansas, Florida,
Georgia, Louisiana, Mississippi, Tennessee, and Texas.
" Gold coin " means any coin containing gold as a major element,
including gold coin of a foreign country.
" Gold bullion " means any gold which has been put through a
process of smelting or refining, and which is in such state or condition that its value depends primarily upon the gold content and not
upon its form; but it does not include metals containing less than 5
troy ounces oJ^fine gold per short ton, nor does it include gold coin.
" Fabricated gold " means gold which has, in good faith and not
for the purpose of evading, or enabling others to evade, the provisions of the Act or of these regulations, been processed or manufactured for some one or more specific and customary industrial,
professional, or artistic uses, but does not include gold coin or
scrap gold.
" Scrap gold" means gold sweepings and fabricated gold, the
value of which depends primarily upon its gold content and not

GOLD RESERVE ACT OF 19 3 4

upon its form, which is no longer held for the use for which it was
processed or manufactured.
Wherever reference is made in these regulations to equivalents as
between dollars or currency of the United States and gold, $1 or $1
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 the 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.
Wherever reference is made in these regulations to " articles " or
" sections", the reference is, unless otherwise indicated, to the
designated articles and sections of these regulations.
SEC. 5. General provisions affecting applications, affidavits, and reports.—Every application, affidavit, and report required to be made
hereunder shall be made upon the appropriate form prescribed by
the Secretary of the Treasury and, except insofar as these regulations may otherwise specify, shall be executed under oath before an
officer authorized to administer oaths. Duplicate copies properly
executed shall be filed with the agencies designated in these regulations for that purpose. Action upon any application or affidavit
may be withheld pending the furnishing of any or all of the information required in such forms or of such additional information as
may be deemed necessary by the Secretary of the Treasury, or the
agency authorized or directed to act hereunder. There shall be
attached to the applications, affidavits, or reports such instruments
as may be required by the terms thereof and such further instruments as may be required by the Secretary of the Treasury, or by
such agency. Whenever additional information is requested it shall
be furnished under oath.
SEC. 6. General provisions affecting licenses.— (1) Licenses issued
pursuant to these regulations shall be upon the appropriate form
prescribed by the Secretary of the Treasury. Licenses shall be nontransferable and shall entitle the licensee to acquire, transport, melt
or treat, import, export, or earmark or hold in custody for foreign
or domestic account, gold only in such form and to the extent permitted by, and subject to the conditions prescribed in, these regulations and such licenses.
(2) Licenses may be modified or revoked at any time in the discretion of the Secretary of the Treasury acting directly, or through the
agency which issued the license, or any other agency designated by

GOLD EESERVE ACT OF 193 4

the Secretary of the Treasury. In the event that a license is modified or revoked (other than by a modification or revocation of these
regulations), the Secretary of the Treasury, or the agency through
which the license was issued, or such other agency designated by the
Secretary of the Treasury, shall advise the licensee by letter mailed
to the address of the licensee set forth in the application. The
licensee, upon receipt of such advice, shall forthwith surrender his
license as directed in such advice. If the license has been modified
but not revoked, the Secretary of the Treasury, or the agency
through which the original license was issued, shall thereupon issue
a modified license.
(3) No license issued hereunder shall authorize the licensee to hold
any gold coin, or any gold melted by any person from gold coin,
unless the license contains a specific provision to that effect.
(4) No license issued hereunder shall exempt the licensee from the
duty of complying with the legal requirements of any State or Territory or local authority.
(5) No license shall be issued to any person doing business under
a name which, in the opinion of the Secretary of the Treasury or
the designated agency issuing the license, is designed or is likely
to induce the belief that gold is purchased, treated, or sold on behalf
of the United States or for the purpose of carrying out any policy of
the United States.
SEC. 7. General provisions affecting export licenses.—At the time any
license to export gold is issued, the Federal Reserve bank or mint
issuing the same shall transmit a copy thereof to the collector of
customs at the port of export designated in the license. Collectors
of customs shall not permit the export or transportation from the
continental United States of gold in any form except upon surrender of a license to export, a copy of which has been received by
him from the Federal Eeserve bank or the mint issuing such
license: Provided, however, That the export, or transportation from
the continental United States, of fabricated gold may be permitted
subject to the provisions of section 16(2) : And "provided further,
That gold held by the Federal Eeserve banks under article IV may be
exported for the purposes of such article without a license. The collector of customs to whom a license to export is surrendered shall cancel such license and return it to the Federal Eeserve bank or mint
which issued the same. In the event that the shipment is to be made
by mail, a copy of the export license shall be sent to the postmaster of
the post office designated in the application, who will act under the
instructions of the Postmaster General in regard thereto.
SEC. 8. General provisions affecting import licenses.—No gold in any
form imported into the United States shall be permitted to enter

GOLD RESERVE ACT OF 19 3 4

until the person importing such gold shall have satisfied the collector of customs at the port of entry that he holds a license authorizing him to import such gold or that such gold may be imported
without a license under the provisions of article I I or IV. Postmasters receiving packages containing gold will deliver such gold
subject to the instructions of the Postmaster General.
SEC. 9. Forms available.—Any form, the use of which is prescribed
in these regulations, may be obtained at, or on written request to,
any United States mint or assay office, Federal Keserve bank, and
at the Treasury Department, Washington, D.C.
SEC. 10. Representations by licensees.—Licensees may include in^
public and private representations or statements the clause " licensed
on form TGL
(here inserting the number of the form of
license held by the licensee) pursuant to the regulations prescribed
under the Gold Reserve Act of 1934 ", but any representation or statement which might induce the belief that the licensee is acting or is
especially privileged to act on behalf of or for the United States, or is
purchasing, treating, or selling gold for the United States, or in any
way dealing in gold for the purpose of carrying out any policy of the
United States, shall be a violation of the conditions of the license.
Each agency issuing licenses hereunder which receives notice of any
such representations or statements made by or with the acquiescence
of any licensee shall promptly notify the Secretary of the Treasury
in order that he may advise it whether or not the license of the
person making such representations or statements, or permitting
such representations or statements to be made, should be revoked.
SEC. 11. Penalties.—Any gold withheld, acquired, transported,
melted or treated, imported, exported, or earmarked or held in
custody in violation of the Act, or of any regulations issued thereunder, including these regulations, or of any licenses issued pursuant
thereto or hereto, 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 the 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.
ARTICLE II. CONDITIONS UNDER WHICH GOLD MAY BE ACQUIRED
AND HELD, TRANSPORTED, MELTED OR TREATED, IMPORTED,
EXPORTED, OR EARMARKED OR HELD IN CUSTODY FOR FOREIGN
OR DOMESTIC ACCOUNT

SEC. 12. 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

72 .

GOLD RESERVE ACT OF 19 3 4

States), only to the extent permitted by, and subject to the conditions
prescribed in, these regulations or licenses issued pursuant to these
regulations.
SEC. 13. Transportation of gold.—Gold may be transported by carriers for persons who are licensed to hold and transport such gold
or who are permitted by these regulations to hold and transport gold
without a license.
SEC. 14. Gold situated outside of the United States.—Gold in any
form situated outside of the United States may be acquired, transported, melted or treated, or earmarked or held in custody for foreign
or domestic account without the necessity of holding a license.
SEC. 15. Gold situated in the possessions of the United States.—Gold in
any form (other than United States gold coin) situated in places
subject to the jurisdiction of the United States beyond the limits of
the continental United States may be acquired, transported, melted
or treated, imported, exported, or earmarked or held in custody for
the account of persons other than residents of the continental United
States, by persons not domiciled in the continental United States:
Provided, however, That gold may be transported from the continental United States to the possessions of the United States only
under license for export issued pursuant to sections 25(3), 32, 33, or
34, or, if fabricated gold, subject to the conditions specified in section
16(2).
SEC. 16. Fabricated gold.— (1) Fabricated gold may be acquired,
transported within the United States, imported, or held in custody
for domestic account without the necessity of holding a license therefor: Provided, however, That it may be transported from the continental United States to other places subject to the jurisdiction of
the United States only subject to the conditions hereinafter specified
in paragraph (2) of this section.
(2) Fabricated gold may be exported, or transported from the
continental United States, without the necessity of obtaining a
license, provided that an affidavit shall have been executed on form
TG—10 and filed in duplicate with the collector of customs at the
port of shipment from the continental United States or with the
postmaster at the place of mailing; and such collector or postmaster
shall have endorsed on the duplicate copy of such affidavit that he is
satisfied that the shipment from the continental United States is not
being made for the purpose of holding or disposing of the fabricated
gold outside of the continental United States primarily for the value
of the gold content: Provided, further, That persons leaving the continental United States may carry with them fabricated gold owned
by them and for their personal use in its fabricated form of a fine
gold content not exceeding 15 ounces without the necessity of filing
such affidavit or obtaining an export license.

GOLD RESERVE ACT OF 1934

SEC. 17. Metals containing gold.—Metals containing not more than
5 troy ounces of fine gold per short ton may be acquired, transported
within the United States, imported, or held in custody for domestic
account without the necessity of obtaining a license therefor. Such
metals may be melted or treated, exported, and held in custody for
foreign account only to the extent permitted by, and subject to the
conditions prescribed in, or pursuant to, article III.
SEC. 18. Unmelted scrap gold.—Unmelted scrap gold may be held
and transported within the United States in amounts containing not
more than 5 troy ounces of fine gold without the necessity of holding
a license.
SEC. 19. Gold in its natural state.—Gold in its natural state (i.e.,
gold recovered from natural sources which has not been melted,
smelted, or refined or otherwise treated by heating or by a chemical
or electrical process) may be acquired, transported within the United
States, imported, or held in custody for domestic account without
the necessity of holding a license therefor. Such native gold may be
melted or treated or exported only to the extent permitted by, and
subject to the conditions prescribed in, or pursuant to, article I I I .
SEC. 20. Rare coin.—Gold coin of recognized special value to collectors of rare and unusual coin (but not including quarter eagles,
otherwise known as $2.50 pieces, unless held, together with rare and
unusual coin and as part of a collection for historical, scientific, or
numismatic purposes, containing not more than four quarter eagles
of the same date and design, and struck by the same mint) may be
acquired and held, transported within the United States, imported,
or held in custody for domestic account without the necessity of holding a license therefor. Such coin may be exported only under license
on form TGL-11 issued by the Director of the Mint. Application for
such a license shall be executed on form TG-11 and filed with the,
Director of the Mint, Washington, D.C.
ARTICLE III. GOLD FOR INDUSTRIAL, PROFESSIONAL, AND
ARTISTIC USE
SECTION 21. " Twenty-five-ounce exemption ".—Any person requiring
gold for use in the industry, profession, or art in which he is regularly engaged may replenish his stocks of gold (in addition to fabricated gold) up to the amount actually required for a period not
exceeding 3 months (but in no event in an aggregate amount exceeding 25 ounces of fine gold held at any one time) by acquisitions of
gold bullion held under licenses issued pursuant to section 23, without
the necessity of obtaining a license for such acquisitions; and the
gold so acquired may be held, transported, melted or treated, for
use by such person in his industry, profession, or art but for no other
purpose. Gold may not be acquired and held under this section by

GOLD RESERVE ACT OF 193 4

persons engaged primarily or incidentally in the business of buying
and selling gold other than fabricated gold.
SEC. 22. Licenses required.—Except as permitted in article I I and in
section 21 of this article, gold may be acquired and held, transported,
melted or treated, imported, exported, or earmarked for industrial,
professional, or artistic use only to the extent permitted by licenses
issued under section 23 hereof.
SEC. 23. Purposes for which licenses shall be issued.—The mints shall
issue licenses authorizing the acquisition and holding, transportation, melting and treating, importing, exporting, and holding for
domestic account of gold which the mint is satisfied is required
for legitimate and customary use in industry, profession, or
art, by an applicant regularly engaged in the mint district
of such mint (1) in the business of furnishing or processing
gold for industry, profession, or art, or for sale to the United States,
(2) in an industry, profession, or art in which stocks of gold in
excess of 25 fine ounces are required to be maintained by
the applicant.
SEC. 24. Applications.—Every application for a license under section 23 shall be made on form TG-12 (except that applications
for export shall be made on form TG-15) and shall be filed in
duplicate with the United States mint for the mint district in which
is located the applicant's principal place of business. No person shall
make application to more than one mint; and, in the event any one
person is, through misrepresentation or mistake, issued a license under
this article by more than one mint, all licenses issued to such person
shall be void from the date of issuance to such person of a license
by a second mint. Every applicant for a license under section 23
shall state in his application whether or not any applications have
been filed by or licenses issued to any partnership, association, or corporation in which the applicant has a substantial interest or if the
applicant is a partnership, association, or corporation, by or to a
person having a substantial interest in such partnership, association,
or corporation. No mint shall issue any license to any person if in
its judgment more than one license for the same purpose will be held
for the principal use or benefit of the same persons or interests. Any
person licensed under this article acquiring a principal interest in
any partnership, association, or corporation holding a license under
this article for this purpose shall immediately so inform the mints
which issued the licenses.
SEC. 25. Licenses.—(1) Upon receipt of the application and after
making such investigation of the case as it may deem advisable, the
mint, if satisfied that gold is necessary for the legitimate and
customary requirements of the applicant's industry, profession, art.

GOLD RESERVE ACT OF 19 3 4

or business, shall issue to the applicant a license on form TGL-12,
TGL-13, or TGL-14, whichever is designated in rulings of the
Secretary of the Treasury for the kind of business, industry, profession, or art in which the applicant is engaged.
(2) Licenses issued under this article may entitle the licensee to
acquire and hold not to exceed a maximum amount specified therein,
which amount shall not be greater than the estimated requirements of
the licensee for a period of 3 months; and such license may authorize
the licensee to transport such gold from place to place within the
United States, melt or treat it to the extent necessary to meet the
requirements of the industry, profession, or art for which it was
acquired and held or otherwise to carry out the purposes for which
it is held under license, and may authorize the licensee to import
gold so long as the maximum amount of gold held after importation
does not exceed the maximum amount authorized by the license to
be held.
(3) No license on form TGL-12, TGL-13, or TGL-14, shall authorize the licensee to export or transport from the continental United
States, without a supplementary license on form TGL-15 issued by the
mint which issued the license on form TGL-12, TGL-13, or TGL-14,
gold in any form (except that fabricated gold may be exported or
transported from the continental United States subject to the conditions specified in section 16 (2)). Export licenses on form TGL-15
shall be issued only with the approval of the Secretary of the Treasury, and upon application made on form TG-15 showing to the
satisfaction of the mint and the Secretary of the Treasury that the
export or transport from the continental United States is for a
specific and customary industrial, professional, or artistic use connected with the applicant's business, and not for the purpose of using
or holding or disposing of such gold beyond the limits of the continental United States as, or in lieu of, money, or for the value of its
gold content.
(4) No license issued under this article shall entitle the licensee
to acquire and hold, transport, melt or treat, import or export, or
hold in custody any gold coin.
SEC. 26. Records.—Every person holding a license issued pursuant
to section 23 shall keep exact records of all his acquisitions and deliveries of gold. His records shall contain the name, address, and
license number of each person from whom he acquires, or to whom
he delivers, gold (other than fabricated gold) and shall show the
amount, date, and description of each such acquisition and delivery,
and such records shall be available for examination by a representative of the Treasury Department for at least 1 year after the date of
the disposition of such gold.

GOLD RESEKVE ACT OF 193 4

SEC. 27. Reports.—Every person holding a license on form TGL-12,
TGL-13, or TGL-14 shall file with the mint which issued his license,
on or before the 15th day of February, May, August, and November,
a report on form TGR-12, TGR-13, or TGK-14, respectively, for
the quarter ending on the first day of such months.
ARTICLE IV. GOLD FOR THE PURPOSE OF SETTLING INTERNATIONAL BALANCES, AND FOR OTHER PURPOSES
SEC. 28.—The Federal Reserve banks may from time to time
acquire from the United States by redemption of gold certificates
in accordance with section 6 of the Act, such amounts of gold bullion
as, in the judgment of the Secretary of the Treasury, are necessary to
settle international balances or to maintain the equal purchasing
power of every kind of currency of the United States. Such banks
may also acquire gold abroad or may acquire gold in the United
States which has not been held in noncompliance with the Executive
orders, or the orders of the Secretary of the Treasury, issued under
sections 2 and 3 of the Act of March 9, 1933, entitled "An act to
provide relief in the existing national emergency in banking and
for other purposes ", or in noncompliance with any regulations or
rulings made thereunder or licenses issued pursuant thereto, or acquired and held, transported, melted or treated, imported, exported,
earmarked or held in custody for foreign or domestic account in
violation of the Act or regulations issued thereunder, including these
regulations.
SEC. 29.—The gold acquired under section 28 may be held, transported, imported, exported, or earmarked or held in custody for
foreign or domestic account for the purposes of settling international balances or maintaining the equal purchasing power of every
kind of currency of the United States: Provided, That if the gold is
not used for such purposes within 6 months from the date of acquisition, it shall (unless the Secretary of the Treasury shall have
extended the period within which such gold may be so held) be paid
and delivered to the Treasurer of the United States against payment therefor by credits in equivalent amounts in dollars in the
accounts authorized under the sixteenth paragraph of section 16 of
the Federal Reserve Act, as amended.
SEC. 30.—The provisions of this article shall not be construed to
permit any person subject to the jurisdiction of the United States,
other than a Federal Reserve bank, to acquire gold for the purposes
specified in this article, or to permit any person to acquire gold
from a Federal Reserve bank except to the extent that his license
issued hereurder specifically so provides.

GOLD RESERVE ACT OF 19 34

ARTICLE V. GOLD FOR OTHER PURPOSES NOT INCONSISTENT
WITH THE PURPOSES OF THE GOLD RESERVE ACT OF 1934

SEC. 31. Licenses required.—Gold may be acquired and held, transported, melted or treated, imported, exported, or earmarked or held
in custody for foreign or domestic account, for purposes other than
those specified in articles I I I and IV not inconsistent with the purposes of the Act only to the extent permitted in article I I or under a
license issued under section 32, 33, or 34.
SEC. 32. Gold imported in gold-bearing materials for reexport.—The
United States assay office at New York or the United States mint at
San Francisco shall issue licenses on form TGL-16, authorizing the
export of gold which such assay office or mint is satisfied was
refined (or is equivalent to gold refined) from gold-bearing materials imported into the United States, provided such gold is imported, acquired, and held, transported, melted and treated as
permitted in article I I or in accordance with a license issued under
section 23 hereof and subject to the following provisions:
(1) Notation upon entry.—Upon the formal entry into the United
States of any gold-bearing materials, the importer shall declare to
the collector of customs at the port where the material is formally
entered that the importation is made with the intention of exporting
the gold refined therefrom. The collector shall make on the entry
a notation to this effect and forward a copy of the entry to the
United States assay office at New York or to the United States mint
at San Francisco, whichever is designated by the importer.
(2) Samifling and assaying.—Promptly upon the receipt of each
importation of gold-bearing material at the plant where it is first to
be treated, it shall be weighed, sampled, and assayed for the gold content. A reserve commercial sample shall be retained by such plant
for at least 1 year from the date of importation, unless the assay
is sooner verified by the Treasury Department.
(3) Plant records.—The importer shall cause an exact record, covering each importation, to be kept at the plant of first treatment.
The records shall show the gross wet weight of the importation, the
weight of containers, if any, the net wet weight, the percentage and
weight of moisture, the net dry weight, and the gold content shown
by the settlement assay. An attested copy of such record shall be
filed promptly with the assay office at New York or the mint at
San Francisco, whichever has been designated to receive a copy of
the entry. The plant records herein required to be kept shall be
available for examination by a representative of the Treasury Department for at least 1 year after the date of the disposition of
such gold.
46217—34

GOLD RESERVE ACT OF 193 4

(4) Application for export license.—Not later than 3 months from
the date of entry the importer shall file with the New York assay
office or the mint at San Francisco, whichever has been designated to
receive a copy of the entry, an application on form TG-16 for a
permit to export refined gold not in excess of the amount shown
by the settlement sheet covering the importation. The application
shall be accompanied by two duly attested copies of the settlement
sheet.
(5) Issuance of serial numbered certificates.—If the mint is satisfied as to the accuracy of the data shown on such application, it shall
issue to the importer a dated serial numbered certificate, which shall
show the amount of gold specified by the application and the amount
specified by the settlement sheet. The Director of the Mint shall
prescribe the form of such certificate.
(6) Issuance of export license.—Upon delivery of the serial numbered certificate to the assay office at New York or to the mint at
San Francisco, whichever has issued the certificate, within 120 days
from the date the certificate was issued, the mint shall issue to the
applicant an export license on form TGL-16 to export refined gold in
an amount not exceeding the amount specified in the settlement
sheet as shown on such certificate.
(7) Exportation prior to receipt of settlement sheet.—Upon a
showing in the application that an exportation with respect to any
gold-bearing materials imported into the United States for refining is
necessary prior to the time the settlement sheet can be procured,
the assay office at New York or the mint at San Francisco, whichever was designated by the importer, may receive the application
with duplicate certified copies of the report of the applicant's
actual test assay. If prior reports of such applicant have been
approximately substantiated by the settletnent sheets, a license to
export up to 90 percent of the amount of gold which such report
estimates will be realized from such gold-bearing materials may be
granted.
SEC. 33. Gold imported for reexport.—Gold may be imported, transported, and exported without the necessity of holding a license, provided the gold remains under customs custody throughout the period
during which it is within the customs limits of the United States.
Except as provided in the foregoing sentence, gold may be imported
for reexport, held, and transported within the United States under
the provisions of this section only under license. The United States
assay office at New York or the United States mint at San Francisco
may, subject to the following provisions, issue licenses on form
TGL-17 authorizing the importation, holding, transportation, and
exportation of gold which the office or mint is satisfied is imported
for prompt reexport.

GOLD BESEKVE ACT OF 1934

(1) Notation upon entry.—Upon the formal entry into the United
States of gold intended for prompt reexport, the importer shall declare to the collector of customs at the port where the gold is formally
entered that it is entered for prompt reexport. The collector shall
make a notation of this declaration upon the entry and forward a
copy of the entry to the assay office at New York or the mint at
San Francisco, whichever is designated by the importer.
(2) Application for license.—The importer shall forthwith file an
application on form TG-17 with the assay office at New York
or the mint at San Francisco, whichever has been designated to
receive a copy of the entry.
(3) License.—Upon receipt of the application and after making
such investigation of the case as it may deem advisable, the assay
office or mint to which the application is made, if satisfied that the
gold was imported for prompt reexport, shall issue to the applicant
a license on form TGL-17.
SEC. 34. The Secretary of the Treasury, with the approval of the
President, shall issue licenses authorizing the acquisition, transportation, melting or treating, importing, exporting, or earmarking or holding in custody for foreign or domestic account of gold,
for purposes other than those specified in articles I I I and IV, and
sections 32 and 33 of this article, which, in the judgment of the
Secretary of the Treasury, are not inconsistent with the purposes
of the Act, subject to the following provisions:
(1) Applications.—Every application for a license under this section shall be made on form TG-18 and shall be filed in duplicate with
the Federal Reserve bank for the district in which the applicant
resides or has his principal place of business. Upon receipt of the
application and after making such investigation of the case as it
may deem advisable, the Federal Reserve bank shall transmit to
the Secretary of the Treasury the original of the application, together with any supplemental information it may deem appropriate.
The Federal Reserve bank shall retain the duplicate of the application for its records.
(2) Licenses.—If the issuance of a license is approved, the Federal Reserve bank which received and transmitted the application
will be advised by the Secretary of the Treasury and directed to
issue a license on form TGL-18. If a license is denied, the Federal
Reserve bank will be so advised and shall immediately notify the
applicant. The decision of the Secretary of the Treasury with
respect to the granting or denying of a license shall be final. If a
license is granted, the Federal Reserve bank shall thereupon note
upon the duplicate of the application therefor, the date of approval
and issuance and the amount of gold specified in such license.

GOLD RESERVE ACT OF 19 3 4

(3) Reports.—Within 7 days of the disposition of the gold acquired or held under a license issued under this section, or within 7
days of export, if such exportation is authorized, the licensee shall
file a report in duplicate on form TGR-18 with the Federal Reserve
bank through which the license was issued. Upon receipt of such
report, the Federal Reserve bank shall transmit the original thereof
to the Secretary of the Treasury and retain the duplicate for its
records.
ARTICLE VI. PURCHASE OF GOLD BY MINTS
SEC. 35. The mints, subject to the conditions specified in these
regulations, and the general regulations governing the mints, are
authorized to purchase:
(a) Gold recovered from natural deposits in the United States
or any place subject to the jurisdiction thereof, and which shall not
have entered into monetary or industrial use;
(6) Unmelted scrap gold;
(c) Gold imported into the United States after January 30, 1934;
and
(d) Such other gold as may be authorized from time to time by
rulings of the Secretary of the Treasury; Provided, howvver, That
no gold shall be purchased by any mint or assay office under the
provisions of this article which, in the opinion of the mint, has been
held at any time in noncompliance with the act of March 9,1933, any
Executive orders or orders of the Secretary of the Treasury issued
thereunder, or in noncompliance with any regulations prescribed
under such orders or licenses issued pursuant thereto or which, in the
opinion of the mint, has been acquired and held, transported, melted
or treated or held in custody in violation of the Act or of regulations
issued thereunder, including these regulations.
SEC. 36. Deposits.—Gold in the form of unmelted scrap gold, coins,
bars, kings, and buttons will be received in amounts of not less than
one troy ounce of fine gold. Gold in the form of retort sponge,
lumps, nuggets, grains, and dust, in their native state free from
earth and stone, or nearly so, will be received in amounts of not less
than two troy ounces of fine gold. Deposits of gold shall not contain less than 200 parts of gold in 1,000 by assay. In the case of gold
forwarded to a mint by mail or express, a letter of transmittal shall
be sent with each package. When there is a material discrepancy
between the actual and invoice weights of a deposit, further action
in regard to it will be deferred pending communication with the
depositor.
SEC. 37. Rejection of gold by mint.—Deposits of gold which do not
conform to the requirements of sections 35 or 36, or which otherwise

GOLD RESERVE ACT OF 19 3 4

are unsuitable for mint treatment shall be rejected and returned to
the person delivering the same at his risk and expense. Any deposit
of. gold which has been held at any time in noncompliance with the
act of March 9, 1933, any Executive orders or orders of the Secretary of the Treasury issued thereunder, or in noncompliance with
any regulations prescribed under such orders or licenses issued pursuant thereto, or in noncompliance with the Act and any regulations
issued thereunder, including these regulations, or any licenses issued
pursuant thereto or hereto may be held subject to the penalties provided in section 12 hereof, or sections 2 or 3 of said act of March
9, 1933.
SEC. 38. Gold recovered from natural deposits in the United States or
any place subject to the jurisdiction thereof.— (1) The mints shall not
purchase any gold under clause (a) of section 35 unless the deposit
of such gold is accompanied by a properly executed affidavit as
follows:
An affidavit on form TG-19 shall be filed with each delivery of gold
by persons who have recovered such gold by mining or panning in the
United States or any place subject to the jurisdiction thereof: Provided, however, That such persons delivering gold in the form of nuggets or dust having an aggregate weight of not more than 5 ounces,
which they have recovered from mining or panning in the United
States or any place subject to the jurisdiction thereof, may accompany such delivery with full and complete information on form TG-19
without the requirement of an oath.
An affidavit on form TG-20 shall be filed with each delivery of gold
by persons who have recovered such gold from gold-bearing materials
in the regular course of their business of operating a custom mill,
smelter, or refinery.
An affidavit on form TG-21 together with a statement also under
oath giving (a) the names of the persons from whom gold was purchased; (b) amount and description of each lot of gold purchased;
(c) the location of the mine or placer deposit from which each lot
was taken; and (d) the period within which such gold was taken
from the mine or placer deposit, shall be filed with each such delivery
of gold by persons who have purchased such gold directly from the
persons who have mined or panned such gold.

In addition such persons shall show that the gold was acquired,
held, melted and treated, and transported by them in accordance
with a license issued pursuant to section 23 hereof, or that such
acquisition, holding, melting and treating, and transportation is
permitted under article I I without necessity of holding a license.
SEC. 39. TJnmelted scrap gold.—No deposit of unmelted scrap gold
shall be accepted unless accompanied by a properly executed affidavit
on form TG-22. In addition the depositors of such gold shall
establish to the satisfaction of the mint that the gold was acquired,
held, and transported by them in accordance with a license issued
pursuant to these regulations.

GOLD EESERVE ACT OF 193 4

SEC. 40. Imported gold.—The mints are authorized to purchase only
such gold imported into the United States as has been in customs
custody throughout the period in which it shall have been situated
within the customs limits of the continental United States, and then
only subject to the following provisions:
(1) Notation upon entry.—Upon formal entry into the United
States of any gold intended for sale to a mint under this article,
the importer shall declare to the collector of customs at the port
of entry where the gold is formally entered that the gold is entered
for such sale. The collector shall make a notation of this declaration
upon the entry and forward a copy to the mint designated by the
importer.
(2) Upon the deposit of the gold with the mint designated by the
importer, the importer shall file an affidavit executed in duplicate
on form TG-23.
SEC. 41. Records and reports.—Every person delivering gold in accordance with this article, who is required to be licensed to hold
gold, shall keep an exact record of all gold mined, acquired, and
all deliveries of gold made by such person as provided in section
26 hereof and shall file with the mint which issued the license the
reports required under section 27 hereof. The mints shall not purchase gold under the provisions of this article from any person who
has failed to comply with these regulations or the terms of his
license.
SEC. 42. Purchase price.—The mints shall pay for all gold purchased by them in accordance with this article $35.00 (less one
fourth of 1 percent) per troy ounce of fine gold, but shall retain from
such purchase price an amount equal to all mint charges. This
price may be changed by the Secretary of the Treasury without
notice other than by notice of such change mailed or telegraphed
to the mints.
ARTICLE VII. SALE OF GOLD BY MINTS
SEC. 43. Each mint is authorized to sell gold to persons licensed
by it to acquire such gold for use in industry, profession, or art:
Provided, however, That no mint may sell gold to any person in
an amount which, in the opinion of such mint, exceeds the amount
actually required by such licensee for a period of 3 months. Prior
to the sale of any gold under this article, the mint shall require the
purchaser to execute and file in duplicate an affidavit on form TG-24,
or, if such purchaser is in the business of furnishing gold for use in
industries, professions, and arts, on form TG-25. The mints are
authorized to refuse to sell gold in amounts less than 25 ounces,

GOLD RESERVE ACT OF 19 34

83-

and shall not sell gold under the provisions of this article to any
person who has failed to comply with these regulations or the terms
of his license.
SEC. 44. Sale price.—The mints shall charge for all gold sold under
this article $35.00 (plus one fourth of 1 percent) per troy ounce
of fine gold. This price may be changed by the Secretary of the
Treasury without notice other than by notice of such change mailed
or telegraphed to the mints.
ARTICLE VIII. TRANSITORY PROVISIONS
SEC. 45. Licenses issued by the United States mints and assay
offices on Form TGL-4 and TGL-4A, shall until March 15, 1934,
be deemed licenses under section 23 hereof. Such licenses on Form
TGL-4 will authorize the licensee until March 15, 1934, to acquire—
(1) gold held under License TGL-4 or TGL-4A or under
License TGL-12, TGL-13, or TGL-14 issued pursuant to these
regulations;
(2) unmelted scrap gold from persons who acquired and hold
such gold lawfully; or
(3) gold bullion from the mint which issued his licenses;
and to hold, transport, melt and treat, gold now lawfully held or so
acquired in amounts authorized by the license. Such licenses on
Form TGL-4A will authorize the licensee until March 15, 1934, to
acquire unmelted scrap gold—
(1) held under License TGL-4A or under License TGL-12,
issued pursuant to these regulations; or
(2) from persons who acquired and hold unmelted scrap gold
lawfully;
and to hold and transport unmelted scrap gold now lawfully held
or so acquired in amounts authorized by the license.
SEC. 46. Licenses to hold gold in custody, issued by direction of
the Secretary of the Treasury on forms TGL-1 and TGL-2 up to
and including March 15, 1934, shall be deemed licenses to hold such
gold in custody subject to the conditions prescribed therein, unless
sooner terminated by the terms thereof.
HENRY MORGENTHAU, Jr.,

Secretary of the Treasury.
Approved:
FRANKLIN D. ROOSEVELT,
THE WHITE HOUSE.

Articles I, I I , I I I , IV, V, and VIII approved January 30, 1934.
Articles VI and VII approved January 31, 1934.

GOLD RESERVE ACT OF 193 4

GOLD RESERVE ACT OF 1934
AN ACT 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.
Be it enacted by the Senate and House of Representatives of the
United States of America ton 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."
(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,

GOLD RESERVE ACT OF 193 4
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:
" 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
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

GOLD RESERVE ACT OF 193 4
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 ox 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 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:
" 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 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 conditions
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

GOLD KESERVE ACT OF 19 3 4
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.
SEO. 4. Any 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 Act
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 further, 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 ofiice in an amount
equivalent at the time of redemption to the currency surrendered for
such purpose.
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

GOLD RESERVE ACT OF 193 4
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 3700 of. the Revised Statutes (U.S.C., title 31,
sec. 734) is amended to read as follows:
" SEC. 3700. 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 general 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 funds 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 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, includng 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

GOLD EESERVE ACT OF 19 3 4
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 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:
" 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,
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 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, 1933, 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 charges, or to collect different seigniorage, for the coinage of silver of foreign production than

GOLD RESERVE ACT OF 193 4
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.
SEO. 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 ".
(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
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. VII, 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).

GOLD RESERVE ACT OF 19 3 4

(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 " 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 III, 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. If 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.

The CHAIRMAN. The committee will now proceed with the hearing
on the bill S. 2366. Governor Roy A. Young is present; and if it
agreeable to him, we will hear him at this time.
STATEMENT OF ROY A. YOUNG, GOVERNOR OF THE FEDERAL
RESERVE BANK OF BOSTON, BROOKLINE, MASS.

The CHAIRMAN. Governor Young, will you please state your name
and residence, occupation or profession ?
Mr. YOUNG. My name is Roy A. Young; residence, Brookline,
Mass.; Governor of the Federal Reserve Bank of Boston.
The CHAIRMAN. Governor Young, have you examined the bill
S. 2366 and the amendments proposed to it?
Mr. YOUNG. I have read it very hurriedly. I have had no opportunity to consult with counsel about any of the legal phases of it, I

GOLD RESERVE ACT OF 19 3 4

was almost tempted to wire you the other day that I would prefer
to come a little later to the committee meeting, but realizing that it
was urgent I am here to give you the benefit of any experience I may
have had with finance.
Senator BARKLEY. Mr. Chairman, is there any way to connect up
this loud-speaker system ? If we are going to hold public hearings,
we cannot accomplish very much in this large room unless we may
have this system in operation, which has been used during the stockexchange hearings.
Senator BYRNES. That is so, and there are many people present.
And the members of the committee at this end of the table cannot
hear what is being said without the aid of this amplifying arrangement.
The CHAIRMAN. We have sent for the man who has been operating them during our stock-exchange hearings. The instruments
were disconnected at the close of the morning session of the stockexchange hearings, but we have sent for him, and we understand he
will be here in a few minutes. In the meantime we will proceed and
do the best we can.
Senator BYRNES. That is all right, Mr. Chairman. I think it
would be best to proceed.
The CHAIRMAN. NOW, Governor Young, we will be very glad to
have your views in regard to this bill. You are familiar with the
general subjects covered by it, are you?
Mr. Young. Yes, sir.
The CHAIRMAN. We would like to have you tell the committee
what you may have to suggest in connection with the bill, as to
whether it is legal or not, as to whether it is practical or not, as to
whether it is a wise measure or not, as to whether it is sound or not.
Mr. YOUNG. Mr. Chairman and gentlemen of the committee, since
April 18 it has been the policy of the administration to devalue the
dollar. The dollar has been devalued. So I am not here to argue
about that matter at all. The dollar having been devalued, what are
we going to do from here on ? It seems to me that this bill will be
helpful in stabilizing to a degree our currency.
I read this morning Governor Black's statement made before this
committee in executive session. From what I know of the negotiations, and from what I know of the situation, I am in complete agreement with what he has stated to you. And, therefore, in order to
avoid repetition, I am not going to attempt to state what he has said
so well.
I believe that any profits that come about because of an increase
in the value of gold legally at the moment belongs to the Federal
Reserve banks. I do not think it necessary for the Federal Reserve banks to retain that profit. As an American citizen I am inclined to agree with practically everybody in the Federal Reserve
System that those profits should go to the Treasury. I would have
liked to see them go in a legal way, probably with some provision
that the Federal Reserve banks might be guaranteed against some
possible or unforeseen loss. It seems to me, however, it is a much
simpler operation to let it go through a franchise tax rather than
what has been set up in the bill, S. 2366. I mean much like what
was passed with regard to the Federal Deposit Insurance Corporation.

GOLD RESERVE ACT OF 19 3 4

I think it will be helpful to the general situation to stabilize the
dollar somewhere between 50 and 60. I am not an expert in that
matter, and whether 60 is the proper figure, or whether 65 should be
the figure, is something to be determined by people who know more
about this than I do. And it is my hope that it will stop there.
In reading the bill I do not know whether certain sections of it do
stop there or not.
There are other sections of the bill that commit us permanently to
an irredeemable currency. That I am opposed to. I think those
sections ought to be of a temporary nature; I mean with a time
limit on them.
There are other sections of the bill that give the Secretary of the
Treasury almost unlimited powers. Legally it does not nullify
section 14 of the Federal Reserve Act in reference to open-market
operations, but it does transfer that function to the Secretary of
the Treasury on a permanent basis. And so we may find ourselves
in the inconsistent position of the Federal Reserve System, through
those open-market operations under section 14, of pursuing one policy, and the Treasury pursuing another.
Now, as I say, Senator Fletcher, I have had to analyze this bill
very rapidly. I haven't had the time I wished to have. These are
my impulsive views of the bill. And with that statement for the
present, I (shall now be glad to answer any inquiries that I can
answer.
The CHAIRMAN. Governor Young, are there any specific amendments you would like to recommend to the committee ?
Mr. YOUNG. It seems to me it is a much easier transaction, and
I am informed one in which the constitutionality of the act would
not be questioned as much, if the profit or increased value of gold,
whichever you want to call it, would go by way of a franchise tax
rather than the way it is taken here. That would permit the Federal Reserve banks to retain the gold and still give the Government
the profit. And I think it quite essential that the actual gold remain
back of the Federal reserves.
Senator CAREY. DO you mean all gold ?
Mr. YOUNG. The required gold.
Senator CAREY. Would you pay this to the Treasury in gold or
pay it in Federal Reserve notes; I mean the profit ?
Mr. YOUNG. Well, by way of a franchise tax I would say that wo.
would retain the gold.
Senator CAREY. YOU would retain all of the gold ?
Mr. YOUNG. Such gold as we have. The Treasury has some gold,
and in that way it would solely be made by means of a book entry.
Now, that initial transaction would have no effect upon the excess
reserves that are in the System at the present time. It would simply be a mark-up on both sides of our ledger, with the profit going
to the Government. However, as the Treasury expended those
funds for any of the things it is permitted to expend them for under
the act, the excess reserves in the Federal Reserve System would
increase with the amount of the Treasury's expenditures; meaning
that there is the possibility of increasing the excess reserves that
are now in the Federal Reserve System, of approximately 900
million dollars, to 4 billion 900 million dollars.
46217—34

GOLD RESEKVE ACT OF 193 4

Senator TOWNSEND. That is assuming that it was all spent?
Mr. YOUNG. Yes. I mention that as an extreme possibility.
Senator TOWNSEND. Yes; I see.
Mr. YOUNG. Obviously some of it probably will be spent, and as
it is spent it is used to increase the excess reserves of the member
banks of the Federal Reserve System.
Senator GOLDSBOROUGH. Governor Young, Chairman Fletcher
asked if you had any specific or definite amendments you would like
to propose to the bill. I understand that you are now expressing
the view that there should be some time limit incorporated in this
bill.
Mr. YOUNG. Yes, sir.
Senator BULKLEY. Which

sections, if any, would you eliminate
from the bill?
Senator GLASS. He referred to the irredeemable currency, I believe.
Senator BARKLEY. Governor Young, your suggestion of a limitation applied, as I understood, to the power of the Secretary of the
Treasury to deal in exchanges, which is section 10a, isn't it?
Senator COUZENS. Yes; that is section 10a.
Senator GORE. Someone has suggested that sections 3, 4, 9, and 10should be limited as to time.
Senator GLASS. Your first suggestion, Governor Young, was as to
the permanent character of the irredeemable currency provision of
the bill.
Mr. YOUNG. Yes. That is in section 6.
Senator BULKLEY. Are there any other sections that you refer to in
that connection?
Mr. YOUNG. Yes; there are others; but it will take a little time for
me here to look over them.
Senator GORE. Someone suggested that sections 3, 4, 9, and 10
ought to be limited. How about that, Governor Young ?
Mr. YOUNG. Well, section 10—and I am not reading that now—
but I know that ought to be limited. I am trying to look through
the bill and find out whether section 3 should be limited.
Senator GORE. All right.
Senator TOWNSEND. AS to maintaining a reserve of 35 percent
against deposits?
Senator GORE. IS this print now on the table the new print ?
Senator CAREY. NO, Senator Gore; but there has been an amendment offered by Senator Fletcher.
Mr. YOUNG. I should think there should be a limit on section 3,
because if you are going to make a limit on section 6, you would
have to have a limit on section 3. And section 4 would have to be
limited.
Senator BARKLEY. DO you mean as to section 3 there should be a
limitation as to time?
Mr. YOUNG. Yes. If you limit section 3 on the irredeemable features of it.
Senator BARKLEY. What is your reason for the suggestion that
there ought to be a time limit placed in section 3 ?
Mr. YOUNG. Well, Senator Barkley, it is assumed that some clay
we will go back to the free movement of gold. This section" would
bind it up forever.

GOLD RESERVE ACT OF 19 3 4

Senator BARKLEY. That is, of course, an assumption. It may
never develop into a fact, or you don't know about that at least.
Mr.

YOUNG.

Yes.

Senator BYRNES. Mr. Chairman, may I suggest that inasmuch as
Governor Young has stated he has not had an opportunity to study
the bill it is hardly proper to ask him to specify amendments to
different sections, at least not until he has had time to go over them
carefully, and that then the committee might give him an opportunity to present any amendments he wishes to suggest.
The CHAIRMAN. Very well.
Senator BARKLEY. I should like to ask Governor Young this question : He has suggested, independent of any amendments, that this
profit could be transferred to the Government without the transfer
of the actual gold. I do not know whether this is a fair question
or not, Governor Young, but you understand that the primary object
of this bill is not to get the profit out of this gold. That is a mere
incident. There may never be any profit. There wouldn't be any
unless the President issued a proclamation devaluing the dollar.
He may do that and he may not do that. If he does not do it
there will be no profit. As I understand, the fundamental object
of this bill is for the Government to get the actual physical possession of the gold which is the basis of our currency in this country,
and then if there is a devaluation later there would grow out of that
transaction a profit. But if there is no devaluation there would
never be any profit.
Mr. YOUNG. Well, Senator Barkley, I may not be taking the right
assumption, but when every action of the administration is toward
devaluation; with the embargo of April 18, plus the gold-buying
program, plus the terms of this bill, with 2 billions of dollars to
purchase certain things, plus the 60-cent limit on it, I have every
reason to believe there is going to be a profit in this gold.
Senator BARKLEY. Yes, I think it is reasonable to assume there
will be. But the transfer of that profit to the Government from the
Federal Reserve banks is not, as I understand it, the primary object
of this bill.
Senator CAREY. What is the primary object of the bill, then, Senator Barkley ?
Senator BARKLEY. Well, of course, if the only object of this bill is
to get two or three billions of dollars' profit out of this gold, it
should not be done, as is suggested by Governor Young and others.
But, according to my interpretation of the bill and the negotiations
that have been described here and in which, of course, I did not
participate, the object is to put in the Treasury and under the control of the Government all the monetary gold in this country
permanently, to be used and held as a basis for currency. That is
what I understand to be the main object of this bill, and the question
of profit is incidental.
Mr. YOUNG. Well, then, may I understand if this means a Government central bank and the abolishment of the Federal Reserve
System ?
Senator BARKLEY. No; I do not understand it is that. And I do
not agree, I will say frankly, although probably I am not expert
enough on banking and currency to put my opinion against that of

GOLD RESERVE ACT OF 193 4

many others, but I do not believe it will result in anything of that
kind.
Senator KEAN. If you take away all of the powers of the Federal
Reserve System
Senator GORE (interposing). And the gold, too.
Senator KEAN (continuing). And the gold too, where will the
Federal Reserve System stand?
Senator BARKLEY. If I may interpolate in answer to that question,
I should like to have Governor Young describe what powers we take
away from the Federal Reserve banks. They can still issue currency
based upon gold certificates, as they do. They can issue gold certificates now for all the currency they issue, and there is more than
900 million dollars at the present time based upon gold certificates.
You happen to have some gold and some gold certificates as a
reserve for the issue of currency; but you could issue all the currency out now based upon gold certificates if you wanted to do it.
There is no limitation in this bill that prevents you from doing that,
should this bill become a law, is there ?
Mr. YOUNG. That is true.
Senator GLASS. Isn't it true that those gold certificates practically
amount to gold inasmuch as they are redeemable in gold ?
Mr. YOUNG. That is right.
Senator GLASS. And when you transfer to the Federal Reserve
banks certificates that are meaningless and that are not redeemable
in gold, it has no gold, has it?
Senator BARKLEY. They are redeemable in gold so far as may be
necessary for the Federal Reserve System to engage in international
transactions or to preserve the parity of the currency.
Senator GLASS. But the parity of the currency is preserved on an
irredeemable basis.
Senator GOLDSBOROUGH. Governor Young, how about the primary
objects of the bill? I direct your attention to section 10 a, in which
there is set up the sum of 2 billions of dollars to be recovered into
the Treasury for the very purpose of stabilizing foreign exchange.
Isn't that correct ?
Senator BARKLEY. Of course.
Senator GOLDSBOROUGH. And that is set up out of the profit of
taking over the gold ?
Mr. YOUNG. AS I understand this 2 billion of dollars, it is not
only money to stabilize the exchange, but there is no limit on what
the Secretary of the Treasury can do with that money.
Senator GLASS. Well, there wasn't in the bill as originally introduced, but section 10 a has been rewritten.
Mr. YOUNG. Well, I notice there is a change in that, Senator Glass.
But it reads this way:
To deal in gold and foreign exchange, and such other instruments of credit
or security as he may deem necessary to carry out the purpose of this section.

Senator BARKLEY. That is, to stabilize the exchange value of the
dollar.
The CHAIRMAN. Yes; the purpose is stated as being with the view
of stabilizing the exchange value of the dollar.
Mr. YOUNG. Well, the words " and such other instruments of
credit", it seems to me gives him unlimited authority to deal in

GOLD RESERVE ACT OF 1934

almost anything. Further down, in section (b) he can support the
Government bond market and use the funds for that purpose.
Senator GLASS. And that is what he is going to do, of course,
under the bill.
Senator KEAN. NOW, Governor Young, I repeat my question: If
you take away from the Federal Reserve banks the gold, and if you
take away the powers that are included in this bill and the amendments thereto, what is there left of the Federal Reserve banks?
Mr. YOUNG. Well, that is just exactly the inquiry I made. I think
the Federal Reserve banks are centered on pretty much a machine,
and that is why I suggested that this be not a permanent law, that
there be some time limit on it. I have been with the Federal Reserve
System for 17 years and have seen it under many conditions, and I
still believe that the regional system is better than a central system,
with all its cumbersomeness. With cumbersomeness I am satisfied
it has on many occasions excluded the possibility of hasty action on
monetary policies. Frankly, gentlemen of the committee, I do not
want to see the Federal Reserve System abolished. I want to see
it continued, not as a mechanical set-up but as fairly representative
of the business and industrial institutions of the country.
Senator BARKLEY. What is there that the Federal Reserve banks
can do now that they could not do if this bill were enacted into law ?
Mr. YOUNG. We can operate in the open market. This bill gives
the Secretary of the Treasury such powers, of a permanent nature,
that he could nullify anything we could do.
Senator BARKLEY. The Secretary of the Treasury under this bill
could only engage in operations in the open market for the purpose
of stabilizing the exchange value of the dollar, which it seems to me
is an infinitesimal amount of open-market transactions as compared
to domestic operations in all kinds of securities that the banks can
now engage in.
Mr. YOUNG. There is very broad language in this bill, and certainly the Secretary of the Treasury could purchase Government
bonds to stabilize the Government bond market, and I think there
can be no question about that.
Senator BARKLEY. I agree to that.
Senator BYRNES. Would it be conceivable if the Treasury wanted
to stabilize the bond market at some time, that the Federal Reserve
banks would want to go into the bond market to prevent a stabilisation of the bond market?
Mr. YOUNG. That is possible.
Senator BYRNES. If that be true, don't you think that somewhere
the Government should have the power and the opportunity to protect its own securities; I mean in event the Federal Reserve banks
should determine to attack those securities ?
Mr. YOUNG. That is why you have two different set-ups in this
bill, one in the Treasury and one in the Federal Reserve banks.
Senator BYRNES. That is right. But if there is to be a conflict of
interest, shouldn't the Government have the power and the opportunity to protect itself ? If, as you assume the time may arise when
there would be a conflict, when the banks might want to deflate and
the Government of the United States might not want to deflate,

GOLD RESERVE ACT OF 193 4

should the Federal Reserve banks alone have the weapon with which
.to act?
Mr. YOUNG. It has that power now under the Banking Act of
Senator BYRNES (interposing). And suppose it would not want to
surrender it?
Mr. YOUNG. Under the Banking Act of 1933 it has that power,
and in my opinion it always has had that power through the Federal
Reserve Board, which is a branch of the Government. Now it is a
question whether you are going to transfer this power from the Federal Reserve Board to the Treasury Department.
Senator BYRNES. If it is a branch of the Government, then ordinarily it would be in accord with the policies of the Government.
But you have assumed that there might be a conflict between the
Treasury and the Federal Reserve Board.
Mr. YOUNG. That is right.
Senator BYRNES. If that conflict should arise, don't you think the
Treasury should have the power and the weapon with which to
protect itself as against privately owned banks ?
Mr. YOUNG. AS an emergency measure that may be so, but as a
permanent thing I say certainly not.
Senator BYRNES. Then if it may be used in an emergency, why
not permanently ?
Mr. YOUNG. Then the whole theory of the Federal Reserve Act is
wrong.
Senator BYRNES. Just because you think it is wrong, but for no
other reason?
Senator GLASS. Let me ask you a question. Was the Federal Reserve System set up to protect the Treasury?
Mr. YOUNG. I do not think so, Senator.
Senator GLASS, Was it set up to be used as a football by the Treasury?
Mr. YOUNG. I do not think so.
Senator BARKLEY. Was it set up to be used to drive down the
market price of Government securities ?
Senator GLASS. N O ; and it has never done that.
Senator BARKLEY. Assuming that.
Senator GLASS. We may assume what the Secretary of the Treasury will do from what the Secretary of the Treasury has done. I
call every member of the Banking and Currency Committee here
present to witness the accuracy of this statement—certainly those
members of i\\e subcommittee that prepared the Banking Act of
1933. When we made an assessment on the member banks of a
quarter of a cent we provided that one half of that assessment was to
be called within 90 days, and the other half of the assessment was
to be subject to call, but it was the universal opinion of every member
of the committee that it was more than likely that that second assessment would never be called, and we appeased the protest of member
banks throughout the country against that assessment by saying to
them that we did not contemplate that it would ever be called.
My information is that it has already been called, and that the call
has been used, not to pay any depositor in a failed bank, but has
been used to stabilize the bond market of the United States, which I
conceive to be a perversion of the intent of the law. If it is done

GOLD RESERVE ACT OF 19 3 4

so soon now with the fund provided for the insurance of deposits in
banks, there is no telling what will be done.
Senator BARKLEY. Does not the act authorize the deposit corporation to use this fund, or such other fund as it may have, for investment in suitable securities ?
Senator GLASS. Undoubtedly.
Senator BARKLEY. SO that there is no unlawful use of the money.
Senator GLASS. NO; there is no unlawful use of it. There is a
perverted use of it, against the intent of the law.
Senator KEAN. Mr. Young, is it not true that in times past the
Secretary of the Treasury has had one idea of keeping the market
going, and encouraging people to speculate, if you chose to use that
term
Senator GLASS. Why don't you say " gamble " and be done with it?
Senator KEAN (continuing). And the Federal Reserve has had
another idea of trying to stabilize business, and therefore, perhaps,
they would be in favor of selling some of the United States bonds
that they hold, as against the Treasury trying to boom them up.
That has happened before, has it not ?
Mr. YOUNG. In my experience, Senator, in operations in the Government bond market—this is my best recollection—the Federal
Reserve System and the Treasury were in agreement as to what
was done. There may be some exceptions to that, but very few.
Senator BYRNES. YOU would not mean to say, in response to that,
that you would expect that just because a man is a member of the
Federal Reserve Board he will necessarily be superior in patriotism
to the'official who happened to be appointed by t1 o President of the
United States as Secretary of the Treasury under any given circumstances? The Senator asked whether, if the Treasury goes to
encouraging gambling, it could be stopped only by the Federal Reserve Board. Do you believe it necessarily follows that if a man
is Secretary of the Treasury he would want to do that, to encourage
speculation ?
Mr. YOUNG. Not at all, Senator; but let us look at the mechanics
of this, and look at the act of 1933, which is the result of what
developed in actual practice in reference to open-market operations.
There are 108 directors of the Federal Reserve banks. There are
12 Governors. There are 8 members of the Federal Reserve Board,
and open-market operations under the law today require the majority approval of all of them. I say that is far better than
depending on any one man.
Senator BYRNES. But they are responsible to their member banks,
and the Secretary of the Treasury is appointed by the President, who
is responsible to 130,000,000 people. Would you not expect just
about such desire to do that which was best for the interest of the
country from him, or is all virtue in those who happen to be, from
time to time, appointed to the Federal Reserve Board ?
Mr. YOUNG. NO ; I do not think so.
Senator ADAMS. Mr. Young, was the Federal Reserve Board, or
the majority of the Governors, entirely in accord with the policy of
the Secretary of the Treasury during the past 4 years in reference
to market operations and the encouragement or discouragement of
speculation ?

100

GOLD RESERVE ACT OF 193 4

Mr. YOUNG. Yes; I am going to say that the majority was. It
must have been.
Senator ADAMS. SO, they share the responsibility for some of the
things that happened to us ?
Mr. YOUNG. Yes, sir.
The CHAIRMAN. Are there any other questions ?
Senator BARKLEY. If this bill should be enacted,

the Federal Reserve banks can go ahead, just as they have always done, in the rediscount of paper, and furnishing credit to the member banks
throughout the country. This does not in any way interfere with
that.
Mr. YOUNG. Not at all.
Senator BARKLEY. They

can go ahead and issue Federal Reserve
notes and Federal Reserve bank notes, just as they do now ?
Mr. YOUNG. That is right.
Senator BARKLEY. TO the same extent they do now?
Mr. YOUNG. Yes, sir.
Senator BARKLEY. SO

that, so far the only way in which you feel
that this bill may interfere with the Federal Reserve bank is that the
Secretary of the Treasury might in some way impinge upon the right
of the Federal Reserve banks to deal in open-market transactions in
securities?
Mr. YOUNG. Yes. There may be other things.
Senator GLASS. Governor, let us be brutally frank about this
matter. Is it not a fact that the Secretary of the Treasury for the
last 12 years has practically dominated the policy of the Federal
Reserve banks and Board with respect to the purchase of United
States bonds?
Mr. YOUNG. NO, sir.
Senator GLASS. I think
Mr. YOUNG. Well, I do

he has.
not like to disagree with you, Senator, but
I was on the Board for 3 years, and I know that there was a difference of opinion between the Treasury and the Board repeatedly.
Senator GLASS. But the Treasury always predominated.
Mr. YOUNG. NO, sir.
Senator GLASS. HOW

did you manage to load the Federal Reserve
banks up with 2y2 billions of United States bonds otherwise ?
Mr. YOUNG. I t was done by a voluntary action of all the Reserve
banks in an open-market meeting, considered by all the Governors,
some of whom voted for and some of whom voted against. The
majority were for it. It went to the Federal Reserve Board. The
Federal Reserve Board approved or disapproved it by a majority
vote.
Senator GLASS. What was the attitude of the Secretary of the
Treasury ?
Mr. YOUNG. In all those purchases?
Senator GLASS. Yes. If you cannot tell me, I can tell you.
Mr. YOUNG. I cannot tell you.
Senator GLASS. He was in favor of it always.
Senator BARKLEY. HOW many votes did he have ?
Mr. YOUNG. He has one vote. [Laughter.]
Senator KEAN. Mr. Young, the stockholders of the Federal Reserve
bank are the banks, are they not?

GOLD RESERVE ACT OF 19 34

101

Mr. YOUNG. That is right.
Senator KEAN. The gold in the Federal Eeserve banks at the present time belongs to the stockholders, does it not? That is, at all
events, the surplus gold above the 40 percent?
Mr. YOUNG. I am not an attorney, but I will assume for the moment that it does belong to the Reserve banks, and, in turn, to the
stockholders.
Senator KEAN. If I deposit $100 in a member bank, at least $10 of
that has to go to the Federal Eeserve as a deposit, does it not?
Mr. YOUNG. I did not catch that question.
Senator KEAN. If I deposit $100 in a national bank, $10 of that has
to go to the Federal Reserve bank, does it not?
Mr. YOUNG. It depends upon what kind of a deposit you make. If
it is a time deposit, only $3 will go.
Senator KEAN. I am talking about a regular drawing account.
Mr. YOUNG. The average is about 7 percent.
Senator KEAN. I S it not 10 percent of the deposit?
Mr. YOUNG. NO. The law requires 3 reserves or, rather, 4 reserves:
3 percent against time deposits, 7 percent if in a city outside a Reserve
city
Senator KEAN. Yes.
Mr. YOUNG. And 10 percent in a Reserve city, and 13 percent in the
central Reserve city. There are four different Reserves.
Senator KEAN. SO that if I deposit a drawing account in a bank,
you get about $10 of it, do you not, if I deposit $100 ?
Mr. YOUNG. It works out about 7 percent.
Senator KEAN. YOU are talking about time deposits.
Mr. YOUNG. Let us go ahead with $10. x
Senator KEAN. All right. What I am talking about is this: That
gold that is above the amount of paper that you have issued belongs
to those depositors and stockholders, does it not?
Mr. YOUNG. I cannot answer that, Senator. It belongs to the
bank—and I mean the Federal Reserve bank. The provisions under
the law are that if the Federal Reserve bank is dissolved all of that
profit over the liabilities goes to the Treasury.
Senator GLASS. Yes; that is a good way to get the gold, is it not ?
Mr. YOUNG. Yes.
Senator KEAN. That is the profit, under the old law.
Senator GLASS. Oh, no. Whenever a Federal Reserve

bank goes
into liquidation or is abolished by the Government, all of its property goes to the Government.
Senator KEAN. Yes.
Senator GLASS. And that is an honest way of getting possession of
it, if you want to abolish the Federal Reserve bank.
Senator KEAN. That is true.
Senator COUZENS. L$t us do it.
Senator GLASS. I know you are in favor of doing it, and I am not.
Senator KEAN. What I am trying to get at is this, that if the
Federal Reserve bank has bad paper, or anything of that kind, they
are taking away the assets that belong to the people. That is what
I am getting at.
The CHAIRMAN. We have the opinion of the Attorney General on
that subject, Senator.

102

GOLD BESEEVE ACT OF 193 4

Senator KEAN. I know.
The CHAIRMAN. I do not know whether Governor Young wants
to express any opinion on the legal phases.
Senator KEAN. That is correct, is it not?
Mr. YOUNG. Senator, I cannot answer.
Senator KEAN. The next question I want to ask you is this: This
bill proposes to stabilize the currency at between 50 and 60. To
your knowledge, and to mine, the United States Government has
done everything in its power to depress the value of the dollar in
the last 6 months, has it not?
Mr. YOUNG. I am not going to say " everything."
Senator KEAN. What have they left undone ?
Mr. YOUNG. It has been the policy to devalue the dollar.
Senator COUZENS. They have not issued paper money.
Senator GLASS. This bill does not propose to stabilize the dollar
at all between 50 and 60.
Senator KEAN. It authorizes it.
Senator GLASS. NO ; it does not.
The CHAIRMAN. We will talk about the bill later. Let us get the
facts. What is it you want ?
Senator KEAN. I want to find out whether, in his opinion, the
dollar ought not to be stabilized at 65 to 70, because there is bound
to be a reaction from the continual depression, a rebound.
Mr. YOUNG. That is an extremely technical question and can only
be answered by a man who is in daily contact with those transactions. My impulsive reaction to the figure 60 was this: Let us
assume that you do stabilize at 60 or 50. It appears to me that
it.can only be done after some agreement with England, France,,
and probably other nations; and if you put a limit of 60 on it, it
seems to me it ties your hands somewhat.
Senator KEAN. Yes; it does.
Mr. YOUNG. I cannot say whether 60 or 65 is proper. Of course,
we have to take into consideration what France and England may
do. I do not know what they are going to do.
Senator GOLDSBOROUGH. Governor, the statutory price of gold is
fixed at $20.67. The world price has run from $30 to $31, $32, and
$34. It is reported that the Reconstruction Finance Corporation has
bought many millions of gold abroad. If it is taken over by the
Treasury, is there to be a loss; and, if so, who sustains the loss?
Senator COUZENS. There is no loss.
Mr. YOUNG. Indirectly, I suspect, the Treasury. While we have
no right to talk about this, Senator, the Treasury supplied the capital
for the Reconstruction Finance Corporation, and any losses of the
Reconstruction Finance Corporation that are in excess of the earnings obviously have to be taken out of that capital, so it is a loss to
the Treasury. It seems to me I saw some statement today somewhere
that the Treasury contemplated taking over the gold that the Reconstruction Finance Corporation now has at the price they paid for itSenator BARKLEY. As a matter of fact, Federal Reserve banks
have not in any instance paid more than $20.67 for any of the gold
they now possess; is that not true ?
Mr. YOUNG. I think that is correct.
Senator BARKLEY. SO that there will be no loss.

GOLD RESERVE ACT OF 19 34

103

Senator GLASS. NO ; the Federal Reserve banks have not bought
any foreign gold, except as the agent of the Treasury.
Senator BARKLEY. That is true. They now own no gold in foreign
countries. They have not bought any or acquired any in any wayr
for which they paid more than $20.67.
Mr. YOUNG. We do not own any gold now that I know of.
The CHAIRMAN. Are there any other questions?
Senator WAGNER. I was going to suggest that, while there might
be a bookkeeping loss in the purchase of this gold in foreign markets,
there are two ways, however, that that may be transferred into
a gain: Namely, if the market goes up for world gold, you could
sell it again at a higher price; and, secondly, if that is used, if you
bring down the value of the dollar in international exchange, we
might benefit greatly by the sale of our goods in foreign markets.
In that way that small loss might result in tremendous gain in international trade.
Senator GOLDSBOROUGH. And if it is taken up on the books of the
Treasury upon the adoption of this bill, assuming it should be
adopted, there would be strong likelihood of loss, because the statutory price is fixed at $20.67, which is considerably below the world
market price.
Mr. YOUNG. That is right.
.
Senator BARKLEY. There would not be a loss. There would be
just a failure to acquire a profit.
The CHAIRMAN. There is not a great deal of it anyway.
Senator COUZENS. Who is the next witness we are going to have*
Mr. Chairman?
The CHAIRMAN. Governor, will you please submit any amendments
you would like to suggest ? You can send those in later, if you will.
That is all, Governor.
Mr. YOUNG. I want to thank you gentlemen for your courtesy.
The CHAIRMAN. We are very much obliged to you for coming
down.
Mr. YOUNG. I am sorry I was not better prepared.
The CHAIRMAN. I S Dr. Anderson here? Senator Gore, have you
heard from Dr. Anderson?
Senator GORE. He expected to be called about 4 o'clock. That was
the understanding when he left yesterday to go up to Trenton.
The CHAIRMAN. Former Senator Owen is here. He was chairman
of this committee for a number of years, and has studied these questions for years, and is well posted on them. We will hear from him
now his views with respect to this bill.
STATEMENT OF HON. ROBERT L. OWEN, FORMERLY A UNITED
STATES SENATOR FROM THE STATE OF OKLAHOMA
The CHAIRMAN. Senator, have you seen the bill, S. 2366?
Mr. OWEN. Mr. Chairman, when I received your telegram yesterday inviting me to come down from New York to appear before the
committee, I came in last night and this morning I had the opportunity of reading the bill. I had general knowledge of its contents
before, I also saw the opinion of Attorney General Cummings with
regard to it.

104

GOLD KESEEVE A.CT OF 193 4

I think I understand the purpose of the bill, which is that the
Government of the United States should take over the physical
possession and ownership of all the gold in the United States, and
that that gold subsequently may be devalued by the President of
the United States under the Thomas amendment, not lower than 50
and not above 60.
I approve the purpose of the bill. My opinion—and I say that with
reservations, because I do not wish to expand upon the value of my
own opinion over that of anybody else—is that the Government of
the United States, under the Constitution of the United States,
article I, section 8, clause 5, is exclusively charged with the duty of
issuing money in the United States and regulating the value of it.
I do not think that that power ought to be delegated to anybody
else. I have never approved the bond-secured issue of currency, and
I thought, when the Federal Reserve did it, it would result in the
gradual retirement of those bond-secured notes, and the substitution
of United States Treasury notes loaned to the Reserve System under
the provisions of the Federal Reserve Act.
In recent times, because of the exigencies, there has been quite an
expansion of the bond-secured notes, and of the Federal Reserve
bank notes, which are also bond secured, but I wish to say this, that
having read the opinion of Mr. Cummings, I am firmly convinced
that his views upon that matter are right, and that there may be
some other considerations which he does not refer to, that support
that view.
That is to say, these Federal Reserve banks, when they were organized, were not organized for the purpose of profit making. They
were intended to stabilize the credit and the currency supply of the
country, so that our business men, our manufacturers, and our merchants would be assured of stability of credit and stability in purchasing power of money.
That end has not been accomplished as the country hoped for.
Indeed, there has been the most remarkable variation in the purchasing power of money, which this committee ought not to lose sight
of for one moment in considering these questions.
In 1913, taking the 1926 commodity and dollar purchasing power
index as the basis, the purchasing power of the dollar was $1.45,
with the commodity index at an inverse ratio.
When the war came on and there was an expansion of credit for
the purpose of carrying on the war, the dollar index went down to
60, and the commodity index went up to $1.66. That was obviously
due to an expansion of credit and of currency. Under the contraction which took place in 1921, and the subsequent contraction which
took place in 1929-33 of credit and currency—but particularly credit,
because the currency has not been diminished, except by the hoarding of the people—that dollar went to $1.66, in terms of commodities,
in February 1933, and the commodity index went to 60; in other
words, just the reverse of what is was in May 1920. In other words,
the American dollar expanded in its purchasing power 277 percent,
and the debts which were incurred during the war had to be paid
in dollars that were 276 percent more valuable than they were when
the debts were incurred, and the interest accordingly.

GOLD RESERVE ACT OF 19 3 4

105

It therefore should be obvious to thoughtful men that stability in
the purchasing power of money is the great objective to be obtained.
This bill contemplates a means of accomplishing that end. It does
not finally effectuate it, but it does have a tendency to effectuate it,
and stabilize the purchasing power of money in the manner proposed by the bill.
I think, therefore, that the bill is thoroughly constitutional. I
think the bill is altogether commendable as a means of accomplishing
this end.
I want to say to the honorable committee that in my opinion the
purchasing power of the money depends upon the available supply
of money in relation to the demand for money; and when I say
" money " I do not mean paper money issued by the Government,
or, much less, the small coins we use in daily transactions of petty
business; nor do I confine that to bank checks, colossal as they are,
and were.
I recognize that the potential supply of money depends also
largely upon the value of stocks and bonds which are capable of being converted into bank credit over 24 hours on the open-market
exchanges.
The volume of those securities from 1929 to date, or to the peak
of the depression, suffered a loss estimated by many economists
whose opinions are worthy of consideration, at about $100,000,000,000, which meant a loss of potential supply of money or credit
of $100,000,000,000.
Since October 1929 there has been a shrinkage in the loans of
the banks of approximately 20 billion dollars. There has been a
shrinkage in the deposits available for checks of 18 billion dollars,
approximately. The supply of dollars, therefore, potential and
actual, has gone through an enormous shrinkage, and the supply of
dollars going through that shrinkage has affected the value of all
other forms of property—least of all, commodities.
Then come bonds, and then come the highest class of stocks, and
then medium-priced stocks. The dollar, at the lower point, would
buy from 300 to 1,000 percent of stocks regarded with great
favor before the collapse took place. In terms of real estate—particularly country real estate—there is no market. The dollar will
buy anything that may happen under conditions of forced sale.
For that reason many of the States have demanded a moratorium
on mortgages.
In 1929 the actual turnover of money by check is estimated by Mr.
Goldenweiser, of the Federal Reserve, at 1,200 billions. Now it is
less than 500 billions. There has been a shrinkage in the volume of
money turning over per annum of something over 700 billion, and
that accounts for the terrible shrinkage in stock-market values, for
example. First, those stocks were overestimated before the collapse,
and then were underestimated afterwards, but now, under this bill,
you have an opportunity of advancing the stability of the purchasing
power of money, and for that reason I particularly think well of
this bill.
I think the Government is entitled to all the gold in this country
for the purpose of giving psychological security to the currency
issued by the country. Practically all the nations of the world have

106

GOLD RESERVE ACT OF 19 3 4

gone out of the use of gold as a pocket money. I t is no longer being
used in that way. Since the World War they have learned to econ^
omize in gold by putting it in gold bars, and this country naturally
follows that wise example. In that way the gold is not used as
pocket money, and it diminishes the demand for gold. By increasing
the value of gold by diminishing the gold content of the dollar, it
further makes available a gold supply that will serve the psychological purpose of satisfying the public mind that the money of the
United States is secured by gold and that we are not inflating our
money by diminishing its value through merely printing additional
notes.
I have never been in favor of inflation at any time. I have always
desired stabilization, and I thought that the Federal Reserve System
would accomplish that result, and have been deeply disappointed
that it did not serve that purpose adequately.
I do not think it is advisable to charge anybody with the fault
of these panics or depressions, because there was nobody who had
the vision to foresee just what the result would be, and the thing
which took place took place in the course of human nature—men
speculating on the exchanges. This last depression obviously was
brought on by a tremendous expansion of brokers' loans which came
about in the marketing of over one billion shares of new stock
certificates for the purpose of strengthening the cash reserves of our
great industrial institutions, and in that process these brokers' loans
gradualty expanded, and in the expansion there was created a very
large volume of deposits which were subject to check, and because
they were subject to check, it meant that the volume of check money
was inflated, for the purpose of operating on the stock exchanges.
When that inflation took place it caused these stocks to rise above
the value which they could adequately earn on the investment in
the purchase of the stock, and when the public mind became perfectly assured of that, and the wise advice of many sound bankers
became more apparently right, that the market was developing
a value in securities far beyond what was reasonable and fair, there
finally came the time, on October 23, when a collapse took place,
and an avalanche of such stocks was thrown on the market between
October 23 and December 1, and there was a withdrawal of the
brokers' loans of 6 billions altogether, with a shrinkage in market
value of the stocks and bonds of 30 billions distributed among 20
million shareholders, and a wave of pessimism swept this country.
If by this act you can prevent the recurrence of that, I regard this
act as of colossal importance, and I am glad to have the opportunity
of expressing that opinion roughly with regard to it.
The CHAIRMAN. Senator, will you give us your view as to the
time limit that has been suggested here in certain sections of the
bill ? Is there any need for that ?
Mr. OWEN. I think not only is there no need for it, but I think it
would be a deplorable thing to say that the Government of the
United States should be limited by time in protecting the adequate
security of its own money and stabilization of its own money.
The United States is responsible to the people of the United
States for the stability of the money. You gentlemen are charged

GOLD RESEKVE ACT OF 1934

107

with the duty of devising statutes and the mechanism by which
that can be accomplished.
If there is a conflict between the interest of the Government of
the United States and the Federal Reserve bank, or a difference
of opinion, I think the difference of opinion ought to be resolved in
favor of the United States. I think the United Statets is the proper
power to regulate the value of the money, and not the Federal Reserve banks, because, after all—and speaking most respectfully of the
Federal Reserve banks, because they are conducted by men of the
highest character—they get their view, and they have an atmosphere
around them. They are chosen by the big banks, through discreet
little campaigns, and they naturally follow the ideals which are portrayed to them as the soundest from a financial point of view.
Senator ADAMS. Senator, may I ask you a question?
Mr. OWEN. I would be glad to have you do so.
Senator ADAMS. YOU said you regarded it as one of the fundamental functions of the Government to maintain the stability of
its currency.
Mr. OWEN. Absolutely. That is my opinion.
Senator ADAMS. I am wondering whether or not a reserve is one
of the essentials of that, and to what extent redeemability is an
essential to a sound currency.
Mr. OWEN. I think the question of redeemability in terms of gold
has no particular value whatever. What citizen wants gold in his
pocket, when he has a legal tender money with which to pay his
debts? He does not want gold. If he wants it for industrial purposes, to make earrings of, he can get it. If he wants it to pay an
international trade balance, he will have no difficulty about getting
it, and that is the only remaining function of gold. It is to furnish
the industrial arts and sciences, and to liquidate international balances that are otherwise not conveniently settled.
Senator ADAMS. HOW would you draw the phraseology of currency of that kind, which was not redeemable in any form of property?
Mr. OWEN. Keeping it at a parity with gold is sufficient.
Senator ADAMS. Would you provide any agreement
Mr. OWEN. If it is kept at parity with gold, the United States
would have 7,000 tons of gold, and very few persons would want more
than a little of it at a time.
Senator ADAMS. I am inquiring for information. Of what service
is gold if it is not available at any time or in any way to the holder
of currency?
Mr. OWEN. When you ask what service, I answer that the service
of legal-tender money is the only service that the citizen has any
reason for outside of the industrial arts and paying international
balances, and that is provided for in this measure.
The CHAIRMAN. What is your view about leaving this gold in the
Federal Reserve banks? Do you think that is important?
Mr. OWEN. I think that the ownership of the gold should be in
the United States, but I do not think its deposit makes any difference.
I think it is quite all right to leave the physical gold in the Reserve
banks. I regard them as perfectly safe.

108

GOLD RESERVE ACT OF 1934

The CHAIRMAN. YOU mean store it with them?
Mr. OWEN. Yes.
The CHAIRMAN. But have the title vested in the Government?
Mr. OWEN. Certainly.
Senator GLASS. Has that always been your view, Senator?
Mr. OWEN. Well, it is my view now, and that is sufficient.
Senator GLASS. NO. I want to put into the record the view that
you once held.
Mr. OWEN. I would be glad to have you do so.
Senator GLASS. In contradistinction to the view that you hold
now.
Mr. OWEN. I would be glad to have you do that. I shall be glad
to answer it.
Senator GLASS. YOU may answer yourself. You cannot answer
me.
Mr. OWEN. I said to answer the quotation you are going to make.
Senator GLASS. YOU and I had the distinction of appearing before
a large audience in New York in November 1913 to defend the Federal Reserve Act against the assault of Mr. Frank A. Vanderlip and
some other gentleman whose name I have forgotten. Mr. Vanderlip
will never let us forget him. On that occasion you reminded the
audience that the Government undertook to maintain the parity of
all moneys with gold.
Mr. OWEN. That was a statute.
Senator GLASS. NOW, I quote in order to show that you highly
commended the statute.
Mr. OWEN. I commend it yet.
Senator GLASS (reading) :
If the Government must maintain the parity of all money emitted in the
United States under the law, and that law has been so far prized that it was
insisted that it should be redeclared in this very act, and it is in the act as a
new declaration, pledging the act of 1900 as the law of the land, why demand
that these notes should be the notes of these banks and not the notes of the
United States, although the United States

And I particularly would like you to note this (continuing
reading) :
Although the United States is compelled to keep them on a par with gold.
The Government of the United States

And I particularly invite your attention to this
Mr. OWEN. Are you quoting or commenting?
Senator GLASS. I am quoting from your speech. I say,. I particularly invite your attention to this phrase of your speech.
Mr. OWEN. Yes.
Senator GLASS (reading)

The Government of the United States is compelled to redeem these notes in
gold. The citizen who receives one of these notes, from the Atlantic to the
Pacific, must be satisfied, without examination, that these notes are as good
as gold. He must not stop to examine into the validity of the bank which,
emits them any more than he will stop to examine a national-bank note to see
whether a national bank is safe and sound. A national bank can go out of
existence. A national bank can be proved worthless. A national bank can
sign its note, or not sign its note. The signatures of the officers of the bank
may be forged to the note, and yet its notes are as good as gold, and are kept
on a parity with gold by the laws of the United States.

GOLD BESERVE ACT OF 19 3 4

109

I thought that was pretty sound doctrine.
Mr. OWEN. I think so now. I approve it. It was excellently
well said. [Laughter.] I thank you for having brought it to the
attention of the committee, Senator.
Senator GLASS. Yes. I want it to go into the record.
Mr. OWEN. I am glad to have it in the record, and I now make
this comment upon it, that we have since that time had the wisdom
to do what was denied to me at that time, I believe, with your opposition, and that is to make all notes legal tender. Did you not disapprove that at that time ?
Senator GLASS. Oh, no.
Mr. OWEN. I beg your pardon.
Senator GLASS. I did oppose the improvident proposition to make
Federal Reserve notes usable for reserves in banks.
Mr. OWEN. Since that time we have made all our money legal
tender, with my cordial approval and sympathy. I was glad to see
it done. That, therefore, makes gold absolutely unnecessary as
money in the pockets of the people, because they have a legal tender
with which to pay their debts, pay their interest, and carry on the
business of the country. I think that is a sound way. I think
that there ought to be only one form of money, issued alone by the
Government of the United States, and the Government should have
in its hand a sufficient amount of gold—and silver, too—to furnish
anybody with gold and silver who wants it for legitimate purposes,
without permitting them to conspire against the stability of our
currency by artificial contraction.
Senator GLASS. Does the Executive order permit anybody who has
gold now to hold it ? Anybody who has gold now is characterized*
under the Executive order, as a felon and may be fined and put in
jail.
Mr. OWEN. For that very reason the gold which has been taken
away from the citizen can pass alone to the Government of the United
States, and cannot pass to private corporations for the benefit of
anybody else. It must go to the Government of the United States.
Senator GLASS. Nobody can get any gold from the Government of
the United States or from any bank at all.
Mr. OWEN. Quite right.
Senator BARKLEY. This bill provides that they may get it for
industrial purposes and for the arts.
Mr. OWEN. They can get it for every reasonable purpose, and they
cannot get it for the purpose of hoarding the gold and interfering
with the stability of our currency. I think that is absolutely sound,
100 percent.
Senator GLASS. Nobody has very much gold or anything else to
hoard.
Mr. OWEN. I think it takes omniscience to know that.
Senator GLASS. We have conferred omniscience, in this bill, on the
Secretary of the Treasury.
Mr. OWEN. I would rather he would have it than the bankers of
New York.
The CHAIRMAN. Are there any other questions, gentlemen?
Senator GLASS. It is altogether a question of opinion.
46217-^34

-8

110

GOLD BESEEVE ACT OF 193 4

Senator STEIWER. Just one question, Mr. Chairman. I understood you a little while ago in the early part of your testimony to
refer to the constitutional provisions.
Mr. OWEN. Yes.
Senator STEIWER. AS

conferring upon the United States Government the right to coin money.
Mr. OWEN. Yes.
Senator STEIWER.

And fix its value. And then, if I understood
you, you said in effect that you are opposed to the delegation of that
authority.
Mr. OWEN. Yes.
Senator STEIWER.
Mr. OWEN. Yes.
Senator STEIWER.

Did I understand you correctly?

If the Constitution in fact rests the authority to
coin money and to fix its value upon Congress, would you still be
opposed to the delegation by Congress of authority with respect to
the fixing of the value of money?
Mr. OWEN. I favor Congress having the power to fix and regulate
the value. I think that is the constitutional purpose.
Senator STEIWER. That does not categorically answer my question, but assuming that the Constitution does confer that authority
upon Congress
Mr. OWEN. Yes.
Senator STEIWER. DO

you oppose the delegation by Congress of its
power ?
Mr. OWEN. I think it better practice to have the Government issue
its own money directly than to delegate it to be issued against its
own bonds.
Senator KEAN. There is no delegation in issuing money.
Mr. OWEN. NO.
Senator KEAN. That is only paper; that is not
Mr. OWEN. Well, you can call it paper if you

money.
like, but it is legal

tender now.
Senator KEAN. It may be legal tender, but it is not money. It is
not sound money.
Mr. OWEN. It is just as good as gold now.
Senator GLASS. Right on that point, Senator, let us get our dates
correct so there will be no confusion. I understand that you now
answer your speech of 1913.
Mr. OWEN. NO ; I do not answer it. I comment on it as being perfectly sound then and perfectly sound now. I do not answer it.
Senator GLASS. Well, you say you have changed your mind.
Mr. OWEN. NO, no; I did not change my mind. I said I had a
right to change my mind, but I have not changed my mind.
Senator GLASS. DO you say that since you made that speech all
issues have been made legal tender ?
Mr. OWEN. Yes; I say that.
Senator GLASS. Well, I just want to get those dates right. You
made your speech in 1913, and all outstanding currency was made
legal tender March 14, 1900, 13 years before.
Mr. OWEN. YOU are very much mistaken.
Senator GLASS. I don't think so.

GOLD EESERVE ACT OF 1934

111

Mr. OWEN. The national-bank notes were not legal tender. The
Federal Reserve notes were not legal tender. The Federal Reserve
bank notes were not legal tender. And that comprises the larger
part of our currency. There was only a small part of our currency
legal tender, and that was greenbacks and gold and silver certificates.
Senator GLASS. Greenbacks were made legal tender long ago.
Mr. OWEN. Well, you hardly need to tell me that.
Senator GLASS. I didn't know.
Mr. OWEN. I thank you for the compliment.
Senator BYRNES. Mr. Chairman, I have no question to ask the
Senator, and I wondered if there were any other witnesses this
afternoon.
Mr. OWEN. I will be very glad to answer any questions you ask.
The CHAIRMAN. Are there any other questions ?
Mr. OWEN. There is one point I would like to call to the attention
of the committee. Of course, I assume that you are now engaged
in an effort to stabilize money and to bring back our country to a
better condition. I want to call your attention to a very short amendment that could be put on section 13 of the Federal Reserve Act,
to this effect: On page 60 of the published Federal Reserve Act, paragraph 3, line 11, after the word " staples " insert " or which are
secured by notes and/or accounts receivable due both manufacturers
and merchants and arising from merchandise or goods sold to them
in ordinary course of business."
At present the acceptances which can be issued by banks for discount at the Federal Reserve banks are confined to securities based
on warehouse receipts, but after they are sold to the public and
become accounts receivable that is not available.
Senator GOLDSBOROUGH. Senator, that is section 13, you say?
Mr. OWEN. Section 13; yes. It is on page 60. It is just a few
lines here which would make available accounts receivable as acceptances, and there are about 15 billions of that liquid, quick asset that
is not being employed in this country. It is a matter of colossal
importance, if the committee will only consider it and see what its
significance is.
The CHAIRMAN. We will consider it, Senator.
Mr. OWEN. YOU have nothing further?
The CHAIRMAN. I believe that is all. Thank you, Senator.
Senator BARKLEY. I am sorry; I do not want to delay, but I would
like to have your comment in a word on the opposition to section 10a",
which authorizes the Secretary of the Treasury to engage in openmarket transactions insofar as it is for the purpose of stabilizing our
international exchange value of the dollar. What is your reaction
to that?
Mr. OWEN. I think that the Secretary of the Treasury ought to
have the power to stabilize our dollar abroad if it requires stabilization. Whenever you have fixed the gold content of the dollar and
you have a colossal volume of gold behind that dollar, you will find
that the American dollar will stabilize the world, just as Gustave
Cassel says in his post-war lectures before the Columbia University.
I will not take time to go into that, but he makes it so exceedingly

112

GOLD RESERVE ACT OF 1934

clear and he is such a high monetary authority, I thought perhaps you
gentlemen might care to see what Gustave Cassel has said about it.
Any further questions you wish to ask ?
The CHAIRMAN. We are much obliged to you.
Mr. OWEN. YOU can find that in the Columbia Press of the Columbia University, New York. I thank you gentlemen.
The CHAIRMAN. Dr. Anderson.
Senator GLASS. Mr. Chairman, before Senator Owen leaves I want
to frankly say to him that I confused the Parity Act with the Legal
Tender Act, Parity Act of March 14, 1900, with the Legal Tender
Act. I have not been able to examine the act to see whether it made
all currency legal tender.
Mr. OWEN. N O ; it did not, Senator. The legal tender provision
was passed this last year.
STATEMENT OF DR. BENJAMIN M. ANDERSON, JR., ECONOMIST OF
THE CHASE NATIONAL BANK, RIVERDAIE, N.Y.

The CHAIRMAN. Dr. Anderson, will you please state your name
and address and occupation or profession?
Mr. ANDERSON. Benjamin M. Anderson, Jr. I live in Biverdale,
near New York City, Douglas Avenue and West Two Hundred and
Forty-sixth Street. I am an economist, the economist of the Chase
National Bank of New York.
The CHAIRMAN. Doctor, have you examined this bill, S. 2366?
Mr. ANDERSON. I have: yes, sir.
The CHAIRMAN. Have you prepared any amendment to it ?
Mr. ANDERSON. Yes, sir.
Senator ADAMS. HOW long

have you been the economist of the
Chase National Bank?
Mr. ANDERSON. Since 1920, Senator.
Senator WALCOTT. Have you written any books?
Mr. ANDERSON. Yes, sir; I have written a book on the Theory of
Value, Social Value, published in 1911; a book called " The Value
of Money ", published in 1917; a book on the Effects of the War
on Money, Credit, and Banking in France and the United States,
published in 1919; and since 1920 most of what I have written has
come out in the Chase Economic Bulletin.
The CHAIRMAN. YOU are quite familiar with the subjects covered
Tby this bill, Dr. Anderson ?
Mr. ANDERSON. Yes, sir.
The CHAIRMAN. And have been a student of them ?
Mr. ANDERSON. Yes, sir.
The CHAIRMAN. We will be glad to hear from you

as to what you
think about the bill, whether you regard it as sound or otherwise,
and whether it is practical and whether it is needed.
Mr. ANDERSON. Mr. Chairman, I want what I say to be of use to
the committee. I do not want to be here merely to make a record of
protest.
I believe in the gold standard, in the full gold standard. I believe it is quite unnecessary for us to depart from it. I believe that
we should be much further along the road to recovery now than we
are if we had not done that.

GOLD RESERVE ACT OF 19 34

113

And in the reestablishment of our monetary system I prefer very
much to see—I believe we should ultimately come back to—a full
gold standard, in which the Government mints coin for the country,
in which the Government redeems its paper money freely in gold and
coin again circulates among the people.
Senator BULKLEY. When you say a full gold standard, do you
mean the old parity of 20.67 ?
Mr. ANDERSON. That I think we shall not come back to. I am a
realist, and I accept political inevitabilities, and the proposal that I
shall be disposed to make today will be to return to the gold standard,
though approximately the existing exchange rate is the best political
compromise, and I regret the necessity of that political compromise,
but I am a political realist and I recognize political facts.
Senator ADAMS. YOU mean a realist the same as the pragmatist in
economy ?
Mr. ANDERSON. I think one must be a realist, weighing political
forces as well as economic factors; that sometimes political proposals
are so impossible from the standpoint of economics that—well, economic facts certainly set bounds for political activities, but there is a
range of economic possibilities within which political choice can be
made.
Senator BANKHEAD. DO you mean that if you had the political
power you would go back to the former number of grains in the gold
dollar?
Mr. ANDERSON. I would; yes, sir.
Senator BARKLEY. Although it is a well-established fact that commerce, trade, industry throughout the world, has increased at a much
more rapid rate than has the increase in the quantity of gold found in
the world for monetary purposes ?
Mr. ANDERSON. I think that it would be very difficult to establish
that, Senator. Butj what I am trying to do now is to state very
briefly a background, and the things I want to give attention to are
some practical points in this bill that I think will be useful to you.
I do not mean to make an argument for my general proposition. I
simply want to state it.
Now, what I am particularly concerned with here is that this bill
should at least be made technically correct in order that it might,
accomplish its own purposes. And I find evidence in studying this
bill that certain passages of it could not have been drawn with an
understanding of the actual processes of money credit, money market,, and so on. It is with reference to those things that I want to
talk to you particularly. There are things in this bill that can do
terrible harm, the correction of which can leave it open to the President to accomplish his essential purposes if they can be accomplished.
I do not believe it is possible to stabilize commodity prices, but at
all events, the effort to do it within the framework of this bill does
not need to involve all the risks that this bill now involves.
I find the greatest danger in the provisions regarding the stabilization fund, the $2,000,000,000 which are to be appropriated for the
creation of a stabilization fund, and that danger relates not to the
existence of such a fund in itself but rattier to the source from which
those moneys are drawn.

114

GOLD RESERVE ACT OF 19 3 4

I want to set a background for that. I brought with me some
photostatic copies of the balance sheet of the 12 Federal Reserve
banks as published weekly in the press—this is taken from tjie New
York Times—and also a thing that accompanies that called " changes
in amount of Federal Reserve credit outstanding and in related
items ", to which I particularly want to draw your attention. I offer
a copy for the record, and I pass around such copies as I have for
the use of members of the committee. I should particularly like
Senator Glass' attention upon it.
The CHAIRMAN. Let it be entered in tihe record.
(The data submitted by Mr. Anderson are here printed in fullr
as follows:)
Changes in the amount of Reserve bank credit outstanding and in related
items during the week and year ended January 10, 1934, were as follows:
Jan. 10, 1934

Bills discounted
_
Bills bought
U.S. Government securities
.
_ .
Other reserve bank credit
Total reserve bank credit -.
Monetary gold stock
Treasury currency adjust _ _ _
Money in circulation
Member bank reserve balance.
.
Unexpended capital funds, nonmember deposits, etc

$104,000,000
113,000,000
2, 432,000,000
7, 000,000
2, 655,000,000
4,323,000,000
1,950,000,000
5, 634,000,000
2, 777,000,000
467,000,000

Jan. 3, 1934,
increase (+),
and decrease
(-)
-$2,000,000
-8,000,000
-22,000,000
-33, 000,000
-43,000,000
-107,000,000
+67,000,000
-35,000,000

Jan. 11, 1933,

increase (+)
and decrease
(-)

-$144,000,000
+81,000,000
+620,000,000
-6,000,000
+549,000, O O
O
-226,000,000
+40,000,000
+95,000,000
+23,000, 000
+65,000,000

GOLD RESERVE ACT OF

115

1934

Ttvelve Federal Reserve banks combined
J a n . 10, 1934

J a n . 3, 1934

J a n . 11, 1933

ASSETS
Gold with Federal Reserve agents
Gold redemption fund with U.S. Treasury

$2, 399,895,000 $2, 618,124,000
44,960,000
44, 540,000

$2, 345,320,000
39, 742,000

Gold held exclusively against Federal Reserve notes. 2,644,855,000
Gold settlement fund with Federal Reserve Board
643,396,000
Gold and gold certificates held by banks
._
278, 039, 000

2,662, 664,000
626, 653, 000
279, 594, 000

2, 385, 062,000
405, 282,000
432,189,000

Total gold reserves
Other cash i_._
_-

3, 566, 290, 000
250, 611,000

3, 568,911,000
226, 799,000

3, 222, 533,000
286,759,000

_. 3, 816,901,000
12,864,000

3, 795, 710, 000
13, 086,000

3, 509, 292,000

34, 424,000
69, 268,000

35,176,000
70,943,000

66,383,000
181, 768,000

103,692,000
113, 211,000

106,119,000
121,062,000

248,151,000
32,362,000

442,782,000
1,053,139,000
935,825,000

442,817,000
1,053, 240,000
935,853,000

420,763,000
301,406,000
1,090,219,000

2,431,746,000
1,462,000

2,431,910,000
1,493,000

1,312,388,000
5,102,000

2, 650, 111, 000

2, 660, 584,000

3,382,000
20, 579,000
361,796,000
51,914,000
64,680, 000
46,340,000

3,333,000
18, 541,000
504,940,000
51,884,000

2,098,003,000
51,091,000
2,982,000
17,951,000
339, 550,000
53,880,000

45,491,000

40,394,000

._ 7,028,567,000

7,093,069,000

6,113,143,000

2,998,760,000
205,191,000

3,071,762,000
208,014, 000

2,687,024,000

2, 776,857,000
58, 293,000
4, 699,000

2, 709,919,000
23,287,000
4,492,000

2, 573,944,000
21,430,000
20, 629,000

45,829,000
9,832, 000
111, 634,000

46, 394,000
9, 692,000
84,088,000

Total deposits
Deferred availability items
_____
Capital paid in
Surplus
Subscription for Federal Deposit Insurance Corporation,
stock:
Paid
Hall fid for payment. Apr 15
All other liabilities
__

3,007,144,000
359,809,000
144,946,000
148, 322,000

2, 877,872,000
480, 779,000
144,903, 000
277, 680, 000

64, 680, 000
64,680,000
35, 035,000

32, 559, 000

17, 484,000

Total liabilities
Ratio of total gold reserves and other cash 1 to deposit and
Federal reserve notes liabilities combined
Contingent liability on bills purchased for foreign correspondents
_

7,028, 567,000
Percent
63.6

7, 093, 569,000
Percent
63.8

6,113,143,000
Percent
65.8

$4,006,000

$3,809,000

$39,932,000

Total gold reserves and other cash . .
Redemption fund—Federal Reserve bank notes
Bills discounted:
Secured by U.S. Government obligations
Other bills discounted
Total bills discounted
Bills bought in open market
U.S. Government securities:
Bonds
Treasury notes
. . .
Certificates and bills

Total U S. Government securities
Other securities

Total bills and securities
Gold held abroad
Due from foreign banks .
.
.
Federal Reserve notes of other banks
Uncollected items
.
. .
_ _ .
Bank premises
Federal Deposit Insurance Corporation stock
All other assets._.
__.
Total assets
LIABILITIES
Federal Reserve notes in actual circulation
Federal Reserve bank notes in actual circulation
Deposits:.
Member bank—reserve account
Government
Foreign bank __ .
_
Special deposits:
TVTember b a n k
Nonmember bank
Other deposits..

__ _ _ _

28,468,000
2, 644,
334,
151,
278,

471,000
256,000
309,000
599,000

1 "Other cash" does not include Federal Reserve notes or a bank's own Federal Reserve bank notes.

Mr. ANDERSON. The thing that I am going to call your attention
to, gentlemen, is technical, but a failure to grasp this technical point
can make all the difference between blowing this country sky high
in the ensuing few years and leaving it within the power of the
administration somewhat to hold down the coming inflation.
You will notice in the liability side of the balance sheet the item
" Member bank—reserve account." That item is the most significant

116

GOLD RESERVE ACT OF 193 4

item from the standpoint of the control of money and credit in the
United States that you will find. That item is the heart of the
money market. The item here stands 2,706,000,000, a year ago
2,500,000,000.
Senator ADAMS. Mr. Anderson, would you give, at least for my
benefit, your idea of what a reserve is? You are using the term
" reserve account." There is some difference of opinion as to what
really is a true reserve. What do you understand by that term?
Mr. ANDERSON. This item is the deposits of the member banks with
the Federal Reserve banks.
Senator ADAMS. But you are using the term " reserve." What do
you understand by a reserve?
Mr. ANDERSON. Well, for the general principles it is that money
which a bank has to meet its deposits and other demand liabilities,
a part of its assets kept in the most highly liquid form.
Senator ADAMS. Available for payment?
Mr. ANDERSON. Available for payment.
Senator ADAMS. In currency of some type?
Mr. ANDERSON. For the ultimate reserve authority it should be
gold, payable in gold. For the member bank the actual reserve is
partly vault cash or currency and partly these balances with the
Federal Eeserve banks.
Senator ADAMS. DO you mean that it is or that it should be?
Mr. ANDERSON. I S in fact; and the legal reserve requirement is
entirely comprised in this deposit with the Federal Reserve bank.
Senator ADAMS. Of course, my inquiry leads to this point: Can
a deposit be a true reserve which cannot be drawn upon?
Mr. ANDERSON. This deposit can be drawn upon.
Senator ADAMS. I am asking you the definition. Can a deposit
be a reserve which cannot be drawn upon?
Mr. ANDERSON. A reserve which cannot be drawn upon? "
Senator ADAMS. Yes. Is it a reserve or a fund which cannot
be drawn upon? Can that be a reserve within the meaning of your
term ?
Mr. ANDERSON. The meaning of this term is set by Senator Glass
and the Congress.
Senator ADAMS. I am asking your opinion. I am trying to get
your view of it. The reason I am asking it is because in the bill
which we are now considering the term " reserve " is used, and it is
provided to create that reserve in gold certificates in such form as
the Secretary of the Treasury may determine. Now, if that form is
determined to be such that they are not negotiable, that they may
not be paid out by the Federal Reserve, could that constitute a
reserve ?
Mr. ANDERSON. If that is in the act, I missed it. I t is certainly
bad if the Federal Reserve banks cannot even get hold of the gold
certificates.
Senator ADAMS. They get hold of them. The question is, What
may they do with them ?
Mr. ANDERSON. What is that ?
Senator ADAMS. The question is, What may they do with them when
they get them and what are the terms of the gold certificates % You
see, the terms are to be fixed by the Secretary of the Treasury. We

GOLD RESERVE ACT OF 193 4

117

do not know what the Secretary of the Treasury may put in these
gold certificates. He may put in that they are not negotiable. He
may put in that they are not redeemable. He may put in that they
are a fixed maturity.
Mr. ANDERSON. That would all be vicious. If the Federal Reserve
banks cannot freely use these gold certificates as reserve money, we
would have a monstrosity, of course. It is bad enough if they cannot
keep the gold.
But I should appreciate it if the Senators would allow me to bring
out this particular piece of analysis, which is technical, and which
I ask your attention to closely, to get to my main point regarding
this stabilization fund.
The CHAIRMAN. YOU may proceed.
Mr. ANDERSON. This member bank reserve account, as I say, is
the heart of the money market. In ordinary times if the member
banks have, oh, 50 to 100 millions more in their reserves than they
need, more than the legal reserve requirements, money is cheap and
bank credit is expanding. If there is, on the other hand, a deficiency
of 50 to 100 millions in that reserve account, the banks are under
pressure, they are calling loans, they are rediscounting at the Federal
to build up their reserves, money rates are rising. The control of
the money market is in the control of the size of this member bank
reserve fund.
And bear in mind this—I may say further with reference to how
sensitive that is in ordinary times Dr. Burgess in his study of the
New Yorkj money market points out that there are times when a
difference of $20,000,000 in member bank reserves in the city of New
York has made a difference of one half of 1 percent in the call rate
and makes a difference in the acceptance rate.
It is a sensitive thing, you see. You do not want too much in
there; you do not want too little in there. You want it adjusted to
the needs of the situation.
When excess reserves appear you get an expansion of bank credit
if there is general confidence, an expansion of bank credit that can
move with startling rapidity. On the basis of an extra dollar of
excess reserves the banks can build ten, fifteen, twenty fold in their
general bank credit, and as the reserves get very excessive, with
general confidence, that expansion moves very fast, because with
general bank credit redundant increases go into time deposits. The
rate on the reserve for time deposits is only 3 percent, and you
can build fearfully on that.
In the period from 1922 to 1928, the middle of 1922 to April 1928,
there was an expansion of general commercial bank credit in the
United States of 1 3 ^ billions in deposits and of 14-% billions in
loans and investments. That expansion, unneeded by commerce—
and let me put in a parenthesis here to give you a prospective on
it—how big is 13% billions? How big is 1 4 ^ billions? I will tell
you in terms of what was needed to win the war. When we had
to win the war we had vast things to do, and we had to have an
expansion of bank credit to do it with.
We had to finance the Government 25 billion? of dollars. We
had to raise a great army and send half of it to France. We had
to build a merchant marine. We had to transform our industries*

118

GOLD RESERVE ACT OF 193 4

from a peace basis to a war basis. We had to finance shipments
of goods from all over the world to our allies in Europe, and we
had to have an expansion of bank credit, and we expanded bank
credit then 5 billions 800 millions in deposits and 7 billions in loans
and investments. And we shuddered at it. It was big. We tried
to hold it down, did hold it down as much as we could, but it had
to be done.
Now then, in this period from 1922 to 1928, without any need for
it, but because reserves in this account were getting bigger, we increased it 13% billions in deposits and 14^2 billions in loans and discounts and blew this country up.
That money, unneeded by commerce, went into real-estate mortgage loans, a vast increase, bank loans against real-estate mortgages,
helped by legislation to encourage it in 1927. It went into installment finance paper—crescendo, more and more, year after year.
It went into stock and bond collateral loans, including loans against
foreign stocks and bonds, and it went into bank investments in
bonds, including foreign bonds.
Year after year, in the Chase Economic Bulletin, as I watched that
I protested against it, protested against it, analyzed the progress of
it; but people were happy, prices were rising, our tariffs would not let
foreign goods come in sufficient to pay our exports, but our exports
were paid for by foreign loans, and everybody was happy. And,
gentlemen, you can do wonderful things with credit for a while.
Senator BYRNES. Did the officials of the Chase Bank disagree
with the advice that you gave in the Chase Bank Bulletin?
Mr

ANDERSON. NO, sir.

Senator BYRNES. They agreed?
Mr. ANDERSON. Yes, sir.
Senator BYRNES. AS to their

conduct of that institution they were
in accord and were opposed to this expansion of credit ?
Mr. ANDERSON. Unless I had lots of time
Senator BYRNES. Well, then go on and don't answer.
Mr. ANDERSON. I should prefer not to be diverted from this.
Senator BYRNES. All right; I won't divert you if you need lots of
time.
Senator GORE. Let me ask you one question there, Doctor.
Mr. ANDERSON. Yes, sir.
Senator GORE. YOU say

from '22 to '28 bank deposits increased
over 13 billions and loans and investments over 14 billions. That is
an enormous amount. How much did the reserves increase during
those 6 years ?
Mr. ANDERSON. I was just coming to that point, because it is a
highly significant point.
Senator GORE. I beg your pardon, sir.
Mr. ANDERSON. The reserves increased about $600,000,000—about
$600,000,000 increased reserves.
Two documents explaining this, two of the Chase Economic Bulletins explaining this, I want to put into your record if I may at
this point. One is called " An Analysis of the Money Market"
in 1928, and the other " Bank Expansion Versus Savings ", both
appearing in June of 1928, as companion studies, and in the appendix to the " Bank Expansion Versus Savings " on page 20 is an

GOLD RESERVE ACT OF 19 3 4

119

analysis of that increase in reserves and of the factors causing it,
showing how incoming gold had made a difference, our Federal
Reserve credit had made a difference; a great many factors fed it, a
great many factors depleted it. There is a long history there.
The net increase—I will give you the exact amount, Senator—the
actual increase from June 28, 1922, to May 2, 1928, was $576,661,000.
Senator BARKLEY. YOU do not contend, do you Doctor, that an
increase of $600,000,000 in reserves produced an increase of 13
billions in deposits?
Mr. ANDERSON. Precisely.
Senator BARKLEY. IS it not a fact that increase in deposits is more
due to the rapidity of the turnover of credit than it is due to any
increase in reserves ?
Mr. ANDERSON. The question of the influence of rapidity of turnover is to be answered in the distinction between net deposits and
gross deposits. There is a float in active times, but these figures
I am giving you are net figures, net deposits.
One further point is that during the war we had reduced Reserve
requirements still further, making them dangerously low, 3 percent
for time everywhere, 7 percent for country banks, 10 percent to Reserve city banks, 13 percent for central Reserve cityT banks, and when
I tell you that the biggest part of this expansion w as in the country,
not in the Reserve cities, not the central Reserve cities, and that the
biggest part of it was in time deposits, you see the significance of it.
Senator BARKLEY. Might there not have been a similar increase
in deposits without any increase whatever in reserves ?
Mr. ANDERSON. It would be possible only if you shifted from demand to time or if you shifted from the centers where reserve requirements were high to those where reserve requirements were low.
Senator BARKLEY. The amount of bank deposits does not depend
necessarily upon the amount of money in circulation, does it?
Mr. ANDERSON. Not the money in circulation; no, sir. It is the
money in bank reserves.
Senator BARKLEY. Yes; it depends upon the uses to which money
is put, the rapidity with which it is turned over.
Mr. ANDERSON. Not the rapidity. The rapidity does not enter
into it.
Senator BARKLEY. The rapidity also with which it is transferred
from one to the other and is used in business.
Mr. ANDERSON. An increase in money in circulation reduces money
in reserves and tends to reduce the volume of deposits; tends to force
liquidation of bank credit. A decrease in money in circulation feeds
these reserves and tends to increase bank credit.
Now, then, this framework will give you a perspective, I think;
that with six hundred millions—less than six hundred millions—
increase in member-bank reserves in these 6 years, you got an expansion of general bank credit that made this present trouble, along
with certain other bad policies I will not go into now.
Now, then, I find in this bill before you gentlemen a provision
which will increase member-bank reserves by two billions; and I
want to show you how to avoid that and still let the President do
what he wants to do. It is the most important defect in the bill.
There are many others, but this is absolutely vital. If this bill goes

120

GOLD RESERVE ACT OF 193 4

through this way with this provision in it, not even the President can
control the ensuing inflation. Nobody can pull it down. Once the
credit gets working, once confidence gets back, once speculation gets
active, and things get moving, it cannot be controlled.
Senator GORE. DO you think that deposits could pyramid on to
2 billion to the same extent and the same ratio as they did on the
600 millions?
Mr. ANDERSON. At the moment we have 900 millions excess reserves approximately, and expansion is not going on, because everybody is scared, pretty much scared. There is enough liquid dynamite
spread out now to make a fearful flare-up if it gets going. I don't
know any technical reason why, if it gets started, it cannot go very
far, Senator, with great rapidity.
In 1924, with increased reserves of I think around 300 millions—
I have forgotten the exact figure—you got some 3 or 4 billions bank
expansion very quickly.
Senator BULKLEY. YOU mean in excess reserves ?
Mr. ANDERSON. It was an increase in actual reserves, which was
at the beginning excessive, and it then gradually built up by building
this pyramid above it, inverted pyramid above it.
Senator BULKLEY. Yes; but I do not understand that an increase
in reserves does any harm unless it is an increase in excess reserves
over and above the legal requirements.
Mr. ANDERSON. It was that. They already had plenty, and this
extra money that was put out by the Federal Reserve banks through
buying Government securities in 1924—well, the clear proof that it
was excess was in the immediate breaking of money rates to absurdly low levels, then the ensuing rapid expansion of bank credit.
The CHAIRMAN. There is an expansion of reserves now?
Mr. ANDERSON. Yes, sir; and it is not functioning now because
you have got to have demand for it; you have got to have confidence
there. You must want it; you must be ready to use it, have proper
collateral and so on.
Senator BYRNES. What in the beginning amounted to excess reserves, as I understand you to say to Senator Bulkley, would no
longer be classed as excess reserves because of requirements; is that
right?
Mr. ANDERSON. After the expansion of around 4 billions of dollars
took place the reserves were no longer excessive, and money rates
firmed up against; yes, sir.
Senator BYRNES. Then there were no excess reserves there?
Mr. ANDERSON. But then they continued to get excess reserves because more gold came in and because, whenever there was a slackening, the Federal Reserve people would put out some more. They
held back a bit in 1926. Things firmed up in 1926. Bank expansion
stopped some in 1926. And then in 1927 they put out—it was less
than 300 this time of additional reserves—they just blew this whole
thing sky high, set that wild stock market going, that led us right
into the smash of 1929.
Senator BYRNES. What is the extent of the excess reserves at this
time?
Mr. ANDERSON. About 900 millions, I am told.

GOLD RESERVE ACT OF 1934

121

Senator BARKLEY. DO I understand you to say that that excess in
reserves was caused because there was no demand for money ?
Mr. ANDERSON. The excess is due primarily to the very large purchases of Government securities by the Federal Reserve banks in the
last couple of years, especially the last year, and
Senator BARKLEY (interposing). Would you prevent the banks
from purchasing those Government securities if they have money
that tney will not do anything else with ?
Mr. ANDERSON. YOU mean the Federal Reserve banks ?
Mr. BARKLEY. Yes.
Mr. ANDERSON. I would

not have anything like so much out as we
have out.
Senator BARKLEY. What would you do with it? Where would it
go if it is not out ?
Mr. ANDERSON. The money of the Federal Reserve banks is money
that they create. When they buy Government securities they create
reserves. They pay for the Government securities by giving checks
on themselves, and those checks come to the commercial banks and
are by them deposited in the Federal Reserve banks, and then money
exists which did not exist before.
Senator KEAN. YOU mean credit?
Senator BARKLEY. YOU mean credit exists? It is not actually an
increase in money ?
Mr. ANDERSON. These reserves are the liabilities of the Federal
Reserve banks. The reserves in the assets of the member banks are
a liability of the Federal Reserve banks.
Senator BARKLEY. But it does not result necessarily, and probably
not at all, in an actual1 increase in Federal Reserve notes put out in
circulation ?
Mr. ANDERSON. NO, not Federal Reserve notes.
Senator BARKLEY. Or Federal Reserve bank notes ?
Mr. ANDERSON. NO.
Senator BARKLEY. It

does not increase the circulating medium of
money out at all ?
Mr. ANDERSON. NO, unless there is pressure for it from the public.
If the public wants more, then the member banks will draw on these
balances in the Federal, the deposits will go down, and Federal Reserve notes will go out.
Senator BANKHEAD. Let me ask you a question.
Mr. ANDERSON. Yes.
Senator BANKHEAD.

Senator Adams asked your definition of the
word " reserve " that you used, and your answer to my mind was not
satisfactory. Do you count reserves, the word used there, as the
amount owed by the Federal Reserve bank to member banks?
Mr. ANDERSON. That is for the purpose of this definition by act of
Congress, yes.
Senator BANKHEAD. And that is all, it's balances due to the member banks ?
Mr. ANDERSON. Yes,

sir.

Senator BANKHEAD. And that is made up of two items—first, the
statutory reserve of a certain percent, plus additional balance that
member banks have left there. So the only way that those reserves
accumulate is by virtue of the member banks not using their money

122

GOLD RESERVE ACT OF 193 4

but leaving it on deposit with the Federal Reserve bank. Then, how
do you figure that an indebtedness of the Federal Reserve bank to
member banks creates a situation where credits in the banks may be
pyramided to such an extent as you have indicated ?
Mr. ANDERSON. The process by which that takes place—I am assuming now an ordinary situation with confidence pretty high, people wanting to borrow—the process is this: Let us take, first, a situation where we have no excess in the general money market; some
banks have too much, other banks not quite enough; bankers like to
use their money, want to make a profit on it.
Senator BANKHEAD. They cannot do that as long as they are leaving it with the Federal Reserve, can they ?
Mr. ANDERSON. They can lend. They have to have these excess
reserves in the Federal to lend, increase their loans, or they may increase their investments.
Senator BANKHEAD. They can do that whether they have the balance with the Federal Reserve or have it at home, can't they, just
the same way and to the same extent?
Mr. ANDERSON. YOU may call it vault cash, if they took it out of
the Federal Reserve bank and put it in vault cash.
Senator BANKHEAD. Yes. And they are just as likely to loan it
if they have it in their own bank as if they have the balance in the
Federal Reserve bank, are they not ?
Mr. ANDERSON. There would be no great difference, except it is
rather more convenient to have it in the Federal.
'Senator BANKHEAD. Then the fact that it is a larger reserve than
usual has nothing to do with it, as I get it from your statement,
because they can draw it back in or they can keep the same amount
of money back home for lending purposes ?
Mr. ANDERSON. Bankers would not carry it. In ordinary times
they would not carry either in the Federal or in their own vaults
more
Senator BANKHEAD (interposing). They would have it there or
with a correspondent somewhere else ?
Senator GLASS, I suggest the witness be allowed to answer one
question before he is asked another.
Senator BANKHEAD. I have not been able to get him to answer one
yet.
Senator GLASS. YOU do not give him a chance.
i\Ir. ANDERSON. I will try to explain, Senator, the actual process by
which this bank expansion takes place on the basis of excess reserves.
Assume, first, a situation where there is no general excess. Some
banks have a little too much; others not quite enough. Bank A
makes a loan to try to use its excess reserve profitably. As it makes
that loan it gives the borrower a deposit credit. The borrower does
not want a check on the Federal Reserve bank. He does not want
cash out of the bank's vault. He wants to draw a check on the bank
that makes the loan. He is a customer of the bank.
So, then, what takes place when the bank makes a loan is an
increase in the balance sheet of the individual bank on both sides—
loans up, deposits up.
Now, the bank doing that would ordinarily expect in a few days
to lose its excess reserves, because it would expect the depositor to

GOLD EESERVE ACT OF 193 4

123

check against that account and that check to go to some other bank
and that check to be presented by the other bank through the clearing house, with a transfer of its excess reserve from one bank to
another bank, and it would ordinarily go from the bank that had
too much to some other bank that had too little, because the bank
that had too little would be selling some securities or perhaps calling
a loan to put itself in a position to build up its reserve.
So that in that case no expansion takes place. One bank is expanding and others contracting. Money is shifting from one bank to
another and no expansion takes place.
But suppose on the same day that all of the banks, or many of the
banks, have too much. Each of them is making additional loans and
giving additional deposit credits. And then the next day they meet
at the clearing house and none of them loses any money. Checks
are drawn against these newly created deposits. Checks are drawn
against the Chase and deposited with the Guaranty or the City.
Checks are drawn, however, against the City or the Guaranty and
deposited in the Chase, and we simply swap checks at the clearing
house, and none of us loses any cash, and we still have excess reserves.
The reserves are not quite so excessive now, because we have created
deposits against which we must keep an additional 13 percent, but
next day we still have 87 percent of the original excess reserve. We
go and lend again—and again and again, day after day, building
up increased deposits, increased loans, until the new reserve is just
enough to balance the increased deposits. That means that with the
13 percent reserve requirement in New York we can go between
seven and eight times in building if it is demand deposits. In the
other reserve cities they have 10 times, because they have a 10 percent reserve requirements. In the country banks 100 divided by 7
to get the number of times.
When it comes to time deposits, it was 33% times. That happened
between 1922 and 1928, this appalling thing that I am trying to tell
you. It will happen again. The minute you get this country feeling good it will use excess reserves.
I am coming now to my central point about this bill, that is, the
bill as drawn. As the exchange stabilization fund is constituted, it
must lead to a further gigantic increase in member bank reserves
which are already excessive to the amount of $900,000,000.
Senator BARKLEY. DO you think that the fact that the banks,
many of them if not most of them, have ceased to be banks and have
become mere depositaries and are not responding to the needs of
business, requiring the R.F.C, through the device of a mortgage
loan company, to loan money to business, has anything to do with
increasing these reserves?
Mr. ANDERSON. Senator, you assume the fact in your question that
the banks have ceased to be banks.
Senator BARKLEY. I did not say, all of them; I said many of them.
Mr. ANDERSON. If there were greater confidence on the part of
many bankers, they would be making more loans. There are other
banks that are making all the loans that there is any ground for
making.
Senator BARKLEY. Regardless of my terminology, do you think
the fact that they are not making loans requires private industry to

124

GOLD KESERVE ACT OF 19 3 4

go through the organization of mortgage and loan companies to
apply to the R.F.C, for loans, and has that anything to do with the
piling up of excess reserves ?
Mr. ANDERSON. Mortgage loans are not proper loans for commercial banks to make.
Senator BARKLEY. That is not what I asked you. I do not care to
go into whether they are or not.
Mr. ANDERSON. YOU are speaking of mortgage loans.
Senator BARKLEY. I am asking you whether that had anything to
do with piling up reserves, assuming that they are perfectly justified
in making loans?
Mr. ANDERSON. There are two causes for the failure of bank credit
to expand at the present time
Senator BARKLEY. I did not ask you that.
Mr. ANDERSON. One of them is the thing that you refer to, that
some banks are holding back on loans through lack of confidence in
the situation. Some banks are not making the loans that they would
make in ordinary times. The other is that the borrowers who are
strong, whose credit is good, are very slow and reluctant to use their
credit.
Senator BARKLEY. NOW, will you answer my question?
Mr. ANDERSON. Have I not answered it?
Senator BARKLEY. YOU have not touched it. I asked you whether
that fact had anything to do with piling up reserves of 900 million
dollars in the banks.
Mr. ANDERSON. Not with the piling up of the reserves, but with
the fact that the reserves are as excessive as they are.
Senator BARKLEY. That is piling up, is it not? What is the difference? If you pile up something, you have got more than you
need. My language may not have been economically technical, but
still I think it means the same thing.
Mr. ANDERSON. Your point is that you would explain the failure
of bank credit to expand at the present time by the fact that banks
are not making as many loans as they should ?
Senator BARKLEY. I am simply trying to find out if you attribute
any part of this 900 million dollar excess in reserves to the fact
that banks are not functioning as money lenders as they do in
ordinary times.
Mr. ANDERSON. I will agree that part of the explanation of the
failure of bank credit to expand is the reluctance of many banks
to make loans as freely as they would in ordinary times.
The CHAIRMAN. YOU spoke about introducing certain bulletins.
Mr. ANDERSON. Yes, sir. These two [indicating] cover an analysis
of the money market.
The CHAIRMAN. DO you want the entire bulletins in in each case?
Mr. ANDERSON. Yes,

sir.

(Two bulletins referred to and submitted by the witness, being
Chase Economic Bulletins issued by the Chase National Bank of
the city of New York, dated, respectively, June 4, 1928, and June 25,
1928, were received in evidence, and will be found printed in full
at the end of today's record.)
Mr. ANDERSON. My next point is with regard to the stabilization
fund. The British fund was not created, as I understand it, by

GOLD BESERVE ACT OF 19 3 4

125

taking gold out of the Bank of England. There was no devaluation
there, no profit on the Bank of England's gold. The British stabilization funji was created out of regular money market funds gotten
in the ordinary way. My understanding is that the British Government turned over to this stabilization fund some government securities, though I am not fully informed as to that, which were used to
get money when they needed it. It was taken by the market in the
usual way.
There is no evidence of any great change in the volume of bank
resources or reserves in England. The item in the British bank
statement corresponding to these member bank reserves would be
the " bankers' balances " with the Bank of England. That figure in
June of 1932 stood at about 85 million pounds. It has increased
some since then. In September 1933 it stood at 102 million pounds,
an increase of 17 million pounds. That is a very small item in relation to the supposed 2 billion dollar stabilization fund of the British
Government.
Our Treasury, if it wants a stabilization fund, can get one in the
same way, from regular sources which will not in themselves affect
the volume of reserve money. I think the best way for the Government to take profits, if it is going to take profits on the gold in
the Federal Reserve banks, is not to take the gold but to take Government securities at the Federal Reserve bank, the credit of the
Government—take them and cancel them and retire them. That is
what was done under the Bank of France's stabilization fund. They
were canceled. It made no change in the money market situation, no
increase in money-market funds. The credit of the Government
as a borrower is very sharply increased when it reduces its debt by
about two and a half billion dollars.
Let them use the funds they get from the regular sources, from
the sale of securities to the banks, and the public from taxes, whatever form they please, in constituting that fund; but let them not
take out of the Federal Reserve banks gold or its equivalent in gold
certificates and put them to work in this way, because if they do,
every time they buy gold abroad, foreign exchange, above all, Government securities, they put additional funds out which come into
member bank reserves and feed this already swollen volume of
member bank reserves.
I want you gentlemen to question very closely on this point certain men who understand that very well, men who know what
increases and what decreases member bank reserves, and get them
to tell you whether in any way it is possible to use the gold of the
Federal Reserve banks or part of the gold of the Federal Reserve
banks or the gold certificates. I particularly want you to question
Dr. Burgess of the Federal Reserve Bank of New York, to question
Governor Young of the Federal Reserve Bank of Boston
Senator BARKLET. We have done that.
Mr. ANDERSON (continuing). With reference to this specific point,
as to whether it is possible to use this reserve money in the way designated without making an unmanageable increase in member bank
reserves.
Senator GLASS. Governor Young advocates the retention of the
gold in the Federal Reserve banks.
46217—34

126

GOLD RESERVE ACT OF 193 4

Mr. ANDERSON. I would advocate that. Take the profit in the
form of Government securities in Federal Keserve banks; but I want
you to question him on this* particular point.
Mr. YOUNG I answered that question.
Mr. ANDERSON. Would you agree with what I said about it ?
Mr. YOUNG. I put it that it would increase it 4 billion. I think
your figure is 2 billion. There is approximately 4 billion profit
if you devalue 50 cents on the dollar. The Treasury has to borrow
money and pay interest. Obviously they are not going to do that
very long. They are going to use the gold by depositing gold certificates and thereby creating that much more excess reserve.
Mr. ANDERSON. Yes; but you will agree that it will make an
utterly unmanageable increase in member bank reserves, which it
is hard to control when once inflation gets going.
Mr. YOUNG. Yes; it is almost unmanageable now.
Mr. ANDERSON. And it would be then quite unmanageable.
Senator BYRNES. Governor Young, do you see any danger in excess
reserves unless there is excess demand for them ?
Mr. YOUNG. I feel that during the period from 1922 to 1928 we
had very few excess reserves. It is true that during that period
the System operated in the open market by buying Government
bonds at times when it thought business was slacking. But when
it bought those Government bonds, while it had a tendency to ease
money by permitting member banks to reduce their rediscounts, I
do not think, if my memory is correct, that the excess reserves were
any more than 50 or 60 millions of dollars, which is normal. You
cannot avoid excess reserves entirely. After 1929 the System purchased Government bonds in large amounts, and those purchases
originally did not create any great amount of excess reserves. It
brought the rediscounts in the System from about a billion down
to about 100 million.
Since then we have had excess reserves in member banks, there
being no demand on the part of the banks to lend, obviously, and
there has been no pyramiding. It has had somewhat the effect of
decreasing the total volume of bank holdings throughout the United
States. During the bank holiday reserves were absorbed. After
the bank holiday, when the banks reopened, that market flow came
back and excess reserves were created in the System and since the
holiday they have ranged all the way from 300 million to 900
million dollars, or approximately those figures.
Senator BYRNES. During the period you have had excess reserves
you have had contraction?
Mr. YOUNG. That is right.
Senator BYRNES. It does not necessarily follow that you have had
this pyramiding?
Mr. YOUNG. NO; but what I want to point out, and what I think
Dr. Anderson wants to point out, is this, that with the 900 million
dollars of excess reserves we have now there is a possibility of expanding credit. If that would go in the right channels, all well and
good. If it went into a highly speculative situation, stocks and bonds
or what not, that might not be healthy.
The method of stopping that is the same method that the System
attempted in 1928, by selling Government bonds. Starting late in

GOLD EESERVE ACT OF 19 3 4

127

November 1927, when there was an extra movement of gold, rather
than disturbing the credit situation at that time the Federal Reserve banks bought Government bonds to offset the amount of gold
that was exported. About the middle of November, when there was
a very expanding speculative market, the System determined to stop
buying to see what the effect would be; and early in January 1928,
the System proceeded to sell Government bonds with the idea of
throwing the member banks into debt, and that would have a tightening effect on money, and that in turn would put a check on speculation.
Of course you all know the story—that even with the limited
amount we had at that time, it was impossible to control the situation in the way we attempted to control it.
What I have tried to bring out and what I think Dr. Anderson
is trying to bring out is that if this goes through as contemplated in
the bill it gives the Treasury, on a 50-cent devalued dollar, approximately 4 billions of dollars that is bound to end up in excess reserves
as fast as the Secretary uses it, as he is permitted under the act to
use it. The initial book transaction of marking our gold up, marking up the Treasury's balance 400 millions, would have no effect on
excess reserves
Senator GORE. I did not catch that.
Mr. YOUNG. The initial transaction of our taking 4 billions of
gold into the Reserve System and giving the Secretary of the Treasury credit for it, is nothing but a book entry and would have no
effect upon the excess reserves of the member banks in the Federal
Reserve System; but as the Secretary of the Treasury proceeded to
spend that money, the excess reserves would increase to the extent
he spent it, and the extreme possibility, writh the 50-cent dollar, is
4 billions of dollars, plus the 900 millions we already have, making
very close to 5 billions of excess reserves. If there is a demand for
money, and that starts pyramiding, there is no limit to where it can
pyramid.
Senator BAKKELEY. Governor, let me ask you this, if I may interrupt. What is the value at $20.67 of the gold now owned—not
held, but owned—by the Federal Reserve banks?
Mr. YOUNG. YOU mean, at $34.45 ?
Senator BARKLEY. NO, sir; at $20.67. That is the statutory price
in this country.
Mr. YOUNG. Again I will have to guess. I think we own
$3,254,000,000.
Senator BARKLEY. SO that with a 50-cent dollar that would represent $6,400,000,000.
Mr. YOUNG. In addition to that, Senator, there is some gold in
the Treasury backed by Treasury notes.
Senator BARKLEY. Yes; I realize that. That is what I am coming to. Regardless of the transaction involved in this bill, if the
President should exercise the authority which he has now to devalue
the dollar on the basis of a 50-cent dollar, thereby creating twice
as many gold dollars as there are now, the same situation might be
produced without the passage of this bill in the matter of expanding
reserves and credit, might it not ?
Mr. YOUNG. If we kept the profit: no.

128

GOLD RESERVE ACT OF 193 4

Senator BAKKLEY. Regardless of who keeps the profit, it would
offer opportunities for the issue of twice as much currency upon a
given quantity of gold as it does now, no matter who holds that
gold.
Mr. YOUNG. That is true, if there is a demand for it.
Senator BARKLEY. SO, if there was a demand for that currency
and the President should issue a proclamation devaluing the dollar
to 50 cents, and this bill did not pass, and you hold that gold, you
could use that as a means for issuing twice as much currency if the
demands.of the country required it?
Mr. YOUNG. That is true, and if we held it without giving any
profit to the Government.
Senator BARKLEY. I am not talking about any profit now.
Mr. YOUNG. I am talking about purely the mechanics of it, Senator; that is all. If that profit stays with us, there would be no
increase in the excess reserves in our banks. Do not misunderstand
me. I am not arguing to keep a profit.
Senator BARKLEY. I understand you are not. You have gold in
bullion form, have you not?
Mr. YOUNG. That is right.
Senator BARKLEY. SO that any given quantity of gold representing a dollar now, after devaluation, would be $2?
Mr. YOUNG. Yes.
Senator BARKLEY. And that $2 would be yours?
Mr. YOUNG. That is right.
Senator BARKLEY. And based upon that $2 you could

issue $2 in
Federal Reserve Bank notes where now you can issue only one?
Mr. YOUNG. That is right.
Senator BARKLEY. SO that the result would be the same if the
country demanded an increase in currency to that extent ?
Mr. YOUNG. NO ; because the member banks would have to give me
a check on their reserve balance to get that currency.
Senator BARKLEY. I know; but to the extent that the 40-percent
reserve allowed you, you could do that?
Mr. YOUNG. Yes.
Senator .BARKLEY.

And without regard to any devaluation or the
passage of any law, if confidence returned and people assumed a
speculative attitude, these reserves, and this inflation in credit and
speculation and expansion could go on anyhow?
Mr. YOUNG. Yes, sir.
Senator BARKLEY. Just as it did in 1928 and 1929 ?
Mr. YOUNG. That is correct.
Senator GORE. Up to the additional basis of four

billions. I did
not quite understand how this enhancement of four billions would
constitute part of the reserve and serve as a basis for expanding
credit.
Mr. ANDERSON. May I interpose, Governor? I think there is a
distinction to be drawn there. If the gold stays in the Federal Reserve banks, or even if the Government takes the gold and gives the
Federal Reserve banks gold certificates credited against it, and the
Government takes its profit in the form of Government securities
from the Federal Reserve banks, rather than gold or gold certificates, then there is no change in the volume of member bank re

GOLD RESERVE ACT OF 1934

129

serves; and if the Government constitutes a stabilization fund out
of money borrowed from the general money market, again there is
no change in the volume of member bank reserves; but the possibility
that the Federal Reserve System might put out a much larger volume
of credit would remain. It would be done by definite action:
(a) Member banks rediscounting at the Federal Reserve banks;
(i) the Federal Reserve bank buying acceptances in the open market; or (c) the Federal Reserve bank purchasing Government
securities.
In the absence of any one of those three acts member-bank reserves
would not be increased. Whereas if, on the other hand, the Government takes the actual gold as the basis for its stabilization fund, or
gold certificates as the basis for the stabilization fund, and uses them,
the member-bank reserves are automatically increased.
Senator COUZENS. And with the consequent loss of profit to the
Federal Reserve and the other banks ?
Mr. ANDERSON. Senator, I am not thinking about profits to banks;
I am thinking about this country. I am thinking about the President's desire to make effective his policy, if you please. He does not
want a situation that he cannot control. Which is the policy that
you are going to choose to regulate credit? As I would do and as
Senator Glass would do, we would regulate it with respect to the
needs of trade, while the President would regulate it with respect
to the price level. In any case you want it under control. You
do not want to put it so large than when the thing starts you cannot
put it down.
The CHAIRMAN. Would control by the Federal Reserve Board of
the rediscount rate have any effect?
Mr. ANDERSON. Almost none. Under that situation the rediscount
rate is effective only when the banks have rediscounts. The volume
of rediscounts on the balance sheet is 103 million dollars.
Senator GLASS. Negligible.
Mr. ANDERSON. Yes; negligible. The possible checks are few as
things stand. They might sell Government securities; but would
the Secretary of the Treasury let them sell them ?
Senator GLASS. What would happen if they should undertake to
sell Government securities ?
Mr. ANDERSON. I venture to state that political pressure would
stop them.
Senator BULKLEY. What would happen to the price of Government securities?
Senator GLASS. Suppose political pressure did not stop them.
Suppose they would put them on the market.
Mr. ANDERSON. It would be very bad for the Government securities
market.
Senator GLASS. What would happen to the Government securities ? Would they appreciate or depreciate ?
Mr. ANDERSON. Oh, they would depreciate.
Senator GLASS. Would not a 10-percent depreciation wipe out
all the surplus of the Federal Reserve banks ?
Mr. ANDERSON. I think they have largely short governments. I
do not know just how that stands now. I think they might let them
run off to a considerable extent, but I think that the Treasury pres

130

GOLD RESERVE ACT OF 193 4

sure against their doing that would make it a very ineffective means
of controlling it if the thing started. Of course, as to the long-term
bonds, you are quite right, Senator.
Senator ADAMS. YOU spoke a while ago of this $900,000,000 excess
reserves as so much financial dynamite ?
Mr. ANDERSON. Yes,
Senator ADAMS. It

sir.

depends upon the way it is used. Dynamite
may damage or it may do good. Back in March our trouble was
that we had less than adequate reserves in the Federal Reserve
System; that is, the banks were short of money. Now we are getting
to the place where the banks have accumulated cash. May it not,
under proper administration on the part of the banks, serve to
promote business revival? Of course business revival is always
accompanied by the danger of overdoing it; but is it not the program of the administration to try to stimulate business revival?
Are not these accumulated reserves the material out of which that
revival may be constructed? And, again, one other thought; may
it not be the very means to aid the Government when it comes to
float its bonds, which it must do? It has a reservoir of available
money to take over Government securities.
Mr. ANDERSON. In principle undoubtedly you are right, Senator;
but the question is how much is needed, how big an excess fund you
need. The war time gave us some experience on that. The Federal
Reserve banks regularly preceded a bond issue, a Liberty bond issue,
by buying some Government securities to make the money market
easier, and then after the securities were placed they would sell off
these Government securities again. The amounts that were needed
were small. In connection with the greatest Liberty Loan, the
$7,000,000,000 Fourth Liberty Loan issue, the Government securities
purchased by the Federal Reserve banks was less than 255 millions,
and they had them only for a few days. That was quite enough—
just priming the pump.
Back in the pre-war days in England these operations by the Bank
of England selling Government securities were small, microscopic
almost, and they found times when the sale of 1,000,000 pounds of
Indian consol bills was quite sufficient. Nine hundred millions is
dangerously large, but would be controllable under existing circumstances because they could sell enough Government securities to
check it up if it got to going too fast.
Does that answer your question, Senator ?
Senator ADAMS. I think so.
Mr. ANDERSON. It is a question of amount; but if we are going to
add 2 or 3 billions to it, it makes a ghastly picture.
Senator COUZENS. What are you going to do about section 10-A?
Are you going to amend it or reduce the amount ?
Mr. ANDERSON. 10-A relates to the source from which the funds
are drawn?
Senator COUZENS. And the amount.
Mr. ANDERSON. I would provide that they get it not from this
source, but from the general market. They might take Government
securities from the Federals. They might turn that into the stabilization fund disposing of it on the market asSenator BARKLEY. DO you recommend that the Treasury get these
2 billions in the market by issuing Government bonds and borrowing?

GOLD RESERVE ACT OF 1934

131

Mr. ANDERSON. They would not need to issue new Government
bonds. They could take those in the Federal Reserve now for those
purposes.
Senator BARKLEY. HOW can they get those that are owned by the
Federal Reserve banks?
Mr. ANDERSON. That is, instead of taking their profit in the form
of actual gold or gold certificates, let them take their profit in the
Government securities now held by the Federals.
Senator BARKLEY. And sell them?
Mr. ANDERSON. TO the public, or to the banks as they need to, but
not to the Federal Reserve banks.
Senator COUZENS. SO you do approve of the Treasury buying 2
billion dollars as proposed?
Mr. ANDERSON. The stabilization fund is desirable
Senator COUZENS. Outside of the source, I understand you agree
with section 10-A, then?
Mr. ANDERSON. I am not trying to evade, Senator. I am trying
to keep the whole thing in mind, and this point struck me. In general I would approve of the stabilization fund under these circumstances, pending a definite restoration of the gold standard.
Senator GLASS. Based on 2 million dollars?
Mr. ANDERSON. Yes.
Senator COUZENS. For the purposes specified in the bill ?
Mr. ANDERSON. For controlling the value of the dollar as measured

against gold.
Senator COUZENS. By all of the means specified in the bill?
Mr. ANDERSON. I am reluctant to have them do all the things proposed there.
Senator COUZENS, What are you reluctant to have them do ?
Mr. ANDERSON. It would seemingly give the Secretary of the
Treasury the authority to do a general banking business.
Senator BARKLEY. IS that really a fair statement?
Mr. ANDERSON. I do not know. I am not a lawyer. I did not
mean to raise that point.
Senator BARKLEY. Any effort to stabilize the dollar, which is an
equation in international transactions, must be broad enough to include all transactions that are international; is not that true?
Mr. ANDERSON. It should include those things that are dealt in in
the exchange markets, bills of exchange, cable transfers, and so
forth. There is this to be said about it, by the way: We can get into
a lot of trouble in going into foreign markets and buying exchange
there or buying gold there and interfering with their policy, as we
would dislike very much having foreigners come here and buy. I
think we had better have a free gold market of our own, if we are
going to do this, and let the Government be the biggest factor in the
gold market. I would rather see it done that way, and then foreigners cannot criticise us. A lot of trouble comes when the central
bank or Government is playing in foreign exchange. The trouble
comes both at home and abroad.
Senator BULKLEY. Does the British stabilization fund do that
now?
Mr. ANDERSON. They buy and sell in London various kinds of
foreign exchange.

132

GOLD RESERVE ACT OF 19 3 4

Senator COUZENS. And bills of exchange and credits of all sorts?
Mr. ANDERSON. I would suppose not.
Senator COUZENS. That is what this bill provides, to do all of those
things.
Mr. ANDERSON. I would propose that we limit it to foreign exchange and gold.
Senator BARKLEY. They even go into the market to buy American
dollars.
Mr. ANDERSON. They buy American dollars sold in London.
Senator BARKLEY. But they did that in order to increase the value
of the American dollar as measured by their particular standard.
The CHAIRMAN. We were told that there were only three men in
all England who knew what they did.
Mr. ANDERSON. There is a great deal of speculation about it. I
have an article here from the London Economist of May 13, 1933,
that might go into the record as useful information about the British
stabilization fund. But I do not think anybody here knows, except
Professor Sprague, who probably would not be free to tell you everything that he learned in confidence about it.
(The article referred to and submitted by the witness from the
Economist of May 13, 1933, will be found printed in full at the end
of this record.)
Mr. ANDERSON. NOW, I come to the second main point: The Treasury is not the place for control of money and credit policy because
the Treasury is a great borrower. Money policy and credit policy
are primarily designed to meet other things than those of the borrowing needs of the Treasury or the desires of the Secretary of the
Treasury to get a somewhat lower rate, or things of that kind.
According to the sound banking principle, credit control or money
control should be with respect to the needs of trade and the quality
of credit. It should be tightened up when there is danger of speculation beginning.
Senator COUZENS. AS it was in 1928 and 1929 ?
Mr. ANDERSON. It was not effectively done in 1928 and 1929. It
should have been tightened up long before, Senator. I am talking
about not what we did but what the banking principle should do.
Senator GLASS. And under the Banking Act of 1933 it would be
tightened up before it got very far.
Mr. ANDERSON. YOU are thinking of it from the standpoint of
what goes on inside the individual bank?
Senator GLASS. I am thinking of it from the standpoint of gambling on the stock exchange.
Mr. ANDERSON. I am thinking, Senator, that if you make too much
money, no.matter what restrictions you put on the stock exchange,
too much money is going to make gambling somewhere. In 1920 the
gambling was in sugar and wheat and things of that kind, or it may
take place in Florida real estate.
Senator GLASS. Not only in Florida.
Mr. ANDERSON. NO ; not only in Florida.
Senator COUZENS. We must protect the chairman.
Mr. ANDERSON. I apologize to the chairman.
The point I make here is a vital point. Whatever be the money
policy, it is a policy which will frequently be inconsitent with Treas

GOLD RESERVE ACT OF 19 3 4

133

ury policy. If the control is to be in the Government, if you do not
want the Federal Reserve banks to control your credit and money
any more, still it should not be in the hands of the Secretary of the
Treasury. I t should be in the hands of an absolutely independent
authority responsible to the President, as the Treasury is responsible
to the President. But if the President's policy is to regulate money
and credit with reference to the level of commodity prices, that
policy will often be inconsistent with the Treasury's policy of getting
a lot of money to spend.
Senator COUZENS. HOW would you carry out the constitutional
provision that the Government shall regulate the volume and the
value of money ? How do you interpret it ?
Mr. ANDERSON. Not the volume; no.
Senator COUZENS. The value.
Senator BARKLEY. " Congress shall have the power to coin money
and regulate the value thereof."
Senator GORE. The Government shall have power to seize money
and to destroy its value—that is the new interpretation.
Senator COUZENS. NO ; I am asking the witness for his interpretation.
Mr. ANDERSON. I interpret it in the light of what men meant when
they used that language in that day, and they had a very simple
thing in mind. They wanted good money. They did not like
paper money. They forbade the States to issue bills of credit, and
they simply meant to give Congress power to name the weight and
fineness of a coin and to mint it.
Senator COUZENS. And not the value of it ?
Mr. ANDERSON. TO regulate the value thereof. I interpret that,
of course, as a matter of economics, technically.
Senator COUZENS. What did the fathers mean when they put that
in the Constitution?
Mr. ANDERSON. I think they were thinking especially of the ratio
between gold and silver.
Senator BYRNES. If you wanted to regulate the value, what other
words could you have used simpler and clearer than " regulate the
value thereof " ?
Mr. ANDERSON. I am not a constitutional lawyer, and any opinion
that I might express on this point would not be very useful to the
committee.
Senator GORE. Let me interject one observation and say, " and the
value of foreign coins." Does anybody imagine that Congress can
regulate the volume of foreign coins—if that is what they meant?
Senator COUZENS. I t can in this country. That is what the Constitution applies to.
Senator GORE. Yes; but it cannot regulate the volume of foreign
coins.
Senator KEAN. They have not succeeded in doing it yet.
Senator GLASS. I S a coin a printing1 press operation ?
The CHAIRMAN. The Supreme Court says it may be.
Mr. ANDERSON. I had understood the meaning to be, putting a
stamp on a piece of minted metal, attesting its weight and fineness.
Senator BYRNES. The Supreme Court does not quite agree with
that.

134

GOLD RESERVE ACT OF 19 3 4

Mr. ANDERSON. I am talking economics now.
Senator BARKLEY. We are dealing with constitutional questions.
The! Supreme Court has over and over again interpreted it to mean
that not only can Congress coin metal into money, but provide paper
money, different denominations, its value, and all that. So we have
got to interpret the Constitution at least in the light of what tjie
Supreme Court has said about it.
Senator COUZENS. And not on some economic theory.
Mr. ANDERSON. I am not an authority on constitutional law. I
would like to go on
Senator GLASS. The President and I are.
Senator ADAMS. We lawyers are not as bad as you intimate.
Every time anybody gets in a hard place he says, "I am not a
lawyer." It should not be charged up against me. We are really
not such a bad lot. A constitutional lawyer is not such a mysterious animal as people imagine. If there is one thing that is simple,
it is the wording of the American Constitution.
Senator COUZENS. Have you any other suggestions with reference to amending the bill ?
Mr. ANDERSON. I have some suggestions further. This matter of
separating the Treasury from the control of the money policy, instead of putting the money policy in the Treasury, seems to me
very vital.
After the period of inflation in Germany, that was one of the
drastic reforms insisted upon and agreed to. There wTas action in
France of a similar sort, limiting what the Treasury could do.
I think all the authorities on this subject agree as to the inconsistency between monetary policy and Treasury policy and the need
for having the money policy separate.
Senator STEIWER. Who would have control of the money policy?
Mr. ANDERSON. I would revitalize the Federal Reserve banks and
have them do it. I think that is about the best way to do it,—
along the lines that the original Federal Reserve Act called for;
but if it is better to put it in the Government, still it ought not
to be in the Treasury.
Senator GLASS. The existing Federal Reserve Act calls for that
too, but they do not assert themselves.
Mr. ANDERSON. Let me call your attention to one further thing,
however. What this act does is to divide the control of money and
credit. It does not make the Treasury sole controller. It leaves a
large volume of existing control with the Federal Reserve System.
And there you have a further difficulty—lack of coordination.
Senator BARKLEY. Does it not leave the Federal Reserve System
just as much control as it has now, except, according to your theory,
the extent to which the Treasury may engage in these open-market
transactions for stabilization of the dollar ?
Mr. ANDERSON. It is large enough to vitiate the Federal Reserve
control.
Senator COUZENS. I want to mention that Senator Barkley has a
number of times mentioned " open-market operations." There is
nothing in the act specifying open-market operations. There can be
private transactions under the act, but not open-market transactions.

GOLD RESEKVE ACT OF 19 34

135

Senator GLASS. They can rediscount your note if they want to.
Senator COUZENS. They would not want to.
Senator GLASS. They would rediscount yours, but they would not
rediscount mine.
Mr. ANDERSON. One further point, gentlemen
Senator WAGNER. Would you limit the particular office you are
going to create now, to manage the $2,000,000,000 fund? Would
you limit the powers of that office any more than we limit the powers
conferred upon the Secretary of the Treasury ?
Mr. ANDERSON. The powers given to the Secretary of the Treasury seem to be much too wide. I would limit it to an exchange
stabilization fund, with ability to buy Government securities, but I
think that last you do not need to do. I think it is not very desirable
to do it. You create an artificial Government-securities market. I
would rather make just sound general policy, and you will find that
the Government can borrow all it needs.
Senator GLASS. Dr. Miller thinks that if you insert the word
" sole " there—for the sole purpose of regulating exchange—that
might cure the thing.
Mr. ANDERSON. That would not be enough, unless you also make
them get it from the general money market.
Senator GLASS. Yes; I agree with that.
Senator COUZENS. What else?
Mr. ANDERSON. One further major point. This vast credit expansion, from 1922 to 1928, had it been spread out gradually over a
period of 25 years, and held back when things were going too fast,
and gradually used over a period of 25 years, would have had a
beneficent effect upon the world. Instead, there was one grand
splash and then disaster. The quality of credit, had it not expanded
so much beyond the volume of business, the volume of production,
would have been kept sweet and sane by being related to production. You have now, through this revaluation of gold—which I
concede you are going to do—you have now an opportunity to fix
the thing so that you do not use it all up at once. It can be held
back and used when needed, to expand credit here and expand it
there. It can be gradually used and spread over two decades; or
you have the option of one wild speculative orgy, with a worse
disaster following than we are in now.
Senator COUZENS. HOW soon would that happen, do you think?
Mr. ANDERSON. I can tell you the time of day, Senator, but I
cannot tell you the day of the month.
Senator BARKLEY. DO you think it would be between 10 and 3 ?
Mr. ANDERSON. It might.
Senator GORE. Very likely.
Senator KEAN. I would like to ask whether you have thought about
this stabilization between 50 and 60, and whether you do not think
the dollar has been so depressed, by every effort that could be made
to depress it, that it ought to be stabilized at a higher price ?
Mr. ANDERSON. I do. Sixty is too low.
Senator KEAN. Would you say 65 or 70 ?
Mr. ANDERSON. I would do it about where the exchanges have
been lately.

136

GOLD EESEEVE ACT OF 19 34

Senator KEAN. That is 64.
Mr. ANDERSON. Having especially in mind that that would make it
easier to get international agreements.
Let me make this point: That the difference between 50 and 60 is
just about twice as great as the difference between 100 and 90. You
are getting down to a point where every point is a great big percentage. It is 16% percent, I believe, going down, or it is 20 percent
looking up. That is too wide a range, far too wide a range to beget
confidence.
Senator WAGNER. DO you happen to know what are the values of
currency of the different countries compared to the value of gold?
I mean the percentage ?
Mr. ANDERSON. What relation are you thinking of ?
Senator WAGNER. For instance, take the relationship between our
dollar and the gold dollar. It is about 63 cents now, or 62.
Mr. ANDERSON. Yes.
Senator WAGNER. What

is the relationship of the currency of
other countries with reference to the value of gold ?
Mr. ANDERSON. The British, I think, are about 35 percent depreciated—maybe a little more now.
Senator COUZENS. That is about 65.
Mr. ANDERSON. Yes. I am not absolutely sure.
Senator WAGNER. I saw the figures the other day, and they were
about on a parity with our own, so that if you wanted to increase
the value of our dollar, would we not be, so far as the international
situation is concerned, taking into consideration export trade, at a
disadvantage with these other countries?
Mr. ANDERSON. I do not attach great importance myself to this
notion of purchasing power parity, or getting price levels of different countries in exact equilibration. After all, it is articles of
international trade that count most, and I suppose, in the case of
cotton, for example, the parity of New York and Liverpool is exact
right now, and a lot of things of that kind, but this I would be
sure of, that with exchange stabilization and definite confidence on
the part of the exchange markets in the values of various currencies,
export and import trade for all of them would go up.
If, further, Senator, we could get these tariffs of ours down, that
would give us a great rise in American prices and in world prices.
Senator GLASS. YOU are treading on dangerous ground now. We
promised to do that in our platform, but we have forgotten it.
Let me ask you this question: What was the economic result of
the devaluation of the franc ? Did it cause destitution and unhappiness and kindred disturbances ?
Mr. ANDERSON. The process of getting to that lower value, the
period when the franc was falling, caused destitution, misery, and
distress on a great scale. The process of actual stabilization meant
pulling it up from 2 cents to 4 cents, and was accompanied by great
joy in France, and a revival of hope and confidence.
Senator BARKLEY. The devaluation occurred prior to the act of
the Government which attempted to stabilize it at 4 cents.
Mr. ANDERSON. Yes,

sir.

GOLD RESERVE ACT OF 193 4

137

Senator BARKLEY. By processes for which the Government was
not responsible.
Mr. ANDERSON. For which the Government was only indirectly
responsible. The extravagance of the Government and the war
which preceded it did it.
Senator GORE. They had not hammered theirs down deliberately,
as we have.
Senator GLASS. What group of people were worst affected by the
depreciation of the franc ?
Mr. ANDERSON. The typical housewife, having to pay a little more
for her herring every day. The masses of the people of France suffered—the workmen suffered.
Senator GLASS. The poorer people.
Mr. ANDERSON. The poorer people; the rich, too. Nobody gained
except certain speculators.
Senator GLASS. I know. The rich can afford to suffer.
Senator WAGNER. They do not suffer.
Senator GLASS. They can suffer from now until doomsday; but I
am talking about the poorer class of people. They were the people
that really suffered.
Mr. ANDERSON. They suffered.
Senator GLASS. Mr. Chairman, can we not adjourn now? It is a
great task on some of us to sit here.
The CHAIRMAN. There is one gentleman here who proposes to finish
in 15 minutes. We would like to dispose of him.
Senator BULKLEY. I think we have been in session long enough.
Senator GLASS. Let us adjourn until tomorrow.
The CHAIRMAN. Very well. The committee meets tomorrow morning at 10 o'clock to consider the agricultural credit bill, and then at
10:30 we go on with this hearing.
(Whereupon, at 5:10 p.m., Friday, Jan. 19, 1934, the committee
adjourned to meet tomorrow, Saturday, Jan. 20, 1934, at 10 a.m.)
CHASE ECONOMIC* BULLETIN—AN ANALYSIS OF THE MONEY MARKET

(By Benjamin M. Anderson, Jr., Ph.D., economist of the Chase National Bank
of the city of New York)
There is a great deal of bewilderment regarding the recent course of the
money market. There need not be. The forces at work are in large part
measurable.
Since July of 1927 there has been an immense expansion of bank credit
flowing into the securities market, either in the form of bank investments or of
collateral loans against securities. There has been a great rise in the price of
securities, an immense flotation of new securities, and a growing intensity in
speculation in securities.
The movement began shortly after the Federal Reserve banks had reduced
their buying rates on acceptances, had reduced their rediscount rates from 4 to
3% percent, and had begun an immense increase in the purchase of Government
securities—an increase of $320,000,000 taking place in this item alone between
July 27 and November 16. During the month of December the Federal Reserve
authorities took a neutral attitude toward the money market, and from
January down to the present they have been working with steadily increasing
vigor toward restraining the movement, first, by selling Government securities,
and, second, by raising rediscount rates.
Federal Reserve bank policy since January 1 has been definitely in the right
direction. Properly reluctant to use violent measures, they have put the brakes

138

GOLD KESERVE ACT OF 193 4

on cautiously, but with increasing firmness, and on May 28 (the time of writing) there is good reason to believe that they at last have the situation in hand.
Had they been following in the past the policy of holding rediscount rates
above market rates, the sales of Government securities which began in January would alone have sufficed to tighten up money adequately and to check
the expansion. With Federal Reserve band rediscount rates well below the
market, the selling of Government securities proved for a long time ineffective,
since the member banks replaced the funds thus withdrawn from their reserves
Dy a great increase in rediscounts. By May 23, however, the member banks
had gone as far in this direction as they could comfortably go, and a position
was reached where further sales of Government securities could be very definitely effective.
THE HEART OF THE MONEY MARKET

The total volume of the loans, discounts, and investments of the commercial
banks1 of the United States stands as of April 11, 1928, at approximately
$47,607,000,000, and on the same date the total deposits of these same commercial banks stands at approximately $44,234,000,000. But neither of these vast
figures constitutes the supply of loanable funds in the money market. The
loans, discounts, and investments of the banks cannot constitute supply of
money. Rather they represent money already supplied, money already loaned
and invested. The deposits of the commercial banks do not constitute supply
of money for the money market proper. A depositor of a bank may loan his
deposit balance to some other individual, but the bank cannot do so. A bank's
deposits are liabilities, not assets, and a bank cannot lend its existing deposits.
A bank can increase its loans or investments only when it is in a position
either to pay out cash or to create a new deposit liability, and its ability to do
either of these things depends upon its cash reserves. The circumstances which
tend to generate bank expansion, the creation of additional loans, discounts,
and investments, and additional bank deposits, are thus bound up in the circumstances governing the volume of bank reserves.
In this we must consider not merely the absolute magnitude of the bank's
reserves, but rather the relation between the bank's reserves and its existing deposit liabilities. The law requires an American bank to keep a certain percentage of reserves to its deposit liabilities, 3 percent against time deposits and,
in the case of a New York bank, 13 percent against demand deposits. Even
if the law made no such requirement, prudence would require the banks to
keep a certain amount of cash. When the cash reserves of the banks exceed
these requirements, money rates become soft, and it is easy for the banks to
expand. When the cash reserves fall below these requirements, banks resist
an increase in the total of their loans and investments, expansion is checked
and a liquidation may take place.
The heart of our problem is, therefore, focused in a figure much smaller than,
the $47,607,000,000 of loans, discounts, and investments, or the $44,234,000,000
of deposits, mentioned above. The problem for the American money market
may be focused in a figure which stood at $2,432,000,000 on April 11, 1928,
namely, the reserve deposits of the member banks with the Federal Reserve
banks. There are many other factors at work in the situation, as we shall see,
such as gold imports and exports, earmarkings of gold, Federal Reserve bank
purchases of Government securities, and other extensions of credit, and various factors on the side of demand for money as well. But all these things
are best summed up in the study of the causes affecting the volume of member
bank reserves. When thus considered, the problem becomes a measurable problem, and the separate influence of each of the various causes can be isolated
and measured.
But the problem may be still further narrowed. Neither in the vast total of
$47,607,000,000 of commercial bank loans, discounts, and investments nor in the
smaller, but still vast figure, of $2,432,000,000 of member bank reserves have we
reached the crux of the matter. Not nearly all of this $2,432,000,000 is available
as a basis for bank expansion. Most of it is required to maintain the existing
volume of bank credit. Most of it is required reserves. Sometimes all of it is,
and sometimes all of it is less than enough. It is only when reserves are excessive than bank expansion can move easily, and the real play of the money market
1

See Appendix A.

GOLD RESERVE ACT OF 1934

139

is in the narrow range of perhaps $'50,000,000, plus or minus, around the required reserves. The forces immediately involved in the short-run adjustments
of supply and demand are concerned with marginal quantities, and the heart of
the problem is to determine what forces have led to comparatively moderate
increases or decreases in the volume of reserves.
The tendency during our period is exhibited by the following figures:
Member bank reserves
July 27,1927
Nov. 30, 1927
Feb. 1, 1928
May 2,1928

$2, 282, 000, 000
2, 379, 000, 000
2, 405, 000, 000
2, 442, 000, 000

Our volume of member bank reserves is little over 5 percent of the total
deposits of all the commercial banks. If the member bank reserves are the
governor of the vast total of bank credit in the country—and during the period
under consideration they have been 2 —then we need not be surprised at an increase of approximately $3,000,000,000 in commercial bank deposits, accompanying an increase of over $150,000,000 in member bank reserves.
Deposits of commercial banks*
May 2, 1928
July 27, 1927

$44, 238, 070, 000
41,158, 320, 000

Increase

3, 079, 750,000

The explanation

of changes in member bank reserves, July 21, 1921-May
2, 1928
It will be convenient to break the large period, July 27, 1927, to May 2, 1928,
into four subperiods, each of which has distinct characteristics. The periods
are partly arbitrary because of the advantage of having month-end figures
for certain of the elements in our calculations.
THE GREAT EXPANSION

JULY 2 7 TO NOVEMBER 30

The first period, from July 27 3 to November 30, 1927, is one during almost
the whole of which Federal Reserve bank activities had the effect of making
money easy and reserves excessive. The crest of this movement is reached
on November 16, so far as the Federal Reserve bank statement is concerned,
at which time the open-market purchases of Government securities by the
Federal Reserve banks reached their peak of $704,000,000, an increase of
$320,000,000 from the $385,000,000 of July 27, and on which their total bills
and securities reached $1,407,000,000, an increase of $453,000,000 from the
$954,000,000 of July 27, 1927. By the end of November, however, the Federal
Reserve banks had reduced their holdings of Government securities to $548,000,000 again, though an increase of $110,000,000 in rediscounts by the member
banks in the same 2 weeks prevented any considerable decline in total bills and
securities. Money rates, which had begun to soften at the beginning of the
period, remained soft through to the end of November, and bank expansion
moved rapidly through the whole of the period. The following table shows
the factors involved in the increase in member bank reserves which took place:
July 27 to November 30, 1921
Member bank reserves:
July 27, 1927,
Nov. 30, 1927
,
1
2

$2, 282, 028, 000
2, 378, 563, 000

See Appendix A.
The next issue of the Chase Economic Bulletin will deal fundamentally with this
question.
3
This date seems to represent the turning point in Federal Reserve bank policy. See
Chase Economic Bulletin, vol. II, no. 4, pp. 14-15.

140

GOLD RESERVE ACT OF 19 3 4
CHANGES WHICH INCREASE MEMBER BANK RESERVES

Increase in total bills and securities of Federal Reserve banks:
1. Increase in rediscounts,
+78, 895, 000
2. Increase in open-market purchases:
a. Increase in bills purchased
+185, 355, 000
b. Increase in Government securities purchased,
+16-, 819, 000
c. Decrease in other securities
—385, 000
Total
Increase in money outside Treasury (other than gold, gold
certificates, and Federal Reserve notes)
Increase in Federal Reserve bank
float
Decrease in Government, foreign bank, and other deposits
with Federal Reserve banks

426, 684, 000
6, 000, 000
10, 500, 000
13, 400, 000

Total, changes which increase reserves,
Changes which decrease member-bank reserves

456, 584, 000
348,100, 000

Estimated increase in member bank reserves
Actual increase in member bank reserves,

108,484, 000
96, 535,000

CHANGES WHICH DECREASE MEMBER BANK RESERVES

Increase in money in circulation 4
Decrease in monetary gold stock 5
Decrease in amount due Federal Reserve banks from foreign
banks
,

171, 000, 000
129, 000, 000
48,100, 000

Total, changes which decrease reserves
_^
348,100, 000
This table calls for explanation. The Federal Reserve banks, through increased rediscounts and increased open-market purchases, put nearly $427,000,000 into the member-bank reserves. There was a $6,000,000 addition to the
reserves of the country drawn from types of money not controlled by the
Federal Reserve banks, such as national-bank notes, subsidiary silver, etc.
Member-bank reserves were also fed by an increase in the float of the Federal
Reserve banks. The Federal Reserve bank float, technically defined, is the
difference between a figure found on the asset side of their balance sheet called
" Uncollected items " and a figure found on the liability side of their balance
sheet called " Deferred availability items." The member banks use the Federal
Reserve banks as collecting agencies. They deposit with them checks drawn
upon distant points. They do not receive immediate credit for such checks, but,
instead, in accordance with a time schedule worked out, receive credit in 1, 2, 3,
or more days, depending upon the estimated time required for collection. For
example, on November 30, 1927, these figures stood:
Uncollected items
$692, 230, 000
Deferred availability items
637, 726, 000
Federal Reserve bank
float
54, 504, 000
The effort is made to have the uncollected items and the deferred availability items approximately balance, but there is a substantial difference between them in favor of the member banks, which, as it increases, increases the
reserve balances of the member banks, and which, as it decreases, reduces the
reserve balances of the member banks. The Federal Reserve bank float represents an extension of Federal Reserve bank credit to the market.
Explanation may also be needed of the item " Government, foreign bank,
and other deposits with the Federal Reserve banks." Deposits of the Federal
Reserve banks thus held are not reserves of American commercial banks, and
bank expansion cannot be built upon them. When the Government transfers
its deposits from national banks to the Federal Reserve banks, it withdraws
funds from bank reserves, and when it transfers its deposits from the Federal
Reserve banks to the national banks, it increases the total reserves in the
4
5

Estimated for July 27.
July 31 to Nov. 30. 1927.

GOLD RESERVE ACT OF 19 3 4

141

money market. The same is true of foreign banks and of the " other (nonbanking) depositors " with the Federal Reserve banks.
Among the changes which decreased member bank reserves during this period,
we note first the increase in money in circulation. Hand-to-hand cash is supplied by the commercial banks to the public. When public demand for hand-tohand cash increases, the commercial banks are usually obliged to go to the Federal Reserve banks to get it, and of course must draw against their deposit
balances with the Federal Reserve banks in the process. Conversely, when
money in circulation is excessive, it returns to the commercial banks as individual depositors turn in unneeded cash, building up their own deposits, and the
commercial banks promptly turn in the excess to the Federal Reserve banks,
replenishing their reserve balances.6
A second factor which decreased member bank reserves during this period
is a decrease in the monetary gold stock of the country of $129,000,000. The
figure for gold monetary stock, published once a month, sums up the results
of all the forces operating upon our monetary gold supply. These forces are
gold exports, gold imports, production of gold in the United States and Alaska,
consumption of gold in the arts and industries, earmarking of gold, and release
of gold from earmark. Not all of these can be measured separately on the
basis of current data available to the writer. The annual difference between
domestic production and domestic consumption of gold in recent years is small,
$10,000,000 a year, approximately.
From July 30 to November 30, gold under earmark at the Federal Reserve
banks increased from $114,000,000 to $191,000,000. Earmarked gold is gold
which the Federal Reserve banks hold merely as custodian, subject to the
orders of their customers, usually foreign banks. It is as much withdrawn
from the American money market as it would be if it were already exported.
Gold released from earmark is as much returned to the American money market
as it would be if it were newly imported. From the end of July to the end
of November, the country lost, through the net excesses of exports over imports,
$67,000,000 . of gold. We cannot, however, add the gold lost through earmarking and the gold lost through exports to make a total of gold lost, because
we do not know how much of the gold exported had already been put under
earmark, and to count it as lost, first through earmarking and second through
export, would involve double counting. Our figure, however, for the decrease in
the gold monetary stock straightens all this out, and shows a net loss of gold
from all causes of $129,000,000.
The third change among those which decreased member-bank reserves is a
special item which does not recur in the tables in this bulletin. It represents
a decrease in a special form of Federal Reserve bank credit, credit extended
to foreign banks, probably in the form of deposits with them.7 This item,
which had been less than $700,000 down to June 15, 1927, suddenly rose sharply
to $48,719,000 on July 27, 1927, but had dropped again to approximately $500,000
by November 23, 1927.
Taking account of all these various factors in our table, we estimated that
the reserves of the member banks should have increased $108,484,000 between
July 27, 1927, and November 30, 1927. The actual increase reported* in the
consolidated balance sheets of the Federal Reserve banks between these dates is
$96,535,000, showing a difference between the reserves as calculated and the
reserves as actually reported of $11,949,000. This represents a fairly close
convergence between indirect calculation and actually reported figures. It will
be observed that our figures for gold and for money outside the Treasury are
6
The figure for money in circulation, as reported monthly by the United States Treasury and by the Federal Reserve Board, covers all American money outside the Treasury
and outside the Federal Reserve banks. It includes the vault cash in the commercial
banks. It includes the money in the pockets of the people. It includes American money
in foreign countries. It gives us a figure, therefore, which enables us to sum up a good
many otherwise unmeasurable influences at work upon the money market. We need not
consider separately exports and imports of American currency, other than gold, in our
dealings with foreign countries, which are particularly difficult to measure. We need
not consider separately hoarding by individuals or unusual accumulations of vault cash
by banks in districts where there is danger of " runs " on banks. WThether or not a
change in the " volume of money in circulation " takes place through increase or decrease
of commercial activity, import or export of American currency from or to foreign countrios, hoarding, or even outright destruction, the only way in which these changes can
affect member-bank reserves is through an increase or a decrease in the total figure, and,
measuring changes in the total figure, we may correctly sum up all the factors at work.
7
This item first appeared in the statement of the Federal Reserve banks in September
1925. At the same time the caption " Total Earning Assets ", which they had formerly
used to describe the total of their discounts, and open-market purchases of Government
securities, other securities, and bills was changed to " Total Bills and Securities."
46217—34
10

142

GOLD RESERVE ACT OF 193 4

month-end figures, whereas our July figures for the Federal Reserve banks are
3 days away from the end of the month. Had there been large changes in the
month of July in the gold monetary stock and had these changes been concentrated within these 3 days, our results could have been thrown out very widely.
Fortunately for this computation, there were no net changes through earmarking in the month of July, and the net change through export and import
was only $9,000,000.
It was necessary, however, to recompute the figure for money in circulation
in view of the fact that the month-end was also a summer week-end, and the
difference between money in circulation at the week-end and money in circulation on Wednesday, July 27, was approximately $65,000,000. Discrepancies
®f even a single day or part of a day, however, could make calculations of this
kind vary substantially, and our results are close enough to the actually
reported fact to justify us in the belief that they have covered all the important
variables involved.
The period from the end of July to the end of November was characterized
by the extraordinarily rapid growth of general bank credit. The deposits of
the reporting member banks (representing 47 percent of the total of all commercial bank loans, discounts and investments) increased from $19,506,000,000 on
July 27 to $20,438,000,000 on November 30. Their total loans, discounts and
investments rose between the same dates from $20,479,000,000 to $21,544,000,000—an increase of $1,065,000,000. Of this increase $209,000,000 was taken
by the seasonal rise in the so-called " commercial loans " or the " all other
loans and discounts " of these banks, while the rest, an amount in excess of
$800,000,000, went to the securities market either in the form of direct bank
investments in securities or in the form of collateral loans against securities.
Reporting member banks
[In millions of dollars]
Total loans,
discounts, Loans on
Deposits and invest- securities
ments
July 27, 1927
Nov 30, 1927

19,506
20, 438

20,479
21,544

5,929
6,408

Loans on
All other Investment securities
loans and in securi- plus investties
discounts
ments
8,559
8,806

5,992
6,329

11,921
12,737

Brokers' loans on the New York Stock Exchange, as reported by the Federal
Reserve authorities, increased from $3,141,000,000 on July 27, 1927, to $3,511,000,000 8 on November 30, 1927, and, as reported by the New York Stock Exchange, increased from $3,642,000,000 on July 30 to $4,092,000,000 on
November 30.
The period from the end of July to the end of November, despite the October
break, was characterized by rapidly rising prices of securities. The New
York Times average of 50 stocks stood at 171.48 on July 27 and at 180.65 on
November 30, while the Standard Statistics list of 21 rails and 197 industrials
stood at 177.7 on July 30 and at 193 on December 3.
T H E TRANSITION PERIOD—NOVEMBER 30, 1927, TO FEBRUARY 1, 1928

There are certain very interesting and spectacular figures connected with
the money market around the year-end 1927, but, for the purposes of understanding the main episodes of the money market we are here considering, it
is best to ignore these, as expansion takes place at every year-end in connection with the Christmas trade and the year-end settlements, and it is well
to avoid confusing our analysis by a study of them. Our next table covers,
therefore, the period November 30, 1927, to February 1, 1928. This period
shows an estimated increase of member bank reserves of $22,157,000 as compared with an actual increase of $26,110,000. The difference between the
estimated figure and the actual figure is $3,953,000.9
8
The Federal Reserve authorities can report only those loans made through the New
York City member banks. The stock-exchange figure i&, therefore, larger than the Federal Reserve figure.
9
This is a very close result. The error in our next table, from Feb. 1, 1928, to Feb. 29,
1928, is $2,203,000. But these two errors are in opposite directions, and had two periods
been calculated together would have offset one another, giving us a discrepancy of only
$1,750,000.

GOLD RESERVE ACT OF 1934

143

To get this small change in reserves, however, an extraordinarily large
volume of shifting about was required. Two hundred and seventy-five million
dollars of money returning from circulation more than offset the $78,000,000
loss of gold and the $145,000,000 decline in Federal Reserve bank credit, as
well as the increase in Government, foreign bank, and other deposits, the decrease in the Federal Reserve bank float, and the decrease in the money outside the Treasury. During the first period, Federal Reserve bank credit expanded so greatly that it more than offset the great increase in money in circulation and the great decrease in the gold stock. During the second period,
Federal Reserve bank credit did not contract enough to offset the return of
money from circulation. None the less, there is evidence of a definite reversal
of Federal Reserve bank policy during this period, the most significant point
being in the decrease of Government securities purchased. The Federal Reserve
banks are clearly now holding back and trying to check the expansion.
'Nov. SO, 1927-Fel).

1, 1928

[In thousands of dollars]

Member bank reserves November 30, 1927
Member bank reserves February 1, 1928

2, 378, 563
2,404,673

CHANGES WHICH INCREASE MEMBER BANK RESERVES

Decrease in money in circulation 10
Less
Estimated increase in member bank reserves
Actual increase in member bank reserves

275, 000
252, 843
22,157
26,110

CHANGES WHICH DECREASE MEMBER BANK RESERVES

Decrease in monetary gold stock10
78,000
Decrease in total bills and securities of Federal Reserve banks:
1. Decrease in rediscounts
—-53, 593
2. Decrease in open market purchases:
a. Increase in bills purchased
+22,653
&. Decrease in Government securities purchased
—114,174
c. Decrease in other securities
—415
Total
145,529
Increase in Government, foreign \>ank, and other deposits
12, 622
Decrease in Federal Reserve bank
float
7, 287
Decrease in money outside the Treasury (other than gold, gold certifi10
cates, and Federal Reserve notes)
9,405
Total
.
252,843
The Federal Reserve banks have moreover, taken other steps in this direction, as shown by the increase in the rates for 90-day acceptances (which are
dominated by the buying rates of the Federal Reserve banks) from 3*4 at 3% in
late December to 3% at 3% toward the end of January. The end of the period,
moreover, begins the movement upward of the rediscount rates from Z1/^ to
4 per cent, beginning with Chicago on January 25 and Richmond on January
27, followed by New York on February 2.11
Money rates stiffen definitely between November 30 and February 1. Call
money had been 3% percent through November, 1927, while the January range
was well above this, though a down turn toward the end of the month showed
some days with 3% percent money again, the range being 3% to 4% percent in
the final week. Time money on the Stock Exchange showed also a definite
stiffening. It stood at 4 at 4 ^ percent in November, and it was 4% at 4%
percent at the end of January.
But the efforts so far were indecisive. Money remained easy, bank expansion
went on, and the securities market rose.
10
11 Nov.

30, 1927-Jan. 31, 1928.
San Francisco, Feb. 4 ; Minneapolis, Feb. 7 ; Boston, Feb. 8 ; Dallas, Feb. 8 ; Kansas
City, Feb. 10; Atlanta, Feb. 11 ; Philadelphia, Feb. 16; St. Louis, Feb. 2 1 ; Cleveland,
Mar. 1.

144

GOLD RESERVE ACT OF 19 3 4

Reporting member banks
[In millions of dollars]
Total
Loans on
All other Invest- securities
loans,
discounts, Loans on loans
plus
ment in
Deposits
securities
and
and
discounts securities investinvestments
ments

Date

Nov. 30, 1927
Feb. 1, 1928

20,438
20,590

6,408
6,677

21, 544
21,789

8,806
8,548

6,329
6,564

12, 737
13,241

Brokers' loans
[In millions of dollars]
As reported
by New
York
Stock Exchange

Date

Nov . 30, 1927
Jan. 31, 1928

Date

As reported
by member
banks of
New York
City

4,092 Nov. 30,1927
4, 420 Feb. 1,1928

"
_.

3,511
3,816

The credit movement of this period is particularly favorable to the securities
market. The so-called " commercial loans " of the reporting member banks actually declined by $258,000,000, while the funds employed in the securities market,
either in the form of direct investment in securities or in the form of collateral
loans against securities, increased $504,000,000. The stock market, rising in
December, receded in January, and stood at the end of January a little above
the level of the end of November.
The Federal Reserve authorities proceed to take more vigorous measures, and
our next period, the month of February, shows a measure of success.
A MONTH OF SECESSION—FEBRUARY 1, 1928, TO FEBRUARY 29, 1928

The following table fells the story of the month :
February 1, 1928 to February 29, 1928
Member bank reserves:
February 1, 1928
February 29, 1928

[In thousands of dollars]

2,404,673
2, 374, 515

CHANGES WHICH INCREASE MEMBER BANK RESERVES

Increase in total bills and securities held by Federal Reserve banks:
1. Increase in rediscounts
2. Decrease i nopen-market purchases:
a. Decrease in bills purchased
b. Decrease in Government securities purchased
c. Increase in other securities
Increase in money outside Treasury 12(other than gold, gold certificates, and Federal Reserve notes)
Total

+69,136
—33, 634
—26, 059
+500
9,943
2,180
12,123

CHANGES WHICH DECREASE MEMBER BANK RESERVES
[In thousands of dollars]

Increase in money in circulation 12
Decrease in monetary gold stock12
Increase in Government foreign bank and other deposits
Decrease in Federal Reserve bank
float
Total
Less
Estimated decrease in reserves of member banks
Actual decrease in reserves of member banks
12

Jan. 31, 1928 to Feb. 29. 1928.

13, 000
11,000
3, 861
12, 217
40, 078
12,123
27,955
30,158

145

GOLD RESERVE ACT OF 1 9 3 4

The month of February shows a definite down turn in the reserves of member
banks which, according to our estimates, should have been $28,000,000 and which
actually was $30,000,000. Despite the increased rediscount rates, member banks
increased their borrowings to offset other adverse influences on the volume of
their reserves, but, on the whole, the reserves moved downward. Commercial
bank expansion was checked and reversed during the month of February, as
shown by the following figures:
Reporting member 'banks
[In millions of dollars]
Total
Loans on
loans, disAll other Investcounts, Loans on loans and ment in securities
plus inDeposits and in- securities
vestdiscounts securities
vest
ments
ments
Feb. 1, 1928
Feb. 29, 1928

20,590
20,405

21, 789
21, 700

6,677
6,471

8,548
8,672

6,564
6,558

13,241
13,029

Deposits dropped $185,000,000. Loans, discounts, and investments dropped
$89,000,000. Commercial loans increased $124,000,000, but the investments in
securities and the collateral loans against securities dropped $212,000,000.
Money was firmer in February than in January. Call money ranged from 4
percent to 5 percent; time money stiffened one eighth of 1 percent. The stock
market dipped sharply, the Times average falling from 179.35 on February 1
to a low of 174.12 on February 20, ending the month at 177.26, while the
Standard Statistics average, opening the month at 193.4, fell to a low point,
of 188.6, and closed the month at 190.6 (Feb. 26).
Brokers' loans on the New York Stock Exchange, as reported by the stock
exchange authorities, dropped from $4,420,000,000 on January 31 to $4,323,000,000 on February 29 and, as reported by the New York Federal Reserve
Bank, dropped from $3,816,000,000 on February 1 to $3,722,000,000 on
February 29.
A new phase—demand overcomes restraints—Feb. 29 to May 2
[In thousands of dollars]

Member bank reserves Feb. 29, 1928
Member bank reserves May 2, 1928

2, 374, 515
2,441,860

CHANGES WHICH INCEEASE MEMBER BANK RESERVES

Increase in total bills and securities held by Federal Reserve banks:
1. Increase in rediscounts
+264, 486
2. Decrease in open market purchases:
(a) Increase in bills purchased
+19,342
{d) Decrease in Government securities purchased
—115,300
(c) Decrease in other securities
—10
168, 518
Increase in money outside Treasury 13(other than gold, gold certificates, and Federal Reserve notes)
6,600
Increase in Federal Reserve bank
float
21, 391
Total
196,509
Less
113, 571
Estimated increase in member bank reserves
82,938
Actual increase in member bank reserves
67, 345
CHANGES WHICH DECREASE MEMBER BANK RESERVES

[In thousands of dollars]

Increase in money in circulation 13
Decrease in monetary gold stock14
Increase in Government, foreign, bank, and other deposits
Total
13

Estimated for May 2.

Feb. 29, 1928, to Apr. 30, 1928.

18, 000
95,000
571
113,571

146

GOLD EESEKVE ACT OF 193 4

In this period a new and startling phase opens. The country continues to
lose gold and on a grand scale, the decrease in the monetary gold stock being
$95,000,000. The Federal Reserve banks strive valiantly to reduce reserves
by selling Government securities, $115,300,000 being sold in the 2 months,
March and April. Money in circulation increases by $18,000,000, taking money
out of the reserves, but all of these factors are overcome, primarily by a great
increase in rediscounts at the Federal Reserve banks, with the net result that
there is an actual increase in member bank reserves of $67,345,000 (our
estimated increase being $82,938,000).15
The new phase in the situation originates on the demand side rather than
on the supply side in the money market situation. Supply increases, but
increases in response to a strong acceleration in demand, a radical reversal of
the situation as it developed last autumn. When the great expansion began
at the end of July 1927, the markets would use more money, but only at a
concession in price. Lower rates would tempt increased borrowing, but it was
necessary to make lower rates in order to expand bank credit. Since the end
of February, however, there has been an immense intensification in the speculative fever of the American people, aroused during the preceding period of
cheap money, and concentrated upon the stock market, and they have been,
apparently, prepared to bid whatever was necessary to bring forth the desired
increase in loan funds to enable them to make their speculative purchases of
securities. With the sales of securities by the Federal Reserve banks and the
withdrawals of gold from the market, money rates stiffened, but bank expansion went on, borrowers were eager and confident, and higher rates induced the
banks to borrow enough, not merely to replenish their reserves, but, as we
have seen, actually to increase them. The demand for money was actively
increasing and, instead of taking the increased supply of bank funds only at
concessions in money rates, the market took increasing amounts at rising money
rates.
There is always a temptation for banks to rediscount in order to relend at a
profit when the rediscount rates at the Federal Reserve banks are below the
market rates of interest. The principle of European banks of issue has been
to keep their rediscount rates above the market for bills (the only kind of
paper they rediscount), and when loans are made against government bonds,
the practice is to charge a rate still higher than the' rediscount rate on commercial bills. When this practice holds, the market resorts to borrowing at
the bank of issue only when it has to, and it is fairly easy for the bank of
issue to regulate the market by its open-market purchases. In the United
States, despite the temptation to rediscount for the purpose of relending at a
profit, our large banks have developed a tradition, since the unfortunate experiences of 1920, that they will rediscount only for the purpose of replenishing reserves, and not for the purpose of creating new reserves to lend at a
profit. It has, thus, usually been possible for the Federal Reserve banks to
influence the market very greatly merely by buying and selling Government
securities. But with the eager demand for money for speculative purposes,
which the months of March and April exhibited, it is clear that to some extent
this tradition gave way and that the member banks as a whole borrowed, not
merely enough to maintain their reserves, but actually to increase them by
over $67,000,000.
Reporting member banks
[In millions of dollars]

Total loans,
discounts, Loans on
Deposits and invest- securities
ments
Feb 29 1928
May 2, 1928 .

20,405
20, 966

21,700
22, 588

6,471
7,009

All other
loans and
discounts
8,672
8,942

Loans on
Investment securities
in securiplus inties
vestments
6,558
6,637

13,029
13,646

15
The discrepancy between estimated reserves and actual reserves is a little over
$15,500,000, which might easily be eliminated if we had a figure for the geld monetary
stock for May 2 instead of for Apr. 30. Gold movements were very heavy in the first week
of May, exports through the port of New York in that week totaling $31,625,000.

147

GOLD EESEEVE ACT OF 1934

Commercial bank expansion moved rapidly during these 2 months. Total
loans, discounts, and1 6
investments moved up $888,000,000. Of this, the so-called
" commercial loans" absorbed $270,000,000, while $617,000,000 went to the
securities market, either in the form of collateral loans or of direct bank
investments.
Brokers' loans on the stock exchange rose in even greater measure. As
reported by the stock exchange authorities, the increase was from $4,323,000,000
on February 29 to $4,908,000,000 on April 30, while, as reported by the Federal
Reserve bank, the increase was from $3,722,000,000 on February 29 to $4,282,000,000 on May 2.
The impetus in the stock market has been altogether extraordinary. Almost
without a break the averages swung toward new and undreamed-of levels, the
rise in the Times average being from 177.26 on February 29 to 195.75 on May 2,
and in the Standard Statistics average from 190.6 on February 25 to 22.5 on
May 4.
The causation seems clearly reversed in our fourth period from that of our
first period. In our first period, July 27-November 30, 1927, excessive reserves
generate easy money and bank expansion, which the speculators use in a reiar
tively languid way to add 9.17 points to the stock market averages. In our
fourth period, covering the months of March and April, the speculators enthusiastically add 18.5 points to the stock market averages, and in the curse of
it evoke, despite the resistance of the Federal Reserve authorities, a further
bank expansion at steadily rising rates of interest.
MAY 192 8—THE GRIP TIGHTENS

It will be impossible before this bulletin is published to obtain all the figures
needed for a complete calculation of the causes of changes in member bank reserves in May, the one really impossible figure being that for the monetary stock
of gold. Figures for money in circulation, though most easily obtained for the
month ends, can be calculated for the dates of any Federal Reserve statement,
and other elements in the calculation are also obtainable. May has shown, however, a significant development in the further tightening of money. Beginning
with April 20, 17 of the 12 Federal Reserve banks have raised their discount rates
9
to 4% percent.
The following figures show the main movements in the Federal Reserve bank
balance sheets since the 1st of May:
[In millions of dollars]

Member
bank reserves

May
May
May
May

2
9
16
23

..
..

2,442
2,426
2,382
2,370

Rediscounts

757
111
807
847

Open
market
Open
Total
market purchases bills and
purchases of govern- securiment seof bills
ties
curities
363
365
347
331

292
277
262
230

1,413
1,421
1,418
1,410

Total
gold reserves

2,709
2,690
2,641
2,634

Federal
reserve
notes in
circulation
1,591
1,591
1,583
1,579

This table, though ignoring several of the elements of our calculations, offers, on the face of things, a pretty complete explanation of the decline of
$72,000,000 in member bank reserves between May 2 and May 23; gold reserves, —75 millions; Government securities, —62 millions; open market bills,
—32 millions; rediscounts, -f- 90 millions—net result, —79 millions. Gold continues to go out on a great scale, and the month of May may easily prove
a record month in this respect. The Federal Reserve banks have continued
to sell Government securities. Rediscounts had risen on May 23 to $847,412,000, a figure unprecedented even at year ends since 1923, and a figure which
the member banks would undoubtedly like to have much lower. Call money
has held at 6 percent from May 18 to May 28, and on that day moved up to
6% percent. The cutting of member bank reserves by $72,000,000 between May
2 and May 23 is the really significant measure of the success of the policy of
restraint.
16
The Commercial and Financial Chronicle (May 19, p. 3014) attributes this to speculation in grain and cotton, rather than to commercial expansion.
17
Boston, Apr. 20 ; Chicago, Apr. 20 ; St. Louis, Apr. 23 ; Richmond, Apr. 24 ; Minneapolis, Apr. 25; Dallas, May 7 ; Philadelphia, May 16; New York, May 17 ; Cleveland,
May 25.

148

GOLD RESERVE ACT OF 193 4

THE EFFECTS OF CHEAP MONEY AND BANK EXPANSION ON THE BUSINESS SITUATION

The episode described in the foregoing pages, from the end of July 1927, to
the early part of May 1928, is merely an intensification of a general movement
in bank credit which has been going on since early 1922. There has been only
one real interruption in the process from that time to the present, the one
interruption coming in the year181923. Previous numbers of the Chase Economic
Bulletin have dealt with this.
The following tables exhibit the extent of
this expansion since June 30, 1922:
Deposits of commercial

banks1

Apr. 11, 1928
June 30, 1922
Increase
Loans, discounts, and investments

$44,234,000,000
30, 690, 000, 000
13, 544, 000, 000
of commercial

banks1

Apr. 11, 1928
.
$47, 607, 000, 000
June 30, 1922
33, 095, 000, 000
Increase
14, 512, 000, 000
In judging the effects of the recent intense period of cheap money and bank
expansion upon the business situation, we shall do best to look upon it as
merely a phase and continuation of the longer movement.
The view that cheap money and bank expansion will lead merchants to
increase their borrowings for the purchase of goods, and will lead manufacturers to increase their borrowings for financing an increased volume of
" work in process", has found little to justify it in our recent experience.
There appears to be a strong feeling in Great Britain that even moderate rises
in interest rates will check business, and that even moderate declines in interest
rates will stimulate business, through their effect upon this kind of borrowing.
It is to be observed, however, that American experience with cheap .money
during the last few years has been that such borrowing has been little, if at
all, influenced by it, and that German experience with high money rates in the
last few years has been that such borrowing increases sharply, despite high
money rates, whenever a market is in sight, and whenever commercial and
manufacturing profits are to be gained by means of such borrowing.
Borrowing by merchants and manufacturers in the United States from the
banks appears actually to have declined in the last few years. This is due
partly to the practice of hand-to-mouth buying and moderate inventories, which
not even easy money could overcome. It is also due partly to the fact that
business corporations have done a great deal of permanent financing in the
cheap money period, which has lessened their dependence upon the banks.
The indirect effect of cheap money and bank expansion upon business has,
however, been very marked.
The most conspicuous effect of cheap money and bank expansion has been
in the speculative rise in the prices of securities and real estate, but this rise
has in itself had a very marked effect upon the volume of consumer demand.
The total volume of profits from capital appreciation, which the last few years
have brought forth, has been very great. Part of these, profits has been reinvested, but a very considerable part has undoubtedly been spent in current
consumption, increasing the volume of consumer demand substantially above
what it would be if securities and real estate ceased to rise.
In the second place, the bank expansion has facilitated greatly the growth
of installment buying, again increasing, during the period of the expansion, the
aggregate volume of consumer demand.
In the third place, the period of bank expansion has greatly intensified the
rate of new security issues. In part this has been for refinancing. Every
borrower who was in a position to do so has paid off old bonds, which bear
high rates of interest, and has replaced them with new bonds bearing low
rates of interest. But, wholly apart from this refinancing, there has been an
extraordinary expansion in the volume of new securities issued. The last year
during which no bank expansion took place was 1923, and the volume of new
securities publicly placed in the United States in that year (refunding excluded) was $4,304,000,000. In the year 1927, a year of very rapid bank
18
1

Vol. Ill, no. 1; vol. IV, no. 3 ; vol. V, no. 3; vol. VI, no. 3; vol. VII, no. 4.
See appendix A.

149

GOLD EBSEEVE ACT OF 1934

expansion, the total volume of new securities placed (refunding excluded) was
$7,735,000,000. Doubtless there was an increase between 1923 and 1927 in
ordinary investors' savings, but it would be hard to contend that the increase
was so great as the difference between these figures would indicate. The major
part' of the difference must be due to the fact that 1923 was a year with almost
no bank expansion and 1927 a year of great bank expansion.
The issue of these new securities stimulated demand in a number of directions, the two most conspicuous markets affected being the building trade and
the export market. Despite the restrictions on our imports and despite the
growing burden of interest payments which foreign countries must make to
the United States, our exports have held up fairly well by virtue of an evergrowing volume of foreign securities placed in the United States.19 And thus
our bank expansion has deferred the need for fundamental dealing with the
export problem.
Another remarkable effect has been the great increase in activity on the part
of financial middlemen and brokers, with a great increase in the volume of
securties transactions, a great rise in the prices of seats in the various exchanges, and a great multiplication in the number of finance companies, houses
issuing and marketing securities, and investment trusts. The shifting and readjustment of investments, which the credit expansion has involved, has made
work for this growing army of financial middlemen, and the unusual income
from their activities has made a not negligible addition to the total of consumer
demand. With a more normal money market, the volume of these activities
would be curtailed.
INVESTMENT TRUSTS

It is quite safe to say that in the absence of the great expansion of credit
which has taken place, the investment trust movement would have developed
much less rapidly than has been the case. Had the new capital coming upon
the market been only the ordinary volume of investors' savings, there would
have been, of course, a much severer competition for investors' money, higher
return to investors, and much less readiness on the part of investors to turn
to new types of investment. There would have been much more critical
scrutiny by investors of the types of securities offered them. But in a situation
where investors have had not merely the problem of placing their current savings, but also the frequent problem of replacing old investments paid off or
purchasing new securities to replace those sold at a profit (together with part
of the profit), the demand for new securities has grown rapidly and has been
less critical than would otherwise have been the case. Under these circumstances, it has been possible, not merely for strong and conservatively managed
investment trusts to place their securities readily with investors, but also for
other investment trusts, whose management was not so surely experienced or so
certainly conservative, to make large headway.
Exports

Year
1921
1922
1923
1924
1925
1926
1927

1927 (4 months)
1928 (4 months)
1

...

Imports

Excess of Foreign 1
exports securities

4,485, 031
3,831, 777
4,167,493
4, 590,984
4, 909,848
4, 808, 660
4,864,806
1, 616,187
1, 573, 366

2,509,148
3,112, 747
3, 792,066
3,609,963
4, 226, 589
4,430,888
4,184,378
1,421, 782
1,415,922

1,975, 883
719, 030
375,427
981,021
683, 259
377, 772
680,428
194,405
157,444

526, 517
631, 211
267, 085
996, 570
1, 086,161
1,145,100
1,555,232
531,035
483,189

Refunding excluded.

In the best of times and under the most favorable circumstances, it is a
difficult and unenviable undertaking to invest the money of other people to
their satisfaction. It has been a particularly trying problem in recent years,
and the very circumstances which have made easy the financing of investment
trusts have also made difficult the problem of the management of investment
trusts in the selection of securities which would give adequate yield and be
satisfactory in other respects as well.
is Exports and imports of the United States and foreign securities placed in the United States (1921-28)
(in thousands of dollars):

150

GOLD RESERVE ACT OF 193 4

The rapid rise of the investment trust movement, moreover, has prevented
the accumulation of the experience in investment trust management which
would justify ims in looking with unmixed satisfaction upon the extent of the
development. The great movement has taken place on a rising market, and
not all of the existing investment trusts in the United States have had an
adequate experience with falling markets or periods of monetary tension. We
have imported a British idea and made a large scale application of it without
first trying it out over a relatively long period of time under American
conditions.
One curious development, showing the= difficulties of the problem, has been a
certain amount ©f buying by one investment trust of the stock of another.
General conclusions regarding the investment-trust development are not justified at the present time. There are undoubtedly strong and well-managed investment trusts whose securities are in every way worthy of public confidence.
But it is perfectly safe to state that the investing public has not been sufliciently
critical of the general movement and that a more rigorous study of the financial
set-up, the policies, the management, and the investment lists of individual
investment trusts, together with an analysis of the nature and sources of their
profits, is to be recommended.
Investors should in particular know whether or not it is the practice of a
given investment trust to count as current profits only the income from securities held, or whether its practice is to count also the profits which come from
the sale of securities on a rising market. The experience of British investment
trusts would seem to prove that profits made from the sale of securities should
not be counted as current income, but rather should be set aside as reserves
to offset losses which may come in bad years, and that the holder of the stock
of the investment trust should expect to gain from these profits only indirectly
as over a period of years the gains exceed losses and the current return of the
investment trust increases through the growth of its invested funds. The
present practice of investment trusts is not uniform with reference to this
point.20
APPENDIX A
DEPOSITS AND LOANS, DISCOUNTS AND INVESTMENTS OF ALL COMMERCIAL BANKS

The computations for all commercial banks are made on the basis of the
figures for the reporting member banks. The figures for all State and National
banks and trust companies are available only once a year, as of June 30.
These figures have been found to bear, however, a surprisingly constant ratio
to the corresponding figures for the reporting member banks, which are available once a week. Deposits of the reporting member banks are 47.39 percent of the total deposits, and loans, discounts and investments, of reporting
member banks are 46.94 percent of the total. It is interesting to note that
virtually all of the expansion of deposits, of our period, July 1927 to May
1928, took place between July 27 and January 4, the figures being:
All State and National banks, and trust companies
Loans, discounts, and investments:
Jan. 4, 1928
$46, 982, 062, 000
July 27, 1927
43, 620, 798, 000
Increase
3, 361, 264, 000
Deposits:
Jan. 4, 1928
44, 275, 672, 000
July 27, 1927
41,158, 320, 000
Increase
3,117,352, 000
Member bank reserves:
Jan. 4, 1928
2, 486. 000. 000
July 27, 1927
2,282,000,000
Since April 11 there has been a great growth in loans, discounts and investments of reporting member banks without a proportionate increase in deposits,
and I hesitate to apply the customary ratio of increase for loans, discounts
and investments to the total figures for dates later than April 11.
20
There are 3 main types of investment trusts : (1) Where the trust issues securities
against a fixed body of investments; (2) where the management of the trust has a
limited discretion in changing its investments; and (3) where the management has
unlimited discretion. The importance of management varies, of course, in each of these
eases, but the need for the investor's study of the details of the set-up, as distinguished
from his study of management, increases as managerial discretion is reduced.

151

GOLD RESERVE ACT OF 19 3 4
APPENDIX

Changes in reserves July 27, 1927-May 2, 1928
[In thousands of dollars]
Member bank reserves:
July 27, 1927
May 2, 1928

2,282,000
2, 442, 000

CHANGES WHICH INCREASE MEMBER BANK RESERVES

Decrease in money in circulation 22 22
73,000
Increase in money outside Treasury
(other than gold, gold certificates, and Federal Reserve notes)
5,865
Increase in Federal Reserve bank
float
,
12, 348
Increase in total bills and securities of Federal Reserve banks:
1. Increase in rediscounts
2. Increase in open-market purchases:
a. Increase in bills purchased
b. Decrease in Government securities purchased
c. Decrease in other securities purchased

+358, 924
+193, 716
—92, 714
—310

Total

459,616

Grand total
Less

550, 829
365,120

Estimated 23 increase in member bank reserves
sActual increase in member bank reserves

185, 709
160, 000

CHANGES WHICH DECREASE MEMBER BANK RESERVES

Decrease in monetary gold stock 21

313, 000

Increase in Government, foreign hank, and other deposits

3, 971

Decrease in amount due Federal reserve banks from foreign banks

48,149

Total
365,120
Appendix C.—Data used in computing changes in member bank reserves
[In thousands of dollars]
J u l y 27,
1927

Monetary gold stock J
Money in circulation 2
Money outside the Treasury 2 other than
gold, gold certificates, Federal Reserve
notes and minor coin 3 . . _
__ __
Government, foreign bank, and other deposits with Federal Reserve banks
Federal Reserve bank float
Total bills and securities held by Federal
Reserve banks..
Total rediscounts
Bills purchased in open market
Government securities purchased.
.
Due from foreign banks to Federal Reserve
banks
__ _ _ . . .
Member bank reserves with Federal Reserve banks

N o v . 30,
1927

F e b . 1,
1927

F eb. 29,

4, 580,000
4, 781, 000

4, 451,000
4, 952, 000

4 373, 000
4 677, 000

4, 362,000
4, 690, 000

4 267, 000
4 708,000

1,854,006

1,860, 287

853, 099

1 859,000

47,990
44, 043

34, 607
54, 504

51, 090
35,000

51,661
56,391

953,831
398,130
169,385
385,016

1, 380, 515
477,025
354, 740
547,835

244, 929
1, 492, 568
343, 759
407, 602

1 413,447
757,054
363,101
292, 302

1928

850, 890
1

47, 229
47, 217

234,986
1 423,432
377,393
433,661

M a y 2,
1928

48, 719

566

568

567

570

2, 282, 028

2, 378, 563

2 404, 673

2, 374,515

2 441,860

End of month figures.
2 Estimated for July 27, 1927, and May 2, 1928.
3 "Minor coin" means nickel and copper coin. The amount changes slowly. Data for this item are
hard to obtain prior to 1928, and to make the figures comparable, it is ignored throughout.
21

22
23

July 3 1 , 1927, to Apr. 30, 1928.

Estimated for July 27 and May 2.

The discrepancy of $26,000,000 between estimated and actual reserves is largely due
to the fact that not all figures are of the same date at either end of the period. Large
gold exports are known to have taken place between Apr. 30. 1928, and May 6, 1928
($32,000,000), and a substantial part of the discrepancy might be removed if we had a
figure for gold monetary stock as of May 2.

152

GOLD RESERVE ACT OF 193 4
APPENDIX D.—Money rates at New York

Week ending

July 30, 1927
Aug. 20,1927
Oct. 15, 1927
Nov. 26, 1927
Jan. 7,1928—
Jan. 14, 1928
Jan. 28, 1928
Mar. 3, 1928 _
Apr. 28, 1928
May 5,1928
May 28,1928 i

Call loans

60-90 day
time loans

6-month
time loans

33^ at 4
SH at 3%~-4at4H
3H
4 at 53^
A at AH
V/z at AH—4M at AH-—
4% at 5
4J^at6
6at6M

AH at 4%....
3% at 4H-—
4 at 4K
4at4j|
AH at AH—
AH at A%....
A% at AH....
AH at AH—5
A7A at 5
h% at 5H- —

A% at AH—AH at AH....
AH at AH—
A\i at A\i „
AH at AH....
AM, at A%....
A% at AH
AH at A5/i
5
A7/i at 5
5H
---

New
York
Federal
Commercial Prime bank- Reers accepserve
paper, 4-6
tances, 90
Bank
months
days
rediscount
rate
Ant AH
4
4
4
SVi at 4
3% at 4
4
4
4H
AH
AH— - -

3H at
3H at
SH at
3tt at
3|4 at
3% at
3H at
3H at
3% at
3% at
AH

ZH....
3K-—
ZH-—
ZH—Z%.—
3H-—
3H-—
3H—4
4

4
ZH
3H
SH
3H
ZH

T
A
A

1 Figures for the day only.
CHASE ECONOMIC BULLETIN—BANK

EXPANSION VERSUS SAVINGS

By Benjamin M. Anderson, Jr., Ph.D., Economist of the Chase National Bank
of the City of New York
The bulletin which 'follows refutes the view that the recent great growth
in time deposits represents true savings. It is a study of the process by
which, in recent years, surplus reserves have generated an expansion of bank
credit in the United States. The study shows why the expansion has been
more rapid in time deposits than in demand deposits, and shows how tbe
bank expansion has increased the volume of money in investors' hands, without a corresponding growth in investors' savings.
HOW SURPLUS RESERVES GENERATE BANK EXPANSION

When the practical banker is told that, on the basis of a $100,000 of surplus
reserves in his assets, he may create a million dollars of new loans, on the
one hand, and a million dollars of new deposits, on the other, he is not impressed. He knows better. His experience has taught him that, under ordinary circumstances, an increase in loans promptly reflects itself in withdrawals of cash. Men do not borrow as a rule for the purpose of carrying
unused deposit balances with the bank which has made the loan, and the?
banker who increases his loans normally expects to lose cash in the warfare
of checks at the clearing house shortly thereafter.
Having an excess of $100,000 in reserves over his required reserve, the
banker will ordinarily lend $100,000, increasing his loans by $100,000 and increasing his deposits by $100,000 in the process, since the proceeds of the loan
are ordinarily taken by the borrower in the form of a deposit credit. If, as is
usual, the borrower promptly checks against his deposit balance to make payment to a depositor in another bank, the banker who has made the new
loan will find his deposits reduced and his cash reserves reduced by $100,000
the next day. His total assets and his total liabilities will be no bigger than
they were before the loan was made. But the composition of his assets will
be changed. His cash reserve will be reduced $100,000 and his loans will be
increased $100,000.
This is the normal expectation of the banker, and it is the only safe principle
on which he can proceed. It is the normal experience when the money market
is in equilibrium, when the total volume of bank reserves is changing little,
and when in the banking community generally there is no excess of reserves
over reserve requirements—some banks being a little under the required reserves, others being a little over the required* reserves, but the general average being approximately at the required reserves.
But obviously the situation is different if, on the same day, many banks
find themselves with excess reserves and all of them simultaneously try to

GOLD KESERVE ACT OF 1934

153

lend out the excess. Assume a clearing house with three bank members, all
approximately equal in size, and assume that each finds itself with $100,000
excess reserve, and that each increases its loans by $100,000 and its deposits
by $100,000 in trying to get rid of its excess reserve. Assume that the borrowers promptly use the proceeds of the loan in making payments, so that
a check for $100,000 is drawn on bank A and deposited in bank B, a check for
the same amount drawn on bank B and deposited in bank C, and a check for
$100,000 is drawn on bank C and is deposited in bank A.
Next day at the clearing house each bank has to meet, as a consequence of
its loan operations of the preceding day, checks drawn against it for $100,000.
But, on the other hand, each bank has checks on one of the other banks to
present for $100,000. As a consequence, no one of them loses any cash. Deposits are up $100,000 in each bank, loans are up $100,000 in each bank, and
reserves are still in excess in each bank.
Assume that they are New York City banks, and that the deposits created
by these operations are demand deposits, the surplus of reserves in each bank
is now cut by $13,000, and each has $87,000 surplus reserve (the percentage of
required reserve to demand deposits in New York City being 13 percent).
The banks must, therefore, try again. In accordance with usual practice,
each would make additional loans of $87,000, but, to simplify the arithmetic,
I shall assume that each makes another loan of $100,000, and that the same
operations of the clearing house are gone through with as before. Loans and
deposits in each bank are now up $200,000 each, and still no bank has lost
any of its reserves. Another $13,000 of reserves is tied up, however, by the
new deposits created, and the excess reserve remaining in each of the banks
is now $74,000.
This process will go on, on the assumption laid down, until new bank credit
is created in an amount such that the $100,000 excess reserve in each bank is
13 percent of the new deposits in each bank, or, in other words, until, on the
original $100,000 excess reserve in each bank new deposits of $769,230 have been
created, and new loans of equal amount have been created. Then there are
no longer excess reserves on the assumptions laid down.
We reach the same conclusions if we assume that banks B and C have adequate reserves and that bank A receives $300,000 excess reserve. Bank A lends
out $300,000 and increases its deposits by that amount. Next day, as a consequence of checks drawn against the newTly created deposits, $100,000 is
deposited in each of the three banks, bank A receiving its share of the checks
drawn against it. Next day at the clearing house, bank A loses $200,000 as a
consequence of the checks drawn on it and deposited with banks B and C.
Each bank now has $100,000 more reserves, and this is almost precisely
the position we started out with in the illustration first given, the difference
being that each bank already has the first $100,000 increase in deposits which
the new reserve made possible, and that banks B and C have no increase in
loans while bank A has a $300,000 increase in loans. From this position, in
accordance with the reasoning given above, the process of expansion will move
forward until the new reserves are full utilized.
USUAL CHECKS ON MULTIPLE EXPANSION SUSPENDED IN EECENT YEARS

The foregoing illustration is artificially simple. It ignores a good many
complications. But it does illustrate the essential causation at work in the
past few years in the American money market.
Among the complications ignored are the existence of outside markets which
would pull away reserves, not merely from bank A, but also from the whole
system of banks A, B, and C. The expansion takes place in New York City,
but part of the proceeds of the expansion are spent in Chicago or New Orleans
or San Francisco. In recent years, however, the increased bank reserves
have been diffused widely over the country, and the country as a whole has
expanded.
The illustration ignores further the fact that when increased loans are
made for commercial purposes, in connection with increasing commercial activity, there is usually an increased demand for hand-to-hand cash, which takes
cash out of the banks and pulls down their reserves, checking the expansion.
But the expansion in the United States in recent years has not involved
increased commercial borrowing and has involved no increase in the use of
hand-to-hand cash since 1923.

154

GOLD RESERVE ACT OF 193 4

The illustration ignores the possibility that bank expansion in the United
States, leading to an increase in loans to foreign countries, would cause foreign,
money markets to pull away gold from the United States, which would tend
to cut under the volume of bank reserves in the United States as a whole and
check the expansion before it could go as far as the illustration assumes. To
some extent, this has happened, but has been offset by other factors, notably by
increases in Federal Reserve bank credit, and 1
only very recently has it assumed
proportions which seem likely to be effective.
The illustration given above assumes, moreover, that the only factor governing the volume of loans that banks will make is the volume of reserves available. But there have been times in the history of the country, notably in the
seventies and in the middle nineties, when reserves piled up without being used>
either because the banks could not find satisfactory credits, or because good
borrowers would not take loans, even at low rates, or because many banks felt
obliged to carry reserves high above the legal requirements in view of dangers
and uncertainties. For the New York Clearing House banks, the average
reserve for the year stood in 1894 at 37.59 percent of deposits, although the legal
requirement was only 25 percent. The figure stood at 45.2 percent in February
of 1894. The average for the year for the whole of the United States was 26
percent in 1894, although the legal requirement was far below this. The same
average for the year was 15 percent in 1906.2 Reserves can be fully utilized
in times of buoyant general confidence where they could not be in times of
depression and pessimism. But the past few years have been times when banks
have been confident in lending, and borrowers (other than commercial borrowers) have been confident in borrowing.
MULTIPLE EXPANSION AND FEDERAL KESERVE BANK CREDIT

The proposition that, on the basis of a given volume of excess reserves, the
banks may, under varying conditions, erect an additional fabric of general bank
credit, 2, 10, or 19 times as great as the surplus reserves, is not to be confused
with the proposition that, on the basis of an expansion of a given amount in
Federal Reserve bank credit, the banks will automatically erect an additional
fabric of general bank credit in some fixed ratio. This latter proposition was
set forth in 1920-21, at which time it was contended that the commercial banks
had built a fabric of $9 for every dollar of Federal Reserve bank expansion,
and that in the liquidation which was to follow, the banks would have to contract general bank credit by approximately $9 for every dollar that Federal
Reserve bank credit contracted.
The facts were, however, that in the expansion which took place from the
time we entered the war in April 1917, until June 30, 1918, commercial bank
deposits expanded in a less than 1-to-l ratio with Federal Reserve bank expansion and, that by June 30 of 1919 the deposits of the commercial banks had
expanded only $2.80 for every dollar of Federal Reserve bank expansion. By
the end of June 1920, the ratio had gone to $3.20 of increase in commercial
bank deposits to $1 of increase in Federal Reserve bank credit. Finally, in
the liquidation which followed, there was a very moderate percentage decline
in general bank credit accompanying an immense percentage decline in Federal
Reserve bank credit.3
The period 1917-21 represents a very sharp contrast to the period since 1922.
Federal Reserve bank expansion, 1917-21, was a response to war needs and to
a post-war commercial boom and crisis. This expansion was accompanied by a
rapid increase in money in circulation and, during the latter half of 1919 and
much of 1920, by the withdrawal of large sums of gold for shipment abroad.
The liquidation of 1921 was accompanied by the return of large sums of money
from circulation and by the import of large sums of gold from abroad. The
Federal Reserve banks fed out the cash needed for increased circulation and
the gold needed for export, and the Federal Reserve banks reabsorbed the cash
returned from circulation and the gold that came back from foreign countries.
1
In the Chase Economic Bulletin, vol. VII, no. 4, we have discussed the unusual
world situation which not only protected our gold, but actually increased it, while our
expansion proceeded.
2
Vide the preesnt writer's Value of Money, pp. 178-79.
s
See Chase Economic Bulletin, vol. I, no. 5, pp. 20-27. This discussion is reproduced
in Hepburn's A History of Currency in the United States, 1924 edition, final chapter, and
the Commercial and Financial Chronicle, July 23, 1921, pp. 349-354. See also Chase
Economic Bulletin, vol. VI, no. 3. pp. 11-15.

GOLD RESERVE ACT OF 19 3 4

155

In large measure the member banks were intermediaries between the public
and the Federal Reserve banks in handling the exported or imported gold and
in handling the money for circulation. During the expansion, although their
reserves increased, they rarely had surplus reserves, because the public and
foreign countries were constantly draining them of gold and other forms of
cash. During the liquidation it was not necessary for them to contract credit
violently in order to pay off their debts at the Federal Reserve banks, since
the return of cash from circulation and the reimported gold gave them the
necessary resources.
In a large way it may be said that the basic theory of the Federal Reserve
System is that it would function primarily in much this way. The typical
case anticipated was the autumn,, the crop-moving season. At this time a very
substantial Federal Reserve bank expansion can take place without generating
any commercial bank expansion at all, because of the autumn need for handto-hand cash.
If Federal Reserve bank expansion takes place only in response to increased
needs for money in circulation or in response to gold exports, and if Federal
Reserve bank credit contracts promptly when money returning from circulation and gold imports enable the member banks to pay off their rediscounts,
the expansion and contraction of Federal Reserve credit need occasion no
general expansion or contraction of commercial bank credit at all. The
Federal Reserve banks, in that case, are merely preventing tension and taking
in slack.
If, second, Federal Reserve bank expansion takes place in response to
commercial bank expansion, following and not preceding the expansion of
loans and deposits which commercial banks make in meeting the demands of
their customers, again Federal Reserve bank credit is not an active cause of
commercial bank expansion. Nor is Federal Reserve bank credit an active
cause of contraction, if it waits to contract until commercial bank credit
contracts and the commercial banks reduce their rediscounts.
It is commonly only when the Federal Reserve banks take the initiative,
especially through their purchases of Government securities, in creating Federal Reserve bank credit that surplus reserves are created thereby, and that
the multiple expansion, based on Federal Reserve credit, can take place. It
is to be observed, however, that during March and April of the current year,
with Federal Reserve bank rediscount rates held below the market and with
the speculative fever strong, surplus reserves appear to have been created,
permitting a sharp bank expansion, through member banks' borrowing to
relend at a profit, instead of borrowing only to replenish their reserves. If
the traditional rule of central banking, that of holding rediscount rates above
the market, were followedr this situation could hardly arise.
PROGRESSIVE REDUCTION OF RESERVE REQUIREMENTS

In another highly important particular, however, the foregoing illustration
ignores a remarkable development in recent years which has made possible
a much faster multiplication of bank credit on the basis of a given volume
of excess reserves than the foregoing figures exhibit. Our figures assume a 13
percent reserve requirement for demand deposits and assume that the whole
expansion is in demand deposits. But the 13 percent requirement for reserves
against demand deposits holds only for New York City and Chicago. In other
reserve cities the requirement is only 10 percent, and in banks outside the
reserve cities the requirement is only 7 percent. For time deposits throughout
the country the requirement is only 3 percent. Under these circumstances,
to the extent that the expansion takes place outside New York and Chicago,
and to the extent that the expansion takes place in time rather than in demand
deposits, it can move far more rapidly than our illustration indicates. Now,
the expansion has in fact been country-wide. And the expansion has been far
more in time deposits than in demand deposits.
For all the national banks of the United States, net demand deposits have
increased from $10,348,000,000 on March 31, 1924 to $12,177,000,000 on February
28, 1928, an increase in 4 years of 17.7 percent, whereas time deposits
between the same dates increased from $5,109,000,000 to $7,992,000,000, an
increase of 56.4 percent. The following figures show the relations of net
demand deposits and time deposits for the reporting member banks of the
Federal Reserve System on different dates.

156

GOLD RESERVE ACT OF 1 9 3 4

Reporting member banks
Net demand
deposits

Date

Apr.
Apr.
Apr.
Apr.
Apr.
Apr.
Apr.
Apr.

1, 1921
5, 1922
4, 1923
2, 1924
1, 1925 „
7, 1926
6, 1927
25, 1928

$10,271,000,000
10,456,000,000
11,212,000,000
11,246,000,000
12, 756,000,000
12, 761, 000,000
13,042, 000,000
12, 742, 000,000

Actual
reserve
Time deposits percentage
$2,925,000,000
3,121,000,000
3,959,000,000
4,230,000,000
5,053,000,000
5, 516, 000, 000
6,012, 000,000
6,878, 000, 000

9.57

8.75

From April 1, 1921 to April 25, 1928, 7 years, the increase in net demand
deposits of the reporting member banks has been $3,471,000,000, or, roughly,
33.8 percent, while the increase in their time deposits has been $3,853,000,000,
or 135.1 percent. For the reporting member banks of the city of New York,
the figures are as follows:
Reporting member banks—Neiv York City
Net demand
deposits

Apr.
Apr.
Apr.
Apr.
Apr.
Apr.
Apr.
Apr.

15, 1921
12, 1922
11, 1923
16, 1924 _
15, 1925
14, 1926
13, 1927
18, 1928

Time deposits

Required
reserve
percentag

$4,118,000,000
4, 308, 000,000
4, 230,000, 000
4, 369, 000,000
4,980, 000,000
5, 001,000,000
5,036,000,000
5, 626,000,000

Date

$290,000,000
353,000,000
627,000,000
650,000,000
816,000,000
814,000, 000
960,000,000
1,117,000,000

12.34
12.24
11.71
11.70
11.59
11.60
11.40
11.34

The comparative growth of time deposits in New York City is particularly
striking, and the reduction in the ratio of required reserves to deposits is
impressive.
Even more rapid is the decline in the reserve ratio for the national banks
of the country as a whole as a consequence of this development. The ratio of
required reserves to deposits is shown by the following table:
All national

banks—required reserve

percentage

Percent

May 5, 1922
April 6, 1925

7. 87
7. 39

Percent

April 12, 1926
February 28, 1928

7. 31
7. 05

It is difficult to estimate the legal reserve requirements for all the commercial banks of the country. The table on next page gives the actual rather
than the required reserve percentages. The member banks of the Federal
Reserve System, though less than half in number of all the commercial banks
of the country, hold over three fourths of the total deposits of all the commercial banks of the country. The nonmember commercial banks, moreover,
are linked closely with the Federal Reserve System through the fact that they
carry the greater part of their reserves in the form; of deposit balances with
the member banks. Part of their reserves they carry in cash in their own
vaults also. The table on next page, therefore, comparing the deposits of
all the commercial banks with the reserve balances of the member banks,
though misleading if it were interpreted as stating the total reserves of all
the commercial banks, or the complete reserve percentage of all the commercial banks, still has real significance. Through the member bank reserves the
nonmember banks feel the expansion or contraction of Federal Reserve bank
credit, and the influence of increasing or decreasing gold supply. From mem-

157

GOLD RESERVE ACT OF 1934

ber bank reserves they draw hand-to-hand cash needed for expanding trade,
and to the same place they return excessive cash as trade needs4 decline. The
reserves of the member banks are the heart of the money market.
All State and 'National banks and trust

Date

June 30, 1922
June 30, 1923
June 30, 1924
June 30, 1925
June 30, 1926
June 30, 1927
April 11, 1928
1

companies

Actual
percentage
Member bank member
reserve balances bank reTotal deposits with the Fed- serve baleral Reserve ances to all
banks1
commercial
bank deposits
$30, 690, 000, 000
32, 726, 000, 000
35, 326,000,000
38, 539, 000,000
40,126, 000,000
41, 587, 000, 000
44, 234, 000, 000

$1,865,000,000
1,868,000,000
2,016,000, 000
2,199, 000,000
2, 229,000, 000
2,342,000,000
2,432, 000,000

6.08
5.71
5.71
5.71
5.56
5.63
5.50

See appendix A.

HOW SURPLUS RESERVES AND BANK EXPANSION GENERATE TIME DEPOSITS RATHER
THAN DEMAND DEPOSITS

The foregoing figures make it clear that our great* bank expansion of recent
years has been primarily in time rather than in demand deposits. Both absolutely and relatively the great increase appears to have been in this form.
Why should this be?
It would not have been if, accompanying the immense bank expansion, there
had been a corresponding increase in the demands of trade and if the bank
expansion had been called forth by trade needs instead of being pushed out
by excessive reserves. But, as seen above, there would have been no such
great bank expansion, even with the growing reserves, had the bank expansion
been accompanied by growing trade needs, since there would also have been
increased need for hand-to-hand cash, which would have cut under the bank
reserves. But business men and most other people tend to be economical in
the use of money. They do not carry pocket cash or till money in great excess
of their needs. Instead they deposit it in the banks, getting a small percent
of interest on their checking accounts or, even if no interest is paid, building
up good will and a " borrowing equity " with the bank which they may need
at a later time. Similarly, they do not carry demand deposits with the
bank at 1% percent interest in great excess of their needs when they can get
a higher percent on time deposits. More cash in till and in pocket, and larger
demand deposits will be used when money is easy than when money is tight,
but the saturation point is much more easily reached in these uses than in
the case of time deposits.
The fact, therefore, that an immense expansion of bank credit has taken
place, unneeded by commerce and industry, has made it inevitable that a high
percentage of this increase would take the form of time deposits rather than
demand deposits. But this, as we have seen, has tended to reduce the reserve
ratios required for a given volume of deposits, and so has permitted the expansion to go much further than would otherwise have been the case. There has
been thus something of a vicious spiral, expansion paving the way for more
expansion, and monetary ease begetting further monetary ease.
In this connection, it may be observed that a reverse process of a cumulative
sort can take place with a tightening of money. With a tightening in the
money market, and increased need for demand deposits, there would be a
tendency to shift part of the time deposits to the demand form. One of the first
evidences of quickening trade, for example, encountered by a bank in a large
city is a request by great business corporations that the bank convert some of
4

See Chase Economic Bulletin, vol. VIII, no. 2, pp. 4-6.
46217—34
11

158

GOLD EESERVE ACT OF 193 4

their time deposits into demand deposits, so that they may use them. The immediate tendency of this is to tighten the money market through increasing the
reserve requirements. Money could tighten sharply without any increase in
loans and without any decrease in reserves, merely by a shifting of deposits
from the time form to the demand form.
TIME DEPOSITS AND SAVINGS

There are those who have looked with complacency upon the immense expansion of bank credit which has taken place, precisely because of this comparative
growth of time deposits as compared with demand deposits. They have held
that the time deposits represented savings rather than bank expansion. It is
doubtless true that, in large measure, time deposits in banks in smaller 5places
are true savings deposits and, to some extent, this is true in city banks. But
the greater part of time deposits in great cities are of a different character.
They represent the temporarily idle funds of business corporations, or the liquid
foreign reserves of foreign banks, or the temporary idle funds of rich investors
who have withdrawn from the market and are awaiting a favorable time to
reenter it. They are very different in character from the thrift accounts and
savings accounts of workingmen and others who gradually accumulate savings
out of their incomes. Some important corporations have placed substantial time
deposits in smaller places, also, for the sake of the higher interest paid there.
Most of the growth of the time deposits of city banks is a product of bank expansion rather than of saving.
In this connection, it may be observed that the most rapid growth of time
deposits in recent years has been in city banks. For the national banks this is
made strikingly evident in" the following table.
[In millions of dollars]
Banks in central reserve cities
Date

M a y 5, 1922
F e b . 28, 1928

Banks in other reserve
cities

Banks outside reserve
cities

Net demand deposits

Time deposits

Net demand deposits

Time deposits

Net demand deposits

3,112
3,394

227
636

3,014
4,210

736
2,398

3,805
4,574

Time deposits
2,955
4,959

The evidence is impressive. Time deposits outside the reserve cities have
increased about 68 percent. Time deposits in the central reserve cities have
increased more than 180 percent, and time deposits in other reserve cities
have increased more than 225 percent. A similar story is told when we examine
the figures for the reporting member banks of the Federal Reserve System,
contrasting the agricultural districts with the great city districts.
Reporting member banks
[In millions of dollars]
Atlanta district
Date

Apr. 12, 1922
Apr. 25, 1928

Kansas City
district

New York
district

Chicago district

Net de- Time Net de- Time Net de- Time Net de- Time
mand
mand
mand
mand
deposits deposits deposits deposits deposits deposits deposits deposits
236
331

145
239

400
500

106
178

4,793
6,175

544
1,673

1,327
1,832

657
1,264

The percentage growth of time deposits in the Atlanta district is 64.8
percent, in the Kansas City district is 67.9 percent, in the New York district
is 207.5 percent, and in the Chicago district is 92.4 percent.
But, second, the great growth of time deposits has been in the periods of
monetary ease and rapid bank expansion, and not in the periods of relatively
5
Cleveland and Los Angeles, especially, would probably show a high percentage of
real savings in their time deposits.

GOLD EESEEVE ACT OF

159

1934

firmer money and retarded bank expansion. The year 1922 was a year of
rapid expansion. The Federal Reserve banks increased their open market
purchases, gold came in, and deposits moved rapidly. From January 4, 1922,
to January 3, 1923, the time deposits of the reporting member banks increased
from $3,011,000,000 to $3,748,000,000, or 24.5 percent. The year 1923 was one
in which the Federal Reserve banks reversed their policy and offset the incoming gold by reducing their open market purchases and raising their rates
of rediscount. The time deposits of the reporting member banks in this year
rose from the $3,748,000,000 of January 3, 1923, to $4,104,000,000, or 9.5 percent,
by January 2 of 1924. The year 1924 was one of very great Federal Reserve
bank expansion, great ease of money, and very rapid bank expansion. Time
deposits moved up in this year from $4,104,000,000 on January 2 to $4,849,000,000 on January 7 of 1925, or 18.2 percent.
The case is even more striking when we observe the behavior of time
deposits in certain of the major cities. From April 12, 1922, to April 11, 1923,
time deposits in New York City moved up from $353,000,000 to $627,000,000, or
77.6 percent. In the following year, the period of restricted credit, the same
time deposits moved up only from $627,000,000 to $649,000,000, or 3.5 percent
(by April 16, 1924). In the following year, coming down in April 15, 1925.
a period of great monetary ease, time deposits moved up to $816,000,000, or
25.7 percent, whereas in the next year to April 14, 1926, there was an actual
decrease of $2,000,000, the 1926 figure being $814,000,000.
A similar story can be told for Chicago. From April 5, 1922, to April 11,
1923, time deposits increased fom $311,000,000 to $372,000,000, but from April
11, 1923, to April 16, 1924, they increased only $1,000,000, to $373,000,000.
This high variability in the growth of time deposits is very different from the
steady growth which characterizes the figures of the savings banks.
Again, the growth of time deposits has been very much more rapid than the
growth of savings deposits, as shown by the following figures for the mutual
savings banks, on the one hand, and the time deposits of the reporting member
banks and national banks, on the other hand.
Comparative growth of savings deposits and time deposits
[In millions of dollars]
Deposits
of all
mutual
savings
banks

Date

June 30, 1922
June 30, 1923
June 30, 1924
June 30, 1925
June 30, 1926
June 30, 1927
Jan. 1, 1928
Percent increase over 1922

Time
Time
deposits of deposits of
Time
deposits of reporting
all remember
national
porting
banks in
banks
New York member
banks*
district 1

5,780
6,289
6,693
7,147
7,578
8,077
2 8,315

4,112
4,755
5,260
5,925
6,314
7,316
3 7,808

43.9

89.9

l Figures for reporting member banks are for dates nearest June 30.
s Dec. 31, 1927.

666
901
972
1,174
1,263
1,472
1,622

3,380
4,000
4,418
5,172
5,650
6,212
6,611

143.5

95.6

2 Estimated,

INVESTORS' MONEY AND BANK EXPANSION

The foregoing considerations raise the larger question of the extent of investor's savings as compared with bank expansion in the study of funds in the
money marekt. Bond dealers and others actually in the capital market have
been reporting an immense volume of investor's demand. They recognize
that the banks have been buying investments, too, and they recognize that a
great volume of securities purchased is carried with borrowed bank money,
because the growing figures for broker's loans and the growing figures for
bank loans against stock and bond collateral have convinced them of the fact.
But they none the less insist that there has been an immense volume of money
coming from true investors, and they are disposed to characterize all this
as savings.
The facts are as they state them. There has been a great volume of buying
by investors and a great volume of free money in investors' hands, and this
has been true for several years. But the conclusion which they would draw

160

GOLD RESERVE ACT OF 193 4

seems to me not to follow. If an investor in farm mortgages has a mortgage
paid off because a joint-stock land bank has borrowed money in New York
with which to lend to the farmer who gave the mortgage, this puts real money
into the hands of the investor. But' when he comes to New York to buy a
bond, in order to use his money thus freed, he is merely reinvesting displaced
capital and not investing new savings.
When a real-estate owner sells for $50,000 a piece of real estate, for which
seven years earlier he paid $25,000, turning into cash the increase in the
value of his land which the cheap money period has brought about, he has
real money to invest, but it does not represent ordinary savings. When
speculative profits in securities, which have risen because of the great excess
of bank money, are turned into cash, and the successful speculator proceeds
to invest the cash in bonds, he again has real money to invest—but not ordinary savings. The original fountain and source of this investor's money coming back to the money market is the money previously created by bank
expansion in the money market. The frequent shifting of holdings, the displacement of holdings, and the profits from appreciation of holdings, all give
rise to large sums for investment and reinvestment, but they are phenomena
growing out of bank expansion, and not phenomena growing out of ordinary
savings.
Similarly with the investments of business corporations in securities and
with the employment of funds of business corporations in call loans or in
growing deposits in banks. To some extent these do grow out of real corporate savings, the turning back of profits to surplus. But in large part they
grow out of the fact that in the period of easy money a great multitude of
business corporations have issued securities for permanent financing, which
has not only freed them from the necessity of borrowing from the banks,
but has also given them, especially in dull seasons, surplus funds for use in
these ways. From the bond dealers' point of view, this money is just as good
as any other, but it must not be placed in the category of savings.
Indeed even the figures of the savings banks themselves must have been
appreciably swollen by this shifting of funds. # Small investors, seeing their
good securities rise to very high levels, have sold them to take profits, and, not
knowing what else to do with their mone, have put it in the savings bank—a
process 6 of reinvesting old savings rather than the initial investment of new
savings.
BROKERS' LOANS AND BANK RESERVES

An important development permitting the expansion of brokers' loans in New
York City to go further than would otherwise have been possible, because
freeing reserves as it has gone on, has been the increased participation, (a) by
out-of-town banks, and (b) by business corporations and others, in the New
York brokers' loan market. If a business corporation decides to convert part
of its deposits into brokers' loans, it will ordinarily displace an existing loan
by a New York bank. The simplest case would be that where the corporation,
acting through a bank, takes over a loan held by the bank in which it keeps
its deposit. In this case, three changes take place in the bank's figures: (1)
deposits are reduced, (2) loans are reduced, (3) reserves, formerly just adequate, now become more than adequate. Reserve money amounting to 13
percent of the deposit is set free when a demand deposit of a corporation in a
New York bank is converted into a broker's loan. The same result is reached,
however, if the bank, assuming its reserve just adequate, first loans for the
corporation on the floor of the Stock Exchange, debiting the corporation's
deposit in the process, and then calls a loan of its own in order to meet the
expected withdrawal of cash through the clearing house next day.
With somewhat less certainty, we may say the same thing for the increased
participation of out-of-town banks in the brokers' loan market. To the extent
that they draw down their New York balances in the process of making call
loans and take over loans from the New York banks, they release bank
reserves in New York, which tends to permit further expansion of bank
credit. If they send in new funds from outside for lending on call, this
conclusion does not follow, but even in that case they may be drawing down
balances with correspondent banks in other cities, forcing them to call loans,
p
Savings bank men have expressed the opinion that in recent weeks a reserve phenomenon has manifested itself; namely, the taking out of the savings banks of funds with
which to speculate in the stock market. But those who express this view characterize
it as a new development little known prior to 1928.

161

GOLD RESERVE ACT OF 193 4

and leaving them with surplus reserves as a consequence. Both these things
have gone on, on a considerable scale, in recent months, as shown by the
following figures:
Brokers' loans made by or through New York City banks *
[In millions of dollars]

Total

Date

For own For account For account
of out-ofaccount town banks of others

3,810
4,144
4,563

Jan. 4, 1928 .
Apr. 25, 1928
June 6, 1928
__

1,511
1,200
1,167

928
1,330
1,755

1,371
1,614
1,642

i As reported by Federal Reserve authorities.

The present bulletin, though a self-contained study, may also be looked upon
as supplementing the Chase Economic Bulletin, volume VIII, no. 1, June 4,
1928, called "An Analysis of the Money Market."
APPENDIX

EXPLANATION OF GROWTH IN RESERVES OF MEMBER BANKS OF FEDERAL RESERVE
SYSTEM, 192 2-2 8

The detailed explanation of the items entering into this table is contained
in the Chase Economic Bulletin, volume VIII, no. 1, "An Analysis of the
Money Market", pages 6-11.
June 28, 1922-May 2, 1928
[In thousands of dollars]

Member bank reserves, June 28, 1922
Member bank reserves, May 2, 1928

$1,865,199
2, 441, 860

Changes which increase member bank reserves
Increase in monetary gold stock 8
Increase in amount due Federal Reserve banks from foreign banks
Increase in Federal Reserve bank
float
Increase in money outside Treasury (other than gold, gold certificates
7
and Federal Reserve notes)
Decrease in Government, foreign bank, and other deposits in Federal
Reserve banks 9
Increase in total bills and securities of Federal Reserve banks:
1. Increase in rediscounts
+287, 953
2. Decrease in open market purchases:
a. Increase in bills purchased
+209, 041
b. Decrease in Government securities purchased
—264, 305
c. Increase in other securities purchased
+990

482,000
570
20, 745
68,000
22, 416

233,679
827,410
245, 000

Estimated increase in member bank reserves
Actual increase in member bank reserves
Changes which decrease member bank reserves
Increase in money in circulation 7
7
8
9

582, 410
576,661
245, 000

June 30, 1922-May 2, 1928. Estimated for May 2, 1928.
June 30, 1922-Apr. 30. 1928.
Prior to 1923, part of the cash of the Federal Reserve banks, i.e., national-bank notes,
Federal Reserve frank notes, unassorted currency, and nickels and cents, was included in
the figure for " Uncollected items ", from which we subtract " Deferred availability items "
in computing the Federal Reserve bank float. In order to make the float of June 28, 1922,
comparable with the float of May 2, 1928, in our calculation, it was necessary to deduct
these cash items from " Uncollected items " in 1922.

162

GOLD KESERVE ACT OF 19 3 4

APPENDIX B.—Bank credit and gold, all commercial banks
[In millions of dollars]

Percentage
of monetary gold
Total destock to
posits of
all State Monetary- total de- Total gold
reserves
and na- gold stock posits of
all State of Federal
tional
of the
Reserve
and nabanks and United
banks
tional
trust comStates
banks and
panies
trust companies
June
June
June
June
June
June
Apr.

30, 1922
30, 1923
30, 1924
30, 1925 .
30, 1926
30, 1927
11, 1928

. .
._

30,690
32, 726
35, 326
38, 539
40,126
41,587
1 44, 234

3,785
4,050
4,488
4,365
4,447
4,587
» 4, 305

12.33
12.38
12.70
11.33
11.08
11.03
9.73

3,022
3,095
3,128
2,790
2,835
3,021

2,749

Percentage
of gold

reserves of
Federal Reserve banks
to deposits
of all State
and national
banks and
trust companies

9.85
9.46
8.85
7.24
7.07
7.26
6.21

Estimated on basis of reporting member bank figures.
2 As of Mar. 31, 1928.
THE EXCHANGE EQUALIZATION ACCOUNT

As considerable doubt seems to exist both at home and abroad as to the
nature of functions of the exchange equalization account, we have thought it
desirable to give a brief explanation of its operations. When the gold standard
was suspended in September 1931, it at once became apparent that sterling
was in danger of wide fluctuations, due not so much to trade influences, as
to sudden movements of capital, psychological hopes and fears, and speculative
operations. In the long run, these would tend to even out, but in the short run
they could cause serious disturbances to our foreign trade.
The first example of this occurred in the spring of 1931, when a general
recovery of confidence in Great Britain stimulated a heavy demand for sterling.
In a sense this was the back-wash of the loss of confidence the previous autumn
which ended in driving us off the gold standard, but there was no guarantee of
its permanence, and so it was thought desirable to resist the rise in the value
of sterling which it brought about. The only method of resistance lay in official
purchases of the foreign currencies thrown on the London exchange market,
and this duty was assumed by the Bank of England. There was, however, a
limit to the resources which the bank could legitimately invest in foreign exchange holdings, while it was hardly fair to ask the bank to assume the risk
of heavy loss which these operations in a fluctuating exchange market entailed.
These operations were being undertaken in the public interest, and it was only
right that they should be conducted with public funds.
The exchange equilization account was, therefore, created on July 1, 1932, by
the Finance Act of that year. It was originally a Government fund with a limit
of £150 millions plus the balance of the old dollar exchange reserve amounting to £25 millions, but is being extended by £200 millions by a bill now passing through Parliament. When constituted, its assets consisted partly of
Treasury bills and partly of an advance by it to the exchequer, the latter
item representing the difference between the legal size of the account and
the working capital it actually needed. Those operating the account were
entitled to hold its assets in the form of gold, sterling or foreign exchange,
as seemed desirable, and to exchange from one into the other at will. In
plain language, the creation of the fund gave the Government power to buy
and sell foreign exchange within a limit of £175 millions.
The first action of the exchange account was to take over from the bank the
large holdings of foreign exchange which it had acquired, giving to the bank
Government securities (presumably Treasury bills) in exchange. This relieved
the bank of the liability it had previously incurred and also gave the account a
substantial foreign exchange reserve. Henceforward it proceeded to operate in
foreign exchange, mainly dollars and francs, in such a way as to smooth out
fluctuations and to make speculation in sterling a highly dangerous proceeding.
In general, it bought sterling last autumn when the pound was falling, and

GOLD RESERVE ACT OF 19 3 4

163

sold sterling heavily early this year, but it was always liable to turn round
without warning, and its operations were deliberately made incalculable from
one minute to the next. Thus speculators in sterling never knew where they
stood, and very often the knowledge that the control operating the exchange
account could intervene was a sufficient deterrent without intervention being
necessary.
The main points of interest are what was the influence of this new experiment upon the different phases of our financial life. Take, first, the state of
the floating debt. When the account first came into existence there was an
immediate increase of £150,000,000 in the floating debt. Initially this was a
purely bookkeeping operation, but as and when the account began to sell
treasury bills for other assets, these treasury bills passed into general circulation, and thus made the increase in the floating debt effective. The real test
is what amount of assets other than Government securities does the exchange
account hold at any given moment? The answer to this question gives the
effective increase in the floating debt at that particular moment.
Next comes the effect of the account's operations upon the general credit
structure of the country. It may be said at once that the account does not
hold idle cash assets in the form of a deposit at the bank, for this would be
contrary to the general financial practice of the treasury, which never immobilizes funds. Such balances would at once be surrendered to the treasury
as an advance from a public department, and this would enable the treasury to
retire bills from general circulation. But what happens when the account buys
or sells foreign exchange? To answer this question, let us consider the effect
of a purchase, for a sale would have the converse result.
Before a purchase is necessary, funds must have been transferred to a London
bank from abroad, so as to cause the appreciation of sterling which the purchase
is designed to offset. Thus the London bank has by hypothesis acquired foreign
exchange and has credited its customer's sterling deposit. The account then
buys the foreign exchange from the London bank, and to put itself in funds to
pay for the exchange probably sells treasury bills to the Bank of England, who
act as its bankers. The exchange is paid for by a check on the Bank of England in favor of the vendor bank. Thus in this particular case the net result
is an increase in the bank's holdings of Government securities, offset by an
increase in bankers' deposits at the bank, which are part of the banks' cash.
Whether the treasury or the bank later take steps to neutralize this increase is
another matter. What can be said with some assurance is that each purchase
of foreign exchange by the account has a mildly inflationary effect upon bank
cash and credit. A sale has the contrary effect.
The next question is the influence of the account's operations upon the exchanges. Taking the short view, its operations succeed in their intention of
smoothing out fluctuations, but in the long run different consequences may follow.
There is a definite limit, set by the size of the account, to the extent of its operations, and if there is a sustained pressure upon the exchanges, in the end the
account may have to give way. Thus last October seasonal and other causes
led to such a sustained pressure against the pound, and after supporting sterling
for several weeks, in the end the account let go. A sudden collapse in sterling
followed, which for a time caused a considerable disturbance and gave scope for
speculation. It is arguable that it is not the function of the account to resist
major movements, but merely to smooth out minor fluctuations, but it is important to realize that there are certain limitations to the powers of the account.
When the American panic, however, stimulated a major movement in favor
of sterling the control had a reserve weapon at its disposal. This consisted
of selling its foreign exchange acquisitions for gold, which it resold to the
Bank of England in exchange for sterling assets. This, in effect, turned the
account into a channel through which foreign purchases of sterling were offset
by the importation of gold, which went into the bank, just as if we were still on
the gold standard. It also meant that the operations of the account need no
longer be confined within a limit of £175 millions. Incidentally it saved the
Government from finding itself in the somewhat delicate position of holding
in an official fund large quantities of foreign exchange, operations in which
might affect the equilibrium of foreign money markets.
The terms upon which the bank buys or sells gold are defined in the 1932
Finance Act. The bank deals in gold at the current market price, but values
its gold at par. Therefore, so long as the price of gold remains above par,
every purchase involves the bank in a loss and every sale realizes a profit.

164

GOLD RESERVE ACT OF 193 4

By the terms of the Finance Act, these losses are made good by the exchange
account, which also receives the profits. The same rule applies to foreignexchange operations by the bank. It follows that when the exchange account
buys gold which it resells to the bank it incurs a net loss on each transaction.
In time such losses would absorb the funds held by the account, so that there
is a definite if remote limit upon its power to act as a channel for the importation of gold. This may be one reason why power is now being taken to
increase the size of the account.
It may be added that whereas last autumn the account only had a limited
amount of foreign exchange at its disposal, today it also has virtually at its
command all the gold wThich it has lately sold to the bank, for it can obviously
act as a channel in the reverse direction, whereby an efflux of funds from the
country can be covered by the exportation of gold now held by the bank.
The fact that the bank has lately allowed the fiduciary note issue to relapse
to £260 millions is immaterial, for if the account begins to take gold from the
bank for resale abroad the fiduciary limit can be raised again. It is true that
the bank is not bound to part with its gold, but it is common knowledge that
close cooperation exists between the bank and those operating the account.
The considerations outlined in this paragraph will probably have an important
bearing upon the future operations of the account.
Meanwhile there has for some time been an impression abroad that the
account was being operated in a way prejudicial to foreign interests, and it was
even suggested that the refusal last January and February of the British
authorities to allow the pound to rise was one of the causes of the accentuation of the American crisis. It is to be hoped that the above description of
the workings of the account will already have dispelled such misconceptions,
for it must be emphasized that our real object has been to keep the pound
steady, which is quite different from keeping it down. In fact, last autumn
the account had to support sterling. It may be that the level at which the
pound was held last winter was determined partly by our own interests, but
it may equally be said that had the dollar been allowed to fall freely against
sterling the efflux of capital from New York and subversive speculative operations in dollars would have been greatly magnified. To that extent we may
claim to have delayed and mitigated the American crisis of early March.
On the wider question of the relative level of the pound and the dollar,
more recent events have shown that the remedy lies partly in American
hands, for by reimposing the gold embargo President Roosevelt in 1 week
drove the pound up from $3.41 to $3.85, or by 13 percent. Nor was the
exchange account in a position to resist such a movement, and in point of
fact no attempt at resistance was made. Furthermore, the suspension of the
gold standard in the United States alters the whole field of the British exchange account's operations, especially if the United States Government sets
up a similar exchange fund of its own. In fact, close cooperation between
the authorities of the two nations will be imperative if chaos is to be avoided,
for nothing could be more disastrous than for the exchange accounts of the
two nations to pull against each other. This, however, raises wide questions
of policy which are beyond the scope of this article.

THE GOLD KESEEVE ACT OF 1934
SATURDAY,, JANUARY 20, 1934
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington1, D.C.
The committee met at 10 a.m., pursuant to adjournment on yesterday, in room no. 301 of the Senate Office Building, Senator Duncan
U. Fletcher presiding.
Present: Senators Fletcher (chairman), Glass, Wagner, Barkley,
Bulkley, Gore, Reynolds, Byrnes, McAdoo, Adams, Goldsborough,
Townsend, Walcott, Carey, Couzens, Steiwer, and Kean.
The CHAIRMAN. The committee will come to order. We will now
endeavor to proceed with the hearings as rapidly as possible, for it is
important that we conclude them at the earliest possible moment.
Senator WALCOTT. Well, Mr. Chairman, I have a number of requests from persons who wish to be heard, and
The CHAIRMAN (interposing). I also have a large number of requests from people, in the shape of telegrams and letters, from all
parts of the country, stating that they want to be heard on this
measure, but we would be here all summer if we were to attempt to
let everybody come before the committee who has something to say,
or at least thinks he has something to say.
Senator BARKLEY. That is very true, Mr. Chairman.
The CHAIRMAN. I know of quite a number of people who have ideal
plans that they want to submit to the committee, people who know
how to finance the affairs of the Nation but who are unable to pay their
own rent. [Laughter.]
Senator BULKLEY. I guess there can't be any doubt about that.
The CHAIRMAN. I do not think we need to bother much about them.
But I want to suggest that if it is possible for us to fix a time limit on
these hearings I think it would be desirable to do so, so that I can
answer this great number of inquirers that we have our time taken
up now. I am merely suggesting to the members of the committee
that if you think it advisable to fix a limit on the length of these
hearings, it would relieve me a good deal.
Senator BARKLEY. I cetrainly agree with the suggestion made by
the chairman of the committee.
Senator WAGNER. Wouldn't it be possible for us to close them this
evening?
Senator BARKLEY. I was just going to offer a motion that these
hearings be closed when the committee adjourns Monday.
165

166

GOLD RESERVE ACT OF 193 4

Senator GOLDSBOROUGH. Mr. Chairman, I think that would be
entirely too early.
Senator CAREY. Mr. Chairman, there are a lot of people here who
ought to be heard, and you cannot possibly hear them by Monday.
Senator BARKLEY. HOW do you know they ought to be heard?
Of course, we all know that there are a lot of people who want to be
heard.
Senator WALCOTT. Well, take a man like Professor Tugwell, who
is credited with the authorship of this bill. We ought to have him
before us and find out what the facts are.
The CHAIRMAN. Well, we could get him by Monday.
Senator GORE. I think we ought to make all possible speed with
the hearings, but of course we ought to get all available important
information.
Senator WALCOTT. This is the most important bill that has come
before the Congress since the Civil War, and being of such great importance to the people of this Nation it ought to be properly considered.
Senator BARKLEY. Why is it the most important bill since the Civil
War?
Senator WALCOTT. Well, if you destroy the central bank why isn't
it the most important piece of legislation that has been proposed
since the Civil War?
Senator BARKLEY. I do not agree with the suggestion that it will
destroy anything.
Senator WALCOTT. Well, I think all that you need to do is to consider the terms of the bill pending before us.
Senator BARKLEY. I cannot see it as being that at all.
The CHAIRMAN. I think we should fix a limit on our hearings,
otherwise we might be here all summer. If we were to try to hear
everybody who expresses a desire to be heard, we would certainly
be here all summer and then some time thereafter.
Senator TOWNSEND. I think we should hurry along with the hearing as rapidly as may be reasonably possible, but to attempt to fix a
definite time to shut off the hearings I think would be a little risky,
at least to attempt to do it today.
Senator MCADOO. Mr. Chairman, in view of the situation I suggest that the question of fixing a time limit on the committee's hearings go over until Monday. I think we might better attempt to
settle it then.
Senator WAGNER. Mr. Chairman, that question might go over to
the end of today's hearing, but I should think we could at that time
fix a limit. I agree with the chairman that there are numerous requests from people who express a desire to be heard on the bill, for
I have any number of requests myself from persons who wish to be
heard. But I think in many cases we know what a given person
will say, almost as well as if he had been before us.
Senator WALCOTT. Don't you think that Professor Tugwell ought
to be heard?
Senator WAGNER. DO you say he is the author of the bill?
Senator WALCOTT. I am so informed, though of course I do not
know about that.
Senator MCADOO. Mr. Chairman, let us take up the matter of fixing a time limit on the committee's hearings at the end of the day.

GOLD RESERVE ACT OF 1934

167

The CHAIRMAN. DO you want to make a motion now, Senator
Barkley?
Senator BARKLEY. I will wait until later on in the day, Mr. Chairman, but I do suggest now that if we do not make any more progress
today than we made on yesterday, at the end of the day we will be
about where we started.
Senator MCADOO. I think we ought to have a limit on the hearings,
but I do not think, in view of the large number of requests, by letter
and telegraph, and I have something like 50 requests at least, that
we should try to settle it at this moment. However, I might say
that I am not going to recommend that these people from whom I
have requests shall all be heard by any means, because we all know
about what they will say. I think the committee, in the exercise of
its power of selection, a little later on might better decide that matter,
as the statements before the committee develop. We can then much
better decide whether or not and how much we should limit the
hearings, and who should be permitted to come before the committee.
Senator KEAN. Senator McAdoo, if you will speak a little louder
we down here at this end of the table would be able to hear you
and know what is going on.
The CHAIRMAN. Gentlemen of the committee, we will proceed now
with the hearings. Mr. T. R. Preston, of Chattanooga, Tenn.,
president of the Hamilton National Bank of that city, will speak for
the United States Chamber of Commerce.
STATEMENT OF T. R. PRESTON, PRESIDENT OF THE HAMILTON
NATIONAL BANK, CHATTANOOGA, TENN.; REPRESENTING
THE UNITED STATES CHAMBER OF COMMERCE

Mr. PRESTON. Mr. Chairman and gentlemen of the committee, the
United States Chamber of Commerce has written their views on this
matter, and they are in very brief form and I have a sufficient number of copies so that each member of the committee may have one.
I desire to say that the United States Chamber of Commerce
represents all types of business, located in all sections of the United
States.
Senator TOWNSEND. Did they have this bill before them when
they were considering the matter?
Mr. PRESTON. Yes; this matter was considered by a large and
representative committee, after some study of the bill. We did not
have very much time to make a study of the subject, but in the
limited time at our disposal we went into the matter as fully as
possible. There are three members of the committee here, including
Mr. Gephart, of St. Louis, and he and I will be very glad to answer
any questions you may ask, if we can. I might explain at the outset
that this is the layman's viewpoint, for none of us profess to be
experts on the subject.
Senator TOWNSEND. That explanation sounds good to me, for we
certainly want to hear from some laymen who have had practical
experience.
Senator COUZENS. Mr. Preston, what you propose to present to
the committee has not been passed upon by all of your members,
has it?

168

GOLD RESERVE ACT OF 193 4

Mr. PRESTON. Not by all of the members of the United States
Chamber of Commerce, but by all of the board of directors, composed
of some 48 or 50 members.
Senator COUZENS. Under your theory of operation you are supposed to send out a referendum, aren't you?
Mr. PRESTON. Under certain conditions we are.
Senator COUZENS. And therefore you cannot speak here now for
all of your members.
Mr. PRESTON. I cannot. But I can speak for the board of directors
of the United States Chamber of Commerce.
Senator WAGNER. In other words, for 48 members.
Mr. PRESTON. Yes, sir; for about 48 members.
Senator BARKLEY. Were all of those 48 members here and did they
pass upon this subject?
Mr. PRESTON. Yes, sir; they did on yesterday, and practically
every one was present, some 40-odd men.
The CHAIRMAN. YOU may proceed with your statement, Mr.
Preston.
Mr. PRESTON. This is the statement of the board of directors of
the Chamber of Commerce of the United States made in support of
policies formally given to the chamber by its organization members
in favor of a gold basis for American currency. The statement relates to the monetary proposals now before Congress, and w^as
unanimously adopted by the board members in regular session,
January 19, 1934.
The chamber has declared that the question of a sound national
monetary policy is paramount. It has urged establishment of the
currency upon a gold basis, balancing of public budgets, and stabilization of exchange. It has sought avoidance of monetary experimentation, fiat money or price-index currency.
The President's message of January 15, and the monetary bill
submitted to Congress, contain proposals of much merit. The
suggestions that there be established a gold bullion standard and
an equalization fund to steady exchange are in principle to be commended heartily. At the same time there are features of the bill
that are open to question and require serious consideration.
Taking the main intent of the proposals to be the establishment
of the currency firmly upon a gold basis, attention is directed to the
following feature of the bill.
First. There is no assurance that, subsequent to the negotiation
of international monetary agreements and the establishment of a
definite par point for the dollar, a fixed and unvarying number of
grains of gold will be designated as our standard measure of monetary
i=>
value. We suggest the incorportaion of a provision to the effect that
a definite number of grains of gold, as the par point of the dollar,
shall be fixed by proclamation when suitable international monetary
agreements are negotiated, and that thereafter administrative
action shall be addressed to the maintenance of all forms of the
currency on a parity with such standard dollar but without power
to vary its gold content.
Second. The provision barring redemption of currency in gold,
except under regulations of the Secretary of the Treasury when approved by the President, apparently fails to impose a definite obligation that gold or gold bullion must be given in redemption of currency

GOLD RESERVE ACT OF 19 3 4

169

when necessary to keep all forms of it upon a parity with the standard
gold dollar once established. This needlessly would provide grounds
for misgiving or possible alarm as to the value of one or more forms
of the currency in circulation after stabilization. Great powers
exist to utter currency without any designated gold cover. The
assurance that parity will be maintained by the release of gold when
necessary for that purpose does not mean that gold need be given
upon a mere demand nor that gold will be in large demand. A
requirement to maintain the gold parity of all forms of our currency
by release of gold when necessary for that purpose, can be surrounded
with sufficient statutory safeguards to prevent abuses and avoid
dissipation of reserves.
Third. The establishment and maintenance of a gold-bullion
standard is not dependent upon the surrender of the title of the gold
reserves held by the Keserve banks. The bill provides for such a
surrender of title in return for " certificates" which are secured by
gold but which do not specifically assure their* exchangeability for
gold upon request of Reserve authorities. The material point
involved in the current situation is not that the title to the gold be
with the Treasury, but that after devaluation of the currency there
will be a surrender to the Treasury of such net profit as may result
therefrom. The relinquishment of such profit is advisable in the
interests of the Reserve System and of the Government. It would
provide the Treasury with funds for the stabilization fund and for
other purposes.
The surrender of the actual gold, combined with the broad powers
the bill proposes to vest in the Treasury, presents the possibility of
weakening the Federal Reserve System and impairing its utility.
This is not necessary in connection with stabilizing the currency.
We recommend that the bill be changed to provide that the Federal
Reserve System, in surrendering to the Treasury the so-called "profit"
resulting from devaluation, shall retain title to its gold reserves under
carefully devised restrictions upon its rights to release such gold.
Fourth. The purposes and methods of operation of the proposed
stabilization fund should be more expressly stated, and there should
be excluded all power not directly necessary for the stabilization of
the dollar in foreign exchange.
Fifth. The chamber has steadily advocated that the Federal
Reserve System in its relations to the expansion and contraction of
currency and credit should have and should maintain an independent
status. The bill should be tested from the point of view of assuring
such independence. We further recommend that provisions be placed
in the bill which assure that power will be left to the Federal Reserve
banks and Board to expand and contract the volume of currency in
accordance with the demands of trade and in accordance with provisions of law to be adopted requiring a suitable minimum cover of
gold against all forms of Federal Reserve currency.
Sixth. In efforts to secure stability of the currency it is axiomatic
that every endeavor must be made to bring the budget of the Government into balance as expeditiously as possible, which in itself will
secure protection of the currency and maintain the credit of the
Government.
The CHAIRMAN. Mr. Preston, do you wish to add anything to that
statement?

170

GOLD KESEBVE ACT OF 1934

Mr. PRESTON. That is all that I wish to say. Mr. Gephart, of
St. Louis, is here, and if you or the other members of the committee
wish to ask any questions he and I will try to answer them.
The CHAIRMAN. Are there any questions by members of the committee?
Senator MCADOO. I should like to ask Mr. Preston one question:
Some of the testimony that has been presented here seems to be predicated upon the theory that a devaluation of gold will lead to a very
broad expansion of the currency, possibly to an inflation of the currency in very material amount, as a result of this process. Haven't
we a safeguard against that in the amendment to the Agricultural Act?
Mr. PRESTON. I am not familiar with that amendment.
Senator MCADOO. I was going to read it to you. It provides
Senator COUZENS (interposing). Mr. Chairman, cannot this be
dealt with in executive session?
Senator MCADOO. Pardon me for just one moment, Senator Couzens.
The Thomas amendment to the Agricultural Act provides, or at least
I offered an amendment which gave the Federal Reserve Board, by a
vote of five of its members, and with the approval of the President,
the power to increase the lawful reserves of the member banks from
time to time to such extent as they might deem necessary. Now,
Mr. Preston, doesn't that vest in the Board, with the approval of
the President, adequate power to check inflation?
Mr. PRESTON. Whether it is adequate or not I am not prepared to
answer, but of course it gives the power you mention.
Senator MCADOO. Suppose they were about to run away, as they
did in 1929, the rediscount rate could not control that situation,
could it?
Mr. PRESTON. That is quite true.
Senator MCADOO. But if the Board should increase the reserves
from 15 percent to, say, 30 percent, or 50 percent, you wcmkl then
impose a tremendous and most effective check upon inflation.
Mr. PRESTON. That is true.
Senator MCADOO. NOW, for the first time, that power resides in the
Board—I mean to accomplish that purpose. Wouldn't that answer
the objection being made of the possibility of inflation if this bill
would be enacted into law?
Mr. PRESTON. Our committee did not think it would answer it
fully, but to some extent.
Senator MCADOO. Did they consider that matter?
Mr. PRESTON. N O ; they did not consider it, except in the most
casual way.
Senator BARKLEY. Governor Black of the Federal Reserve Board
&iid Governor Young of the Boston Federal Reserve bank both
stated in the hearings we have had heretofore, on yesterday and the
day before, that insofar as the currency operations of the Federal
Reserve System, its expansion or contraction, were concerned, that
they would go on just as they always have; that this would in no
way interfere with the issuing of currency, or the expansion of the
currency according to the needs of business, or the contraction of the
currency. Do you disagree with that view?
Mr. PRESTON. No; I do not.
Senator BARKLEY. That being

the case why do you state here before
the committee that this bill will interfere with the freedom of the
Federal Reserve System?

GOLD RESERVE ACT OF 1934

171

Mr. PRESTON. I think, if you will pardon me for referring to the
paper, you are speaking now of the gold that belongs to the Federal
Keserve System.
Senator BARKELY. I am speaking of the power of the Federal
Reserve Board and of the Federal Reserve banks to issue currency.
Mr. PRESTON. Under certain conditions they have very great
powers, but we contend it ought to be covered'by gold to some extent.
Senator BARKLEY. Under the present law, without regard to this
bill, they can issue an indefinite amount of money based upon gold
certificates, and they need not have any gold at all. And it so happens
that they now have about a billion dollars of gold certificates upon
which the currency is predicated. They could substitute gold cerficates as a basis for all of their currency if they saw fit to do it. They
haven't done it, but that doesn't interfere.
Senator WALCOTT. Governor Black specifically stated that those
gold certificates were without redemption, and that you could not
exchange them into gold, that they would not form a solid foundation
back of any other issues by the Federal Reserve, and therefore public
confidence in these new issues would be destroyed.
Senator BARKLEY. Well, it has not been destroyed.
Senator WALCOTT. NO ; because gold certificates today mean gold,
but these new certificates would mean nothing.
Mr. PRESTON. That is what our board members thought.
Senator WALCOTT. Governor Black made that quite clear.
Senator WAGNER. AS a matter of fact, outside of international
trade what need is there for gold?
Senator WALCOTT. TO have and to leave it there in case of trouble.
Senator WAGNER. Well, don't you have the thing itself in the
Treasury?
Senator BARKLEY. It will be in the Treasury. It is just a technical
matter. The title to this gold, as long as we are going to be on the
gold standard, is there as a base for all of our money. Don't you
think, Mr. Preston, as a matter of fundamental principle the agency
that is responsible ultimately for all the currency that we have ought
to possess the basis of that currency?
Mr. PRESTON. I presume you are right about that. I am really
not prepared to answer.
Senator COUZENS. Mr. Chairman, let us have the next witness.
The CHAIRMAN. Mr. Gephart, do you wish to say anything?
STATEMENT OF W. F. GEPHART, VICE PRESIDENT OF THE FIRST
NATIONAL BANK, ST. LOUIS, MISSOURI, AND A MEMBER OF
THE COMMITTEE OF THE UNITED STATES CHAMBER OF COMMERCE

Mr. GEPHART. Mr. Chairman and gentlemen of the committee,
I think the two primary points that the chamber have in mind are
these: We are not opposed to the purposes of the bill. And we are
not opposed to the surrender to the Treasury of the gold or the devaluation.
There are just two specific points in our minds primarily: The
way the bill is now framed, doesn't it confer upon the Secretary of
the Treasury unnecessary powers to accomplish the end in view?

172

GOLD EESEKVE ACT OF 193 4

And, secondly, whether it does not continue those powers after the
objective has been accomplished?
We feel that these two points ought to be surrounded with more
safeguards.
Senator GORE. Mr. Gephart, is it your view that when the gold
content of the dollar is fixed it should be fixed finally so far as the
proposed legislation is concerned, and not be left subject to administrative change?
Mr. GEPHART. Yes, Senator Gore; we feel that after stabilization
has once occurred, administrative authority should not have the
power to change it. If and when conditions may arise later on that
might call for a change, we feel that authority ought to come from
the legislative branch of the Government.
Senator BARKLEY. DO you think that every time another grain of
gold ought to be put in or taken out, the Congress should act on the
matter?
Mr. GEPHART. Not necessarily. There is a provision now, through
the limitations established, and if it is possible to establish it between
the limitations as now stated, very well and good. That is very desirable. But if it is not accomplished in that way, then we question
very much the desirability of having administrative authority given
full power to change that matter. It ought to come from the legislative branch of the Government.
Senator BARKLEY. If the President should issue a proclamation
fixing the gold content of the dollar at any figure, and it should turn
out within a reasonable length of time that he was mistaken about
that matter and that it ought to be something else, you wouldn't
give him the power to make the correction, is that your contention?
Mr. GEPHART. Not unlimited and continuous power for too long a
period.
Senator BARKLEY. Not even within the 10-percent limit fixed in
the bill?
Mr. GEPHART. I have no objection to that.
Senator GORE. The Constitution puts in the Congress the power to
regulate money. This bill would give that power to administrative
authority. Your contention is that the power to regulate money
ought to remain where the Constitution put it, is that it, Mr.
Gephart?
Mr. GEPHART. I think so.
Senator GORE. That is where the question comes to.
Mr. GEPHART.. Making due allowance for the emergency situation,
and realizing the necessity of granting new powers to the Executive
to meet within certain limits those conditions.
Senator ADAMS. Mr. Gephart, I understood you to say at the
outset that you were in accord with the purposes of the bill. That
being so, I am wondering what purpose you now have in mind. It
seems to me you differ with all the details of the bill which are put
in to carry out the purposes of the bill.
Mr. GEPHART. Perhaps I did not make myself clear. We are in
accord with the purposes of the bill so far as they have to do with
stabilization as fixed within limits, and, secondly, with the purposes
of the bill to turn over to the Government the profit now accruing
from devaluation.

GOLD RESERVE ACT OF 19 3 4

173

Senator ADAMS. But the purpose of the bill, as I get it, is that the
President, instead of having it fixed, shall have a fluid point in there
to permit him to change it as conditions may make it desirable and
necessary. You do not want the Congress to grant that desire of
the President, is that it?
Mr. GEPHART. We have no objection to the limits now established, and the administration of the matter by the President within
those limits.
Senator ADAMS. What the President desires is fchat the gold shall
be turned over to the Treasury, and you are opposed to that?
Senator BARKLEY. Mr. Gephart, you speak of the limitations now
imposed. Do you mean by the present law or by the bill that is
before the committee?
Mr. GEPHART. The bill. After it is fixed we want it to stay there.
Senator BARKLEY. YOU do not want it changed any more, is that it?
Mr. GEPHART. Not necessarily to ever change it, but
Senator BARKLEY (interposing). You want the matter to come
back to Congress to get it changed; is that it?
Mr. GEPHART. Yes,
Senator BARKLEY.

sir.

That is a great compliment to the Congress,
one that is not habitually paid to it.
Senator GLASS. DO I understand that the United States Chamber
of Commerce proposes this plan as an alteration in the value of the
dollar, or that it simply acquiesces in it?
Mr. GEPHART. We are not proposing it.
Senator MCADOO. But you are not opposing it.
Mr. GEPHART. NO.
Senator KEAN. Why

do you think that the basis should be fixed at
50 to 60, instead of at 65 or 70, for instance?
Mr. GEPHART. We do not know whether 60 will accomplish the end
or not, but inasmuch as that is now proposed, let us try it out.
Senator KEAN. I think it is too low.
Mr. GEPHART. Well, my personal opinion is that it is too low, but
there is no way of now proving that one way or the other.
Senator COUZENS. Mr. Chairman, who is your next witness?
The CHAIRMAN. We are very much obliged to you gentlemen.
Mr. GEPHART. And we thank you for the opportunity to appear
before you.
The CHAIRMAN. Mr. Vanderlip is here, and desires to go on to New
York, and we will hear him at this time.
STATEMENT OF FRANK A. VANDERLIP, NO. 1107 FIFTH AVENUE,
NEW YORK CITY

The CHAIRMAN. Mr. Vanderlip, you have studied this bill and are
acquainted with the subjects covered by it. You have gained your
information by reason of years of experience and study, as I gather?
Mr. VANDERLIP. Yes, sir.
The CHAIRMAN. What has

been your banking experience and what
are your views in regard to this bill?
Mr. VANDERLIP. My banking experience was in connection with
the National City Bank of New York, which I entered in 1901 as vice
president, and was elected president in 1909 and continued in that
position until 1919. I had previously had experience as Assistant
46217—34

174

GOLD KESERVE ACT OF 193 4

Secretary of the Treasury, and I have all my life been interested in the
subject of currency.
Now, Mr. Chairman, do you want me to proceed?
The CHAIRMAN. The committee would like to have your views
regarding this meausre, its desirability, its need, and its practicability.
Mr. VANDERLIP. SO far as taking over the gold from the Federal
Reserve banks is concerned, it seems there can be no two opinions
about that. To take it over and pay for it in a gold certificate, which
on its face declares it to be a warehouse receipt, knowing that that
very plan, simple enough it is true, was to mean nothing, it seems to
me would be an anonymous operation.
The set-up of the $2,000,000,000 stabilization fund would be a
necessary thing if there were not some other way to guard our monetary stock against invasion through the operations of the British
stabilization fund.
That, as you know, amounts to $1,750,000,000. Its sole purpose is
to manipulate foreign exchanges, without any relation whatever to
foreign trade. It is a manipulative fund in the hands of an economic
general, and is operated solely in the interests of England. As I
have said a number of times before, I regard it as dangerous as
military airplanes crossing our borders without any aircraft guns to
meet them.
To set up a $2,000,000,000 fund of gold in this way would, however,
mean a sterilization of that gold. There would not be very much of
it used. It would be, in a sense, a circulating fund. If you bought
gold with it, you would only be adding to your gold, and I believe
there is a very much better way of handling the whole situation.
Perhaps the best method would be for me to briefly outline what I
think might well be done.
I emphatically agree with the view expressed by Senator Gore, that
the power to issue and control money should lie with the Government,
and not elsewhere. I would take from the Federal Reserve banks the
right of currency issue. I would take that right from the national
banks eventually. It could not be done at one stroke, because it
would mean that they would have to sell the bonds that are back of
their currency, and they should not, perhaps, be sold in the present
condition in competition with issues by the Government itself.
I would set up an arm of the Government. It would not exactly
be a central bank, because it would have no capital, and would never
receive deposits of any kind. It should have the power of currency
issue, currency that is legal tender, that is redeemable in gold at the
rate at which we eventually stabilize the dollar, and gold should always,
under all circumstances, be obtainable in exchange for that currency
at that rate, but for one purposes, to settle foreign trade balances.
If you will put that limitation on the gold standard, you can go
back to a permanent gold standard. If you go back to such a gold
standard as we had, where your monetary base can be augmented or
reduced by international capital movements, you will go back
Senator MCADOO. Or manipulation.
Mr. VANDERLIP. Or manipulation, speculation in foreign exchange,
or operations of the stabilization fund—you will certainly go back to
an impermanent gold standard.
I have c'alled this institution the Federal Monetary Authority,
because it is not exactly a bank. The functions of this institution

GOLD RESERVE ACT OF 1934

175

would be very simple. As I say, it never could receive deposits, so
its only liability on its balance sheet ever would be the notes which
it had issued, and I would permit the issue of those notes, redeemable
in gold, as I say, without a legal specification of what the gold reserve
should be.
That would be following the example of the Bank of England and
the Bank of France, and most central banks. To fix a definite minimum gold reserve places a dead line, which is not a good thing to do,
and is not a real protection.
Senator GLASS. Does not the Bank of England fix a minimum of
gold that may not be exceeded except by Act of Parliament?
Mr. VANDERLIP. For a part of its issue; not all of it.
Now, I would permit this bank to do the following lines of business—
Senator MCADOO. Mr. Vanderlip, before you get off the currency
phase
Mr. VANDERLIP. I am still on it.
Senator MCADOO. I wanted to ask a question.
Mr. VANDERLIP. I am proposing to take the power of issue away
form the Federal Reserve banks, but I would want to continue them
in the full performance of the functions for which they were organized;
that is to say, they would continue to be central reservoirs of reserves
for member banks. They would continue to discount self-liquidating
commercial paper.
Now, if the power of currency issue is taken away from the banks,
they must have some recourse where they could get currency to enable
them always to rediscount, so I would put upon this central organization the obligation always to rediscount paper for the Federal Reserve
banks. That paper would always consist of——
Senator MCADOO. DO you mean member banks now, or Federal
Reserve banks?
Mr. VANDERLIP. Federal Reserve banks. It would first have to
go through the same course as it does now. The bank would make
the loan
Senator MCADOO. This would be a rediscount agency for Federal
Reserve banks?
Mr. VANDERLIP. Yes, sir; and that would be the only manner in
which it could loan money. So, the Federal Reserve banks would be
enabled to continue their present function of being in a position
always to rediscount for member banks.
I would permit the institution to buy and sell gold in a free world
gold market, which would naturally, were there no prohibitions, be
established in New York.
I would permit the bank also to buy and sell silver bullion. Silver
would be no part of the redemption of dollars, but it would be an
addition to the reserve back of them.
I would permit the purchase or sale of bank acceptances bearing
the names of two banks; of short-term Treasury paper, with not
more than six months to maturity. I would not permit this institution to invest in long-term Government bonds. Finally, I would
permit it to buy and sell foreign exchange. There is a complete
list of the functions.
Now, let us see how the thing would operate. On the first day
of its existence it would take over all the gold, the gold in the Treasury,

176

GOLD RESERVE ACT OF 193 4

and, through the Treasury, the gold in the Federal Reserve banks.
It would pay the Treasury for that, its notes, at the new stabilized
rate of so many grains to the dollar. The Treasury would
Senator WALCOTT. Which would be gold certificates.
Mr. VANDERLIP. NO, sir.
Senator WALCOTT. Those new notes are not gold?
Mr. VANDERLIP. The new notes would be the notes

of the Federal
Monetary Authority.
Senator WALCOTT. But with the right of redemption?
Mr. VANDERLIP. Always with the right of redemption.
Senator WALCOTT. YOU did not state that.
Mr. VANDERLIP. But, remember, redemption for only the one
purpose of furnishing gold to settle foreign exchange balances; not for
hoarding, and not for capital movement.
Senator BULKLEY. Mr. Vanderlip, are you conceiving a fixed gold
content of the dollar, subject to change only by Congressional action?
Mr. VANDERLIP. Preferably, yes, sir. Of course, this plan could
operate with a fluctuating gold content, as contemplated in the
commodity dollar, but it would not at all be necessary, as I think I
can explain as I go along, to have such a commodity dollar. I think
the advantages of a commodity dollar can be gained without the
disadvantage of a fluctuating gold content of the dollar.
The CHAIRMAN. Who would be the officers of this central authority?
Mr. VANDERLIP. That, of course, is for you gentlemen to decide,
but I have set up a tentative scheme like this. There should be
seven directors, and, as they are high executive officers of the Government of the United States, they must be appointed by the President of the United States with the advice and consent of the Senate.
I would, however, have this limitation, that three of those officers
should be chosen from a larger list submitted by the 12 governors of
the Federal Reserve banks acting in concert. That would insure to
the business world that there would be three men on that board who
had banking experience and who were regarded by the banking community as experts.
I would provide that all members of that board had to divest themselves of financial interests in the same way that the Secretary of the
Treasury must now so divest himself.
An amendment to that idea has suggested in very high executive
quarters, that there should be 2 representing agriculture, 2 representing industry, 2 representing banking, and 1 at large, the 2 representing banking to be chosen as I have suggested.
It is doubtful, in my mind, if in the Government of such an institution one should adopt the soviet idea, really, of a representation
by classes—a representation of agriculture, a representation of
industry, and so forth. I would rather see the very best men selected
to form an organization that would stand in finance as the Supreme
Court stands in law.
Senator GLASS. Speaking of best men, do you think the best men
may be found among those who are utterly ignorant of banking,
and never had any experience in it?
Mr. VANDERLIP. NO, sir, I do not, obviously.
I was proceeding to tell how the bank would begin operations.
It would take over from the Treasury all the gold, paying the Treasury its notes at the new stabilized rate. The Treasury would then

GOLD RESERVE ACT OF 19 34

177

hand on to the Federal Reserve banks payment for the gold taken
from them, paid for at the rate of $20.67 an ounce, the old rate.
That would leave free in the Treasury notes of this new institution,
to whatever amount was the difference between the old valuation of
the dollar and the new valuation of the dollar. It would be somewhere in the neighborhood of one and three quarters to two billions
of dollars, and would put the so-called profit from revaluation in
the Treasury, where it certainly belongs, and put it there in the form
of legal tender money.
The position of the bank at the end of that first day would be that
it had out notes redeemable in gold, with the limitation that I speak of
as to their redeemability, equal to the entire amount of gold, and those
notes would, for the moment, be covered 100 percent with gold. Its
operations from then on would consist of those functions that I have
suggested—rediscounting for Federal Reserve banks; buying or selling
gold; buying or selling silver; but I would put a limitation there.
I never would permit to have more silver than equal in value to 25
percent of the gold it has. That would be a top limit.
Senator MCADOO. YOU mean that the silver is a secondary reserve?
Is that your idea?
Mr. VANDERLIP. It is an additional reserve. It is the same idea
that was discussed, I belieVQ, at the conference in London, of adding
some silver to the reserves of central banks.
Senator MCADOO. Symmetalic?
Mr. VANDERLIP. NO; it is not symmetalic. A symmetalic reserve
means that the dollar would be redeemable in a definite number of
grains of gold, plus a definite number of grains of silver. Here we
have a note that is not redeemable in silver at all.
Senator MCADOO. YOU do not intend that at all.
Mr. VANDERLIP. It is a gold note.
The organization could then buy short-term Treasury notes and
pay for them in its circulating notes. It could buy bankers7 acceptances, or it could operate in the exchange market, and there could
meet any onslaught of the British stabilization fund. Of course, it
is not that fund alone. The Bank of France, not having a definite
stabilization fund, has nevertheless operated in the exchange market
in exactly the manner that the British stabilization fund has operated,
and has operated very disastrously to us. The Bank of France
brought here $800,000,000 of deposits in New York. They formed
part of the base for the expansion that led to the grotesque prices of
the stock market. Bringing that capital here without any relation
to foreign trade built up a currency base upon which bank credit
could expand, and it helped in no small degree the great boom in stock
prices.
A little over a year ago we saw the reverse of it. France was
drawing gold out of here, gold that she had heretofore deposited in
this way, again without any reference to foreign trade, but because
she became alarmed about our maintaining the gold standard, and
she almost forcibly put us off the gold standard. A year ago, just
before we went off, gold was being withdrawn, and it was capital
that had been deposited here at the most rapid rate steamers could
carry it. Every gold-carrying steamer was taking all that insurance
companies would insure. It is that same thing that broke down the

178

GOLD RESERVE ACT OF 193 4

gold standard in England. A large amount of capital, in the form
of deposits in London banks, came into the English situation.
They did not have employment enough for it at home. They
loaned some $400,000,000 to the German banks. The Hoover
Moratorium was promulgated. The standstill agreement followed,
and they could not get the money back from Germany. Their foreign depositors began to withdraw their money. I was in Paris, and
saw landing at Le Bourget 10 airplanes a day, each bearing a ton of
gold that France was withdrawing from England. That was what
broke the gold standard, and it will break it again if you do not set
up a gold standard that is guarded against capital movements, and
that is really devoted to its primary function of settling international
balances.
I think I have very briefly indicated the sort of an organization
that I would propose. It is one that could really be set up very
rapidly if you feel, as apparently Congress does feel, when it is talking
of passing this legislation of such enormous import with 3 hours
debate in the House—if you feel that there is any such hurry—I do
not recognize the reasons for such hurry, but if you feel that there
is, you could formulate the organization of such a Federal authority
very quickly. You can capture this gold from the Federal Reserve
banks in a logical way, and not by creating a lot of gold certificates
which bear on their face a contract which you know is not good, and
is not intended to be good. You could have all the effects of a stabilization fund without sterilizing the $2,000,000,000 of gold, and you
could have a control over the price level by the amount of currency
and by the operations in the gold bullion market that would take
place.
Senator MCADOO. Mr. Vanderlip, may I ask a question there?
How much gold reserve do you think should be set up against the
currency that you propose?
Mr. VANDERLIP. I doubt if anybody can say that absolutely.
Senator MCADOO. We have 40 percent.
Mr. VANDERLIP. Forty percent is our legal minimum. We have
much more than that at the present time. We have seen the reserve
of the Bank of England fall to 11 percent, and go to 60 or 70.
Senator MCADOO. I am speaking of the legal limitation. What do
you think it should be?
Mr. VANDERLIP. I think there should be no legal limitation, but in
practice I should think 50 or 60 percent, perhaps. But, as you worked
along and found what the demand for currency was, you would find
a level which, in the public mind and in the minds of the administrators of this bank, was about proper. But, as you could vary that
level, you would accomplish what has been sought in the measure
that was passed, varying the reserve that might be kept. You would
meet all those situations.
Senator MCADOO. One other question. I gather from what you
say—and I would like to know if I understand you correctly—that
you regard gold as the base for currency of no great value so far as
making the currency redeemable in gold for domestic transactions
is concerned, but you do regard it of value as establishing the limit
within which currency may be issued based upon gold.
Mr. VANDERLIP. Quite so.

GOLD RESERVE ACT OF 19 3 4

179

Senator MCADOO. And you think that the chief value of the gold is
in settling balances in foreign exchange.
Mr. VANDERLIP. That ought to be its function, and you should
never be able to invade it by hoarding, or by capital movements.
Senator MCADOO. SO that in domestic transactions you would
have nominal convertibility into gold, but not an actual one?
Mr. VANDERLIP. It would be actual if you wanted the gold, not for
domestic purposes, but for export, to meet an unfavorable trade
balance.
Senator MCADOO. Exactly.
The CHAIRMAN. HOW about the redemption feature?
Mr. VANDERLIP. Always redeem if the gold is wanted to meet a
debit trade balance. Never redeem if it is wanted for hoarding, or
if it is wanted for capital movement.
Senator MCADOO. Or for purely domestic transactions.
Senator GORE. DO you think you could always distinguish between
capital movement and the liquidation of international trade balances?
Mr. VANDERLIP. Yes; I think you could. That means setting up
some machinery. They are attempting to do that now at the Federal
Reserve Bank. It is being done successfully in some European
countries, I think notably in Austria. I think Dr. Eilser, who I see
is here, has intimate familiarity with the method by which that is
accomplished in Austria.
Senator WALCOTT. Mr. Vanderlip, you would unquestionably stimulate the movement of gold internationally through a plan of that
sort. Is there any possibility that you could safeguard it against a
form of international hoarding? That is, we might let ours go on
international trade balances, or for the purpose of stabilizing our
money internationally. Is there any way in which we could protect
ourselves, however, from, let us say, France hoarding that gold that
she gets to settle international balances?
Mr. VANDERLIP. AS a matter of fact, she would not get any.
Senator WALCOTT. She might.
Mr. VANDERLIP. It is conceivable, but we do have a favorable trade
balance.
Senator WALCOTT. We happen to have there; yes. But take an
illustration where we have not—at some times with England.
Mr. VANDERLIP. If we continue not to have a foreign trade balance,
then we ought to lose gold. We ought to depress prices and make
this country a better country to buy in and a poorer country to sell
in, and right our foreign-trade balance. That is the way it would
work.
Senator GLASS. DO you think, with practically prohibitive tariffs,
we would long have a trade balance with any country?
Mr. VANDERLIP. I would hardly want to get into a discussion of the
tariff, Senator.
Senator GLASS. NO. It is a very dangerous thing. Mr. Vanderlip,
of course, wise men change their mmds and stupid men never do. In
some respects you have not changed your mind, and in others you
have. You have not changed your mind in that you have always
favored a central bank. You opposed the Federal Reserve System,
and were in favor of a central bank. Now you are in favor of a
modified central bank which will not receive deposits, but will be

180

GOLD EESERVE ACT OF 193 4

charged with the sole function of issuing currency. To what extent
would you call that currency fiat money?
Mr. VANDERLIP. TO no greater extent than Federal Reserve notes
have been fiat money, or than any money that is issued redeemable in
a metal, but in an amount more than the metal reserve that is back of
it.
Senator GLASS. But Federal Reserve notes are redeemable in gold.
Mr. VANDERLIP. But they are in amount more than the gold on
hand.
Senator GLASS. But they are, I say, redeemable in gold.
Mr. VANDERLIP. SO would these be.
Senator GLASS. Just let me finish, please. They are redeemable in
gold without restriction. You would make these notes redeemable in
gold for a single purpose only. There is that difference. A Federal
Reserve note cannot be called "fiat money," because it is based upon
the security of the combined assets of all 12 Federal Reserve banks,
which are considerable, if we count the 2% billion dollars of United
States bonds as good assets now.
But these notes
Senator MCADOO (interposing). May I interrupt there to suggest
to you that they are also protected by the double liability imposed
upon stockholders of the member bank.
Senator GLASS. I understand that. Yes; they are also protected
by double liability of the stockholding bank.
Mr. VANDERLIP. And the endorsement of the Federal Reserve.
Senator GLASS. The endorsement of what?
Mr. VANDERLIP. The Federal Reserve banks would have to
endorse the rediscounts that they passed on for re-rediscounting.
Senator GLASS. Yes; and I say that all of their assets, the combined
assets of the Federal Reserve system, are behind these notes, and in
addition to that they are specifically redeemable in gold. They are
redeemable in lawful money at the Federal Reserve bank, but lawful
money by statute has been made redeemable in gold, and they are
specifically, textually, redeemable in gold at the Treasury. So that
I do not see how anybody can say, although you did say, that they
are fiat money.
Mr. VANDERLIP. Oh, I said they were not fiat money, sir.
Senator GLASS. That Federal Reserve notes were not fiat money?
Mr. VANDERLIP. I do not regard them as fiat money. Fiat money
seems to me to be an issue of money with nothing but the credit of the
Government behind it.
Senator GLASS. That is what I have always been taught, Mr. Vanderlip, but in November 1913, when you and I had the distinction of
discussing this matter, let me read you what you did say.
Mr. VANDERLIP. In any event, I have learned a lot since 1913.
Senator GLASS. Oh, well, then, all right. [Laughter.] It might
turn out—and some of us venture to have that apprehension—that
in a little while you will have learned a lot about this, because then
you said that "the currency is in fact a fiat money issue."
Mr. VANDERLIP. In a sense that is true. The money is issued by
the Government in the first instance. It is not in the first instance a
Federal Reserve note. At that time I was debating the question of
the idea that it should be a Federal Reserve note and not a note of the
Government.

GOLD RESERVE ACT OF 1934

181

Senator GLASS. Did you ever hear of a Government note, since the
world was created, that could not be issued except upon the demand
of a bank? You know that in the last analysis a Federal Reserve
note is a bank note; it is not a Government note, because it cannot
be issued except on demand of a bank.
Mr. VANDERLIP. Why, governments all over the world at all times
almost, when they ran into sufficient budgetary deficits, have issued
notes, not at the command of a bank but to ease their own financial
condition.
Senator GLASS. Oh, no; but I say this Federal Reserve note cannot
be issued except upon the demand of the bank.
Mr. VANDERLIP. Yes.
Senator GLASS. Therefore,

the lie written into the statute that they
shall be known as Government notes is a mere play upon words.
You know they are not Government notes. You know that they will
never reach the Government on earth for redemption.
Mr. VANDERLIP. Well, I do not know that that is particularly
profitable discussion.
Senator GLASS. NO; I do not think it is. I just want to call your
attention to the fact that in 1913, Mr. Vanderlip, you were one of the
most vehement advocates of the redemption of any currency in gold
that I have ever encountered in all the born days of my life. Now
you are a modified advocate of redemption or redemption in an
extremely restricted way. In other words, you would let foreigners
redeem in gold, but would not let an American redeem his note in
gold.
Mr. VANDERLIP. Oh, by no means. The foreigner who moved
capital into the country and wanted to get it out in gold could not
do it. It is that very thing that has broken down the gold standard.
Senator GLASS. I do not think our gold standard was ever broken
down. I have never seen, and people who are much wiser than I
and who have made this problem a life study have never seen, any
necessity for the United States to go off the gold standard.
Senator MCADOO. Mr. Vanderlip, I was interested in your observation a moment ago as to the definition of fiat money—money issued
by the Government without security. Now, would you say that
United States bonds are fiat bonds?
Senator GLASS. They are now; yes.
Senator MCADOO. I mean at any time. Was not the security for
United States bonds identically the same as the security of the currency of the Government, that is, issued without anything back of
it? Isn't that true?
Mr. VANDERLIP. YOU would hardly apply the word "fiat" to a
bond. It is a Government obligation by fiat of Congress; yes.
Senator MCADOO. Any bond issued, or a note of the Treasury, or
any obligation of the Treasury is fiat?
Mr. VANDERLIP. Certainly.
Senator MCADOO. TO the extent that its security rests solely and
absolutely upon the good faith and honor of the American people?
Mr. VANDERLIP. Quite certainly.
Senator MCADOO. NOW, suppose on the issue of that there was an
issue of currency which had the circulation quality that the bond and
the temporary certificate has not, based upon precisely the same certificate, the good faith and honor of the American people. Is one
any better than the other?

182

GOLD EESERVE ACT OF 193 4

Mr. VANDERLIP. Yes; in a sense. You can issue bonds in greater
or less amount without upsetting your price level. If you issue circulating notes you have an effect upon your price level.
Senator MCADOO. Isn't that one of the objects of this bill, to upset
the price level?
Mr. VANDERLIP. It certainly is one of the objects of the
Senator MCADOO (interposing). And help the price level.
Mr. VANDERLIP. It certainly is one of the objects of the organization I propose, and with which you would have one of the very best
means of raising the price level to the level of 1926, because you would
have all of the manipulative forces that anyone has properly suggested
to bring that about.
Senator MCADOO. Yes, but you are making a restatement of what
you have already said. I was confining my remarks to the currency
at the moment, because I want to clarify it in may own mind. I
always want to be informed, and I am asking for information. If
you think there is a distinction between Government bonds and
Government notes of circulating quality, payable on demand, would
you say there was any distinction if the bond of the Government was
used as the basis for the issue of currency, in other words, as security
for the currency? Would that make the currency any better?
Mr. VANDERLIP. That, in the slang of the market, is "pig on pork".
I t is a man securing his note with another note of his own.
Senator MCADOO. Precisely. Then they are the same, are they
not? They are the same; they rest upon the same security precisely?
Senator GLASS. We are in that condition now, are we not, Mr.
Vanderlip, of paying Government obligations with other Government
obligations?
Senator MCADOO. In other words, while we have money or notes
that are legal tender, we have gone off the gold standard and we have
In circulation fiat money?
Mr. VANDERLIP. I would not say that at all, Senator. There are
four/and a quarter billions of gold back of it.
Senator MCADOO. YOU cannot draw a dollar in gold against it.
Senator WAGNER. That is a very inaccurate statement.
Senator GLASS. I think it is a very precise statement.
Senator MCADOO. It is a statement of the situation.
Senator WAGNER. The gold is here.
Senator GLASS. But you cannot get it. What good is gold if you
cannot get it? It is not any better than lumber.
Senator GORE. If you had it provided in there that if a man gets a
bread ticket and cannot get bread on it, he would be just as well off
as if he could?
Senator GLASS. He would be worse off, because he could see the
bread and could not get it.
Senator BARKLEY. I think that is a very apt analysis. If they
have it they want to see it.
Senator WAGNER. That has been the common experience.
Mr. VANDERLIP. Yes.
Senator BARKLEY. Then

your theory, under any scheme that may
be adopted, is that, while this currency should be theoretically
redeemable, it ought not to be actually redeemable except in foreign
transactions?

GOLD RESERVE ACT OF 193 4

183

Mr. VANDERLIP. There is nothing theoretical about its redemption.
It is absolutely redeemable for this one purpose.
Senator BARKLEY. Yes. I mean for domestic purposes.
Mr. VANDERLIP. And that is the only purpose that a gold standard
ought to furnish gold for.
Senator BARKLEY. And to that extent you approve the provisions
of this bill?
Mr. VANDERLIP. Well, I would approve the provisions of no bill
that did not recognize the necessities of a modernized gold standard
which would be to avoid invasion by hoarding or by foreign exchange
speculation or by the movement of internationally owned securities or
the operation of a stabilizing fund.
Senator GLASS. Mr. Vanderlip, were we to adopt your scheme,
what use would the Federal Reserve banks be beyond acting as mere
agencies of your monetary commission here in Washington?
Mr. VANDERLIP. It seems to me that they would be used and have
the full use that they were designed originally to have. They would
be central reservoirs for reserves, and they would be in a position
always to rediscount eligible paper.
The CHAIRMAN. Provided they were approved by the superior
authority. Suppose the superior authority should reject the eligible
paper sent up by the banks?
Mr. VANDERLIP. I would make it obligatory on the superior authority to rediscount eligible commercial paper than had already been
rediscounted by the Federal Reserve bank, and with the additional
guaranty of the Federal Reserve bank.
Senator MCADOO. If it is mandatory to that extent it would be
merely perfunctory and the machinery would be a new agency at
public expense to carry on a new operation.
Mr. VANDERLIP. NO. It is perfunctory, but it is necessary because
you have taken the power of issue away from the Federal Reserve.
Senator GLASS. YOU would abolish the Federal Reserve bodily
then, would you?
Mr. VANDERLIP. Oh, no. I would let its duties somewhat decrease
perhaps, and maybe it would abolish itself in time, but I would not
nterfere with it.
Senator GORE. Mr. Vanderlip, I want to ask you one question.
I was interested in the different points in connection with your new
monetary institution. I think I appreciated the importance and the
pertinence of the different points and their relation to each other,
except this silver proposition. I do not see how it has any relation
to it, and I wanted to know why you would let this institution buy
and sell one commodity and not let it buy and sell cotton or wheat or
zinc or lead.
Mr. VANDERLIP. It does not necessarily have any relation to it.
You can do this job well without silver at all.
Senator GORE. It just looks to me a little bit like a "silver to sop
service" or "sop to silver" service; something like that.
Mr. VANDERLIP. I think that is about what it is, sir.
Senator GORE. We had a farm board that did buy and sell cotton
and wheat. We have Government agencies today that buy and sell
cotton futures and wheat futures. If we get this we will start out
dealing with silver and it will be pretty hard to resist the pressure
for zinc and lead. You know, Oklahoma is a pretty big zinc and lead

184

GOLD RESERVE ACT OF 1934

State. It would be pretty hard to close the door in our face, you
know.
Mr. VANDERLIP. YOU can drop out the silver.
Senator GLASS. I would not do that, because you might not get the
votes of the silver side.
Mr. VANDERLIP. That is just what I have in mind.
Senator GLASS. Yes; I thought so. [Laughter.]
Senator MCADOO. We knew that, but we did not think you would
admit it.
Senator GORE. That was the silver lining to my interrogatory.
Senator GLASS. Silver lining to this cloud.
Mr. VANDERLIP. I do not say that the desires of the silver people
are entirely selfish. I think there is a good deal of soundness in the
idea of a larger use of silver for monetary purposes, but in this case
you. would have that larger use without in any way making silver a
part of the redemption of the dollar.
The CHAIRMAN. What would be the difference, Mr. Vanderlip,
between issuing currency by this authority that you mention, and
issuing notes by the Treasury? Why should not the Treasury have
this authority instead of this board?
Mr. VANDERLIP. Because I happen to know by experience that the
Secretary of the Treasury has a good many duties. He is so busy that
if you added to those all the duties, all the powers, all the great influence of a central bank, I think he would be quite swamped; and
besides, I would rather see those duties discharged by a more permanent board than I would by one man politically appointed.
The CHAIRMAN. YOU could not utilize the Federal Reserve Board
for that purpose instead of setting up a new organization?
Mr. VANDERLIP. NO. I think this should be as independent an
organization as possible, independent of political influence and quite
as independent of organized banking influences.
Senator BULKLEY. DO you think there is any value in divorcing
the stabilization function in some manner from the actions of the
Treasury in connection with financing?
Mr. VANDERLIP. There would be great value in not divorcing them
under this plan I propose, because the Treasury would at once be put
in funds to the amount of 1 billion and three quarters to 2 billions, and
in sound funds.
Senator BULKLEY. I was referring to the future operation of the
stabilization function and whether you think that ought to be an
independent function not connected with the Treasury.
Mr. VANDERLIP. Oh, no. The Congress in the first instance, and
now the President under the authority of Congress, must state the
point of stabilization, and under the idea I have proposed the exact
point of stabilization becomes much less important, because you have
got that variation of reserve under the notes, and I would not be
much concerned whether the stabilization was at 50, 60, or 70, because I believe the price level could be influenced just as effectively,
because whatever the dollar is redeemable in, only those dollars that
are wanted to pay a foreign trade balance can get the gold, and it
would become of far much less moment the exact point at which you
stabilize it, and I think you can stabilize once and for all and not
have the prospect that you are going to stabilize again after you have
seen how it worked this one way.

GOLD EESERVE ACT OF 1934

185

Senator GORE. Mr. Vanderlip, don't you think this pending bill
centers in the hands of the Secretary of the Treasury powers that are
more or less antagonistic? Isn't it a good deal like the legislative,
executive, and judicial powers, all in one?
Mr. VANDERLIP. I quite agree with that statement, Senator.
Senator GORE. I think that is the fundamental objection to this.
Senator GLASS. I was going to say, Mr. Vanderlip, there is one
provision of the bill which causes one or two of us at least very considerable concern. That provision of the bill creates a banker of the
Secretary of the Treasury practically.
Mr. VANDERLIP. And he would have a lot of things to do and power
to do them that a banker could not do.
Senator GLASS. Yes; and many things that a banker would not do,
many improbable things. For example, he could discount my note.
Some bankers might not be willing to do that. Maybe they ought
not to do it.
Senator MCADOO. YOU mean a wise banker would not.
Mr. VANDERLIP. Why, I know he ought not to do it.
The CHAIRMAN. DO you favor or not section 10 of the bill, Mr.
Vanderlip—"for the purpose of stabilizing", and so forth?
Mr. VANDERLIP. If the committee would take 2 minutes I would
like to read a statement or a letter which I wrote to the President
setting forth what I think they should do. I can do it in a few
minutes. Shall I read it or not?
The CHAIRMAN. Very well; read it.
Mr. VANDERLIP (reading):
The plan to establish such a Federal Monetary Authority, it seems to me, meets
the views of those who wish to establish a commodity dollar, without actually
undertaking to vary the gold content of the dollar, the efficiency of which is
doubted in the more orthodox quarters. The plan would also, I think, give
great satisfaction to the advocates of a larger use of silver, without committing
either to bimetalism or sym-metalism. It creates a directive power which
whould have in its hands all the various manipulative forces for raising the price
level and maintaining it. The Board of the Federal Monetary Authority,
through its power to control the rediscount rate, to conduct open market operations in short-term Treasury paper and bank acceptances, its ability to deal in
foreign exchange and to purchase silver bullion, has concentrated all those forces
that have been suggested as likely to be efficient in raising and maintaining the
price level. It offers large opportunity for inflation, without resort by the
Government to a fiat money printing press.

Senator GLASS. Let me suggest that you write the President
another letter and say you did not mean "inflation", you meant "expansion", because "inflation" is a terrible word.
Mr. VANDERLIP. I adopt your amendment. [Reading:]
The plan would collect a large fund of silver bullion which might, in the event of
a war in the East, be as effective at some particular moment as a naval fleet. It
makes necessary the establishment of a specific stabilization fund to counteract
the menace of the British stabilization fund. It avoids the establishment of the
proposed two-billion-dollar gold stabilization fund wiiich is proposed in the pending legislation and which I agree is vitally necessary, unless a gold standard is
established which is insulated against either the reduction or augmentation of our
monetary gold base by international capital movements. It escapes the disadvantage of partially sterilizing the proposed two-billion-dollar stablization fund,
and would place that two billion of gold in a vital position as a base for the issue
of a future larger amount of sound and acceptable currency to be issued by the
Federal Monetary Authority.
It returns to the Government all power of issuing and controlling the value of
money, which I believe is historically the right and proper function of government
and is both a sound and policically proper prerogative of government.

186

GOLD EESERVE ACT OF 193 4

Now, the only further word I would say is I have drawn a bill that
embodies this plan with my ideas. If it would be of any use to the
committee I will leave a copy of it.
The CHAIRMAN. DO you want to have it in the record?
Mr. VANDERLIP. Yes, Senator.
The CHAIRMAN. Then let it be entered in the record.
(The proposed bill submitted by Mr. Vanderlip is here printed in
full as follows:)
A BILL To establish the Federal Monetary Authority, and to control the currency of the United States

Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled,
POWERS OF THE FEDERAL MONETARY AUTHORITY

SECTION 1. (a) The Federal Monetary Authority established hereinafter in
this Act shall have power—
(1) To issue circulating currency in such amounts as the Authority from time
to time finds necessary to carry out its powers. Such certificates shall be legal,
tender at face value for all debts, public and private, and shall be in such denominations not less than $1 and in such size and form as the Authority may prescribe.
All other authority of law to issue or reissue currency, except circulating notes
of national banking associations shall cease on the fifteenth day after the date of
approval of this Act; and the authority to issue or reissue circulating notes of
national banking associations shall cease three years after the date of approval
of this Act.
(2) To purchase gold bullion, bars, and coin at home or abroad at such prices
as the Authority shall fix from time to time; and to sell gold bars at the prevailing
market price. No such sale of gold bars shall be of an amount of gold less than
$5,000 in value. All forms of lawful money heretofore redeemable in gold or
silver shall hereafter be redeemable only in circulating currency issued by the
Authority. The circulating currency of the Federal Monetary Authority shall
be redeemable in gold at the price fixed by the President of the United States
under authority of Congress as the gold equivalent of the dollar, but only if such
gold is for use, subject to such regulations as the Authority may prescribe, insettlement of debit balances in the international trade of the United States,
and for no other use. For the purposes of this paragraph, the Authority shall5
maintain a supply of gold in fine bars of such weight as it may determine. Such
bars shall bear the stamp of the United States. All gold in the custody of the
Authority shall be converted into fine bars. After the date of approval of this
Act no gold shall be coined, except for foreign countries in accordance with the
Act of January 29, 1874 (U.S.C., title 31, sec. 367); and no gold bullion, bars,
or coin or silver bullion or bars shall be exchanged or deposited with, or purchased,
paid out, or delivered by the Government, except through the Authority as
herein authorized.
(3) To purchase silver bullion, bars, and coin to the prevailing market price
but not in excess of $1 an ounce; to sell such silver to the Secretary of the Treasury
for subsidiary coinage in such amounts as the Secretary of the Treasury deems
necessary; and to sell silver bars at the prevailing market price. The aggregate
of such purchases of silver bullion and bars shall be at least one billion ounces,
except that no purchase of silver bullion shall be made by the Authority at any
time if at such time its aggregate holdings of silver exceed in value 25 per centum
of the value of the gold held by the Authority.
(4) To rediscount for any Federal Reserve bank, at rates to be established
from time to time by the Authority, any notes, drafts, bills of exchange, or
acceptances, bearing the endorsement of such Federal Reserve bank, and heretofore eligible as collateral security for Federal Reserve notes.
(5) To purchase and sell any interest-bearing obligation of the United States
with a maturity from date of purchase not in excess of six months.
(6) To purchase and sell in the open market bankers' acceptances and bills
of exchange bearing the endorsements of two or more domestic banks and eligible
for rediscount by Federal Reserve banks.
(7) To purchase and sell foreign exchange.
(8) Hereafter to exercise the powers vested in the Secretary of the Treasury
by section 11 (n) of the Federal Reserve Act, as amended.
(6) The Authority shall not receive current funds for deposit, exchange, or
collection otherwise than for its own account.

GOLD RESERVE ACT OF 19 34

187

FEDERAL RESERVE AND TREASURY GOLD

SEC. 2. All right, title, and interest in or claim of the Federal Reserve Board
or any Federal Reserve bank or Federal Reserve agent, now or hereafter, to any
gold coin, bars or bullion is hereby acquired by and vested in the United States.
Payment for such gold coin, bars, and bullion, together with interest at the rate
of 3 per centum per annum from date of acquisition to date of payment, shall
be made with circulating currency issued by the Authority, at the ratio of $20.67
an ounce. All gold coin, bars, and bullion and all gold coin, bars, and bullion
now or hereafter held in the Treasury, shall be held for custody of the Authority
and delivered upon order of the Authority. Transportation and other incidental
expenses shall be paid by the Authority. Pending such time as the Federal
Reserve notes in circulation are redeemed, the reserves, security, and deposits
required by or authorized by law in connection with such notes may hereafter
be maintained or payable in circulating currency issued by the Authority.
THE FEDERAL MONETARY AUTHORITY

SEC. 3. (a) There is hereby established an independent agency of the Government to be known as the Federal Monetary Authority. The powers and duties
vested in or imposed upon the Authority by this Act or other law shall be exercised or performed by the executive officers of the Federal Monetary Authority
at the direction of a board of seven directors to be appointed by the President of
the United States, by and with the advice and consent of the Senate. One director
shall be a director-at-large, and two of the directors shall represent industry, two
agriculture, and two banking, and the group to be represented shall be designated
by the President at the time of nomination. Each director representing banking
shall be appointed from a list of not less than five nominees submitted jointly by
the governors of the several Federal Reserve Banks upon request of the President.
(b) Directors shall be subject to removal by the President or by concurrent
resolution of Congress. The board shall from time to time elect a chairman
from among its members. There shall be a governor and one or more deputy
governors of the Authority. The governor shall be the chief executive officer
of the Authority. The board may function notwithstanding vacancies, and
four directors shall constitute a quorum. Directors shall receive the samecompensation as the heads of the Executive departments. The board shall
meet at the call of the chairman or a majority of the directors. Directors shall
devote their time exclusively to the duties of their office. No director shall hold,,
directly or indirectly, or have any financial interest in any financial, manufacturing or importing or exporting institution or establishment. Expenditures by
the Authority will be allowed and paid upon presenation of itemized vouchers
therefor, approved by the governor or by such director or officer of the Authority
as may be authorized by the board for the purpose. The board may, without
regard to the civil service laws and the Classification Act of 1923, as amended,,
appoint and fix the compensation of, and prescribe the duties of the governor,
deputy governor and such other officers and employees, and may establish such
agencies, utilize such voluntary and uncompensated services, and make such
expenditures and regulations, as may be necessary to carry put its functions.
Expenditures of the Authority for other than for administrative expenses shall
not be subject to review by any officer of the Government.
(c) At such times as the President, or the Congress by concurrent resolution,
may determine, the President shall cause an audit and report to be made to him
of the operations of the Authority. Such audits shall be made available for
inspection by representatives of the Banking and Currency Committees of the
Senate and of the House. The President shall make public such audit and report
if such action is consistent with the public interest.
(d) The net profits derived from the operations of the Authority, after deductions for such reserves as the Authority deems necessary, shall from time to time
be covered into the Treasury upon direction of the President.
DECLARATION OF POLICY

SEC. 4. (a) It is hereby declared to be the policy of the United States to restore
and maintain the normal purchasing power of the dollar, which shall, for the
purposes of this Act, be the average purchasing power of the dollar for all commodities during the year 1926.

188

GOLD RESERVE ACT OF 193 4

(b) The average purchasing power of the dollar for any period shall be ascertained from the index known as "The index for the purchasing power of the
dollar in the terms of wholesale prices for all commodities" for such period, as
compiled and published from time to time by the United States Bureau of Labor
Statistics.
(c) The powers of the Authority shall be exercised to .such extent and in such
manner as, in the judgment of the Authority, will best effectuate the declared
policy.
(d) There is hereby established in the Department of Labor a Price Index
Commission to be composed of three Commissioners to be appointed by the
President. No person shall be eligible for appointment as Commissioner unless
he is an economist-statistician of recognized standing. It shall be the duty of
the Commission to study the items and factors that should form the basis for the
compilation of the price index designated in subsection (b), and from time to
time with the approval of the President, to revise the basis of compilation of
such price index in such manner as the Commission deems necessary in order that
such price index may more adequately indicate the average purchasing power of
the dollar.
EFFECTIVE DATE

SEC. 5. This Act shall take effect at such time as four of the directors of the
Authority have qualified for office; except that this section and section 3 shall
take effect upon the date of approval of this Act. Title III of the Act of May
12, 1933, is repealed.
SHORT TITLE

SEC. 6. This Act may be cited as the Currency Control Act of 1934.
Senator GOLDSBOROUGH. May I ask you a question?
Mr. VANDERLIP. Certainly.
Senator GOLDSBOROUGH. Would you give me your enlightened

opinion as to what is the commodity dollar?
Mr. VANDERLIP. A commodity dollar is a gold dollar. It is redeemable in gold but not always in the same number of grains of gold.
The object of the commodity dollar is to maintain a price index level
so that the dollar will buy as much of the general market basket of
goods in 10 years or a generation as it buys when you part with your
money to buy an annuity or to buy an insurance policy or bond.
The theory is that by varying the gold content of the dollar you
would, with practical mathematical exactness, vary the price level. I
do not believe that that is true. It does tend in that direction, but
there are other factors in the price level that must be taken into
account, such as the philosophy of money and credit. I think none of
us know what actually makes up the price level. It is too complex.
The theory of the commodity dollar is to maintain that price level and
to do it by the means of varying the number of grains that the dollar
is redeemable in.
Senator GLASS. YOU never have believed in that theory, Mr.
Vanderlip, unless, again, you have learned a great deal since 1913.
Mr. VANDERLIP. I assure you I have, Senator.
Senator GLASS. Because you stated in 1913:
Probably all perceive that there are some laws of nature that are unbending,
even in the presence of legislative edict; that if we pass legislation that does not
conform to such laws the result must only be to show the futility of such legislation.

I thought that was pretty sound doctrine at the time.
Mr. VANDERLIP. I have never been so complimented in my life,
Senator, as to know that you were such a student of what I have
said. [Laughter.]
Senator GLASS. Well, the fact is I was there and confuted all of
your errors and agreed with all of your sound declarations.

GOLD EESERVE ACT OF 1934

189

The CHAIRMAN. We are very much obliged to you, Mr. Vanderlip.
Senator Glass, do you want Dr. Anderson back?
Senator GLASS. Dr. Anderson himself expressed a desire to conclude his statement.
The CHAIRMAN. Mr. Warburg has to leave very soon, and he is
down on our list. Mr. James P. Warburg.
STATEMENT OF JAMES P. WARBURG, VICE CHAIRMAN OF THE
BOARD OF THE BANK OF MANHATTAN COMPANY, NEW YORK,
N.Y.
The CHAIRMAN. Mr. Warburg, will you state your name and residence and occupation or profession?
Mr. WARBURG. My name is James P. Warburg. I am vice chairman of the Board of the Bank of Manhattan Co. of New York.
The CHAIRMAN. Have you examined this bill?
Mr. WARBURG. Yes, sir.
Senator KEAN. Mr. Chairman, I think Mr. Warburg might give a

little more description of himself than that, because Mr. Warburg has
been a representative at the Economic Conference as an adviser, and
he also has had a very large experience in foreign exchange and also in
dealings internationally all over the world. I think that ought to go
into the record.
Mr. WARBURG. Thank you, Senator.
The CHAIRMAN. Have you examined this bill, S. 2366, Mr. Warburg?
Mr. WARBURG. Yes, sir. I have a brief statement in regard to it.
The CHAIRMAN. Very well; we will be glad to hear you.
Mr. WARBURG. TWO days ago I testified before the House Committee on Coinage, Weights, and Measures. I prepared for this
committee a short general analysis of the monetary problem and a
compilation of supplementary statements. Copies of both are before
you. The clerk is distributing them.
In regard to the President's monetary message, I commented as
follows—I will read only a few paragraphs—
Whereas the phrase used by the President last summer, "a, dollar of constant
purchasing and debt-paying power" seemed to imply a dollar of variable gold
content, I think it is important to note that in his message in opening Congress
he used words which do not necessarily imply any such thing. These words
were, "a medium of exchange which will have over the years less variable purchasing and debt-paying power for our people than that of the past." These
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 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 and 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, "The entire recovery program is jeopardized by uncertainty and
doubt in the monetary field", and recommended, among other things:
"That the United States Government should desire not later than October 1
to fix the amount of devaluation desired, in order to bring about the necessary
adjustment of the price level, allowing for a subsequent variation of not over 10
percent."
46217—34-^—13

190

GOLD BESERVE ACT OF 193 4

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 40-50 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.

First. To all intents and purposes it seems to me that the bill
endows the Secretary of the Treasury with most of the powers usually
vested in a government note-issuing institution and with several
other powers as well. To some extent this is doubtless necessary in
an emergency, but I see nothing in the bill to limit it to an emergency.
One cannot precisely define what constitutes an emergency.
But one can define one's ultimate aim. I believe the bill could be
improved if it were made to state that our purpose is to return to a
fixed ratio to gold, and that to this end we seek the establishment of
an improved international gold standard. (I have set forth a detailed
proposal for an improved gold standard in my testimony before the
House committee.) If our ultimate aim were so defined, the powers
conferred upon the Secretary of the Treasury could then be made to
lapse when this ultimate aim is realized.
Second. It seems to me that the bill should state that it is not the
intention to take the note-issuing power away from the Reserve
System in whole or part. Personally I should like to see the bill
amended so as to contain an outright repeal of the " greenback section" of the Thomas amendment, the mere existence of which, to
my mind, constitutes a menace to the national credit. It will be
difficult enough to keep expenditure within the limits of bearable
taxation. The success of our program depends upon not over-straining
the Government credit. The best barometer of strain on government
credit is the market for government bonds. Support of this market
by a stabilization fund may in moments of extreme emergency be
necessary, but it must be recognized that such support is tampering
with the barometer. The issuance of Thomas amendment notes
would not be tampering with the barometer but smashing it.
Third. I expressed before the House Committee my views as to the
danger of attempting to set too low a range for the dollar. I do not
believe in the whole theory of raising prices by depreciating a currency,
but, having embarked upon this theory for better or worse, I do
believe that Congress should now support the President in carrying
out his purpose. He has reached his conclusion as to the range within
which stabliization is to take place, after the most careful consideration of all the circumstances. We are in his hands and we should
strengthen his hands. That is why, in spite of a personal conviction
that the range selected is too low, I do not urge altering it.
Fourth. It seems to me that the bill contains the elements of a
drastic change of the Federal Reserve System. I have said that I
believe the Government should take the profit from devaluation, but
I question gravely the advisability of taking the Reserve bank's
gold and giving them gold certificates, which are only convertible
into gold at the option of the Secretary of the Treasury, and in an
amount of gold to be fixed by him. I believe that monetary gold
should be owned directly by the note-issuing authority and that the
note-issuing authority should not be purely under political control
nor yet purely under private control, but should be vested in an

GOLD RESERVE ACT OF 19 3 4

191

institution owned partly by the public—not necessarily the banks—
and partly by the Government. I believe that our Reserve System
and our whole private banking system are in need of careful and
thorough overhauling, but I do not think that this can be done by
rushing through an emergency bill.
Fifth. Finally, if money lies at the root of our economic troubles,
which I for one think is only partially true, then, as 90 percent of
our money is check money, it would seem to me that 90 percent of
the cure of our money ills must lie in a properly reconstituted banking
system rather than in any measure that deals purely with the metallic
base and the paper circulating medium.
Senator GLASS. Mr. Warburg, you know, of course, that the Federal Reserve banks are operated by representatives of the public, in
large measure; that is to say, of the 9 directors, 3 of them may be
officials of banks only; 3 of them must represent commerce, agriculture, and industry, and the remaining 3 may not be bankers at all,
but must represent the public. So that the banks are in large measure
operated by the public and in the interests of the public?
Mr. WARBURG. May I explain what I had in mind, Senator, when
I made that statement? I prepared this in anticipation of what I
thought Mr. Vanderlip would say, because he said it before the House
committee the other day.
I do not believe it is wise to give the note-issuing power to any
purely political body, even such a permanent body as Mr. Vanderlip
has suggested. Nor do I believe that the note-issuing power should
be vested in a private corporation. There is the danger of control
or abuse by "big business", which must be avoided, just as much as
the danger of political abuse must be avoided. That is what our
Federal Reserve Act attempted to do. I believe that we can improve
the Federal Reserve Act, and that we should do so, but only after
the most careful study, and not as an emergency job to be done in a
few days.
Concretely I would suggest tentatively two ideas.
I. A change in the composition of the board, so that it would consist of three appointed members—a governor, vice governor, and secretary general. These three officials to be appointed for long terms and
to receive much higher salaries than at present. (This involves no
additional expense, because the salaries of three members are saved.)
The governor and vice governor each to have two votes.
In addition to the three appointed members, 4 out of the 12
Federal Reserve bank governors would compose the board. The
governors would serve in rotation, for 6-month periods, which means
that each bank governor would serve as a board member for 6 months
in every 18.
This would have the following advantages:
1. The higher salaries would help to engage the best possible men.
2. The present conflict between board and banks would be largely
eliminated.
3. It would necessitate having at least one strong deputy governor
in each Reserve bank.
II. The other idea, which I would put forward tentatively, is that
it would be better to have the ownership of the Reserve banks in the
public, rather than in the banks of the country. One might consider
having two classes of stock—one held by the public, and the other by

192

GOLD RESERVE ACT OF 193 4

the Government. The public's stock would have limited voting rights,
and a limited return, while the Government's stock would receive the
bulk of the profits after the public received a fair minimum dividend.
There are any number of possible variations to such a scheme—
many of them have been in use. I should not want to make a specific
suggestion without studying all the available material, but I do wish
to record my opinion now that this line of thought seems to me more
fruitful than the creation of a Government note-issuing authority.
And I also think that ownership by the public direct, is more in line
with present-day thought than ownership through the private banks.
The CHAIRMAN. Are there any questions?
Senator ADAMS. May I ask a question, somewhat diverting from
that? The Government has been pursuing a policy of lowering the
purchasing power of our dollar abroad. That has been the policy,
has it not? That is, that has been the national policy, to keep the
dollar down and to keep corresponding currencies of foreign nations
up. I am going to ask you to give an explanation of what advantage
to us rests in that policy. That is, I think naturally the query is,
why it is to the advantage of the American people to have the purchasing power of their currency kept down.
Mr. WARBURG. Senator, I am not a good advocate of that policy,
because I have opposed it consistently since last March. The theory
is that by depreciating a currency you can raise the price level and
raise it to any desired point, and then keep it there by fixing the
currency at a given point. That is a very large subject. I do not
believe that raising the price level by itself does anyone any good.
I think that a rise in prices unaccompanied by a corresponding rise
in income and wages does harm rather than good; and I see nothing
in a policy of depreciating the currency which raises incomes and
wages.
Furthermore, such a policy cannot and will not eliminate discrepancies in the price level. One of the great advantages claimed
for farmers from this policy was that it raised the price of wheat. It
also raised the price of overalls. You cannot raise the price of one
kind of thing without raising the price of other things.
I believe there was a certain benefit to be obtained in the initial
stages, because of stimulating speculation, as it energized the whole
latent mass which had lain dormant for a long time. Unfortunately
when that was done the theory took hold that if a little depreciation
did so much good in raising prices, more depreciation would do a lot
more good, and we have proceeded on that theory. I do not believe
in it.
Senator BULKLEY. What about the stimulation of export trade?
Mr. WARBURG. Any country that depreciates its currency can
benefit at the expense of other countries until other countries do it
too.
Senator BARKLEY. That is what happened when England depreciated her currency in 1931.
Mr. WARBURG. Yes; that is what happened. I do not think that
was the intention of England; but that is what happened.
Senator BULKLEY. DO you think we will gain anything in export
trade by what we have done?
Mr. WARBURG. Yes; I think we probably have.
Senator MCADOO. It provokes retaliation?

GOLD RESERVE ACT OF 19 34

193

Mr. WARBURG. Yes, sir.
Senator MCADOO. Let me

ask you this question: If the depreciation of the dollar in foreign exchange is beneficial in stimulating our
trade, does it not also depreciate purchasing power for obtaining the
necessaries of life?
Mr. WARBURG. Yes; if you decrease the value of the dollar and
decrease its purchasing power, it would mean that the standard of
living goes down.
Senator MCADOO. And the reverse is true. The more you put up
the price level by depreciating the dollar, the lower the value of the
wage-earner's income and the salaries or fixed income of individuals
in the Nation?
Mr. WARBURG. Yes; and the ultimate end of such a policy is that
you prostitute labor.
Senator MCADOO. In other words, the history of all these movements, as far as I can see it, has been that eventually the rise in wages
and fixed income is not commensurate with the increased cost of the
necessaries of life and of commodities generally.
Mr. WARBURG. There is always a tremendous lag in wages and
income.
The CHAIRMAN. DO you believe we ought to raise the price level?
Mr. WARBURG. I believe we should raise the price level if such a
rise is accompanied by a corresponding rise in incomes and wages.
I believe the only way to do that is to increase the volume of business
done in expectation of profit.
Senator MCADOO. In other words, if the stimulation can be based
upon solid economic ground and that stimulation is initiated by the
artificial stimulation that is necessary to start the engine, so to speak,
then of coarse it would be beneficial; otherwise not.
Senator GLASS. In other words, you believe in this fundamental
doctrine that Mr. Vanderlip believed in before he learned so much,
that it is idle to undertake to pervert or avert the unbending laws of
nature?
Mr. WARBURG. Not only that, sir, but I think Mr. Vanderlip
unconsciously, probably, plagiarized that very paragraph from James
Garfield who made a statement in 1874 in which he used practically
the same words. [Laughter.]
Senator GLASS. And Garfield plagiarized it from other economists
who had advocated it for the last hundred years or more.
What measure of soundness, Mr. Warburg—and I hope you are a
worthy son of a worthy sire—do you find in a policy that would
fictitiously raise the price of any single product and thereby increase
the cost to a hundred thousand people for every one person engaged
in the production of that particular article?
Mr. WARBURG. What measure of what, did you say, Senator?
Senator GLASS. What measure of soundness do you find in a theory
of that sort?
Mr. WARBURG. I do not know that I could define the degree of
soundness. I would say it contained injustice.
Senator GLASS. Injustice is unsound, is it not?
Mr. WARBURG. Yes.
Senator WALCOTT. Mr.

Warburg, you said in this preamble that
you were in favor of passing this legislation because you believed the
President had given it careful consideration, and, therefore, it must

194

GOLD RESERVE ACT OF 19 3 4

be wise. In view of what you have said since you wrote this, it seems
to me that you must have at least mental reservations with reference
to this bill. Is not that true?
Mr. WARBURG. I have very definite, not only mental, but stated
reservations as regards the bill.
Senator WALCOTT. But in your statement here you imply that you
would vote for the bill as is, practically. You mean that you would
not vote for it unless it is modified? Is that what you mean?
Mr. WARBURG. Are you referring to the statement I made before
the House Committee?
Senator WALCOTT. Yes.
Mr. WARBURG. I had not read the bill, then. I so stated.
Senator WALCOTT. I lost that point. Then you are definitely in
favor of changing this bill before it is passed, along the lines that you
have suggested here?
Mr. WARBURG. Let me put it in this way. I would not like to
recommend to this committee that they refuse to do something that
the President wants to do, but I would recommend very urgently
that the committee ask the President to reconsider the bill and allow
it to be amended along the lines that I have indicated.
Senator BARKLEY. The amendments which you suggest seem to
me to be rather vague and indefinite. What particular amendment
do you urge?
Mr. WARBURG. I think the suggestions I have made are quite
definite. The first suggestion is that these powers are conferred on
the Secretary of the Treasury without any reference to their being
emergency powers. It is not easy to define what is an emergency.
Therefore I suggest limiting the life of the power to the interregnum
which must exist between now and the time we attain our ultimate
goal; and that is not defined.
Senator BARKLEY. DO you favor the bill insofar as it takes title
to this gold?
Mr. WARBURG. That is the next point, sir.
Senator BARKLEY. Would you make it an emergency title to be
surrendered back to the Reserve banks when the emergency is over?
Mr. WARBURG. NO, sir; that is a separate point. The first point is
that I should like to see the ultimate purpose defined and the transfer
of powers limited——
Senator COSTIGAN. What length of time do you suggest?
Mr. WARBURG. I would not suggest a length of time. I was asked
by the House committee the other day whether it would not be well
to limit these powers to a period of a year or 2 years, and I said I
did not think so, any more than I would think it wise to say to the
President, "The fleet will be destroyed in 3 years." Wo do not
know how long the war is going to last.
Senator MCADOO. HOW would you determine under this provision,
if it were adopted, when the stabilization had occurred so that your
suggestion would become operative? Would you leave that to a
proclamation by the President?
Mr. WARBURG. Yes. Possibly there should be a time limit as
well as a definition of purpose.
Senator MCADOO. We have in the Reconstruction Finance Corporation Act a limitation upon the time within which the Corporation

GOLD EESERVE ACT OF 19 3 4

195

may do certain things. Would it be preferable to set some time
with a view to having it renewed from time to time by the Congress?
Mr. WARBURG. The equalization fund is a weapon of continuous
economic defense rather than of warfare. It would be unfortunate if
the time limit expired while Congress was not in session. Therefore
I had in mind specifically defining the purpose and limiting the life
of the powers to the time necessary to accomplish that purpose.
Senator MCADOO. YOU would fix a time limit that would expire
while Congress is in session?
Senator BARKLEY. Why not leave it to Congress? Congress can
change what happened heretofore in the way of legislation.
Senator MCADOO. Suppose this economic warfare that you have
mentioned should provoke hostilities by force; do you think it would
be wise to leave this thing uncontrolled in such a fashion if some
extreme situation of that kind should develop?
Mr. WARBURG. Let me put it in this way. I do not think it is
appropriate for me to suggest how you should limit or define the power.
Senator MCADOO. I should like to have your judgment.
Mr. WARBURG. In my judgment the bill does not correlate the
giving of the power or the time limit to the purpose. I think it would
be better if it did.
Senator GLASS. That particular provision of the bill is said to be
presented for one purpose. It provides that the Secretary of the
Treasury can be a general banker. Would you concur in the suggestion that we say "for the sole purpose of stabilization77?
Mr. WARBURG. There is this possibility, Senator, that you could
treat differently the creation of the equalization fund and the rest of
the bill. I can see more reason for complete power in the equalization
fund than I can in deciding how much gold the Reserve System is going
to get on the gold certificates.
Senator GLASS. If any.
Senator WAGNER. With reference to the last question that Senator
McAdoo asked you, "Suppose the economic warfare that we are about
to engage in should lead to other difficulties——
Senator MCADOO. I used a suppositious case; I did not mean to
say that it would.
Senator WAGNER. Has not England been engaged in an enterprise
of that kind for some time?
Mr. WARBURG. Has it not had an equilization fund?
Senator WAGNER. Yes.
Mr. WARBURG. Yes, Senator.
Senator WAGNER. For the purpose of curing the depression?
Mr. WARBURG. I would not so define it.
Senator WAGNER. Was it not for the purpose of aiding its export
trade?
Mr. WARBURG. NO. I think the purpose was to prevent excessive
fluctuations in the currency and to maintain a level in foreign exchange
consistent with the best interests of the whole country, not only in
foreign trade.
Senator BARKELY. That was done by undertaking to boost the
price of other money as compared with the English pound so as to
prevent these fluctuations and so as to enable them to engage in
foreign trade, or any other purpose that they thought was for the
interests of the British nation. Is not that true?

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GOLD EESEEVE ACT OF 193 4

Mr. WARBURG. I think it is commonly thought to be true, but I
do not think it is true.
Senator GLASS. The English deny that that is true.
Mr. WARBURG. I think there is some truth in it, to this extent,
that there have been times when the fund was probably used to keep
the pound from rising too fast. But if you take the average operations of the fund I think you will find that they have endeavored to
prevent excessive trends either up or down and they have much more
often supported the pound than depressed it.
The CHAIRMAN. Soon after they went off the gold standard the
pound was something like $3.20 and it went up to $5.20. So they
did not succeed.
Mr. WARBURG. They could not succeed in regulating the pound in
terms of dollars when we shook our bag of tools.
Senator WAGNER. YOU said something about natural rights that
are not to be interfered with. I think that was the idea. Have we
not got to allow economic law
Mr. WARBURG. I do not think I made such a statement, Senator,
except that I endorsed the Vanderlip-Garfield statement.
Senator WAGNER. It was rather an indefinite expression. I wondered whether you meant by that that there is to be no governmental
interference to see that we have a fair distribution of wealth. That
is really what you had in mind, is it not?
Mr. WARBURG. NO, sir. If this Government is going to set out
to redistribute wealth and can do so in any intelligent way
Senator MCADOO. And a just way.
Mr. WARBURG. And a just way—that is something that I would
not object to, even though I would be one of those that it would be
taken away from.
Senator WAGNER. I sympathize with your view that the monetary
policy alone will not do it. What we have got to do is to get purchasing
power in the pockets of the people.
Senator GOLDSBOROUGH. Will you not let him finish his statement?
Senator WAGNER. I thought you had finished.
Mr. WARBURG. I practically had. I do not think this is a just
method of redistributing wealth.
Senator MCADOO. It would not be a factor in redistributing it.
Senator BARKLEY. What does this bill do that redistributes wealth?
Mr. WARBURG. I did not mean this bill.
Senator BARKLEY. That is what we have before us.
Mr. WARBURG. I was asked a question, Senator.
Senator GOLDSBOROUGH. He was asked a question by Senator
Wagner.
Senator WAGNER. I would like to pursue it by just one or two more
questions.
The CHAIRMAN. Proceed.
Senator WAGNER. YOU stated that unless wages and income increased with prices there would be no benefit?
Mr. WARBURG. I said that there is no benefit in raising the price
level unless such a rise is accompanied by a corresponding rise in
income and wages.
Senator WAGNER. IS it not true that one of our difficulties has
been that there was a great disparity between the income and wages
paid and the price of commodities?

GOLD RESERVE ACT OF 1934

197

Mr. WARBURG. YOU mean, that wages were too low?
Senator WAGNER. Exactly.
Mr. WARBURG. Yes; but that is not affected by this bill.
Senator WAGNER. I understand that. But in order to secure, for
instance, a better wage distribution so as to keep on a par with the
rise in prices, some way must be provided by which labor can secure
higher wages.
Mr. WARBURG. I do not think there is any monetary method by
which that can be done.
Senator WAGNER. What I understood you to say was that you
were opposed to governmental intervention of any kind. In our
N.R.A. we are attempting by section 7 a to give labor an equality of
bargaining power. It is an essential thing which, if given, will enable
labor to secure a better share of the profits of industry.
Mr. WARBURG. That is a realm of economics in which I am an
utter ignoramus. I do not know what labor should or should not get.
Senator GLASS. When we start to redistribute wealth I am going
to insist that Senator Wagner divide his wealth with me, to test his
sincerity in wanting to redistribute wealth.
Senator WAGNER. I do not suggest any such method, but we have
had difficulties before by not distributing proper profits in the form
of wages. I think everybody agrees to that. We ought not to
make the same mistake.
Senator GOLDSBOROUGH. Was not some of it distributed and then
wasted?
Senator BARKLEY. Yes; a few laboring people bought automobiles—and that is a terrible thing.
Senator WAGNER. They invested some of it in securities, also.
Senator KEAN. DO you believe in a free gold market?
Mr. WARBURG. A free gold market would be a logical outcome
when you have international stability.
Senator KEAN. The decrease in the value of the dollar simply
means that you lower the wages of everybody employed, and as long
as they get the same dollar
Mr. WARBURG. Yes, eventually; it does not mean instantly.
Senator KEAN. N O ; but it means that prices of what they have to
eat and what they have to drink and what they have to wear and
what they have to clothe themselves with and pay for rent, and so
forth—when those things go up, the consequence is that labor loses.
Mr. WARBURG. I agree with the principle of that, but I do not
want to go as far as Professor Warren goes.
Senator KEAN. I agree with you; but at the same time we have
hammered the gold dollar down in every way we could for the last
6 months. We have sold exchange, we have bought gold, we have
done everything we could to decrease the value of the dollar. In my
opinion there must be a recovery as soon as we stop that. From the
present level of the dollar, what do you think it ought to be adjusted
at?
Mr. WARBURG. I have stated, sir, that I do not want to take issue
with the President in fixing the range that he has selected, because he
has considered a lot of factors that I did not even know existed. My
own feeling is that that range is too low and that the equalization fund
will have great trouble in swimming upstream.

198

GOLD EESEKVE ACT OF 193 4

Senator KEAN. What will be the injury to the United States, from
your standpoint, in fixing the ratio of the dollar too low?
Mr. WARBURG. What will be the injury?
Senator KEAN. Yes.
Mr. WARBURG. The first injury would be that your equalization
fund would buy a lot of foreign exchange and lose its shirt on it.
Senator KEAN. And the Treasury, not being experts in foreign
exchange, is apt to do that?
Senator GOLDSBOROUGH. Let him give his answer.
Senator WALCOTT. He will answer you fully.
Mr. WARBURG. It might take the form of embargoing gold or
foreign exchange purchased abroad. That would mean that your
equalization fund would be sterilized and could not operate. This is
all on the assumption that the level is too low, and you eventually
accumulate here all the gold in the world, and whatever ills there are
in the maldistribution of gold would be accentuated to that extent,
and you would dislocate your whole scheme.
Senator KEAN. At what price, from your knowledge—and I think
you have a good deal—do you think it ought to be stabilized?
Mr. WARBURG. That is a question I would really rather not answer,
Senator, because I feel this way, that beyond an initial advantage to
be gained from cutting loose from gold, which I should like to have
seen done only with the express statement that we were going back
to gold, but just wanted to disconnect ourselves from other economies;
I do not see much to be gained by devaluation at all, unless it is undertaken by international agreement, and then I do not know whether it
is an effective way of raising world prices, or not.
Senator KEAN. Devaluation of gold simply means that temporarily
everything in the country is out of kilter, and that then gradually
they readjust themselves to the same levels, isn't that about right?
Mr. WARBURG. Assuming that your devaluation is at the wrong
level; yes, sir.
Senator BARKLEY. Has it not been seriously out of kilter, even
without any devaluation?
Mr. WARBURG. Yes.
Senator BARKLEY. It could not be much worse.
Mr. WARBURG. Oh, yes; I think it could, sir.
Senator BARKLEY. By spreading the basis of gold

as the foundation
for money? Could it have been much worse?
Mr. WARBURG. The primary fallacy in the devaluation theory, to
my mind, is that in the first place I do not think money is at the root of
our troubles. I think the break-down of the international monetary
standard was an effect felt long after the war. After it happened, it
contributed to greater disorder. I do not think that the failure of
our money standard is what caused the depression. If you start from
that hypothesis, then you cannot cure the depression by monetary
means.
Senator BARKLEY. DO you believe that there is enough gold in the
world to operate adequately as a basis for currency?
Mr. WARBURG. Yes, sir; and I have set forth exactly how I think
that should be done, in my published letter to Senator Borah,
excerpts of which are before you.
Senator BARKLEY. I do not care to go into that.

GOLD RESERVE ACT OF 1934

199

Senator GORE. Under any system—all the gold there is is all the gold
there is.
Mr. WARBURG. I did not hear you, Senator.
Senator GORE. I say, under any system—this or any other—there
is not any more gold than there is.
Mr. WARBURG. N O ; but you can economize in the use of gold,
Senator.
Senator GORE. And increase its efficiency. Do you think that the
amount of gold just fixes and pegs the amount of production in trade
and business?
Mr. WARBURG. NO, I do not.
Senator GORE. Are there not

various methods of contributing to

the efficiency of gold?
Mr. WARBURG.
Senator GORE.

Yes.

I want to ask you another question. It reverts back
to an observation made a moment ago. Suppose we do devalue down
to 50 cents. If that should realize the theory and the hopes of some
people and double prices, would it not cut wages in two, really, for
the time?
Mr. WARBURG. Certainly; on that hypothesis it would.
Senator GORE. Then this stabilization fund involves both weapons
of offensive and defensive warfare. I would like to know what your
expectation is if we embark on this warfare. Is it that this country
and other countries, out of regard for mutual dangers and damages,
would agree upon some sort of rational adjustment, or would we
embark on a warfare where zero would be the goal. Money would be
devalued here, devalued in England, and devalued in France. It is a
game that two can play at, and zero is the end if they persist. What
would be your expectation as to the reaction that would sooner or
later happen?
Mr. WARBURG. Both possibilities are inherent in the bill. I do
not believe that our creating an equalization fund will lead to a
currency war or race for zero, for the simple reason that every nation
is in the position where it had more to lose by cutting its own throat
than it has to gain by increasing its export trade.
Senator GORE. Or cutting the other fellow's throat.
Senator GLASS. Mr. Warburg, the avowed purpose of all this
business is to restore commodity prices to the level that prevailed in
1926. We were on the gold standard then, were we not?
Mr. WARBURG. Yes, sir.
Senator GLASS. Without
Mr. WARBURG. Yes, sir.
Senator GLASS. Why did

devaluation.

prices reach that level in 1926, when we
were on this so-called "vicious gold standard," and may not, in the
ordinary trend of economic development, reach a higher level without
devaluation?
Mr. WARBURG. I have asked that same question many times,
Senator, and I have never gotten a satisfactory answer. I have also
asked how it was possible, during the period from 1923 to 1929, to
store up the trouble that we did for ourselves, with a relatively stable
price level.. That is a question which the people who believe in the
devaluation theory cannot answer, at least satisfactorily to me.
Senator GORE. At that point, I would like to ask you a question.
The price level of 1926 was agreed upon because it is a sort of average

200

GOLD RESERVE ACT OF 193 4

of price levels from 1922 to 1929. During that period we had the
price level of 1926, and what happened?
Mr. WARBURG. I do not understand your question, Senator.
Senator GORE. I say, the price level of 1926, which seems to be
the ideal, and which seems to have some sort of sanctity in the minds
of some people, is agreed upon because it is the average, so to speak,
of prices from 1922 to 1929, and that is the goal that we want to go
back to. We had the prices of 1926 in 1926, and we had the average
prices from 1922 to 1929, and it certainly was no safeguard against
an unspeakable disaster. Why can it be assumed that returning to
a price level that was at least followed by this disaster would prove
in the future some sort of safeguard against a like debacle?
Mr. WARBURG. I do not think that can be assumed.
Senator BARKLEY. What is your theory as to the cause of the
drop in the price level at a time when all the 77
important countries of
the world were on the so-called "gold standard, including the United
States, England, France, and others?
Mr. WARBURG. It is a long story, which I can attempt to put in a
nutshell in this way.
The change of the millions of people involved in the war, not only
in the trenches, but in war activities, from peace-time occupation to
war-time occupation, was a tremendous factor. The enormous
stimulation of aggregate demand for all kinds of commodities due to
the war; the pouring out of money for nonproductive and purely
destructive purposes; after the war, the going back into peace-time
occupation of those millions; the fact that you had erected plant
capacity for war purposes which was not needed for peace-time
purposes—all this dislocated production, consumption, labor, and
working capital. The dislocation due to that switchover into war
activity and back again put a strain on the monetary system which
that system was unable to support. That does not mean that the
monetary system caused the whole thing. It does mean that the
break-down of the monetary system contributed to the confusion that
then existed.
I do not say that because the monetary break-down did not cause
the whole mess, I would like to reestablish the same monetary system.
I think we can improve the monetary system, but I do not think we
can prevent depressions or cyclical booms by monetary means,
because the secret to that is putting the brakes on in time of boom.
Senator BARKLEY. Why, in your opinion, did it require 11 years
after the war was over for this debacle to occur, traceable, as you say,
to the war? I think the war did have a lot to do with it, but why was
the evil day postponed?
Mr. WARBURG. Because we took all kinds of aspirin and other medicines to make us feel better. We engaged in foreign lending operations. We imposed reparations on a country that could not pay
them, and then we proceeded to lend her the money for purposes for
which the money was not used, and the money is eventually used to pay
reparations. That is a circular proposition which can go on for a
certain length of time, and then it breaks down.
Senator BARKLEY. Economists tell us that during the period from
1922 to 1929, which might be regarded as a normal increase, the business activity and commercial activity of the world increased at an
average of 3 percent a year, while the increase in monetary gold, or all

GOLD RESERVE ACT OF 1934

201

gold, as a matter of fact, amounted to about 1.7 percent per year. Do
you think that disparity between the increase in the quantity of gold
in the world, and the increase in the commercial activities of the world,
had any bearing upon this depression, or the drop in price level, or the
collapse of the world monetary systems?
Mr. WARBURG. The figures as to the production of gold, sir, are
very unreliable. You can get one kind of figures, and you can get the
other kind of figures, and I do not know what to believe. All I can
state as an opinion is this. I am not satisfied that there is a shortage
of monetary gold in the world. Secondly, I am not satisfied that a
shortage of monetary gold will necessarily depress prices if proper
economy is exercised in the use of gold.
Senator BARKLEY. If there is a shortage of monetary gold, and if,
over a period of years, the increase in monetary gold does not keep
pace with the increase in world business, will that not make it necessary to spread out over a larger surface the basis of gold for the
circulating moneys of the world?
Mr. WARBURG. I am not sure I know what you mean by spreading
over a larger basis. Do you mean that you have to use economies in
the use of gold?
Senator BARKLEY. YOU would have to make a given quantity of
gold produce more actual circulating money.
Senator GLASS. Mr. Warburg
Senator BARKLEY. Let him answer that question.
Mr. WARBURG. YOU would have to widen the base of the pyramid.
Senator BARKLEY. Yes; which means devaluation.
Mr. WARBURG. Not necessarily. It might mean any number of
several things. It might mean that you would withdraw your coin
from circulation. It might mean you would reduce the reserve
requirement. It might mean you would adopt a bullion standard.
All those are economies in the use of gold.
Senator BARKLEY. YOU might reduce from 40 to 25 percent the
gold reserve requirements in the Federal Reserve.* One of the means
by which you could do it would be to reduce the gold content of the
dollar, so that, upon the basis of dollars as a reserve, you could have
more money in circulation if that were needed by business.
Mr. WARBURG. Yes; you would have more money, but it is exactly
the same thing as if you were to make 6 inches into a foot. You
would be 12 feet tall, but it would not make you any taller.
Senator BARKLEY. It might bring about a readjustment between
that foot and other things which it measures.
Mr. WARBURG. I do not see that, and I never have seen it.
Senator BARKLEY. If you made 6 inches a foot, then it would not
take so many inches to make a yard, would it?
Mr. WARBURG. NO; but you would be no nearer the ceiling.
Senator BARKLEY. N O ; but you would have more yards.
Senator GLASS. Mr. Warburg, do we do business with gold or on
gold?
Mr. WARBURG. On gold.
Senator BARKLEY. SO, it does not make much difference where the
gold is impounded, whether in the Treasury or in the Federal Reserve
system, if it operates as a basis upon which we operate?
Mr. WARBURG. NO, sir; I cannot draw that conclusion.

202

GOLD RESERVE ACT OF 193 4

Senator WAGNER. I remember in your letter you did say that one
of the prime evils from which we are suffering now is a maldistribution of wealth. Do you recall that sentence?
Mr. WARBURG. He has been talking about the famine of money.
I said we have no famine of money. We have a maldistribution of
wealth.
Senator WAGNER. What do you mean by that?
Mr. WARBURG. I mean by that that the thing he is appealing to in
the masses, namely, the perfectly natural desire on the part of anybody who has 25 cents in his pocket to have some more money, cannot be satisfied by anything you do to the currency.
Senator WAGNER. I agree with you. But you state that at the
present time we are suffering from a maldistribution of wealth.
Senator GLASS. It means that you have more wealth than I have.
Senator WAGNER. What did you mean by that? That is something
that ought to be remedied, is it not? Should it not be remedied, if
there is a maldistribution?
Mr. WARBURG. I cannot answer that, because I do not know
whether there is a remedy. I think we would have a better state if
90 percent of the wealth were not in the hands of 5 percent of the
population, but I do not know
Senator WAGNER. Exactly.
Mr. WARBURG. But I do not know any way to get it into the hands
of the 90 percent of the population.
Senator ADAMS. Distribution of money is one thing, and distribution of wealth is an entirely different thing.
Mr. WARBURG. Yes.
Senator WAGNER. A

better payment of wages, for instance, would
do it, would it not?
Mr. WARBURG. It would tend in that direction, provided you do
not kill the fellow who pays the wages.
Senator WAGNER. Heretofore you have admitted that there was a
disparity in the profits earned and the wages paid, which provided a
great surplus of income which was reinvested and caused an expansion
which made difficulties for everybody. The purchasing power was
not there to consume the goods produced by these expanded industries.
Mr. WARBURG. There have been both kinds of disparities.
Senator WAGNER. Senator Glass is amused, but I am interested
in that question, because it causes suffering. It causes 15,000,000
people to be out of work, and causes 40,000,000 people to suffer from
destitution and starvation just because of this maldistribution of
wealth. That has caused our difficulty. Therefore I am interested
in correcting it.
Senator GLASS. Why should the Senator say I am amused? I employ 172 people and pay them good wages. How many do you
employ?
Senator WAGNER. Not as many as that. But when you made that
statement I assumed—because I know your opinion is worth a great
deal on these matters—that you must have had some idea. If there
is a maldistribution of wealth it ought to be remedied.
Mr. WARBURG. Yes; but there are some evils you cannot necessarily cure.

GOLD RESERVE ACT OF 19 3 4

203

Senator WAGNER. YOU mean that we shall continue with this
destitution and these depressions?
Mr. WARBURG. YOU do not have to have destitution, because you
can take care of that by relief.
Senator WAGNER. IS that the only way to do it?
Mr. WARBURG. I know no way in which you can redistribute wealth
unless you can assume omniscience and omnipotence on the part of
some great fellow.
Senator WAGNER. That is a terrible indictment of our present
system, that we have to continue in this method, with this unemployment, suffering, and misery.
Mr. WARBURG. It does not follow that you have to have misery or
unemployment.
Senator WAGNER. I say it should be corrected. I think it can be
corrected. I feel very confident about it.
Mr. WARBURG. I say that can be corrected, but you cannot correct
a fundamental maldistribution of wealth by any means I know of.
There may be some.
Senator WAGNER. We will call it a better distribution of wealth.
We can provide for a better distribution of wealth.
Mr. WARBURG. By creating employment?
Senator WAGNER. By creating employment and giving them fair
wages.
Mr. WARBURG. Surely.
Senator WAGNER. That is not a very radical proposal, is it?
Senator CAREY. Senator Wagner, may I ask you a question?
Senator WAGNER. Yes.
Senator CAREY. Suppose you raise these wages by the issuance of
more money. How are you going to do away with the disparity
between agriculture and what the farmer buys?
Senator WAGNER. I have not suggested that by this money policy
we can do what I want done. I have not suggested that at all. But
if it is an evil which we have to remedy—and we are trying to remedy
Senator CAREY. We can raise wages, but we have another class
here that we have to raise.
Senator WAGNER. Of course, agriculture. I agree with you on
that.
Senator CAREY. We will not do it by issuing money.
Senator WAGNER. I did not say so. You misunderstood me. I
did not say it was to be done by monetary means.
Senator MCADOO. Mr. Warburg, on the question of maldistribution
of wealth, which, of course, has no direct relation to the measure we
are discussing, but since it has been injected here, I would like to ask
your view on one point only. President Theodore Roosevelt startled
the country about 1904, I think, or somewhere along there, by proposing in a speech he make, that there be a limitation upon the wealth
any one individual might acquire. Do you think there is any virtue
in that—I mean as to future policy?
Mr. WARBURG. It is an idea which, from the social point of view,
appeals to me. I do not know what its full implications would be.
Senator GLASS. It was practiced in Greece 3,000 years ago.
Senator MCADOO. But they did not have very much wealth there
to divide.

204

GOLD RESERVE ACT OF 193 4

Now, Mr. Warburg, one thing more. A very intelligent man the
other day stopped me and talked to me about this bill, and he proceeded on the assumption that we were going to devalue gold to 50
percent. He assumed that we were going to do that, and establish
a 50 percent gold dollar, or the equivalent, by dividing the number of
grains in half, and creating two dollars for one of gold. He said that
he would like to have me tell him what the effect of that would be
upon the paper dollar. I said "What do you mean"? He said
"Well, if it is going to result in doubling each paper dollar too, so
that the man who owns that is going to get two dollars for one, I
would look upon it with favor." I just wanted to know what you
think the effect of devaluing gold to this point is likely to be upon the
paper dollar.
Mr. WARBURG. It certainly is not going to give a man two dollars
who has got one.
Senator MCADOO. Of course not; but I am talking about the
effect on him. Is he going to be benefitted by it?
Mr. WARBURG. It depends on his position. If he is a wage
earner, I should say he would be hurt by it.
Senator MCADOO. I am talking about his sayings, or bank account.
Mr. WARBURG. Anybody who is a creditor in any sense is hurt by
it. The only fellow who benefits by it is a debtor.
Senator MCADOO. HOW is he benefitted?
Mr. WARBURG. Because he owes more money than is owed to him.
Senator MCADOO. If he is a debtor today, I do not see that he is
going to be particularly benefitted by this plan, because, unless he
can earn more money, I do not see how he is going to be benefitted.
Mr. WARBURG. Put it this way. If he owns a house, and has a
mortgage on it, the value of the house, assuming that this theory works
goes up in dollars, and the mortgage remains the same in dollars, so
that his equity is worth more and his mortgage is worth less.
Senator KEAN. But suppose he owns something else, and he is
dependent upon that?
Senator MCADOO. May I finish, Senator Kean?
Senator KEAN. Yes.
Senator MCADOO. What would be the effect upon the collateral
that the debtor has, for instance, against an obligation?
Mr. WARBURG. It depends upon whether it is a bond or a stock.
Senator MCADOO. Both.
Mr. WARBURG. A share, according to the classic theory of inflation, is worth more, and a bond is worth less.
Senator MCADOO. But suppose you have not got anything to pay
the debt with now?
Mr. WARBURG. It does not give you something to pay with that
you have not got before.
Senator MCADOO. Exactly. It does not aid you. A man in such
a position, of course, derives no benefit from it. A man who has a
bank account, all in paper dollars, does not get any benefit.
Mr. WARBURG. It has always been a problem to me why he should.
Senator WAGNER. Mr. Warburg, if it does what it is stated it will
do—and what seems to be conceded—and that is, raise commodity
prices, is not that going to stimulate trade somewhat, and put a man
to work that had not worked before, so that he will get some money
that he did not have before? Is not that the likely thing to happen?

GOLD RESERVE ACT OF 193 4

205

Mr. WARBURG. I do not see why a rise in prices should stimulate
trade, unless profits increase at the same time. I do not see why an
employer would put men to work if he simply had to pay more for his
raw materials.
Senator ADAMS. YOU have to increase purchasing capacity.
Senator MCADOO. He could not make a profit.
Mr. WARBURG. NO, sir.
Senator WAGNER. What

is your theory—that we must have low
prices in order to be prosperous?
Mr. WARBURG. Ultimately what we want is a mass production of
things for which there is a great human desire, at the lowest possible
price.
Senator WAGNER. I think that is true,
Mr. WARBURG. In other words, the demand should be stimulated
for necessities and for near necessities by lower prices.
Senator GORE. SO that people can buy and use the things?
Mr. WARBURG. Yes.
The CHAIRMAN. The

prices may be beyond the cost of production.
Then what happens?
Mr. WARBURG. I beg your pardon.
The CHAIRMAN. Prices may be so low that the man who produces
cannot get enough out of his product to pay the cost of production.
Mr. WARBURG. That means that production costs should be reduced. There is no point in reducing the cost of salt, for example,
because people will not use any more salt anyway. But you can
stimulate the greater use of certain things that are now too expensive—
clothes, for instance.
Senator MCADOO. They should be made cheaper.
. Mr. WARBURG. Yes.
Senator MCADOO. And

in larger quantities, so that the reduced
profit on the larger consumption will be greater than the profit on
the reduced consumption at higher prices.
Mr. WARBURG. In other words, I do not think business recovery
depends upon raising prices. I think some prices should be raised
and some should be lowered.
Senator BYRNES. Mr. Chairman, I am very much interested in
Mr. Warburg's statement, but I wonder if we cannot get back to
the bill. I know he would prefer to express his views about the bill.
Senator MCADOO. He has expressed them, I think, very intelligently.
Senator BYRNES. If he has concluded expressing them, I do not
think he should be disturbed by the members going into other fields,
because we have to get along with this bill.
Mr. WARBURG. There is one point I would like to stress with
regard to the bill.
Senator BYRNES. I would like to have you do that.
Mr. WARBURG. That is the second paragraph of this statement
which is before you in which I say I would like to see the bill amended
so as to contain an outright repeal of the "greenback" section of the
Thomas amendment. I state the reasons for that.
Senator GORE. I would rather try to repeal the law of gravity.
Senator BYRNES. I think your statement is a very clear expression
of your views upon it.
The CHAIRMAN. We are very much obliged to you, Mr. Warburg.
46217—34

206

GOLD RESERVE ACT OF 193 4

STATEMENT OF E. W. KEMMERER, WALKER PROFESSOR OF
INTERNATIONAL FINANCE, PRINCETON UNIVERSITY

The CHAIRMAN. Professor, have you examined this bill?
Mr. KEMMERER. Mr. Chairman, I received your telegram yesterday
afternoon to come down here, and I left a few hours afterwards and
arrived here this morning. I had not seen the bill before, and so what I
have to say will have to be based more on the general subject and on
the President's statement of the plan. I have heard some outlines
of the bill this morning, and I have had an opportunity to glance at
it casually.
As the time is very limited, perhaps I had better start in this way.
Recently I have made a public statement as to what I thought should
be done in the direction of stabilization. That statement has been
published, and is going out in book form today. I have a copy of it
available for this committee if the committee is interested in it.
I also made a public statement, which was published in the New
York Times a few days ago, as to my judgment concerning the Presidents stabilization plan. I can put a copy of that in the record,
which gives my ideas and the reasons.
Now, perhaps I can summarize in just a few words my judgment
upon this question. In the first place, I believe that a prompt stabilization on a gold basis is desirable. I think that the higher the rate
at which we can stabilize the better, because I believe that the present
low price level is but temporary anway, and that in a moderate period
of time, without any devaluation, we would probably go back on the
old gold basis to the predepression price level.
I realize the political difficulties of returning to the old gold basis,
and I think they would be such that there would be a long, drawnout fight, and it would involve a long period of uncertainty, with
continual threats of a breakdown of the gold standard.
You realize that after the Civil War in 1865 it was expected to
get back promptly to the gold basis, and it took 13 years of continual
agitation to get back. England took 7 years to get back after the
World War.
The opposition to deflation, or anything that looks like deflation,
is tremendous. Anybody who advocates going back to the old basis
is now looked upon as a Wall Street Shylock, and politically I recognize
that the prospects of getting to the old gold partity are very small.
So I would say that the wise policy to adopt would be to face that
situation and stabilize promptly at a rate not less than 66% cents.
I think that rate would give us the 1926 price level in a very short
period of years, and I would stabilize at once at that rate.
I would stabilize on a gold bullion standard, not on a gold coin
standard. I would take all the profit that the Government will
realize out of stabilization—I think it should all go to the Government—and I would pay it to the Federal Reserve banks in order to
pay off the $2,400,000,000 and odd of indebtedness of the United
States Government to the Federal Reserve banks, represented in the
form of the certificates of indebtedness and other Government debt
held by the banks. That would make them free. I would not under
any circumstances permit an inflation on the basis of that profit. I
think if we use that $2,000,000,000, or whatever it may be, as a
basis of inflation, as a basis of currency and credit expansion, or as a

GOLD RESERVE ACT OF 19 3 4

207

basis for making a market for Government bonds, we will smash any
gold-standard valuation we attempt.
I do not believe in the commodity dollar as a practical arrangement, and I do not believe that we should try to stabilize between
50 cents and 60 cents, or within any similar range. I think we should
stabilize promptly at a definite rate, and return to the gold standard,
with international cooperation so far as possible, and with complete
convertibility of our money into gold bars on demand.
That is, in a word, my general judgment.
The CHAIRMAN. Then you do not believe in the establishment of
a stabilization fund?
Mr. KEMMERER. I think that any plan of stabilization would make
stabilization operations desirable, but I would have those operations
carried on by the Federal Reserve authorities, and I would have them
get the best expert help they could get for a stabilization committee.
I would operate through the Federal Reserve banks, just as England,
as I understand, operates through the Bank of England. I would
not make it a Government matter, but a Federal Reserve matter.
The CHAIRMAN. What is your view about the Government taking
over possession and title of the gold?
Mr. KEMMERER. I think it would be very unwise. I can see nothing to be gained by taking over the gold and giving certificates that
are not redeemable in gold; and I believe, as a matter of fact, that our
whole gold certificate idea is a false one. It seems to me that we
should not, under existing conditions, have gold coin in circulation,
or gold certificates. I think the ideal arrangement would be to have
only one kind of paper money in circulation in the United States, and
that is Federal Reserve notes. To circulate gold coin directly, or
circulate it by warehouse receipts in the form of certificates, I think
is wasteful and undesirable.
Senator BULKLEY. Doctor, is there any currency in the world today
that is redeemable without restriction in gold at a fixed ratio?
Mr. KEMMERER. Of course, in the last year or so there have been
so many qualifications and hedgings, and so forth, that it is difficult
to answer that. But so far as I know, you have a pretty close approximation to that in Holland, in Switzerland, in France, and in
Belgium. I do not say they are absolutely free now.
Senator BULKLEY. In France it is redeemable only in gold bars, is
it not?
Mr. KEMMERER. That is what I would advocate.
Senator BULKLEY. I am trying to find out whether there is any
currency in the world that is redeemable in coin at a fixed ratio.
Mr. KEMMERER. I cannot speak as to the present situation in
those smaller countries.
Senator BULKLEY. But, so far as you know, there is not any?
Mr. KEMMERER. I just have not any opinion to express on that.
When I speak of the gold bullion standard, I should make one
qualification. I do not believe there is any scarcity of gold in the
world. I think the present apparent scarcity is due to a world
scramble for gold in a time of crisis and depression, when everybody
is scared, and as soon as this scramble is over, as soon as we stop
hoarding gold, as soon as the central banks stop hoarding gold, and
as soon as the Governments stop hoarding gold, we will find that we
have an ample supply of gold, and I believe that as soon as we work

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out of this slough of despond—don't ask me when we are going to do
it—we will go back to the predepression price level, and the tendency
will be for prices to rise instead of fall. For that reason I should say
that prospects are greater for a depreciation in the value of gold
after we get out of this depression, than for appreciation.
If that should be realized—and everyone is desirous of stability
in the value of gold and stability in the price level—then we might
face the situation where prices would be moving upward, as they did
practically the whole time from 1896 to 1929, except right after the
war and a period of comparatively stable prices from 1921 to 1929.
If you should have rising prices, it would be desirable to do something
to increase the demand for gold, to stop those rising prices, because
we want stability of prices, and one machinery for doing that might
be to restore gold coin to circulation and thereby to increase the
demand for gold, and help stabilize prices. So, my thought would
be to go on the gold bullion standard now, and withdraw all gold
coin and all gold certificates from circulation; but if in the future
the gold standard price level started moving upward, it might be
very desirable to restore gold coin to circulation in order to make a
demand for gold. You would thereby throw one more force in the
direction of stabilization.
The CHAIRMAN. Are there any further questions? If not we are
very much obliged to you, Doctor.
Senator KEAN. I think the statement has been very clear.
Senator GLASS. Dr. Kemmerer, you say you have examined this
bill casually. I invite your attention to section 10 of the bill,
which some of us construe into a delegation of power to the Secretary
of the Treasury to engage in the more important functions of the
Federal Reserve banks. I would like to ask if you approve that?
Mr. KEMMERER. I think it would be very unwise for the Secretary
of the Treasury to take over these important functions now exercised
by the Federal Reserve banks. I believe that any stabilization efforts
should be made through the agency of the Federal Reserve banks,
because I am very fearful that if those operations are turned over to
the Secretary of the Treasury, they will get into politics, and politics
will get into them, and they will be utilized to a considerable extent
for making a market for Government bonds rather than for stabilizing
the currency.
I have recently been particularly interested in the studies I have
been making in connection with the German experience, and it is a
rather significant fact, I think, that shortly before Germany stabilized
on the basis of 1 trillipn paper marks to 1 gold mark, when she had
497 quintillion marks of paper notes in circulation, practically all
those notes were secured, mark for mark, by the short-time certificates of indebtedness of the German Reich, and the gold reserve
back of those notes was worth about eight times as much as the
market value of all the notes in circulation at the current exchange
rate on New York.
Senator WALCOTT. That is a good statement for the record.
Senator WAGNER. We are not going to that, are we?
Senator GLASS. It is my understanding, Doctor, that the Federal
Reserve banks, especially the larger Federal Reserve banks, are
operated by trained bankers, and have on their staffs—as in the case

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209

of certain of the New York banks—what they call, at least, experts
in foreign exchange matters. Is that not true?
Mr. KEMMERER. I believe so.
Senator GLASS. That being so, it might be reasonable to assume
that they could more intelligently and effectively engage in these
exchange operations than the Secretary of the Treasury, who may
not be a banker.
Mr. KEMMERER. I agree with that, Senator. I think in an operation of this kind, which involves such large sums, and since we have
not many experts in foreign exchange in this country—we have been
a country whose business has been chiefly domestic rather than
foreign—and since we come in competition with the most efficient
foreign-exchange experts in the world, it is highly desirable that our
Federal Reserve authorities should get the very best experts they
can get to help in this work. I, for one, am not as much concerned
over the danger of our being exploited by the stabilization funds in
other countries, as some people are. I am inclined to think that a
good share of the world wants to get stabilized, and I am inclined to
think that if we went out for it, we could get cooperation with the
other countries. I think that the danger of our being exploited in
foreign trade, in the present conditions of nationalism, and the small
amount of foreign trade, actual and prospective, is rather small. I
think we are putting up a great bugaboo there that we are unduly
scaring ourselves with.
The CHAIRMAN. What do the Federal Reserve banks do now
towards stabilizing exchange of the dollar?
Mr. KEMMERER. The Federal Reserve banks have not operated
very much, I understand, in the foreign field. I do not know that
they do at all, but they do have their open-market operations, which
they have carried on extensively.
Senator GLASS. They are not authorized by the law to do that.
Mr. KEMMERER. I think they should be.
Senator GLASS. And they have done that when they were not authorized by the law to do it.
The CHAIRMAN. I understand you are in favor of them doing it.
Mr. KEMMERER. I am, very emphatically.
The CHAIRMAN. What would be the difference between a valuation of 66%, and 60?
Mr. KEMMERER. In one of these memoranda which I wish to put
in as part of my evidence, if I may, I have figured out just what the
differences would be on certain assumptions. If you take 50, let us
say, and take the price level in February of last year, shortly before
we went off the gold standard, as 100. There has been no change
worth mentioning in the value of gold since last February in the
world markets, as measured by the purchasing power of gold in
France, Belgium, Holland, and Switzerland. It has been practically stable.
Senator KEAN. In other words, Doctor, what you mean is this——
Senator GLASS. Let him finish.
Senator KEAN. YOU mean the prices of commodities as measured
in gold have remained the same?
Mr. KEMMERER. That is the only way I know of measuring the
value of gold, namely, by what it will buy.
There has been practically no change in the value of gold in the
world's free markets, or relatively free markets, since last February.

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If we now decide to call a 50-cent piece of February a dollar, and if
there should be no change in the value of gold for some time to come,
I should say ultimately-—it will take time, months or perhaps years—
ultimately our price level would be twice as high as it would have
been if we had called 100 cents a dollar; and if my expectation is
realized, that the 1926 price level would come back anyway, ultimately, as soon as we stop hoarding gold, then our price level would
not only go up to 200 as compared with February, but it would go up
a great deal further.
That would mean, then, that we would settle back on a price level
at 200 to 300, as compared with February, a price level very much
higher than 1926. I think the figures work out, on a 50-cent basis,
to 111 percent higher, but I will have to check that.
If we devalued the dollar, and got a 50-cent gold dollar, and then
we depreciated the value of gold decidedly, and that became a less
valuable dollar than 50-cent gold is now, the serious thing to me is
that we are going to cut down the value of the dollar probably by
50 or 60 percent—possibly more. That is assuming we make our
stabilization effective, and our inflation does not run away. I think
there is a good probability that it will run away with us, but if we
make it effective, and it does not run away, it still would wipe out a
very large percentage of the 100 billions of life insurance outstanding
in the United States today; of the billions and billions of endowments of all our great universities and colleges, hospitals, and public
welfare institutions; our pension funds; our savings-bank deposits;
and of the investments of practically all the people who are creditors
on long-time accounts. One of the most careful recent estimations
fixes the total figure at 134 billion dollars.
Senator GORE. What figure? I did not understand.
Senator WALCOTT. The destruction of values.
Mr. KEMMERER. I do not say the destruction will be 134 billions.
I say the amount of long-time debt outstanding is 134 billions. It
would not be destruction of values. It would be a transfer of values,
a transfer from the creditor to the debtor. The greatest creditor in
America, gentlemen, is not the private bondholder, is not the rich
man. The greatest creditor in America is represented by our great
public-welfare institutions, the hospitals, the universities, our insurance companies, the great cancer institutes, and scientific institutions.
Those are our great creditors. The greatest debtors in America today—if you were to group the various debtors together, you would
find the greatest single class of debtors today are the stockholders of
our corporations.
Senator BARKLEY. According to your theory, then, we never could
change the gold content of the dollar, because there will never be a
time when it will not affect somebody who is a creditor.
Mr. KEMMERER. It is a question of degree, Senator. There is
nothing you can do with the dollar that is not going to hurt some
people and help some.
Senator BARKLEY. It is not your theory that when the Constitution conferred upon Congress the power to coin money and regulate
the value thereof, it meant it had to do it at once after the Government started, and could never change it again?
Mr. KEMMERER. Not at all.

GOLD RESERVE ACT OF 19 34

211

Senator GLASS. DO you think that it was in the minds of the framers
of the Constitution that it could be done very frequently from time to
time?
Mr. KEMMERER. I do not. Of course, we have changed the gold
value of the dollar deliberately twice in our history, and in neither
case did it amount to anything so far as its bearing on debts was
concerned. Once was in 1834, when we reduced it about 6 percent,
and there was no gold in circulation to speak of anyway. Our coins
were practically all silver, as we were on bimetallic basis, and it was
an effort to bring gold back.
The next time was in 1837, when we changed it a small fraction in
order to get an easy ratio to work with, and this change did not amount
to anything. We have never changed the gold content of the dollar
in such a way as to affect debts.
Senator GLASS. Doctor, before I leave—because I have got to
leave soon——
Senator GOLDSBOROUGH (interposing). May I make a motion
before that?
Senator GLASS. Just one moment. Let me ask you: What has
been your experience, your connection with monetary values, in
order that the record may show that you know what you are talking
about, because you simply gave your name? The fact is I recall very
distinctly that your were in initmate contact with those of us who
were framing the Federal Reserve Act in 1913. Isn't it a fact that you
have been called on to set up banking systems in the various countries?
Mr. KEMMERER. Yes, Senator. I have served in one form or another
as currency and banking expert, or am serving now, for 13 different
countries, and in a good many of them we have reestablished, or
established anew, the gold standard, after a long paper-money experience, and in nine of them we have established or completely reorganized central banks and reorganized the general banking system.
The countries in their order, if I may just go over them hurriedly,
are: the Philippine Islands, Mexico, Guatemala, Colombia, Germany
with the Dawes Commission, Union of South Africa, Chile, Poland,
Ecuador, Bolivia, Colombia second time, China, Peru, and I am now
serving for another country but it has not been made public yet.
Senator GLASS. YOU are also Professor of Political Economy at
Princeton?
Mr. KEMMERER. I am Professor of International Finance.
Senator GLASS. I just wanted the record to show that so that we
might know who was talking to us.
Senator GORE. NOW, Doctor, if we devaluate the gold dollar down
to 50 cents and that should realize a theory of doubling prices, that
would have the effect of cutting half in two all the wages, would it not?
Mr. KEMMERER. I do not think that would, Senator. I think what
would happen would be that prices would move up slowly and irregularly and wages would lag behind. There would never be an exact
cutting in half, but there would be a long time before the slacks were
taken up.
Senator GORE. Bat I was assuming that these effects would come at
once. You would devaluate down to 50 cents—because I want to
get this picture in the record?
Mr. KEMMERER. Yes,

sir.

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Senator GORE. Prices double, and if they double then wages would
be cut half in two, real wages. Of course, I understand they would lag
and would advance, adjusting themselves sooner or later, but for the
time being it would cut them in two, would it not, practically?
Mr. KEMMERER. Well, of course, the gold value of the dollar is
already down to about 60 cents.
Senator GORE. Yes.
Mr. KEMMERER. A good deal of that has already been done.
Senator GORE. Yes. Now then, wouldn't it cut savings accounts
half in two also, or practically so?
Mr. KEMMERER. What happens in those cases, as I interpret it,
Senator, is that savings accounts and life insurance and bonds do not
go down, but they stay where they are and everything else goes up.
Senator GORE. That is the point. They are not elastic. The
nominal amount is fixed.
Mr. KEMMERER. Exactly. For example, I spoke of the German
situation. When Germany stabilized at a trillion to one wages had
gone up by the hundreds of billions.
Senator GORE. Yes.
Mr. KEMMERER. And common stocks had gone up by hundreds of
billions, but the Government debt, the Government bonds of Germany, had not gone down at all; they stayed right there—they
stayed put.
Senator GORE. I was coming to that in a moment. This would
also have the effect of cutting down life insurance policies or their
value?
Mr. KEMMERER. Yes, sir.
Senator GORE. YOU stated

a moment ago that the largest group of
debtors in the United States was the stockholders in the corporations
of the country.
Mr. KEMMERER. Yes.
Senator GORE. Then the

largest class of beneficiaries of this plan,
if it realized the theory, would be the stockholders in the corporations?
Mr. KEMMERER. Yes, sir.
Senator GORE. And the stockholders

it would benefit most would
be those in the corporations that had the largest bonded indebtedness,
would they not?
Mr. KEMMERER. Yes, sir.
Senator GORE. And particularly

corporations that produce things
to sell instead of rendering services?
Mr. KEMMERER. Particularly industrials as against public utilities,
for public utilities could not raise their rates proportionately.
Senator GORE. NO. They are petrified.
Mr. KEMMERER. Yes.
Senator GORE. SO that

this would enhance the equities of the
stockholders in the corporations of the country?
Mr. KEMMERER. Yes; that is the universal experience.
Senator GORE. Yes; at the expense of the bondholders.
Mr. KEMMERER. Yes. That is, the speculative class would be
benefited at the expense of the most conservative creditor classes.
Senator GORE. The investing class.
Mr. KEMMERER. The investing class, whom we try to protect by
trustee laws and governmental regulations and all sorts of things.
We are taking the money from those classes, whose investments we

GOLD EESEKVE ACT OF 1934

213

have restricted, and put it in the hands of the speculative class, to a
great extent. Of course, there are lots of exceptions.
Senator GORE. At the expense of the investing class?
Mr. KEMMERER. Yes. We are playing havoc with our great
universities and private endowments, and when their endowments are
gone, if they are gone, if they are paid off in a cheap dollar and those
endowments are reduced, it is a very serious question as to who is
going to reendow them. The prospects are pretty bad. I think you
will all agree that we are not going to permit rich men to make the
money in the future and to accumulate it, as we have in the past, and
those great privately endowed public welfare institutions are in
danger of passing over to the State or passing out of existence.
Senator GORE. If prices double, as we assume, or advance as we
assume, wouldn't that necessarily result in substantial increase in
taxation?
Mr. KEMMERER. Yes; of course. As prices go up the Government's
expenses go up, as they have done in every case, and you have either to
increase the taxes or float more and more money, and as you do that
you wipe out your indebtedness, but you cannot finance the Government permanently just by floating credits or paper money into circulation. Sooner or later you have got to tax.
The CHAIRMAN. What are you going to do with this situation,
Doctor: Statistics show, I think, that public and private debts have
increased from a thousand to two thousand percent since 1922?
Mr. KEMMERER. I do not know about those figures. But I
do know that the present high value of gold and the present low price
level has put a burden on many debtors, and I think it is a serious
thing.
But I would call your attention to two or three facts in that connection. One is that we have had only 5 years, and that is enough-—
from 1896 to 1933 we had almost continually rising prices, except for
the slump in 1920 and 1921, or stable or prices. In two thirds of the
years from 1896 to 1933 prices were rising and the debtor was
gaining during all that time at the expense of the creditor, unlike the
period before. Before 1896 he was losing for about 23 years.
So that a very large part of the debts, long-time debts now outstanding, have been in process of having their interest and principal
paid over years and years in a less valuable dollar than the dollar that
was borrowed.
And the second point that I would make is this: I believe that the
evidence is very strong that this present low price level, even if we
should not devaluate the monetary unit, would be but temporary, and
so those harships would be merely temporary hardships, that would
be wiped out if we moved back by natural courses to the 1926 level.
Now, that is debatable, and I appreciate that.
Senator BULKLEY. IS it a fact that all of these endowments that
you have been speaking about are invested in bonds and other fixed
obligations and not at all in real estate or corporate stock?
Mr. KEMMERER. I would not say all, Senator, but I find that the
figures show that an enormous portion of them are in bonds and
mortgages, certainly three fourths or more: There are a few institutions that have some corporate stocks, and all have some real estate.
For example, at Princeton University we have some of our endowment

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invested in our dormitories, but the great bulk of the endowment in
all those institutions is in bonds and mortgages.
Senator GORE. One more question and I will be through.
Mr. KEMMERER. Yes, Senator.
Senator GORE. Don't you figure that the crash of 1929 was due
more to the excessive use and abuse of credit than to any deficiency
in the world monetary stock of gold?
Mr. KEMMERER. I do not think there is any evidence at all of a
deficiency in the world output of gold.
If I may just make a statement—I have it right here, I think.
I have been working in that field a little, and I believe I can give you
a statement I would like to put in the record on that.
The Federal Reserve Board estimates the world stock of monetary
gold in the hands of central banks and governments at the end of
1921—this is round numbers—at 8 billion 23 million; at the end of
1929 at 10 billion 297 million.
This represents an average annual increase (geometric) of about 3.2
percent. For the 19 years 1913 to 1932, covering this whole period,
this world stock of monetary gold increased 144 percent, representing
an average annual increase (geometric) of 4.8 percent. The studies
of Dr. Carl Snyder of the New York Federal Reserve Bank covering
the principal commercial countries of the world for the period 1865
to 1914 show a rate of increase in the physical volume of production
of the basic commodities, tons, bushels, yards, and so forth, of approximately 3.15 percent a year. That is where your monetary gold
increased at an annual rate of 4.8 percent. The annual rate of increase was only 1.86 for basic commodities.
That is, the world stock of monetary gold since 1913 had increased
much more rapidly than the world production of basic commodities,
and meanwhile there have been enormous economies in the use of
gold. For example, if you say that a dollar of gold in actual handto-hand circulation does one unit of money work in a year, that same
dollar of gold used as a reserve in our Federal Reserve banks, with
the credit structure that is built upon it, and the velocities at which
our deposits circulate as compared with money, would have its efficiency increased about forty fold.
The world is economizing in the use of gold through developing
central banks and through increasing use of checks and through the
various devices that we have for economizing gold—when we do that,
as we have been doing it, on a large scale, in recent years, we have
tremendous possibilities for increasing the monetary efficiency of gold.
The great trouble now is that the world, instead of using its gold,
is hoarding it, and there is a world scramble for gold in the midst of
this depression. Everybody is scared, and even the countries that
are off the gold standard are piling up gold in their central banks and
not using it. Things are not moving. Bank deposits are not moving. Money is not moving. It is hoarded, or relatively hoarded.
And if we once get confidence restored in our currency and in our
business, and things begin to move again, why, we will find we have
gold and gold in abundance.
Senator GORE. What is your definition of "inflation", Doctor?
Mr. KEMMERER. The word "inflation" is a word that is used in a
variety of meanings, and one cannot say that one is correct and another
is false. But I have found the most workable definition of "inflation "

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215

to be that inflation exists in any country whenever the supply of money
and of deposit currency circulating through checks increases relatively
to the demand for circulating media as represented by the physical
volume of business to be done, in such a way as to bring about a rise
in the general price level.
Now, in interpreting "supply of money" and "supply of deposit
currency" you must always interpret them in terms of the velocities
at which they circulate. Just as the supply of freight cars on a railroad depends not only upon the number of cars but the speed at which
the freight cars can and do move, so the supply of money and deposit
currency depends upon the number of units you have and the velocities at which they move.
As a matter of fact, we have about 18 percent more money in circulation today than we had in the boom times of 1926. We have from
two thirds to three fourths as many bank deposits subject to check.
We are doing probably only about 60 to 65 percent the physical
volume of business. We are doing it at a price level only 75 percent
as high as it was in 1926, which means we have enough money and
bank deposits subject to check to give us a price level now much
higher than the price level of 1926. But the trouble is it is not moving. Our bank deposits subject to check are moving at less than
half the rate they were moving in 1926 and 1929.
We have the money, we have the bank deposits, but they are not
moving because everybody is scared. And as long as the public is
scared, afraid to make their investments, afraid to go ahead, as long
as the people upon whose initiative we depend for recovery are afraid,
things are not going to move—unless they become afraid of the
dollar; and, if they once become afraid of the dollar, if you once have
a real flight from the dollar, the velocities, instead of moving at this
rate, will move the way they did in Germany and France and Austria
and a good many other countries during their post-war inflation.
They will simply go off the map. They go from perhaps 20 or 30
times a year up to thousands of times a year. And nothing can stop
them. That is mass psychology.
Too much of the interpretation of this money question has been
mechanical. By increasing the amount of money and increasing
bank deposits, it is said you are going to raise prices. But we have
found from the experience of the last year, that to increase the volume
of money by artificial means breaks confidence, and the more you
pump into circulation if people are afraid of the business situation,
the lower the velocities, and the decline in velocity more than compensates for the increase in volume, and you have actually falling
prices.
But that only lasts so long as the people have confidence in the
money. If they once lose confidence in the dollar and they think it
is going down and they begin to unload it, then you have the flight
from the dollar, and people draw their money out of the banks.
They want to get it in goods, and they want to get it in real estate.
They want to get it out of the country, in anything, because its value
is going down; everything else is going up. So you have bonds
dumped, and you have bank accounts dumped, and the man spends
his money as rapidly as he can to get rid of it before its value goes
down. Your velocities go up many-fold. If your velocities go up
fivefold it is just equivalent to multiplying your circulating media

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GOLD RESERVE ACT OF 193 4

fivefold, and in Germany the velocities went up from perhaps 30 01
40 times a year to many hundreds of times a year. Money circulated
several times a day. People rushed to buy anything.
Senator TOWNSEND. Are you familiar with whether or not we have
had a flight of capital from this country already?
Mr. KEMMERER. I know we have had a flight of capital, and I suppose it runs up to pretty substantial figures, but I don't know how
much it is. Of course, we have adopted various means to keep it
from going out. We have been more or less successful, perhaps less
rather than more.
The CHAIRMAN. DO I gather, Doctor, that you favor stabilizing
the price level rather than stabilizing the dollar?
Mr. KEMMERER. I believe that a stabilized price level is highly
desirable, but I believe that the best method, taking human nature
as it is and politics as it is, the most promising method of stabilizing
the price level that we could have would be a return to the gold
standard on the gold bullion basis, the strengthening of the Federal
Reserve banks, cooperation of our own Federal Reserve banks with
the banks of other countries in the direction of stabilization, and
moving forward from the historic gold standard by improvement in
international cooperation, rather than by trying to throw overboard
the historic gold standard. I think the historic gold standard is
defective, it is far from perfect, but I think it is the best we have
had, and the best hope for the future is not to throw it overboard
but to go back to it in an improved form, and then by international
cooperation, through central banks and every way possible, try to
make that standard a better standard.
The CHAIRMAN. Let me call your attention to this situation: We
were on the gold standard. We had a Federal Reserve System that
we thought was ideal and would protect the country against any
collapse. In October 1929 there was a depreciation in the value of
securities on the New York Stock Exchange of 29 billion dollars.
There was depreciation in October 1930 of the value of securities on
the New York Stock Exchange of 20 billion dollars. That meant a
depreciation of 49 billion dollars, and there are only about 50 billion
dollars of real money in all the world.
Now, then, that came under those circumstances. How can you
account for that, if that Federal Reserve System is so sound and the
gold basis is so sound?
Mr. KEMMERER. I do not think that stock market collapse was a
monetary collapse at all. I do not think it was due to the breakdown of the gold standard. I might equally say that from 1921 to
1929 we had in this country the most stable price level probably this
country ever had. The wholesale prices, the general price level, the
cost of living, were very stable. We did have a wild speculative security market in the latter part of the time, but the strange thing about
it was that that was more or less pocketed. The commodity price
level and the wage level moved along pretty evenly, but funds were
drafted off and we permitted a runaway stock market.
Now, the trouble was not with the currency. In fact, part of that
speculative fever was due to an attempt to expand the currency and
failure to recognize the fundamental economic forces that were at
work, and unwillingness to recognize that there was a danger of
inflation that we ought to have seen. We probably should have put

GOLD RESERVE ACT OF 1934

217

up our discount rate faster. We probably should not have gone as
far as we did in open market purchases in order to maintain that
market.
But I do not think that our trouble was or is primarily monetary.
Senator KEAN. DO you think at that time if the Federal Reserve
bank had really gone ahead and put up the prices for money they
would have stopped that speculation?
Mr. KEMMERER. I would not go so far as to say it could have
stopped the speculation. I think the Federal Reserve authority, if
they had had the ability—and I do not know to what extent they
were influenced from Washington; I have heard various reports, I do
not know—but if they had been free and had been courageous I think
they could have done a good deal to have checked the speculation.
Whether they could have done enough or not, that is another question.
I do not know.
The CHAIRMAN. I think now we better take a recess until half past
2, and resume the hearings at that time.
(Accordingly, at 1:45 p.m., the committee took a recess until 2:30
p.m. of the same day.)
(The additional matter submitted by Mr. Kemmerer is here printed
in full, as follows:)
[New York Times, Jan. 16]

While, in a time like this, when healthy economic recovery is being retarded by
monetary instability and uncertainty as to the future value of the dollar, any
step in the direction of stabilization is to be welcomed, and while all the profits
realized from any devaluation plan that may be adopted should clearly go to the
whole Nation as represented by the National Government and should be used exclusively by the Government for making the stabilitzaion plan effective and for
paying off the national debt, there are a number of features in the administration's
stabilization plan that are open to criticism.
These features include its theory that the country's gold reserves should all
belong to the Government, instead of the Federal Reserve banks; its theory of
the relationship of silver to stabilization; the implied commodity dollar feature
of the plan, and the very low range of rates between which the administration
proposes to stabilize.
It is this last feature of the plan, providing for stabilization between 50 and 60
cents gold, upon which public attention should now be concentrated, and it is
to this feature of the plan that this article is devoted.
In my judgment, the proposed range of possible stabilization rates is too low
and, if adopted, would cause great permanent injustice to the Nation's present
creditor classes, who constitute many of the most worthy people and institutions
in our country. It would also impose heavy temporary losses on practically all
classes of labor.
VALUE OF GOLD ITSELF UNCHANGED

The gold standard in the United States was actually discontinued early last
March, although it was not legally !given up until April. February 1933 was
accordingly the last month during which we had a simon pure gold standard
in the United States: namely, a standard under which all of our different kinds of
money were maintained equal in value, dollar for dollar, with the value of a
fixed quantity of gold in a free gold market.
From February 1933 to the present time, the value of gold itself, as measured
by its purchasing power over goods in gold-standard countries like France,
Holland, Belgium, and Switzerland, has remained practically unchanged.
Such changes as we have had, therefore, since February, in the value of our
American paper dollar, are not due to changes in the value of gold itself, but to
changes in the value of our paper money.
Assuming for the moment, for the sake of the argument, that the present high
value of gold in the world's markets will be continued indefinitely, or, in other
words, that the present low commodity price level in gold-standard countries
has come to stay, except to the extent that there are debasements of gold mone

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tary units, a 60-cent American gold dollar should give us ultimately a general
price level 66% percent higher than that of last February, and a 50-cent gold
dollar should give us ultimately a price level twice as high as that of last February.
PRICE RISE OF 86 PERCENT POSSIBLE

Obviously, if we decide to call a 50-cent piece a dollar, sooner or later prices
will be twice as high as they would be if we were to call 100 cents a dollar, provided there were no change in the value of the gold itself which these 50 cents or
these 100 cents represented.
On the basis of a 60-cent gold dollar the general price level would ultimately
be 56 percent higher than it is now and 21 percent higher than it was for the
so-called "normal" year 1926.
Taking the lowest stabilization rate suggested by the President, namely, a
50-cent gold dollar, the general price level would ultimately be about 86 percent
higher than it is now, and about 45 percent higher than it was in 1926.
In arriving at these conclusions, we have assumed that the value of gold itself
would continue at the very high level now prevailing. This is very improbable.
The present abnormally high value of gold is largely the result of a world-wide
clamor for the yellow metat for purposes that amount to practical hoarding
throughout the world in a time of universal economic depression.
Gold was comparatively stable in value during the S}^ years ending with the
crisis of 1929 and, except for the latter half of the year 1920 and the forepart of
1921, the value of gold throughout the world was depreciating most of the time
from 1896 up to 1921.
NO SIGN OF ENDURING SCARCITY

The world is producing more gold now than ever before in its history. For
over a generation its stock of monetary gold has been increasing at a much more
rapid rate on the average than its production of basic commodities. It has,
however, in recent years been realizing enormous economies in the use of monetary
gold and is in position now to use its monetary gold much more efficiently than
it ever did before.
There is no evidence of an enduring scarcity of gold and, when we once work
our way out of the present depression and begin to use in a normal way the gold
we actually have, instead of hoarding it, we will find that there is an abundant
supply and that, even without any devaluation of gold monetary units at all,
the commodity price level in gold-standard countries would have returned to
what it was during the 8}£ years of comparative stability ending with the crisis
of 1929.
A return of gold to its 1926 purchasing power value would mean a decline in
the present value of gold by about 22 percent, or a further rise in our general
price level of about 29 percent. On this assumption, if we should adopt a 60-cent
dollar, the general price level after the stabilization plan became finally effective
and the world finally worked its way out of the depression would be approximately
72 percent higher than it is now, and 27 percent higher than it was in 1926.
WARNS DROP MAY GO TOO FAR

On the same assumption, with a 50-cent rate of stabilization, the general price
level would be approximately 111 percent higher than it is now and 58 percent
higher than it was in 1926.
A price level twice as high as at present would mean a dollar only half as
valuable as now, and a price level 111 percent higher than the present one would
mean a 47-cent dollar, as compared with our present one; while a price level
58 percent higher than that of 1926 would give us a 63-cent dollar, as compared
with the dollar of 1926.
On any one of the above assumptions there would be an enormous depreciation
in the value of our dollar. This depreciation would go altogether too far in
reducing the burden on the debtor classes (which are admittedly now unduly
heavy), at the expense of the creditor classes.
People want money only to buy things with and, if the purchasing power of
the dollar is greatly reduced, or, in other words, if the prices of the things people
buy are greatly increased, the public suffers proportionately, unless and until
their accumulated savings and their incomes rise sufficiently to compensate for
the rise in prices.
There are, however, some very important kinds of savings and of income that
do not rise at all—or at least to any considerable extent—as the value of the

GOLD RESERVE ACT OF 19 34

219

dollar declines, or, in other words, as prices and the cost of living rise. And there
are other kinds of income that increase, when prices and the cost of living increase,
but much more slowly. These incomes are laggards, and it takes them a long
time to catch up with a rapidly rising cost of living.
INFLATION IMPOSES PERMANENT LOSS

In the first class, namely, the class representing savings and incomes that do
not rise appreciably as the dollar depreciates, inflation imposes a permanent
loss on creditors. In this class are such credits as life-insurance policies, of which
the amount outstanding in the United States today is over $100,000,000,000;
bonds and mortgages, namely, the forms of securities in which are invested much
of the endowments of our colleges, hospitals, public libraries, research laboratories, and other public-welfare institutions, and of our savings banks; also practically all pensions and annuities.
The owners, or the beneficiaries, of such credits are the creditors whose capital
and income would be permanently reduced by a reduction in the value of the
dollar, for these obligations are payable, principal and interest, in a fixed number of dollars, regardless of the value of the dollar. They do not rise like the
price of commodities, of real estate, and of common stocks as the dollar depreciates.
If the proposed plan is carried through, these people and institutions will suffer
permanent losses that will amount to tens of billions of dollars. It is a significant
fact that the facer value of the life insurance outstanding in the United States
alone is approximately 12 times as great as that of all of the farm mortgages in
the country.
HOLDS WAGE EARNERS WOULD SUFFER

The second class that would suffer heavily from such a great reduction in the
value of the dollar is our great laboring class, including both skilled and unskilled
labor, and our so-called "white collar" working class.
Both economic theory and numerous experiences with monetary depreciation
in this country and abroad show and show emphatically that, when the currency
depreciates, wages lag behind prices and the cost of living on the rise, and, until
the price adjustments to the new and depreciated monetary unit have been completed and the laggardly wages have finally caught up to prices, which usually
takes several years of time, the laboring classes suffer.
Their costs of living rise faster than their incomes, while the value of their
savings and of their life insurance declines, so that increasing demands are made
upon them to make provisions for the inevitable "rainy day."
Even when these people have mortgage debts which they can pay off in a less
valuable dollar they frequently find that after they have met the increased current
expenses due to the depreciation of the dollar they have even fewer dollars than
before for making payments on their mortgages.
In view of these facts, the public, in my judgment, should oppose, and oppose
vigorously, such a drastic reduction in the gold content of the dollar as the one
which the administration is now proposing. Some reduction is probably a political necessity, but a reduction so great as 50 percent, or even 40 percent, is altogether too large.
A reduction of one third would be the maximum that should be considered at
all, and the reduction should be substantially smaller than this if politically
possible.
The subject is one of momentous importance, involving the welfare of the
entire American people for generations to come, and the public should speak out
vigorously its judgment in the matter before it is too late.
T H E WAY BACK TO GOLD

Monetary instability is blocking prosperity—deflation to old gold parity of
100 cents is politically impossible—prompt stabilization at 66% cents would be
a strong impetus to enduring recovery.
MONETARY INSTABILITY AN OBSTACLE TO ECONOMIC PROSPERITY

Numerous experiences in this country and abroad have shown that monetary
instability, accompanied by widespread fear as to the future value of the monetary
unit, is a serious obstacle to economic prosperity. Take, for example, 2 com-

220

GOLD RESERVE ACT OF 193 4

paratively recent periods of monetary instability in the United States, the 1
covering the 13 years of our depreciated and fluctuating greenback standard
immediately following the Civil War, from 1866 to 1878, inclusive, and the
other covering the 7 years from 1890 to 1896, when the Bryan agitation for
free silver was active.
According to Thorp and Mitchell's Business Annals, for the first period of 13
years, 4 years were prosperous, 2 were prosperous part of the time and depressed
part of the time, and 7 were years of depression. For the second period of 7
years, 1 year was prosperous, 2 were partly prosperous and partly depressed,
while 4 were years of depression. Nearly every country in the world experienced
an extensive inflation and great monetary uncertainty during the World War
and for a few years immediately after. The world-wide business collapse of
late 1920 and early 1921 was one of the prices paid for this inflation. After these
experiences the practically universal demand for a speedy return to the gold
standard throughout the world and the actual return of most of the leading
countries to that standard during the succeeding 8 years are evidence of widespread dissatisfaction with managed paper money currencies.
The reason why monetary uncertainty is an obstacle to business prosperity
is simple. All business looks toward the future. Most business is done on
credit and a large proportion of it on long-time credit. Practically all business
contracts are in terms of money, and when the currency is being inflated (or
deflated), the prices of the various elements that enter into any business, such as
the prices of raw materials of different kinds, the prices of machinery and of building materials, the wages of labor, and taxes respond very unevenly and with
widely different degrees of lag to the inflation or deflation process. The extent
of these responses, moreover, and the time they take place cannot be predicted
with even a moderate degree of certainty. Under conditions of inflation, few
responsible business men want to make positive commitments for the future, and
few people with money are willing to lend it on long-time account through the
purchase of bonds or otherwise, so long as there is uncertainty as to the value of
the dollar in which these debts will be paid in the distant future.
At times when the prospects of inflation are strong, as they were in the United
States in the late spring and summer of 1933, there may be a feverish business
activity in certain lines due to the anticipation and discounting of rising prices,
but such "prosperity" is not enduring, as we have recently learned to our sorrow.
Not until we can establish firmly a monetary standard in which the people upon
whose initiative we must depend for economic recovery have strong confidence,
can we expect an enduring and orderly prosperity. Putting this idea bluntly,
it may be said, the sooner we return to the gold standard the better.
ANY STABILIZATION PLAN SHOULD INSPIRE STRONG PUBLIC CONFIDENCE

Any stabilization plan to be successful must inspire strong public confidence.
There should be no qualifications, no "ifs" or " a n d s " about it. It should be
definite, positive, and permanent. If the Government can stabilize de facto,
it can even more easily stabilize de jure, because the public will not have full
confidence in any stabilization plan if it sees that the Government itself is
wavering and is not willing to take the responsibility of committing itself positively
and permanently to carrying the plan through.
THE WAY TO STABILIZE IS TO STABILIZE

The frequently heard talk about waiting until a currency reaches "its natural
level" before stabilization is a fallacy. It has been my privilege to assist 11
different countries in stabilizing their currencies on a gold basis, and in every one
of them there was talk of a "natural level," but no one has ever shown, so far
as I am aware, just what the natural level of prices is under a depreciated paper
money standard or how it is to be determined. In the days of our depreciated
greenback standard, when there was much discussion of the time for resuming
gold payments, there arose a popular slogan, for which Salmon P. Chase was
apparently responsible, that "the way to resume is to resume." A slogan which
might well be adopted today is: "The way to stabilize is to stabilize."
ARGUMENTS OF THOSE WHO FAVOR A DEFLATION BACK TO THE OLD GOLD DOLLAR

There are today a number of economists and men of prominence in the financial
world—men whose judgment on currency matters is worthy of great respect—
who believe that the wise policy to follow is to reflate our currency back to the old

GOLD RESERVE ACT OF 1934

221

gold dollar. This is the policy we followed with the greenbacks after our Civil
War and which Great Britain followed, mistakenly, according to the judgment of
most of her leading economists, with the pound sterling after the World War. In
our case we required 13 years to accomplish it, and in Great Britain's case it took
7 years. In both cases the process was a very painful one.
The moral argument in favor of a return to the old gold parity is particularly
strong. Nearly all of the long-time debts now outstanding in the United States
were incurred when the currency was on the gold standard, and in making these
debt contracts both debtor and creditor contemplated payment in terms of our
historic gold dollar. To avoid any possibility of doubt on this question, however,
it was specifically provided in most bonds and mortgages that payment should be
made in gold coin of the United States of the standard of weight and fineness
existing at the time the contract was made.
Shortly after the Civil War (1868) the Supreme Court, in the case of Bronson v.
Rodes, had declared that such contracts were valid and were legally enforceable.
During the latter years of the depreciated greenback standard and during the period of our silver controversy ending with the defeat of Mr. Bryan in 1896, there was
much uncertainty as to the future value of our dollar and, therefore, during these
periods bonds containing the gold clause could be sold to the public on terms that
were much more favorable to the debtor than bonds without this clause.
Our National Government, as well as our States and municipalities, gradually
adopted the policy of including this gold clause in the loan contract when selling
their bonds to the public, and they, like the railroads, industrial corporations,
and private debtors, profited by the incorporation of this clause. For the Government later deliberately to give up the gold standard and then, after a period
of depreciated paper money, to stabilize the dollar at a greatly reduced gold
value, and thereafter to pay its own outstanding bonds and to authorize other
debtors to pay their bonds and mortgages, which contain this gold clause, at
partity in the new and depreciated dollar, it is argued, would be a positive breach
of faith. The fact that the gold dollar was unstable in value was known when
the debts were contracted and, as regards that instability, the parties to the contract presumably took their chances.
Inasmuch as it is unthinkable that the public should pay their debts in gold
of the old standard of weight and fineness at a time when all their incomes are
in the form of a greatly depreciated paper dollar, the only solution of this moral
problem, according to some economists, is to restore the dollar to its previous
gold value.
In addition to this moral argument, there are two economic arguments that
support this conclusion. The first one may be stated very briefly.
DEVALUATION A DANGEROUS PRECEDENT

How about the security of loan contracts in the future after a precedent has
once been established of deliberately reducing the value of the unit in which
debts are payable and of nullifying by governmental action specific agreements
that were made with the sole object of avoiding losses to the creditor that might
otherwise arise from a depreciation in the gold value of the dollar? If such devaluation is effected once, it may be effected again and then again, and each
time with less resistance. The precedent would obviously be a dangerous one
and as a result of it, the country's credit operations, through which it carries on
most of its business, would be rendered more difficult and, to the debtor, more
expensive, for a long time to come.
PRESENT HIGH VALUE OF GOLD MAY BE ONLY TEMPORARY

The second economic argument in support of the policy is the fact previously
mentioned that the present low price level in terms of gold, or, in other words,
the present high value of the gold dollar is probably but temporary and is due to
a world scramble for gold for virtual hoarding in a period of world crisis and
depression. In this connection, it is a significant fact that, had there been no
war and had wholesale commodity prices in the United States risen on an average
2.4 percent a year progressively from 1913 to 1929, which is the percentage rate
of annual rise from 1896 to 1913, we would have had approximately the same
average price level from 1921 to 1929 that we actually did have.
The great fundamental forces which determine the long swings in the world
price level have probably not been greatly changed during recent years. The
world's population and the distribution of this population are practically unchanged. Human tastes, human wants, and human capacity to labor are
46217—34——15

G0LD

222

RESERVE ACT OF 193 4

essentially what they were 5 years ago. The world's great scientific and
mechanical accomplishments are still with us and its inventive genius is unimpaired. There is no reason to believe that the world's annual rate of increase in
the production of basic commodities, a rate of about 3 percent a year which
Carl Snyder finds has persisted for two generations, has suddenly been changed
permanently. Gold production has increased substantially since 1921, and since
1913 the world's supply of monetary gold has increased much faster than the
world's production of basic commodities; while the efficiency of gold as the basis
of our credit structure is being increased continually through improvements in
our currency and banking machinery. If, since our 8% years of comparative
stability in commodity prices ending in 1929, nothing has happened to change
fundamentally and permanently the world's supply of gold and circulating credit,
and if, likewise, nothing has happened to change fundamentally and permanently
the world's production of basic commodities and its system of fabrication and
marketing, it would seem probable that a commodity price level something like
that preceding the crisis would return when we once drag ourselves out of this
slough of despond.
The facts just mentioned with reference to the trend of commodity prices
since 1896 and to the sudden departure from this trend that took place at the
time of the World War and again at the time of the present crisis are shown on the
following chart.

(Illustration not printed at this time.)
DOLLAR DEPRECIATION GREATER IN TERMS OF GOLD THAN IN TERMS OF COMMODITIES

Although the gold value of our paper dollar depreciated about 36 percent
from the time we gave up the gold standard to November 1933, which is equivalent to saying that from the standpoint of the value of gold in gold standard
countries we were calling 64 cents gold a dollar in November 1933, and although
this depreciation should have given us in time a price level approximately 56 percent higher than we had in February 1933, our prices in general up to November 1933 had advanced only a minor portion of this percentage (as shown on the
chart, p. —). From this it is argued that the depreciation of the dollar up to
November 1933 had been largely in terms of gold and had been due chiefly to
the flight of American capital abroad. On that assumption, it is said that a
decision to return promptly to the old gold standard would cause this capital
to return to the United States in large volume, and that this return in itself
would go a long way toward restoring the gold exchange value of the dollar to
the old gold parity.
DEFLATION TO OLD GOLD PARITY POLITICALLY IMPOSSIBLE

These arguments for returning to the old gold parity have great weight. None
the less, I believe it would be unwise to try to return to the old gold parity at
the present time, and my reasons for this opinion are chiefly political rather than
economic. The opposition to such a policy of deflation would be so strong
throughout the country that any attempt to carry it through would delay an
effective return to the gold standard for many years, and during this delay our
present depression would continue to drag on.
The sentiment in the country, both in Congress and out, in favor of inflation
is, unfortunately, strong. The agitation we have been having over the country
for a long time in favor of cheap money to lighten the debt burdens of farmers
and others has been dangerously effective. People who advocate a reflation of
the currency back to the old gold parity are today looked upon by a large percentage of our population as Wall Street Shylocks demanding their "pound of flesh",
and even the Wall Street saints are today not in particularly good repute in
many parts of the country. To safeguard the country against the serious danger
now confronting it of a runaway inflation, it is important that the forces of sound
money rally on a plan of stabilization that can be made effective quickly. Those
who insist uncompromisingly upon returning to the old gold parity at a critical
time like the present are bucking their heads against a stone wall, heads that
could be used in a much more effective way in the fight for sound money.
The political doctors in Washington have for some time been drugging our
economic organism with the habit-forming drug, inflation, and are continuing
to do so. The patient has resisted and up to the present time the drug has been
only mildly effective; but the patient's system is full of it and it cannot be pumped
out. Slowly the public is losing confidence in our currency, as shown by the

GOLD RESERVE ACT OF 193 4

223

flight of capital from the country, the rise in the prices of common stocks, the
slackening demand for high-grade bonds, and the recent instability in our markets.
The giving up of the gold standard in the spring of 1933 was unnecessary and was
a great mistake, but Humpty Dumpty has fallen off the wall and it would be an
exceedingly difficult and long-drawn-out task to put him together again.
We are today confronted with the serious danger of a further flight from the
dollar, which might end in a run-away inflation. The only certain way to avoid
such a run-away inflation and to assure an early return to the gold standard is to
stabilize promptly. A rate of about 66% cents, which is not far from the present
gold value of our paper dollar and which represents about the same proportion
of gold parity as that maintained by the paper pound in England since September
1932 would probably be the best one under the circumstances. In fact, it is
very doubtful if a higher rate would now be politically possible.
The value of gold as measured by its purchasing power in goM-standard countries has not appreciably changed since we gave up the gold standard. The 50
percent rise in' commodity prices over the level of February 1933 which the
66%-cent rate might reasonably be expected ultimately to bring about would
give us a wholesale price level 10 percent lower than that of 1926, a general
price level 9 percent higher, and a cost of living 4 percent higher. It would give
us, moreover, a wholesale price level about 26 percent higher than that of November 1933, a general price level 40 percent higher, and a cost of living 36 percent higher. This rate in due time would, therefore, probably result in an advance of prices sufficient to give the debtor classes the relief which the administration has been advocating. Personally, I believe that within a few years the
advances in prices would actually be much further than these figures would suggest, because, for reasons discussed elsewhere, I expect to see gold itself depreciate at least to its 1926 value before 1940. In that case our price level would be
more than twice as high as it was early in 1933.
Inasmuch as commodity prices will nearly always lag well behind the price of
gold on the rise when the paper dollar is depreciating, if the inflation process
should be continued until commodity prices themselves reached the 1926 level,
and stabilization should be effected at the gold value of the paper dollar prevailing when that commodity price level was reached, the final commodity price
level would probably be very much higher. The reason would be that the lagging
commodity prices would continue to rise for some time after the stabilization
and until " they caught up to gold."
ABOUT TWO BILLION DOLLARS OF STABILIZATION PROFITS) W0UU> GO TO THE
GOVERNMENT

If this plan of stabilizing at a gold value of 66% cents were adopted, every
dollar of gold now owned by the Government and every dollar owned by the
Federal Reserve banks would become a dollar and a half, and the approximately
4 billion dollars now so owned would accordingly become about 6 billion dollars
of the new money. All the profits of the Federal Reserve banks in excess of
earnings of 6 percent annually on the capital owned by the member banks ultimately would go to the Government, under existing law. Furthermore, it has
been for some time practically the universal policy among countries that have
revalued their monetary units to turn over the profits realized on the currency
debasement to the Government, which represents the entire people, rather than
to permit them to go to the central bank or to any private interest. Under any
plan that may be adopted for reducing the gold content of the dollar in the
United States, it is clear that all the profits that are realized should go to the
Government.
On the other hand, if the Government should use these profits as a basis of
currency and credit expansion for meeting greatly increased public expenditure—
and the political pressure to do so would be heavy—the result would be a further
great inflation and another break-down of the gold standard. The profits should
go to the Government, but the gold should go to the Federal Reserve banks, where
most of it now is. These profits the Government should use for reducing its indebtedness to the Federal Reserve banks, which at the end of 1933 amounted to nearly
$2,500,000,000, as represented by the Government securities owned by these banks.
This indebtedness of the Government to the Federal Reserve banks is at present
altogether too large, and makes the circulating credit of the country depend unduly
upon Government credit, which is greatly influenced by politics. It would be a
real service to our currency and banking system if this debt could be paid off, and
if the Federal Reserve banks could become again what they were originally in

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GOLD RESERVE ACT OF 193 4

tended to be—central banks devoted to the maintenance of a sound currency and
to the provision of reserve credit, when and as needed for the orderly conduct
of American business. They were not intended to be, as they are fast becoming,
primarily fiscal agencies of the National Government.
GOLD BULLION STANDARD RECOMMENDED

Under the plan proposed for a prompt return to the gold standard, the gold
bullion standard should be adopted in.place of our former gold coin standard.
Gold coins are a monetary luxury under existing conditions, and there is no
reason why they should be kept in circulation; at least not unless or until a time
is reached when gold is depreciating, and it becomes desirable in the interests of
monetary stability to put gold coin into circulation again in order to create an
increased demand for the metal. Redemption should be on demand in gold
bars of a value of about $8,000 each, and the Federal Reserve banks should not
only give gold for notes on demand, but equally should give hotes for gold.
This latter provision, incidentally, would prevent a sudden rise in the foreignexchange value of the dollar, that might otherwise result from a heavy return
flow of American capital from abroad, upon the official announcement of a strong
stabilization plan.
If the Government should come out clearly and positively for such a plan of
stabilization, and if the President in a vigorous, Grover Cleveland type of
message should declare it to be the intention of the administration to use all the
resources of the Government for maintaining the parity of the currency at this
new rate, there would be no danger of a serious depletion of our gold reserves.
These reserves would be very large, with the increase resulting from the revaluation of the dollar. Europe could not drain them away because she has long
since withdrawn most of her liquid funds from our market. In fact, a heavy
return flow to the United States of American capital that has fled abroad to
escape the dangers of inflation might well cause a temporary flow of gold from
Europe to the United States. The gold would not be demanded by Americans
for hoarding in this country or for investment abroad because the stabilization
policy of the Government would inspire the public with confidence in its currency.
The result of such a bold and prompt stabilization would be a revival of business
confidence and a strong impetus toward an orderly and enduring economic
recovery.
AFTERNOON SESSION

The committee resumed its session at the expiration of the recess.
The CHAIRMAN. The committee will come to order. Mr. Anderson
did not finish his statement yesterday, and I will ask him if he will
conclude his statment at this time.
STATEMENT OF DR. BENJAMIN M. ANDERSON, JR., ECONOMIST
OF THE CHASE NATIONAL BANK, NEW YORK, N.Y.—Resumed
Mr. ANDERSON. Mr. Chairman, I 'have a few points that I think
are significant which I would like to present as briefly as I may.
First, in connection with the stabilization fund about which I was
talking yesterday: The danger in the Government's creating it out of
the proceeds of devaluation in the form of cash resources of Federal
Reserve banks was emphasized yesterday. The danger in any case,
however, is that it will recreate an over-extended position as between
this country and other countries similar to that which grew up from
1926 to 1929. That danger is very great. France spent 2 years working with stabilization funds instead of going back to the gold standard.
Had France gone back to the gold standard when she made her
de facto stabilization, so that francs could be issued in Paris only
against gold, so that the Bank of France would not have to buy
foreign exchange in order to hold the franc down, we would have
been saved much of the trouble that subsequently arose. France

GOLD RESERVE ACT OF 19 34

225

would not have accumulated that gigantic volume of sterling and
dollars, the liquidation of which in 1931 and 1932 made so much
trouble in the world. It is perfectly possible that if we have stabilization over a long period there will grow up a situation where our
Government's fund is a lot of sterling, and England's fund a lot of
dollars, each of us giving credit to the other involuntarily, neither of
us trusting the other very much, with a precarious and dangerous
over-expansion on both sides.
Stabilization is an artificial makeshift, used just temporarily, at
best, until we get a definite gold rate fixed, and then gold against
dollars and dollars against gold, and you do not have need for any
stabilization fund at all. That is the way we did it for 50 years.
Whether it is gold coin or gold bullion does not matter greatly, so
far as the effectiveness is concerned.
One other thing about the stabilization fund. You cannot talk
about how a thing will work without seeing the other things that go
with it. A physician looking at the eye alone might make a lot of
mistakes about diagnosing eye trouble unless he knows the man's
stomach is in good shape or unless he knows whether he has this or
that or the other thing connected with his organism. It may be
nerves and not eye trouble. This stabilization fund must be considered in relation to the rest of the machinery. England can do a lot
with its stabilization fund, holding the pound fairly steady in its relation to gold or whatever they choose to use to hold it steady in respect
to, because they have a free exchange market and a free gold market
in London, and anybody can buy gold there or exchange there. If
our Government keeps exchange restrictions and intensifies exchange
restrictions so that there is no free exchange market or free gold market, they cannot use this fund effectively anywhere except on the
other side of the water, where we will be immediately accused of
committing unfriendly acts.
I want to add a sentence to what Professor Kemmerer said this
morning. He said—and this is true not only of Germany but of
many countries—that as inflation went on the time came when the
gold reserves in the central bank were worth many times the total
market value of the paper money issued by that bank.
The conclusion I want to draw is that gold reserves are no good
unless they are used. Merely piling up gold to admire and talk about
does not protect the value of money. It has got to be used. That is
what gold is for.
There are minor points, but one of very great importance is this,
that when you are taking a profit on the gold of Federal Keserve
banks, the only safe way to take it, I believe, is to take it out of their
Government securities. I think you ought to leave the Federal Reserves a little of it so as to leave unimpaired the gold value of their
capital and surplus. I mean, let them add to their surplus, not to
their capital, for technical reasons, that amount which is necessary
to keep the gold value of their capital and surplus combined intact.
It will not take much to do that out of this vast sum involved.
Senator BULKLEY. Why do you say that? I do not quite get
the argument of that.
Mr. ANDERSON. The Federal Reserve banks, like all banks, ought
to have a good big margin of their own capital as a protection for
their depositors and other creditors against the possibility of loss on

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the part of Federal Reserve banks so that there can never be any
question of their solvency.
Senator BULKLEY. There never has been any question of their
solvency, has there?
Mr. ANDERSON. But if the capital gets too thin, there might be.
Senator BULKLEY. But we are not going to make it any thinner.
Mr. ANDERSON. Yes; you are going to make it thinner in gold
value, and the expectation would be
Senator BULKLEY. But not in proportion to the obligations of the
bank.
Mr. ANDERSON. The expectation would be that the liabilities will
increase if your plan is successful and the inflation goes through.
You are taking a substantial part of their surplus, anyway, for the
deposit guaranty fund. If you look at the figures you will find they
are not very big. I think it will be good business to leave part of
this. I suggest that you think about that. I merely throw out the
suggestion. It is good banking, I think, to have adequate capital
funds for liabilities.
The provisions regarding gold certificates is another point I want
to mention. The term "gold certificates" is not a straightforward
term as the bill is drawn now. I think there should be some provision segregating that gold specifically against gold certificates, so
that it is something like a warehouse receipt at least, instead of just
mixing it up in the general funds in the Treasury as this act seems
to do.
And then this provision allowing repeated changes, going beyond
the Thomas amendment. It is generally understood to mean that
devaluation once done is done thoroughly and fixed, unless there
should be later on some act of Congress. The President can do it
once, and not twice. This change allowing him to do it repeatedly
cannot but be disturbing to the confidence that you want to build up.
The whole idea is to give us confidence in our money so that we can
go on and do things. That provision ought not to be in there.
I thank you very much for your courtesy, gentlemen.
The CHAIRMAN. Are there any questions? If not, we are indebted
to you, Dr. Anderson, for your help in this matter.
(Witness excused.)
STATEMENT OF HENRY PARKER WILLIS, ECONOMIST, NEW YORK,
N.Y.

The CHAIRMAN. Will you state your name for the record?
Mr. WILLIS. My name is Henry Parker Willis; occupation, economist; residence, New York City.
The CHAIRMAN. Will you tell us about your study of these auestions?
Mr. WILLIS. I have devoted some study to this subject for quite
a number of years, and I now teach the subject
Senator GLASS. Will you be a little more specific, in order that the
record may show that you know what you are talking about. You
were, as I recall, secretary of the Indianapolis Monetary Conference
many years ago and helped to prepare, if you did not wholly prepare
it, the report of the monetary conference?
Mr. WILLIS. Yes,

sir.

GOLD EESERVE ACT OF 19 3 4

227

Senator GLASS. YOU were technical adviser of the Ways and Means
^Committee of the House when the Underwood tariff bill was enacted
into law?
Mr. WILLIS. Yes, sir.
Senator GLASS. YOU were

the technician or technical adviser of
the Banking and Currency Committee of the House when the Federal
Reserve bill was enacted into law, and also technical adviser of the
Joint Committee on the Establishment of the Farm Land Bank
System?
Mr. WILLIS. Yes, sir.
Senator GLASS. And,

as I understand, your services have been
required to set up banking systems in certain other countries and in
certain States of this country?
Mr. WILLIS. Yes; I was chairman of the Irish Free State Banking
Committee for 3 years and have done a great deal of work for foreign
governments in connection with their banking systems.
The CHAIRMAN. YOU also had to do with the National Banking
Act of 1933?
Mr. WILLIS. I had the honor of being attached to this committee
at that time.
Shall I proceed now, Mr. Chairman?
The CHAIRMAN. Yes. Tell as what you think about the bill which
is under consideration.
Mr. WILLIS. Mr. Chairman and members of the committee, my
notice to appear here was very short, less than an hour or so, I believe,
and consequently I have not any prepared statement but must ask
your indulgence for speaking in a very informal way, merely to give
you such thoughts as have occurred to me in a reading of the text
of the bill and what I have heard about it incidentally and through
conversations.
For the sake of the record—that is, my record only—I should like
to say that I have never believed that our abandonment of the gold
standard was at all necessary, and I was of the opinion at the time,
and still am, that the banking holiday was not necessary. I say that
the gold standard and the redemption of our bank currency in gold
could have been maintained, and that had that been done we would
have been in a very much better position at the present time than
we are at the present moment.
I also feel that there is no reason for a devaluation of the dollar at
the present moment, and that the processes of devaluation, if carried
through, will bring about general harm and injury to our financial
and business structure.
I say these things not because I suppose that the committee has
any intention whatever of acting upon the principles thus raised, but
merely in order that you may know the general point of view from
which I start in what I have to say.
Senator BULKLEY. Will you make that clearer? Do you mean we
do not need any more devaluation
Mr. WILLIS. I think it would be better if the dollar should be
allowed to go back as near to its original level as we can allow it to
go; and if it were left free it would go back to a parity at the old
weight and value of the gold dollar.
I recognize that that point of view is not the one from which this
bill is written, and I recognize also that to urge anything of that kind,

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GOLD RESERVE ACT OF 19 3 4

any course of that kind, is to suggest a reversing of the steps that
have been taken, some of which at least would be very difficult to
reverse, even if one could reverse them. Therefore I think that the
more helpful way to discuss the matter is to assume that devaluation
is going to occur, and to inquire whether this bill is the best way to
bring it about.
A reading of the measure leads me to think that there are a great
many points both of principle and of detail that need careful study
and alteration, and I would strongly suggest to the committee that
if it be at all practicable the bill be taken under advisement section
by section for the purpose of reshaping it and getting it into a more
workable and feasible measure, instead of adopting it as hastily as
seems to be likely, according to my understanding, with the inevitable
necessity later on of correcting it through a process of trial and error.
However, I assume that what the committee wishes is no detailed
discussion of that kind, but an expression of opinion on the major
questions, which is all that I feel in position to offer today, anyway.
The first point that seems to me to have the greatest importance
relates to the question of what is to be done with the gold in the
country at the present moment. The plan, as I understand it, calls
for the taking over of the entire title to all gold in the hands of the
banks, transferring that title to the Treasury Department, revaluing
or devaluing the gold at a level not to exceed 60 percent and presumably not less than 50 percent, and then issuing so-called gold
certificates against the gold thus devalued. If I understand it
correctly, the intent is to have the entire body of gold turned into the
Treasury Department to become the property of the United States
Government.
There are two points there that seem to me to be definitely raised.
One is the so-called "profit'7 on the gold; the other, the so-called
"title" to the gold.
As to the first one, the question of profit, I recognize of course that
practically all countries that have devalued their unit have taken over
a profit on the gold held by the banks and have turned it in to the
Government in the making of the devaluation. I suppose that has
been due to the fact that those countries needed the profit and that
their courts and other judicial bodies took the view that the profit
thus appropriated by the Government originated from an act of the
Government and hence was not a private matter.
It seems to me that if that view be taken the use that should be
made of the profit is one that deserves very careful consideration, and
that where gold is taken away from the banks the profit should be
used for the purpose of strengthening and improving the position of
the banks. Our banks need that very badly at the present moment;
but apparently the taking away of the gold will leave them in the
same relative position, dollar for dollar, that they are in now, so that
they will be no better off at the end of the operation than they are at
the beginning.
The question of the legality or constitutionality of the transfer is
one on which I am not able to pass, as I make no profession of a knowledge of law, and what I say with reference to the use of the profit is
based entirely upon the economic side of it as I conceive it.
The question of taking over the title to the gold
The CHAIRMAN. HOW could the banks use this profit?

GOLD RESERVE ACT OF 19 3 4

229

Mr. WILLIS. It might be used in very much the same way as the
Reconstruction Finance Corporation has been doing it—generally restoring the liquidity and the power of the bank to meet its obligations.
I think that if the proceeds are used for restoring our banks to a sound
situation it might result in a satisfactory condition of the banks.
The CHAIRMAN. YOU mean all banks, not Federal Reserve banks?
Mr. WILLIS. I am speaking of all member banks.
The other question, Mr. Chairman, of the actual ownership or title
to the gold seems to me even more important. I do not know of any
country that has actually itself taken over title to the gold. It seems
to me that that is not only anomalous, but likely to cause very serious
difficulties in the future. Should we ever go back to an actual gold
standard, whether in bullion or coin form, it seems to me that legal
difficulties might arise with respect to the ownership of this gold;
and I have felt on reading the recent opinion of the Attorney General,
although I profess no knowledge of law, that we leave unsettled,
according to my understanding, the future disposition of these questions, notwithstanding the fact that it seems to me highly essential
that at the very beginning we should foresee, as far as we can, the
probable outcome. I suppose, however, we are going to go ahead
with the plan of taking over gold in this way.
The second point which strikes me as fundamental is the question of
the use of the profit. Certainly there is a strong reason for taking
over a profit from the standpoint of practical expediency at the present
moment as things stand. If we are going to do that, however, ought
we not to get a profit in a form in which it can be used? If we assume
that the profit is likely to be in the neighborhood of 4 billions of dollars, then we have 2 billions that is going to be sterilized immediately
in the equalization fund, and that accordingly, as I read the bill, will
be tied up there; that is to say, it will not serve any immediate useful
purpose so far as one can see toward the balancing of the budget or
toward the expansion of public credit.
Might not this be overcome by stabilizing it immediately? That is
to say, by deciding once and for all what the weight of the dollar
should be? Suppose you determined it should be 50 cents: Would it
not be a much better piece of work, so to speak, to simply reduce the
dollar to 50 cents and thereafter to provide that the export of gold
shall be permitted under suitable conditions of which our Reserve
banks maintain a surplus?
It seems to me there can be very little doubt that in that case our
vast gold reserve, amounting to some 40 percent of the monetary gold
in the world, would be amply sufficient to meet any international
threats that might be presented, especially in view of the fact that we
are ahead both on capital account and merchandise account, even in
the present reduced state of our foreign trade.
I cannot see any reason for not taking the step at once if there be—
which I have not been able to accept in my own mind—good reasons
for taking the step at all. But if there be such good reasons, I cannot
see why we should not make it once and for all and make the weight
effective, thereby eliminating the necessity for a stabilization fund,
and getting the advantage of the proposition, whatever it may be,
for the Treasury immediately.
If that idea be unacceptable for some reason that I do not understand, it then seems to me that the margin between 50 and 60 cents

230

GOLD RESEEVE ACT OF 193 4

that is suggested in the bill is far too wide. If that amount of fluctuation is to be allowed the stabilized dollar will be far less reliable than
the old gold dollar has been for a long period of time, since there is a
theoretical marginal fluctuation of 20 percent of the minimum valuation. That seems to me to be far too wide a margin along with the
rather extreme and arbitary provision limiting the movement of the
dollar to the extremes that are indicated in the bill. I suggest that if
it be determined to keep the bill in that form or something approximating it, the provisions be reversed and that the 50-cent level be
made the minimum with a flexible upper limit, but with the understanding that it is to be kept as near 50 cents as practicable.
May I repeat again that I do not think that is necessary and I do
not like to see any such devaluation take place, but I believe that
stabilization along a definite line is much to be preferred to indefinite
stabilization with a 20 percent margin which of course represents a
margin about as large as the profits in many businesses are. If
there should be that fluctuation you would have the imminent possibility of wiping out all the ordinary profit on a business deal of narrow
character such as is engaged in a good deal in international trade.
Senator GLASS. Referring to the stabilization fund, does that
involve expansion or constriction of the currency?
Mr. WILLIS. I was about to come to that, Senator, if I may.
The reason, as I understand it, for not doing something of that kind,
is that there is today a pretty general feeling that it would, be possible to move the price level higher, and in some way what is called a
commodity dollar system may be installed. I do not understand
that the commodity dollar, as advocated by the princpal exponents
of it, has ever contemplated any such broad margin of fluctuation
as that; but it has been quite distinctly stated that whenever a slight
variation occurs, alterations are to take place at once for the purpose
of bringing it back to that level. So I am unable to understand why
the price level, based upon the theories of the stabilizers, would act
in the way suggested.
Looking at it from my own point of view I refuse to accept the
idea at all that a change in the theoretical weight of the dollar would
have any effect whatever on prices. As a master of fact, in the years
1926 to 1929 we had a price level of something like twice what it is
now, something like 140 or 150. We had then an outstanding form
of currency and credit that was considerably larger than it is now.
We had no trouble in maintaining the price level, and at the present
moment relatively speaking the factors that have tended to depress
the price level are quite evidently not from the side of money for
credit, but are factors of another sort.
The general theory of prices which at present I believe is accepted,
regards the price level as the outcome of a very large group of factors,
supply and demand of commodities being the most important one of
all; and I submit, with all due respect, that there is nothing in recent
statistics or statistical experience in this country or abroad to show
that the changing of the price of gold would also change at the same
time, or shortly, the price of commodities. I believe that the expectation that this kind of a stabilized dollar will bring a higher level
of prices is entirely Unwarranted, and I say with the utmost earnestness that I believe those who look forward to that will be seriously
disappointed in the results. I do not deny that we may have under

GOLD BESERVE ACT OF 193 4

231

the legislation a very much higher level of prices than we have now,
but if that should come it will, I think, be much more likely to be
the result of changes in trade and the general destruction of wealth
on the farms and elsewhere, the abolition of human labor under the
National Recovery Administration, and other things which tend to
produce scarcity, than it will be due to the raising of prices growing
out of a change in the amount of gold appropriate to the dollar but
not actually used in any actual business transaction.
Senator BARKLEY. YOU refer to abolition of labor under the N.R.A.
Mr. WILLIS. Yes. I suppose if a man wanted to work 50 hours
a week and had to work 40, you would cut off part of his labor.
Senator BARKLEY. That is hardly described as abolition of labor.
That is absorbed by other people who have no work at all.
Mr. WILLIS. That is a large question.
Senator BARKLEY. Yes; but you call it abolition of labor.
Mr. WILLIS.

Yes.

Senator BARKLEY. It seems to me labor has been abolished to
the extent of about 15 million men in this country, and the efforts
of the N.R.A. are to provide work for them.
Mr. WILLIS. I recognize that, Senator.
Senator BARKLEY. The point is, I think it is unfair to designate
it as abolition of labor.
Mr. WILLIS. It seems to me that is a social remedy rather than
an economic proposition.
Senator BARKLEY. YOU are discussing it in your economic discourse here. You are describing it as the abolition of labor. It
seems to me it is exactly the contrary.
Senator KEAN. IS it not true that people are leaving factories and
various places and taking up the Government dole, or whatever you
choose to call it, owing to the Government paying such prices, and also
providing them with all sorts of things?
Senator GLASS. That is getting us off on the N.R.A. Let us discuss
this bill.
Mr. WILLIS. All I meant to say, Senator—perhaps, as you say, it is
irrelevant. If so, I will be glad to strike it out.
Senator BARKLEY. I do not want you to strike it out. Leave it in
there.
Mr. WILLIS. Thank you very much.
What I want to say is this: I think we are much more likely
to get increased prices through the methods of the N.R.A. than we
are through this.
At any rate, I think the statistical and other evidence is against
the idea that a theoretical change in the rate of the dollar will bring
the level of prices to any higher point than they stand today, at the
present time.
One further point relating to the use of the stabilization fund. I
understand the bill to place the use of that fund in the hands of the
authorities of the Treasury Department of the United States, and to
authorize them to engage in a great variety of transactions which are
ordinarily thought of as central-banking transactions. The Congress,
in the Banking Act of 1933, has created a body to perform those
functions. That body is called the Open Market Committee of the
Federal Reserve system, whose mission it is, as I understand it, to
decide when credit is to be released and contracted through open

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GOLD EESEEVE ACT OF 193 4

market operations. It seems to me that that body is entirely capable
of carrying on the work that is spoken of here as allotted to the Secretary of the Treasury. The Federal Reserve System has certainly
never been slow to follow out the instructions and wishes of the
Secretary of the Treasury when for the public welfare, and it seems
to me that it is likely to do it at the present time.
If it be answered to that that the Secretary of the Treasury will
necessarily or naturally place the performance of these functions in
the hands of the Federal Reserve System, and perhaps in those of one
or two of the Reserve banks especially, it seems to me that that is
not a sufficient reply, but that the question is where the responsibility
on the whole matter rests, and the final decision as to the character
of the policies. That, it seems to me, is essentially a central-banking
function. It is so regarded in England, and if I am not mistaken, it
is the practice in all other central-banking countries where stabilization has been carried on.
Senator BARKLEY. DO you think it is better, if the Secretary
wants something done, to get somebody to do it rather than do it
himself?
Mr. WILLIS. Yes, if that other person is better able, and has the
machinery to do it.
Senator BARKLEY. YOU do not agree with Benjamin Franklin,
when he said that if you want a thing done right you should do it
yourself?
Mr. WILLIS. I wish we had Benjamin Franklin here now. I think
he would be opposed to this bill.
Senator GLASS. But he would agree that it is consistent with all
banking instinct and banking practice, that a Secretary of the Treasury who is not a banker does not know how to bank.
Mr. WILLIS. Be that as it may, the practice of the countries of
the world in connection with this matter has been to get this work
done through the agency of their central banks, and where it has
been most successfully accomplished I believe it has been done
through the public-spirited exercise of central banking authority,
through responsibility of the Government of the country, and, of
course, with regular reports and consultations with them, as we
understand to be the case in England.
In the provision relating to the exercise of this function many very
great powers are bestowed which seem to me to have but little relation to it. Among those is the power, as I understand it, to deal
extensively in the public debt. It seems to me that that is not a
function that has to do with the process of stabilization or equilization, necessarily, and is essentially one that should be relegated to
the fiscal agents of the Government again under the instructions of
the Government itself, for their performance.
If the act, then, is to remain in the same general form as now,
with the stabilization function in the hands of the Secretary of the
Treasury, I feel clear that the powers should be very greatly limited,
and that only those distinctly relating to stabilization should be
bestowed upon him as an officer of the Government.
I think that there is a good deal of confusion of language in the
bill, and particularly section 9 seems to me to be obscure, as it gives
him the power to buy and sell gold, as I understand it, both at home
and abroad. It is difficult to see how he would sell it at home if,

GOLD RESERVE ACT OF 193 4

233

under the other provisions of the bill, the individual man or bank
is not allowed to hold it.
The CHAIRMAN. That is section 10.
Mr. WILLIS. Section 9, I have it here, line 14. Section 9 certainly
ought to be clarified a great deal, and in the process of clarification,
I suggest that consideration be given to a fairly complete rewriting
of the powers to be exercised under the stabilization authority, quite
as much for the sake of clearness and success in the administration
of the fund as from any theoretical standpoint or criticism whatever.
I think, gentlemen, that I have covered the main things that have
occurred to me in my survey of the bill adding, again, my thought
that there are a great many points of detail and technical matters
that seem to me to demand attention. I believe I have covered all
that I should occupy your time with today.
The CHAIRMAN. Are there any questions?
Senator WALCOTT. I would like to ask Dr. Willis if he does not feel,
in view of his remarks, that we ought to take time enough to examine
it thoroughly and try to work out some modifications, if we are going
to save any part of it.
Mr. WILLIS. In reply to that, Senator, I will s a 7 that I think the
measure before you is, by all odds, the most important measure that
has come up since the Civil War, and I think it involves a great many
large considerations which we all ought to regard as the most fundamental things in our whole structure in monetary and financial life.
The bill fundamentally changes the basis of our money. It basically
alters the structure and responsibility of our Federal Reserve System.
It completely reverses the theory upon which our bank currency is
now being issued, namely, that it should be regulated in proportion
to the needs of business.
Senator BARKLEY. HOW does it do that?
Mr. WILLIS. In this way, I think, Senator: In the Federal Reserve
Act the amount of currency outstanding, under the terms of the act
originally, was dependent upon the existence of eligible paper which
was produced by business men in the course of their transactions. We
would say that the bank currency of the country represented a surplus
of buying power, or medium of exchange, which varied according to
the need for a medium of exchange created by the people in their
commercial operations.
Senator BARKLEY. HOW does this interfere with that?
Mr. WILLIS. Because it seems to me it places the ultimate determination of the amount of currency outstanding in the hands of the
Federal authorities, rather than those of the Federal Reserve.
Senator BARKLEY. The only thing it does, it seems to me, is to
make it possible for the Federal Reserve System to issue the same
amount of currency it now can issue, upon these gold certificates,
instead of from the gold that they have in their possession. But they
can do that now. They can issue all the currency the country might
demand, based upon gold certificates they might have now.
Mr. WILLIS. YOU would not say the same of the credit, would
you?
Senator BARKLEY. I do not see any difference at all, so far as the
60-percent credit currency is concerned, based upon the stable assets
of the country.
Mr. WILLIS. But isn't it true, Senator, that the use of the profit
in the way contemplated by the act would give rise to a very large

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GOLD RESERVE ACT OF 193 4

volume of surplus reserves that protect bank credits based upon them,
and consequently a very large volume of credits probably to be invested, as was done just before 1929, in securities of all kinds?
Senator BARKLEY. I do not think so. I might differ with you
about that.
Mr. WILLIS. It is a difference of opinion, Senator. I suppose what
you want me to do is to state my views.
Senator BARKLEY. Of course I do; but Governor Black and
Governor Young have both testified at this hearing that this will not
in any way change their operations in the matter of issuing currency; that the difference would be that instead of issuing it in part
on actual gold in their possession, and in part on gold certificates as
they do now, they will issue it all on the gold certificates represented
by the gold that the Treasury takes over.
Mr. WILLIS. I can only say that in 1928 you had a hearing, at
which I appeared by your invitation, and at which some of these same
gentlemen appeared, and they stated that there was not the slightest
danger of an excessive expansion of credit.
Senator BARKLEY. I do not recall that Governor Black or Governor
Young appeared and said that.
Mr. WILLIS. Governor Young was here.
Senator GLASS. Governor Young did. But the vital difference is
that under this bill they are issuing irredeemable currency, whereas
at the present time they are issuing currency redeemable in gold.
Senator BARKLEY. It is not at present redeemable in gold.
Mr. WILLIS. May I say something which, of course, I have to give
merely from general understanding, and that is that I believe that
the country at large, the financial people at large, believe that this
act provides the materials for a very great credit and stock-market
inflation. They may be wrong or they may be right, but with the
recent experience we have had in that regard, it seems to me that
every care should be taken to safeguard against any possibility of that
kind, especially as you can do it perfectly well and yet attain the
main objects you are after in this measure.
Senator BULKLEY. I do not quite understand how you reconcile
that statement about affording the basis for an undue expansion with
the other statement you made a few minutes ago, that this $2,000,000,000 in the stabilization fund will be sterilized.
Mr. WILLIS. I did not say it would. I said that in certain conditions of operation it might be. In other words—•—
Senator BULKLEY. The two things are directly opposite, are they
not?
Mr. WILLIS. Quite. The thing I object to in the bill especially is
the lack of clarity about these matters, so that either one of opposed
results may obtain, according to the way in which the thing is handled.
In other words, the bill seems to me to open many doors-——
Senator BULKLEY. TO make this clear, do you mean that either one
of them could conceivably happen, and either one of them would be a
danger?
Mr. WILLIS. A danger from the point of view that you take. For
example, if what you are after is building up the Budget, there would
certainly be grave danger in tying up half your profit and not using it.
If what you are after is getting a sound banking system, it would
certainly be a grave danger to have an undue enlargement of speculative credit. It defends on what the object is. I think a serious

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objection to the bill is that it has a great many objects which are
more or less in conflict with one another. I can understand perfectly
well the motive we all feel so keenly of providing a help for the Budget.
I can also see a desire that many people feel to move prices up, and I
recognize that they are perfectly conscientious in thinking that you
can do it by a change in the supply of the circulating medium, and so
forth. It seems to me that many of these objects are quite inconsistent with one another, and that the trouble with the act is that it
does not have a single purpose in view, to which all its sections and
paragraphs are subordinated.
Senator GLASS. HOW do you manage to conceive the notion that
we want to safely adjust the Budget, when we are assuming an indebtedness of $2,000,000,000, which we did just the other day; assuming the indebtedness of the farmers of the country; and now, in a day
or two, we will assume the indebtedness of the home owners to the
extent of $2,000,000,000, and we are literally shoving out funds to
everybody, for everything?
Mr. WILLIS. I have to go by the record.
Senator GLASS. That is the record.
Senator WALCOTT. What is that record?
Mr. WILLIS. The Democratic platform called for a balanced Budget,
and I am simply going by the record in saying that I assume the object
of many of these things is to produce a balanced Budget.
Senator BARKLEY. DO you think the budget ought to be balanced
to the exclusion of all these emergency activities?
Mr. WILLIS. Of course not; but if you get $2,000,000,000 more or
less, you are that much nearer to balancing it.
Senator BARKLEY. We were told, in a hearing before the finance
committee held a year ago, that the remedy for all the evils that
beset our country was to have a balanced Budget.
Mr. WILLIS. That is an extreme statement that I do not suppose
anybody really takes very seriously.
Senator BARKLEY. A very serious gentleman proposed it as a
remedy for all our evils.
Mr. WILLIS. The question of how often the Budget must be balanced is a difficult question, which appears in different forms in
different countries. You might as well balance it every day, according to some. According to others, it should be balanced at the end
of a period of years. The actual balancing of it is a technical question which I do not feel competent at all to discuss. It does seem
clear that if you have $2,000,000,000 free, you are nearer to balancing
it than you are if you have not the $2,000,000,000.
The CHAIRMAN. Are there any other questions? If not we are
very much obliged to you, Doctor.
STATEMENT OF W. RANDOLPH BURGESS, DEPUTY GOVERNOR,
FEDERAL RESERVE BANK OF NEW YORK, NEW YORK CITY

Mr. BURGESS. With your indulgence, gentlemen, I should like to
present a brief statement.
The CHAIRMAN. Very well. We will be glad to hear from you
regarding this bill.
Mr. BURGESS. The bill before you covers a number of difficult and
technical points. While drawn primarily to meet an emergency

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GOLD KESEBVE ACT OF 193 4

situation it is not solely an emergency bill but makes fundamental
and permanent changes in the American monetary system.
It is obviously impossible for me to discuss helpfully all parts of
this bill, and I shall attempt to discuss only one aspect; namely, the
provisions of the bill relating to the use by the Government of the
proceeds of devaluation.
Quite properly, it seems to me, the bill provides that the increase
in the value of gold due to devaluation goes to the United States
Government. These proceeds range in value from $2,700,000,000
in the case of a 40 percent devaluation, to $4,000,000,000 in the
case of 50 per.cent. Even the smaller figure is larger than the total
gold reserves of the United States until after the war. The sudden
creation of this vast gold supply constitutes a problem in utilization
and control of which it is clear the drafters of the bill were acutely
conscious.
The act of devaluation is potentially equivalent to the importation
of that much gold. On the basis of this gold a huge credit volume
can be erected. Even on the smaller sum a credit expansion of
something like $27,000,000,000 could easily be erected, and on the
larger sum, over $40,000,000,000. Either figure would double the
amount of bank credit outstanding in this country.
Of course, no such credit expansion would take place immediately
or automatically. Credit expansion takes place only as a result of
hundreds of thousands of acts of bank officers as they make loans or
investments, and credit expansion flows not simply from the total
quantity of bank reserves available, but is a result also of the thousand and one influences which determine whether individual borrowers
will apply for funds at their banks and whether individual bankers will
make the loans. At the present time the availability of a large potential reserve fund will be a stimulating influence which may be helpful
in restoring a more adequate volume of credit. The attitude of
borrowers and lenders is so cautious that we do not need to fear at
the moment the inflationary effects of a considerable increase to bank
reserves.
This, however, is permanent legislation, and there will come a time
when confidence is more fully restored, when borrowers will want to
borrow, and lenders will want to lend to the full amount of the available funds. So, it becomes important to consider how these huge
funds may be controlled to avoid overexpansion of credit. The
excesses of the recent boom were, I believe, in large part the result of
excessive credit built upon gold imports of about IK billion dollars.
Through the act of devaluation it is now proposed to release a sum
approximately twice as large. This is added to a present gold reserve
which was large enough to support the excesses of 1929. Here is
potentially a grave danger. If this were solely an emergency act
and reversible, we should not have to worry, but it is more than that.
I believe that those who drew this bill were fully conscious of these
dangers, for they have provided an ingenious method of impounding
this gold which constitutes one of the most important and valuable
features of the bill. For the bill provides that $2,000,000,000 of the
sum resulting from devaluation shall not be used for current expenditures of Government but shall be set aside as an equalization fund,
and shall be spent by the Secretary of the Treasury only as it shall
be required for stabilizing the exchange value of the dollar or for the

GOLD EESEKVE ACT OF 1934

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purchase of Government securities. The fund is wisely set aside as a
huge trust fund held in trust for the people.
The provisions for the expenditure of the fund are, in my mind,
the most crucial point in this entire bill, for whenever the fand is
spent that act is equivalent in its effect on the credit situation to a
gold import of a corresponding amount. This is true whether the
expenditures are made for purchases of foreign exchange, Government
securities, or anything else.
As I indicated above it does not seem to me that this is a point of
immediate danger. At the present time we need not hesitate to
place in the hands of the administration adequate powers to deal
with the emergency, but from a longer range point of view I should
like to raise two questions for your consideration: First, whether
the control over expenditures from the trust fund is adequate, and,
second, whether there might not arise conflict and interference between the decisions reached by the Secretary of the Treasury in
making purchases or sales in this fund and the decisions as to monetary
policy reached by the legally constituted authorities of the Federal
Reserve System, upon whom has rested the primary responsibility
for general credit conditions.
Under the bill as drawn the decision as to expenditures from the
fund rests solely with the Secretary of the Treasury. It is not
difficult to conceive of a situation in which the Federal Reserve
System, operating through the Federal Open Market Committee,
the Federal Reserve Board, and the directors of the 12 Federal
Reserve banks, would decide upon an open-market policy, let us say,
to sell $500,000,000 of Government securities in order to tighten
money rates and stop overexpansion of credit. A single member of
the Federal Reserve Board, the Secretary of the Treasury, might
leave the meeting where this important decision was reached, and
then, operating by himself alone, could completely offset the influence
of the entire Federal Reserve System by the expenditure in some form
of $500,000,000 from the equalization fund.
Senator GLASS. He does not have to leave the Board.
Mr. BURGESS. This is hardly a danger at the moment. I am sure
the present Secretary of the Treasury is fully aware of this difficulty.
I would like to interject here, Mr. Chairman, that in the New
York bank we are in constant and continuous touch with the Treasury Department, and we are helping them carry through an enormous
volume of operations, and we have grown to have great confidence in
the present Treasury Department.
But this bill provides a permanent plan. There will come afterward many Secretaries of the Treasury who may not appreciate the
dangers which lurk in the use of this fund. The Secretary of the
Treasury is, after all, a political officer. Pressure upon him is
always in the direction of easy money and expansion. He is made
the sole trustee of a fund from which he himself is principal borrower.
I would like to say that again. He is made the sole trustee of a
fund which he himself is the principal borrower.
I would suggest that in the permanent control of this fund the
Secretary of the Treasury needs a wicked side partner more or less
impervious to political influence or unpopularity, not afraid to say no.
Senator COUZENS. Senator Glass would fit that.
46217—34

238

GOLD RESERVE ACT OF 193 4

Mr. BURGESS. Let me say, as an aside, that one of the principal
duties of the Federal Reserve System is to act as a buffer. That is
one of our functions, to be the "goat." We are silent and can take
criticism. That is one of the principal functions of the bank of issue,
to stand between the Government and commercial banking.
Senator GLASS. YOU have been made the goat for 12 years.
Mr. BURGESS. We have no press agents, and we remain silent, and
perform the function of being the goat.
In order to prevent duplication or conflict of function that wicked
side partner needs to be some agency of the Federal Reserve System.
Only so, I believe, can this vast fund of money be prevented from
becoming a dangerous force for inflation and a force not only able to
nullify completely at times the action of the Reserve System in the
control of credit but one quite dividing the responsibility for the
control of credit so that it is not fixed definitely at any point.
Without proper safeguards this section might at times defeat the
purposes of the Federal Reserve Act and set up what is in effect a
competing agency for credit control. The proposed scheme may not
be dangerous for the brief period of the emergency but as a permanent
plan I believe it needs modification.
I should like to add this further thought. Even under the wisest
and most discreet handling of this fund the very act of devaluation,
with its huge additions to the country's gold reserves, carries with it
the need for a further thorough examination of the mechanism by
which overexpansion of credit may be avoided when the time comes.
In many different ways through this emergency period we have
created, and wisely so, a huge volume of reserve funds which is now
relatively quiescent. As confidence is restored and as recent experiences recede into the distance these hugh supplies of funds will again
become active.
We need to overhaul our mechanism of control, and we need to do
it well in advance of the occasion for its use, because, with the return
of prosperity the psychology of the people changes and we grow impatient with control. The banking bill of 1933 has gone far in this
direction, but the problem is so great that still further means of control
will be required.
Senator GLASS. Mr. Burgess, let me ask you if, under section 10 of
this bill, unless it may be taken to repeal the open market provision
of the Banking Act of 1933, which merely made statutory a practice
of Federal Reserve banks, you may not find yourselves at the banks engaged in the same sort of activities that the Secretary of the Treasury will be engaged in; and may you not, on the contrary, find yourselves at cross purposes with the Secretary of the Treasury?
Mr. BURGESS. That seems to me entirely possible.
Senator GLASS. It is not only possible, but it is extremely probable,
unless the Federal Reserve banks, in some degree at least, assert and
maintain their independence of the Treasury, is it not?
Mr. BURGESS. Yes, sir. It seems to me that difficulty, Senator,
could be avoided if someone or some body from the Federal Reserve
System were associated with the Secretary of the Treasury in the
trusteeship of this fund—perhaps the Federal Reserve Board; perhaps the Governor of the Board; of course, I feel the body to control
this fund should be much the same body that would control open market operations, the Federal Open Market Committee and the Board.

GOLD RESERVE ACT OF 1934

239

That would make, however, a pretty cumbersome body, because the
transaction of any business in foreign exchange has to be done quietly
and confidentially. I would think some plan could be worked out to
associate some officer or body—perhaps the Federal Reserve Board—
with the Secretary of the Treasury, and avoid this difficulty.
Senator GLASS. Mr. Burgess, do you conceive, as some people seem
to conceive, that the Federal Reserve banking system was set up to
finance the Treasury? Or was it set up to finance business and
agriculture and industry?
Mr. BURGESS. I have always felt that the primary duty was to
finance business and agriculture and industry. It is the fiscal agent
of the Treasury. I think it is always true, particularly in periods of
emergency, that the central bank must help the Government in its
financing program; but in that way lies danger. That way needs to
be guarded with the utmost care, because it is on that rock that many
a ship has sunk.
Senator GLASS. This ship is about to be sunk on that rock, too.
The CHAIRMAN. Are there any other questions of Mr. Burgess?
Senator GLASS. I would like to ask you a lot of questions that you
would not like to answer. [Laughter.]
The CHAIRMAN. We are very much obliged to you, Mr. Burgess.
There are some people who have signified their desire to appear
and some people whom Senators have requested to appear, who are
not present at this time. We have a Mr. Eisler, of Austria. Will you
come around, Mr. Eisler, and furnish us some views which may not
bear directly upon this bill, but may, perhaps, have some relation to it?
STATEMENT OF ROBERT EISLER, OF VIENNA
Mr. EISLER. Mr. Chairman, and gentlemen, my name is Robert
Eisler. I am a doctor of philosophy, a member of the Austrian
Historical Institute, and the author of a general history of the monetary system; the author of a book on " Stable Money "; and I am considered an authority on the Continent on the question of real monetary stabilization. I have had the honor of being heard before this
committee in executive session on the main program of reflation, that
is to say, of raising the price level.
This question has come up again this morning, and a number of
witnesses as well as members of the committee have said, with perfect
propriety, that the process of raising the price level would defeat
itself and give no benefit to the country if, at the same time, incomes
were not raised in proper proportion.
I am entirely in agreement with those witnesses who have stated
that the present bill contains, in itself, possibilities of inflation such
as have never existed before in this country or in the British Empire.
If these possibilities are fully used—and I believe that in the course
of time they cannot fail to be used, because of the situation of the
Budget, because of the obligations to which the present administration is already committed—in this case prices will rise. They will
rise, in my opinion, which is based on definite mathematical analysis,
much more than by 50 percent. They may rise by much more than
200 percent. If wholesale prices are raised to such an extent the cost
of living must go up, the cost of living will go up considerably.

240

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Advocates of inflation frequently state that the cost of living need
not go up very much, because it did not fall very much when prices
fell to about 50 percent. This is not true, because when prices have
been falling for a considerable time, neither wholesalers nor retailers
have any considerable stocks on hand, and will therefore be forced
to follow what are called repurchasing prices very quickly. If the
cost of living, that is to say, retail prices, rise considerably, it is
obvious that all those laborers, civil servants, annuitants, owners of
insurance policies, all the endowments and foundations on which the
educational system of the country is based, and which Dr. Kemmerer
has mentioned this morning, will be unable to buy what they buy
actually, let alone the increased production which we must achieve
if we want to absorb unemployment.
We will therefore have to face considerable increase in production
and, at the same time, seriously impaired and seriously diminished
consuming capacity of this country and other countries following
suit. This will tend to create a vast amount of unsalable commodities, which will accumulate on the shelves of the retailers and
in the warehouses of wholesalers, and finally in the factories of primary producers. The enormous amount of unsalable commodities
will break down the price level very speedily, and while we attempt
to permanently raise price levels, we will simply prepare the way
for a new crisis more formidable than the one of 1929.
On the other hand, I consider it entirely essential to raise the wholesale price level of this country, because I am firmly convinced, on
the basis of mathematical analysis, that the present debt superstructure is unbearable for this country, and that if the price level is not
raised this country, as well as other countries, are virtually bankrupt.
The solution of the dilemma or the problem which we have to face
is simply, as was said this morning, to increase all incomes in the same
proportion in which the cost of living goes up. That can be done
in one way only—and I am willing to prove this against any objection.
There is no other way of increasing automatically and continuously
all the incomes in this and other countries but to give full compensation to every creditor.
Every laborer, every officer, every white-collar worker, is a creditor
to the extent to which he lends his work for 1 week, 1 month, or 1
year, to his employer. There is no other way of increasing his nominal income in such a way that his real income remains unimpaired
but to give him constant compensation for the loss which he otherwise would suffer through the depreciation of the money which we
have to face for the immediate and for the further future. This could
be done by inserting a one-line amendment into the Thomas-Eankin
amendment, on which the present discretionary powers of the President in monetary matters is based.
If the circulating medium, the bank notes and coin of the country,
and of other countries, are declared legal tender to the amount of
their purchasing power on the day of payment, it follows automatically
and logically that nobody can be paid off in depreciated currency. If
you deposit today $100 in a bank and thereby create a contract under
which you are entitled to draw out of the bank the equivalent amount
of money and purchasing power under the actual system, and under
the system which will exist in this country under the new legislation,
the bank would be allowed to repay you in depreciated currency,

GOLD RESERVE ACT OF 19 3 4

241

although the cost of living may have gone up from 100 to 110, and
even to 150 or 200.
If the cost of living has gone up to 150, your money is depreciated
by one third. Nevertheless the bank will be allowed to repay you
in currency worth 66% cents. Every man, every employer who has
borrowed money from the bank when the index was 100 will be
allowed to repay it, when the dollar will be worth 66% cents. To
that extent every borrower will get a premium on borrowing. He will
not pay the interest which he has agreed to pay, but, contrariwise,
the bank will pay him for having carried away money. He will produce commodities with depreciated money. He will invest it in
machinery, as has been done in Germany and Austria, where great
industrialists have completely modernized their plants with the
stolen money of widows and orphans.
On the contrary, if a 1-line amendment could be inserted into the
Thomas-Rankin amendment declaring all these coins and notes
hitherto issued or coined by or under the authority of the United
States legal tender for all debts,-public and private, to the extent of
their purchasing power on the day of payment, every creditor would
have to be constantly compensated for loss occurring through depreciation of the currency. The bank would have to pay 110 cents to the
depositor of $1 as soon as the cost of living has gone up from 100
to 110. You would have a circulating medium worth, not the
face value of the bank note or the coin, but the face value divided by a
suitably constructed, scientific cost-of-living index. Under this system every single worker, every single trader, would get every week
exactly the amount of compensation in currency which would make
it possible for him to buy, in spite of raised prices, what he had bought
the week before.
Only by such compensated reflation, the detail of which is explained
in further detail in published books of mine, could you add constantly
to the total purchase power of the United States and all other nations.
Ordinary inflation, such as is possible and contemplated under the
present bill, is equivalent to robbing Peter in order to pay Paul.
But it is perfectly possible, and I say this in opposition to Mr.
James P. Warburg who has said this morning: " I t is not possible
to do anything without damaging somebody.77 The process of what
I call compensated reflation would allow you to expand your monetary system in such a way as to inflict no damage whatsoever on anybody. It would permit those who have employment today to keep
what they have in the way of purchase power and at the same time
purchase power be added to those who are today unemployed. If
everybody is compensated for the loss of purchase power which he
would otherwise sustain through inflation, then purchase power can
be added to the unemployed by converting them into fully employed workers without taking away anything from anybody who has
at the moment purchase power as the owner of salaries, wages, or
contractual incomes of any other sort.
I cannot, in the limited space which is allotted to me through the
kindness and courtesy of this committee go into the technical details.
I will be glad to answer questions as they are put to me, and I will
say and make this assertion now, that it is perfectly possible to have
reflation to the extent necessary to alleviate the present intolerable
burden of indebtedness, without damaging in any way the creditor

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class, including labor, including the endowed foundations on which
the university system of this country rests.
I should like to add very briefly a few words more on the fact that
if this country returns to a gold standard, modified or not, to a gold
standard under which the monetary unit is convertible, either into a
fixed or into a variable amount of grains of gold, this country must
have, according to stringent mathematical demonstrations, periodical
crises such as have occurred every 6, 7, 8, or 9 or 10 years all through
the industrial system. If this country returns to gold either in the
old or the new form, these crises will occur, the next one occurring not
very late after 1936, maybe before, the date of these recurrent crises
being perfectly calculable by the new mathematical methods.
Senator BARKLEY. In other words, you think we are likely to get
into another fix before we get out of this?
Mr. EISLER. Quite. I am entirely convinced of that.
Senator GLASS. Why on earth should you make it in 1936, when
we want to reelect another Democratic President and Congress?
[Laughter.]
Mr. EISLER. I cannot help the fact that according to the formulas
worked out in my bureau of mathematics we think that this is about
the margin, the latitude which you can achieve by expanding credit
in one of the forms which have hitherto been suggested.
I think that if this country returns to gold instead of returning to
a stabilization of the exchanges by means of mutual credit, if it
returns to a gold standard instead of returning to a perfectly acceptable
sterling-dollar standard, the greatest opportunity in history would
be missed and another generation will have to carry the weight of an
unfortunate and entirely obsolete monetary system. We have
now a system based on Peel's banking act of 1844, not improved,
but many times deteriorated since. What we have now is just as
it was in 1844. We have a monetary systemu which is contemporary
with the first locomotive, with Stephenson's Rocket", and nobody
should be astonished at the conclusion that the system has repeatedly
broken down and will break down if it is continued in operation. Itis the one unique occasion for getting a scientific monetary system
into existence. If this opportunity be missed, it may be missed for
an entire generation.
I thank the chairman for giving me this opportunity.
The CHAIRMAN. Then you are substantially of the same opinion
as the other authorities whom we have heard?
Mr. EISLER. I am entirely in agreement with Dr. Anderson, with
the Governor of the New York Reserve Bank, with Dr. Kemmerer,
that the creation of excess bank reserves will, in the end, under
natural pressure, lead to inflation.
And I should say that there is a precise way of defining "inflation"
which is very near a definition which Dr. Kemmerer has given to us.
He has said that money and credit ought to be expanded to the
extent of the requirements of trade. This is not the latest and most
precise definition obtainable. It ought to be expanded in the relation, in the measure, in which the potential producing capacity of the
country is expanding through the technological progress. Because, if
it is not expanding to that extent, we must have increasing unemployment, and under the pressure of increasing unemployment any
system will always break down.

GOLD RESERVE ACT OF 1934

243

On the other hand, if we have no unemployment left—and that is
perfectly possible by and under a scientific monetary system—in a
society in which there is no unemployment every new employer
entering the field with a new branch of production must engage
laborers which are at the moment engaged by one of his competitors.
He can do that only by offering higher wages. Under a system in
which there is no unemployment—and such a system can be achieved
by scientific monetary reform—the laborer of every description must
have maximum wages. Under such a system, when capacity production is not only possible but inevitable, employers must have
maximum profits, becaues they will operate at capacity production
and will be able to sell whatever they produce at a price which will
constantly compensate them.
Senator BARKLEY. Have you a definite system or monetary
program that you care to submit?
Mr. EISLER. I have, Senator. I have worked out not only this oneline amendment, which could easily and in a short time be passed,
but at the end of this mimeogram you will find a definite and complete draft of a monetary law explaining the way in which a modern
reserve bank ought to expend credit and currency, both for the stabilization of the exchanges and for the achievement of an optimum price
level.
I am not in favor of achieving a rigidly stable price level, but a
slowly rising price level. If it rises by about 1 percent a year, that
would be about the optimum, and it is perfectly possible.
Senator BARKLEY. Have you submitted this plan of yours?
Mr. EISLER. I have submitted it in executive session.
Senator BARKLEY. N O ; I mean to different nations.
Mr. EISLER. Oh, yes; it has been submitted to the British Parliamentary Finance Committee on the 10th of February 1932. I was
introduced at that time by Sir Robert Horne, former Chancellor of the
Exchequer, and a vote of thanks was moved by the former Minister
of Colonies, Mr. Leo Amery.
Senator BARKLEY. Has any nation adopted it?
Mr. EISLER. NO nation has adopted it. It can be adopted not by
any nation of the small size of my own—I am an Austrian—it can
only be adopted by a sufficiently large and independent economic
unit. The unit must be self-sufficient to the extent that it needs no
essential imports from outside. The United States are self-sufficient
to the extent of 94 and probably 95 percent. The British Empire is
self-sufficient to the extent of 93, probably 94, percent. Each one
of them could adopt a perfectly sound scientific monetary system and
have no unemployment ever after. If the two Anglo-Saxon nations
were to work conjointly they could completely revolutionize the world
and achieve such prosperity and such wealth as cannot be dreamed of
under present circumstances.
Senator ADAMS. HOW do you propose to determine the purchasing
power on each day of payment? If I understand you, your plan is
that all currency shall be accepted at its purchasing power on the
day of payment.
Mr. EISLER. On the day of payment.
Senator ADAMS. That involves an ascertainment every day.
Mr. EISLER. Every week would be vastly sufficient, because the
movement would be extremely slow. We would begin with ascer

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GOLD EESERVE ACT OF 193 4

taining the cost of living every week. The gentlemen are perfectly
aware that thel cost of living has risen under this administration in
6 months by b A percent. Ascertaining the cost of living every week
would be vastly sufficient. I would base the cost of living not, as
now, on the laborer's budget for two reasons: First of all, because
that would be injustice to all of those who have a higher standard
of living, and we hope to see a higher and not a lower standard of
living achieved by the majority. I would base it on an easily ascertainable budget
Senator ADAMS. Who would make this ascertainment?
Mr. EISLER. The Bureau of Labor Statistics and the statisticians
of the New York Federal Reserve Board, under the most able direction' of Dr. Carl Snyder, who are fully qualified to do it.
I would base it on the budget of a man, of a citizen, who pays an
income tax but no supertax; that is to say, on the basis of an income between four and eight thousand dollars of present purchasing
power. But I would have to do it in properly weighted proportions,
and I will immediately define the proper weighting.
First of all, the cost of rented house room, of local transport, of
public services as represented by rates and taxes, and of all the commodities, including gasoline, cheap cars, and such things which enter
into the budget of a four to eight thousand dollar man.
As to the proper weighting, it is generally supposed to be an
element of arbitrary decision. I call a proper weighting of such an
index the weighting corresponding to actual ascertained expenditure,
to wit, what a gentleman of that class—I purposely said " gentleman of
that class"—spends. That is the proper basis of weighting this
index.
The index would be taken in one city, for example in New York,
and that would be perfectly sufficient, because the variations in other
cities would take care of themselves in a very simple way, which is
easy to explain if questions are put.
Senator WALCOTT. Doctor, does your plan differ in any material
degree from the Irving Fisher plan?
Mr. EISLER. The gentlemen will find in the mimeogram which
has been distributed and of which other copies are available a statement of four pages explaining definitely, and I hope clearly, the fundamental differences between what I call a dollar of compensated
banking money and a dollar such as Professor Warren and Professor
Irving Fisher advocate.
Briefly, the difference is this: All these gentlemen want to stabilize
the purchase power of our incomes by acting on the purchase power
of the monetary unit. I am of the opinion, which has been expressed
today by several experts, that this cannot be done. The reaction on
prices of the monetary unit is much too slow to do this. What I
propose is to leave the monetary unit entirely alone. Whether you
make it gold or silver or greenbacks, even if you adopt all the provisions in this bill, if you inflate more or less that will not in itself do
any harm if all contracts are compensated on the basis of a stabilized
unit of banking money.
This system proposes to have an internal exchange between the
currency, which may be depreciated, which may be depreciated to
one tenth or one twentieth of its value. Nothing is easier than to
depreciate the currency. But you would have an entirely stabilized

GOLD RESERVE ACT OF 1934

245

unit of contract and bank money, and in contract and bank money
91 percent or perhaps 92 percent of the business of this country is
transacted, and this dollar would be automatically and under the law
and with no possible exceptions the honest dollar which would buy
a generation hence what it buys now, the honest dollar to which this
administration is committed by the President's proclamation.
The CHAIRMAN. HOW much gold have you in Austria?
Mr. EISLER. We have very little gold, and what we have does not
belong to us because of the fact that if we were to begin to pay our
debts we would lose all the gold we have. Therefore, we have exchange restrictions. We have limited the functions of our monetary
system to provide a balance of trade. Mr. Vanderlip mentioned
today that this is what he contemplates. We have a clearing system
in which importers demand foreign currency from the exporters.
That is to say, we can import exactly as much as we export.
We have a monetary ssytem which has reduced our foreign trade
to the state of barter, and I should like to say in reference to what
Mr. Vanderlip has said that this is the proper way for an impecunious
and almost bankrupt debtor country to act; but it is an entirely
improper way to act for the greatest creditor nation in the world,
because, under such a system, this creditor nation cannot be paid in
any way whatsoever what is owed to it. The greatest creditor nation
in the world must act in such a way that it can be paid what we owe
to it. And that could easily be done by stabilizing the exchanges
between the dollar and the pound by means of mutual credits.
The actual difficulty of stabilizing the exchange rates, the British
wanting a pound worth $3.50, the United States wanting a dollar of
which 5.8 go to the pound, this impasse, this unsolvable difficulty,
results simply from the fact that there is a disequilibrium between
wages and prices in Great Britain, due to the fact that the trade
unions in Great Britain are extremely powerful and that the American
Federation of Labor has no power whatsoever on the wage level of
this country.
If England were to raise its price level to the extent corresponding
to its actual wage level, the pound would fall on the international
markets to an equilibrium level which would make it perfectly possible to stabilize by mutual consent the dollar at such a rate that the
external trade of the United States and of the British Empire would
balance equitably without any one of these big systems trying to
steal a march on the other, and universal prosperity in the world
could and would result from such a procedure.
Senator GOLDSBOROUGH. Mr. Chairman, if it is agreeable to you,
I would like to make a motion to adjourn.
Senator BULKLEY. I want to ask, have you a short article on the
gold standard that you wanted to have printed in the record?
Mr. EISLER. Yes. I have written two articles for the Manchester
Guardian Commercial for June 10, which was published just before
the World Monetary Conference. This has been distributed to the
members of the committee, and I should be most obliged if the
members would vote that it should be incorporated into the record.
It contains charts and data which I hope would be of use to the
members of the committee.
The CHAIRMAN. Without objection we will put it in the record.
(The article submitted by Mr. Eisler will be found printed in full
at the end of this day's record.)

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Senator BARKLEY. Mr. Chairman, is there any way to have any
understanding at all about how long these hearings are going to run?
The CHAIRMAN. We have people enough summoned here now to
occupy us practically all of Monday. We can finish with those that
are now on the list I think Monday, but whether we will or not,
whether there will be some more around, I do not know—unless we
agree not to hear any more. I would be glad if you would signify,
if it is agreeable, that we will conclude these hearings on Monday.
Senator BARKLEY. I would like to offer that motion.
The CHAIRMAN. All in favor of the motion say "aye."
(Chorus of "ayes.")
Senator WALCOTT. What is the motion? We did not hear it.
Senator BARKLEY. The motion is that the hearings conclude when
the committee concludes its hearings on Monday.
Senator KEAN. HOW many more have we to hear?
The CHAIRMAN. We have about four or five for Monday. We
have no more now.
Senator WALCOTT. Mr. Chairman, there are so many suggestions
today as to one or two very important amendments to this bill that
it seems to me, in view of the value of a bill of this sort and the importance of it, it is a great deal better to thrash it out in committee
rather than on the floor of the Senate.
The CHAIRMAN. We will take up consideration of the bill, Senator,
after we get through with the hearing. We will finish the hearings
and then we will take up the bill and all amendments that may be
offered.
Senator GLASS. I think we just as well finish Monday.
Senator WALCOTT. On the hearings, yes.
Senator BARKLEY. That is all my motion was for.
Senator WALCOTT. Oh, I thought you meant final consideration.
The CHAIRMAN. I will give notice that we will have no hearings
after Monday. The committee will recess, then, until 10:30 Monday
morning.
(Accordingly, at 4:25 o'clock p.m., the committee adjourned until
10:30 o'clock on the following Monday morning.)
(The additional data submitted by Mr. Eisler is here printed in full
as follows:)
T H E CASE AGAINST THE GOLD STANDARD
I. WORLD PRODUCTION AND CONSUMPTION OF COMMODITIES

(By Dr. Robert Eisler)
A most remarkable cyclical fluctuation of gold prices between 1850 and 1912
has been noticed by econbmists ever since the latter year and variously used to
illustrate the influence of supply and demand on the exchange value of gold.
If the data of Sauerbeck's commodity price level for these years are plotted the
resulting curve (fig. 1) shows a series of short-term fluctuations, but also very
clearly an underlying single, roughly symmetrical long-term up-and-down wave
overlaid, as it were, by the ripples of the short oscillations. The horizontal
line representing the artithmetic mean between the peak and the trough of the
wave is crossed in 1852, 1881, and 1912. Diagrams published by Mr. Bowie,
of the Industrial Institute, in 1932 show how closely the long-term fluctuation approximates to certain mathematically defined curves (sinusoid, cubic, and
log parabola), the maximum deviation of the short movement extending to about
6 percent above and 6 percent below the trend of the long fluctuation.
A similar long wave is easily seen if the annual increase of the world's actual
monetary stock gold is plotted in the same way as the rise and fall of wholesale

GOLD EESEBVE ACT OF 1934

247

prices (fig. 1). The striking parallelism of the two curves has been explained
by Prof. Gustav Cassel (1923), whose thesis has been further elaborated by the
late Mr. Joseph Kitchin and by Sir Henry Strakosch (1929) in the following way:
Commodity prices were at the same level in 1850 and in 1910, and equally so in
1881-82, at the point of intersection of the "long wave" and the "arithmetic
mean line", because in this period the world's stock of gold increased at an average rate of 3 percent per annum, while—according to the best available statistics
established without any reference to the problem of gold and the price level—
the world's production has increased at the same rough average of 3 percent all
through the nineteenth and the twentieth century. The "long wave" of prices
is seen rising above the "level" line as long as the annual increase of the world's
stock of gold was greater than the "normal" 3 percent rate, and it is seen falling
below the "level" line as long as the annual addition to the gold stock of the
world was below this "normal" figure. A curve representing the relation of the
actual to the "normal" annual gold supply, called the "curve of relative gold",
coincides in a remarkable way with the "long wave" line of prices. Mr. Kitchin
and Sir Henry Strakosch have shown that the coincidence of the two curves is
even more striking if the "curve of relative gold" is made to represent the increase
not of the world's total stocks of gold but the net addition to gold used for monetary purposes—i.e., annual gold production minus gold absorption into sterile
hoards and industrial consumptions.
A " L O N G - W A V E " EXPLANATON

It seems extremely plausible that if the world's monetary stocks of gold had
been constantly increased by about 3 percent per annum all through this period
the short-term fluctuations would have oscillated around a straight line and not
around the sinusoid or cubic parabola of the "long wave" in other terms, that the
"long wave" of prices is nothing but a slow average variation of the exchange
value of gold, due to the gradual changes in the supply of the monetary standard
metal.
Two important practical conclusions have been drawn from this interpretation
of past statistical experience by Professor Cassel, Mr. Kitchin, and Sir Henry
Strakosch, and accepted by Sir Reginald Mant in his report to the Gold Delegation of the League of Nations Financial Committee. They have been popularized
in France, notably by M. Georges Boris—first, that a net addition of about 3
percent to the world's monetary stocks of gold would have to be forthcoming if
the world's gold price level is to be maintained stable in the future, and, secondly,
that the catastrophic fall of wholesale prices after 1929 is due to a deficient gold
production and a deficient utilization for monetary purposes—a so-called "sterilzation" (Sir Josiah Stamp) of the available gold—by certain central banks.
Against this so-called "gold scarcity theory" a number of serious objections
have been raised by Mr. G. R. Hawtrey in a discussion of a paper read by the
late Mr. Kitchin at Chatham House in February 1930. According to Mr.
Hawtrey, Mr. Kitchen's graph "shows" nothing but "that the net result of all
the different forces other than the gold output was to cancel each other out"—
more or less exactly. "The quite abnormal demand for gold due to the putting
of so many countries on the gold standard having been offset by the equally
abnormal development of credit substitutes", it seemed to Mr. Hawtrey that
the "normal" 3.1 percent per annum increase of monetary gold "is actually
based on no evidence whatever." "Not knowing how far conditions either as to
economic expansion or as to credit substitutes or as to the habits of the people in
regard to the amount of currency and bank money they will hold in the future
will correspond to the past", we are, according to Mr. Hawrtey, "completely left
in the dark so far as statistical guidance is concerned."
This most disappointing result seemed to be confirmed when Mr. Bowie,
on January 19, 1932, put before the Royal Statistical Society his mathematical
analysis of the close parallelism between the curves of the price movement and
the increase of monetary gold stocks, and Mr. Udny Yule rose to point out the
fact that very close correlations of various time series over a relatively short
sample period may be entirely fortuitous. As an amusing example of such "nonsense correlations" Mr. Yule quoted the paradoxically striking correlation
(0.951—i.e., quite near to unity) between the standardized mortality per thousand persons in England and Wales and the proportion of Church of England
weddings per thousand of all marriages.
Independently from Messrs. Hawtrey and Yule Professor Ernst Wagemann,
director of the German Imperial statistical office, has closely studied the problem

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of the gold supply and the price level. Starting from the fact that the gold-mining
output is itself dependent upon the production costs of gold—that is to say, on
the movements of the price level (see fig. 2), since a fall of prices permits to treat
poorer ores and to sink deeper shafts, while a rise of prices renders marginal mines
unprofitable—Dr. W a S e m a n n concludes that the close correlation between the
movements of the price level and the per annum additions to the world's monetary
stocks of gold must be due to some unknown factor influencing both curves.
My readers will probably admit that this seems like carrying legitimate skepticism a little too far, and that it would need a lot of proof to convince either an
expert adherent of the quantity theory of money or a practical business man
brought up under the influence of that simple view that the obvious correlation
between the supply of gold and the level of gold prices is a " nonsense correlation'\
due to the influence of a mysterious cause acting on both curves. Most obviously
the advocates of the gold standard cannot have it both ways; either gold reserves
tend to limit the fluctuations of the price level, then the correspondence between
the movements of prices and "relative gold" cannot be fortuitous "nonsense
correlations", or, if they are and there is no correlation between prices and gold
reserves, why insist at all on having gold reserves as a safeguard of monetary
stability?
"What is the justification," said Mr. Udny Yule, "of assuming a constant
percentage rate of increase in requirements for monetary gold?" Most certainly the reference of Professor Cassel and his followers to the fact that according to good statistical evidence the world's production increases at an average
of 3 percent per annum, while population increases at an average of 1 percent
per annum does not warrant the conclusion that a 3 percent average per annum
increase of gold is necessary for the purpose of exchanging the increased annual
produce of civilized humanity at a constant price level.
TRADE VOLUME AND GOLD

Obviously any quantity of goods and services can be exchanged by means
of a given quantity of gold without depressing the price level if the circuit
velocity of money is speeded up to the proper extent. How often have the
advocates of the gold-scarcity theory been reminded of the fact that transactions to the amount of £40,000,000,000 were cleared in London at a time when
the gold reserve of the bank was less than £150,000,000? On the face of it,
a certain average annual increase of the world's trade volume does not seem
to call necessarily for a proportional increase of gold currency as long as there
are other means of payment. As Mr. Hawtrey pointed out in the course of
the Chatham House discussion, everything depends first of all on the growth
of the note issue in relation to gold reserves, not to speak of the proportion
between the note issue and deposits subject to transfer by means of checks.
However plausible Professor Cassel's, Mr. Kitchin's, and Sir Henry Strakosch's
basic assumption may seem at first sight, it is certainly far from self-evident.
This is, however, by no means the only problem left unsolved, nay, unnoticed,
by Professor Cassel's apparently convincing and, in spite of these fundamental
difficulties, essentially correct reasoning. Nobody has, as far as I know, ever
attempted to explain the unquestionable fact that the volume of the world's
production and consumption increases at an average rate of not more than about
3 percent per annum. This rate of economic progress is certainly no more
"natural" in our modern age of power production than the 1 percent per annumincrease of population is due to a "natural" or "physical" limit of human fertility.
Even as it would be biologically possible—however impossible it might prove
economically and socially—for each couple to have a child every 10 months for
20 years of their lives, the productivity of labor, aided by machinery, could certainly increase production in this age of cumulative, technical progress at an
incomparably more rapid rate than this paltry 3 or—in the United States—4 percent per annum. In an age capable of harnessing a constantly increasing part
of the endless flow of cosmic energy to the service of our needs, and of thus producing a constantly increasing quantity of raw materials and finished products,
above all, in an age which has always had a large surplus of unemployed labor—
the figures oscillating between 2 percent and 12 percent, from 1850 to 1912—it is
inconceivable to accept this 3 percent as the maximum potential increase of
production.

GOLD RESERVE ACT OF 19 34

249

THE 3 PERCENT INCREASE

Just as there is no physical obstacle tp a much more rapid increase in population,
one cannot imagine any physical obstacle keeping the per annum increase of production within such narrow limits. In the same way as the increase of population
is kept within narrow bounds by the limited purchase power of the masses, the
theory of the price level being in the long run tied to the line of "relative gold"
would simply imply that nothing but the limited per annum increase of the
world's purchase power possible under the gold standard system has reduced
the annual increase of production to the low figure of something like 3 percent
all through the nineteenth and twentieth century. If it is true that an average
3 percent per annum increase of monetary gold is required for keeping the wholesale price level stable and for avoiding a price fall wiping out profits and overburdening industry with debts contracted in terms of gold, it must be equally true
that any speeding up of the world's production of all good things above the 3
percent per annum line determined by the average speed of gold production,
any attempt freely to produce as much as the technical efficiency of available
labor and plant would permit, must lead to an "overproduction" of consumable
commodities relative to the gold currency world's purchase power.
If this is true, the slow and spasmodic production of gold—chosen as the standard commodity because of its rarity, because its production cannot be speeded up
ad lib—must be the metronome, beating time to the march of economic progress,
the "invisible obstacle" to our enjoying the potential plenty of wealth, the exasperating drag limiting—in spite of every attempt to expand credit and "economise gold" by using fiduciary currency—the increase of production of all other
much more easily multipliable goods to the low average speed of 3 percent per
annum.
If this indictment of the gold standard can be substantiated, the reader will
easily see for himself that it is not capitalism but a thoroughly antiquated monetary system which should be made responsible for the greatest curse of our time—•
the persistence of wretched, squalid poverty in an age of potential plenty surpassing the wildest flights of Utopian imagination, and that—according to the
unforgettable slogan of the late vice-President of the United States, William
Jennings Bryan—-mankind has really been "crucified on a cross of gold."

(Illustrations not printed at this time.)
DRAFT MATERIAL RESPECTFULLY SUBMITTED BY DR. ROBERT EISLER, OF VIENNA
AND PARIS, CONCERNING AN AMENDMENT INTENDED TO BE PROPOSED BY DR.
EISLER, OF AUSTRIA, TO THE BILL (H.R. 3835) TO RELIEVE THE EXISTING
NATIONAL ECONOMIC EMERGENCY BY INCREASING AGRICULTURAL PURCHASEPOWER

On page 24, section 43 (C) after the word "private", line 29, insert the words
"to the amount of their purchase power on the day of payment", the said purchase power to be defined as the face value of the note or coin divided by the
scientifically constructed cost-of-living index number of the day of payment.
At the end of section 44, insert "especially concerning the construction and
calculation of the cost-of-living index by which the purchase power of the United
States currency is henceforward to be determined."
MOTIVES FOR PROPOSING THIS AMENDMENT AND EXPLANATION OF THE CONSEQUENCES OF THE PROPOSED LEGISLATION

Under the Thomas amendment of April 1933, wide discretionary powers of
monetary expansion were given to the President. Three billion dollars could
have been added to the cash reserves of the banks by open market operations of
the Federal Reserve banks, three billion more by direct issue of United States
notes; by a 50-cent devaluation of the dollar in terms of gold the available gold
reserve of $3,597,000,000 could have been doubled in terms of devaluated dollars.
This would have made possible an issue of $9,000,000,000 additional Federal
Reserve notes, backed by 40 percent of gold. Not counting any issue of silver
certificates permissible under section 45 of the bill, 15 billion of currency
could have been added at the bottom of the pyramid of credit, adding roughly
150 billions to the potential amount of circulating credit. These possibilities

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GOLD EESERVE ACT OF 193 4

have hitherto in no way been utilized, the actual monetary circulation being
indeed smaller than it was at the beginning of the new administration.
It is common knowledge that any expansion of the monetary circulation
sufficiently large to raise the national price level of the United States to the
extent necessary for the purpose of relieving the intolerable indebtedness of the
producer and of stimulating production to the extent necessary for the absorption of existing unemployment was and is violently and obstinately opposed by all
those who stand to lose by the rising cost of living, consequent upon and inseparable from a rise of the wholesale price level.
This resistance is perfectly legitimate. It is indeed evident that a rise of
retail prices of consumable goods prevents all those entitled to contractual incomesfixedin terms of money—that is to say, all rentiers, pensioners, annuitants,
civil servants, wage and salary earners, etc.—from consuming the amount of
goods and services which they were in the habit of buying, let alone any part of
the additional produce resulting from an increase of production stimulated by
rising prices. Since a rise of the retail price level forces all owners of contractual
incomes fixed in terms of money to lower their standards of living, it is obvious
that the raising of the standard of life of the unemployed, reconverted into wage
and salary earners by production stimulated through a rise of prices, would be
obtained at the expense of those actually employed and of the rentier, landlord,
owners of savings deposits, insurance policies, etc. Not only is a monetary policy
designed to help the producer by raising the wholesale price level without compensating the consumer for the resulting loss of purchase power a process of
"robbing Peter to pay Paul" but it is also an expedient which in the long run
must defeat its own end, since the goods which the consumers are more and more
unable to buy must, of course, accumulate on the shelves of the retailers and in
the warehouses of wholesalers and producers until the pressure of these evergrowing unsaleable stocks forces all traders to sell them at any cost, and a new
crisis results through the inevitable collapse of the raised price level.
These untoward results of ordinary inflation or devaluation of currency achieved
by any one of the methods outlined in section 43 of the law, which we propose to
amend—can be entirely avoided by the proposed new amendment designed to
insure.
COMPENSATED REFLATION

If the circulating currency of the United States of America is declared " legal
tender to the amount of its purchase power on the day of payment" the consumer
and the owner of contractual claims in terms of money are fully protected against
and compensated for all loss of purchase power consequent upon the depreciation
of the monetary unit, and new purchase power can be given to the unemployed
and to the agricultural as well as to the industrial enterpriser without taking
away any part of their actual purchase power and consuming capacity from other
classes.
A real addition can be made to the total purchase power of the community instead of a mere transfer of existing purchase power from one section of the people
to another.
CONSEQUENCES OF THE PROPOSED LEGISLATION

Under the actual monetary system the execution of each contract in terms of
money leads to an inevitable amount of fraud. If prices have risen, the debtor
defrauds the creditor by repaying in depreciated currency. He receives a premium for borrowing instead of paying the agreed rate of interest. Conversely,
when prices have fallen the creditor becomes unwittingly and unwillingly a usurer
exacting payment of capital and interest in appreciated currency, thereby receiving an exaggerated rate of interest and ruining the debtor.
Under the proposed legislation all this hitherto legalized iniquity would be
ended. A depositor having deposited $100 in a bank when the index was 100 can
at present be repaid in depreciated currency as soon as the cost-of-living index
has risen, say, to $110. Conversely, a client who has borrowed $100 from the
bank when the index was 100 and who has manufactured with this money a commodity which he can now sell at an increased price level, is now allowed to repay
the bank in depreciated currency; he may have agreed to pay 6 percent interest
for a year and may have made a 9-percent profit in 1 month by replaying the loan
in depreciated currency.
Under the proposed law the payee is automatically compensated for loss consequent upon any depreciation of the currency unit. The bank must pay 110
cents in currency for $1 deposited when the index was 100, as soon as the index has

GOLD EESERVE ACT OF 1934

251

risen to 110. (If the depositor is paid by means of a check on another bank the
check will of course be made out for "$1 only", since the obligation to pay out
110 cents is thereby merely transferred to another bank and no final payment in
legal tender is effected.) Conversely, the borrower of $1 will have to repay the
loan either by means of a $1 check on another bank or by handing in 110 cents,
since a dollar note or coins to the face value of $1 are legal tender only to the
amount of 91 cents when the cost-of-living index has risen to 100.
As to the banks' cash reserves, they will have to be protected against depreciation by being converted into a balance with the Federal Reserve banks every
Saturday noon, and before the index may be changed over Sunday, by handing
them over, on the premises of the bank itself, into the custody of a sworn Federal
Reserve agent, who will lock them up over the Sunday. The resulting balance
will then enable the member bank on Monday exactly to that amount of cash
necessary to carry on business on the new price-level.
A 1-dollar deposit—1 dollar of stable or "compensated bank money"—will
thus always buy the same amount of consumable goods and services which it
bought when the index was 100. Such a compensated dollar will be "the dollar
which will buy in another generation what it bought in this generation" announced
in the President's epoch-making message to the London International Monetary
Conference of 1932.
This "compensated dollar" will moreover free the employer from the constant
demand for a raise in wages whenever the cost of living rises to a new level.
Actually an unskilled laborer receiving a $15-weekly wage asks his employer for
a 10-percent raise, i.e., for $16.50 as soon as the cost of living has risen from 100
to 110. Under the new legislation the employer will draw a wage check for $15
and either he or the laborer employed will get $16.50 currency from the bank
against this check as soon as the index has risen to 11,0. The employer's wages
bill will be stabilized, the increase corresponding to a rising cost-of-living being
provided by the authority which is the source and fountain of fiduciary issue,
the monetary policy of which has necessitated the compensation in question.
In this way the necessary rise of the wholesale price level can be achieved while
all consumers' nominal or money incomes are increased in direct proportion to
rising retail prices.
The objection that this legislation would stabilize the actual disproportion
between the prices of produce and the producers' indebtedness can easily be
refuted. Since it is common knowledge that the movement of retail prices lags—
for obvious reasons—considerably behind the movement of wholesale prices, a
compensation of the creditor for the slower and less considerable rise of retail
prices will by no means annihilate the whole, but pnly part of the profit which
the producer derives from the rise of wholesale prices, as can easily be demonstrated by means of the appended graph, showing how the increase of wholesale
prices in compensated bank money compares with the nominal rise of prices in
terms of depreciating currency.

(Illustration not printed at this time.)
The diagram shows—by means of curves illustrating the movement of American
prices from 1916-21—that the cost-of-living figures follow the movement of
wholesale prices with a considerable time lag and that retail prices, because of the
large amount of "fixed" costs to be borne by the retailer, do not either rise or
fall as far as wholesale prices.
If we want to know the gradual depreciation of current money in terms of
the retail prices of consumers' goods, in other words the diminution in the purchase-power of consumers' money, we have only to invert the curve representing
the cost of living. The resulting "reflection" of the rising cost-of-living index
curve in the "mirror" below the horizontal coordinate (representing time) will
directly show us how many "cents" the United States dollar of current money
was worth at any date from 1914-23. While the cost-of-living curve shows how
many cents of current money had to be added to hundred cents credit or at any
date in order to buy a " 1914 dollar's worth" of various consumable goods, the inverted curve shows how much smaller the parcel of various commodities obtainable for a dollar in 1914 became from day to day in the following years.
The curve representing the depreciation of the consumers' dollar shows immediately that the consumer is able to buy less and less of the goods produced, his
purchases being represented by the shorter and shorter vertical lines reaching
from the bottom of the graph into the dotted dollar depreciation curve.

252

GOLD EESERVE ACT OF 193 4

The longer and longer vertical lines reaching from the depreciation curve up
to the dotted 100-100 level are the measure of the gradually accumulating unsalable stocks, which can only be sold if the consumer is compensated by an
equivalent amount of cents added to each dollar of his income.
The double-line curve showing wholesale prices in terms of currency can be
transformed into the black line showing wholesale prices in "compensated''
dollars of bank-money by deducting from the height of each point in the doubleline curve the height of the corresponding point in the cost-of-living curve. If it
needs 110 cents currency deposited in a bank to be credited with one dollar as
soon as the cost-of-living index has risen to 110, it is obvious that, e.g., a wholesale price of 150$ currency for a commodity will only mean a 150 + 100/110 =
136.36 dollar price in compensated bank-money.
It is easy to see that wholesale prices do rise all through inflation, not only in
currency but equally, although less rapidly, in compensated bank-money.
The fact that wholesale prices rise in "bank-" or "contract-money " means that
a farmer's or a manufacturer's indebtedness-—his liabilities corresponding to
public debt ( = taxes) as well as his liabilities based on private indebtedness
( = rent and interest on borrowed capital)-—are diminished in relation to the value
of the goods which he produces and sells. The present impossible situation in
which more and more producers, overburdened by the claims of the Government
and by the claims of creditors, unwittingly and unwillingly turned into usurers,
are forced out of business is automatically righted; enterprise becomes profitable
again because overtaxation and overindebtedness are readjusted in a smooth
and equitable way.
This sounds "too good to be true." Our diffident farmers and industrialists
will ask where this welcome bounty is to come from. Must not somebody lose
what they stand to gain? , Would not the Nation and therefore they as citizens
lose, if they, in their capacity of producers, were relieved by monetary depreciation
from overtaxation—even if the monetary depreciation be (partly) compensated
by a mathematical device which strikes them as akin to a conjurer's tricks?
Would not the creditor lose what the debtor stands to gain by rising bank-money
prices? And is not the producer a creditor in relation to other producers or to
wholesalers buying his goods? Would he not lose as much as he gains?
Fortunately, the situation can be made quite clear to the debtor as well as to
the creditor, to the entrepreneur as well as to the rentier, to the employer as well
as to the employee. Most obviously somebody must surrender what somebody
else is to receive. But in the proposed system the creditor is completely protected
against loss in his capacity of consumer. If he has bought bonds or war loan in
order to buy whatever he needs, whenever he needs it, and to employ as much
labor as will be necessary in order to preserve his standard of life, he cannot lose
through the adjustment proposed, because every dollar of his claim on a bank,
on the government or on a producer will buy as much consumable goods and
services as before.
The creditor loses, however, in the capacity of the man who wants eventually
to reinvest his savings in shares or to start a business himself. If he has bought
Government bonds because he has temporarily retired from business in order to
lie low "until something worth while turns up", he will find that, as soon as
prices rise and business is restarted, his securities will fall relatively to other
people's shares. But this is as it should be. We want industry to prosper and
an incentive to be offered to enterprise employing iabor. Most emphatically we
do not want the idler, suphemistically called "the passive agent of production",
to be favored at the expense of the risk-taking producer. Nobody in his senses
desires to perpetuate the state of affairs in which a prudent rentier or, still worse,
a panic-stricken hoarder can buy a well-equipped factory for what it normally
earns in 1 or 2 years. It is the depreciation of our industrial assets that we want
to remedy.
It is as stupid to forget that the producer enables the consumer to consume as
it is foolish to lose sight of the fact that the consumer enables the producer to
continue production. The mere consumer, or the creditor qua consumer, has a
claim to a fixed amount of consumers' goods. His consols or bonds are not
claims to a fixed amount of producers' goods, because they are not industrial
stocks and shares. If he has acquired consols as a means of acquiring industrial
shares or stocks of commodities later on, he is not merely a bona fide creditor and
rentier, but also a "bear" specualtor and must take the rough with the smooth.
He is not to be pitied, moreover, because, with a little more intelligence than the
other "bears" in the pack can muster, he can sell his consols or war loan to
investors shunning risk and wanting to retire from business, before the "bulls"
awake to the new situation, and thus "get in at the bottom" of the rise.

GOLD RESERVE ACT OF 1934

253

The essential point! s that the consumers' capacity to consume should be maintained in order to balance existing producing capacity. The community is not
interested in maintaining anybody's capacity to add a new important item to
the actually redundant producing plant.
DIFFERENCE BETWEEN A DOLLAR OF VARYING WEIGHT IN GOLD, CALLED A " COMMODITY DOLLAR^ OR A "COMPENSATED DOLLAR^, SUCH AS ADVOCATED BY
PROF. IRVING FISHER, AND A STABLE "DOLLAR OF BANK, OR CONTRACT MONEY",
ENTITLING THE HOLDER TO A VARIABLE AMOUNT OF CENTS, I.E., CURRENT
MONEY (BANKNOTES OR DIVISIONARY COIN), AS DESCRIBED BY DR. ROBERT
EI8LER

The proposal of Professor Fisher, which, according to a recent statement, he
would be very willing to abandon in favor of Dr. Eisler's plan, if the latter proved
to be more acceptable to Congress and the President, provides a dollar, the weight
of which is diminished when wholesale prices fall and is increased when wholesale
prices rise, so as to keep wholesale prices moderately stable.
This would mean that a given weight of gold, e.g., an ounce, is legal tender for
a debt defined as $1 worth of goods included in an index of wholesale prices to
the amount of the purchase power of gold at the time of payment. If the purchase power of gold increases the creditor can only exact proportionately less
gold. If the purchase power of gold falls, he can exact a greater weight of it
than at the time the debt was contracted.
This dollar of variable weight will, as Professor Fisher freely admits, not keep
prices absolutely stable, but only tend toward moderating short-term fluctuations
and toward eliminating long-term rises or falls of prices.
In his book Stabilizing the Dollar, Professor Fisher himself gives a chart
showing the considerable fluctuations of the price level which could and would
occur under his system. Thesefluctuationswould always inflict a certain amount
of damage on the creditor class, including the wage and salary earners, when prices
rise, on the debtor class, i.e., especially the enterpriser, farmer, or manufacturer
producing goods with money borrowed from banks, when prices fall.
This injustice would be negligible and anyhow smaller than the iniquities of
the old gold-standard system if the price level from which the new compensation
system started were a level of equilibrium between prices and debts. But since
Professor Fisher admits that the actual distress price level must be raised by devaluation and inflation of the currency, devaluation alone cannot make production profitable and debts payable. The "commodity dollar" of variable gold
weight primarily designed to placate the enemies of an inconvertible paper money,
does not in any way hold out to the creditor class any guarantee of compensation
for the losses which they would suffer through devaluation of the monetary unit
and the inflation of the circulating volume of currency.
The reflation problem is not solved by the Warren-Fisher u commodity
dollar." This dollar is not a "compensated" dollar during all the time that the
currency is managed for the purpose of raising prices.
This is well known to Professors Warren and Fisher. Professor Warren admits
(p. 165 of his book Gold and Prices) that the said dollar would not eliminate
business cycles. In other words, there would be periodical crises under the
variable weight gold-dollar standard, just as under the old gold-standard system.
The conclusion is: The monetary unit must be completely divorced from gold,
then the currency can be managed in such a way as to avoid crises altogether.
Dr. Eisler's "compensated dollar of bank money" changes not the gold weight
into which the dollar is convertible under the law, but disregards the amount of
gold which may be had in the free gold market for $1.
On the contrary, it provides by making a dollar a bank, deposit or contract
money—a purely ideal money of account—convertible into a variable amount of
cents of currency (coins or bank notes) a guarantee that all contractual income
stipulated in terms of such money will always be increased in due proportion to
rising retail prices, whenever wholesale prices are raised by an expansion of creditmoney. Such a "compensated dollar" represents indeed a constant quantity of
consumable goods, bought and sold in the retail trade; but it does not achieve
this aim by legally identifying the monetary unit with a variable amount of gold,
but with a variable amount of currency (paper and token coins) declared legal
tender to the amount of its purchase power.
Neither Professor Fisher nor Professor Warren have ever claimed that their
"commodity-dollar" system could effect a total absorption of existing unemployment. Dr. Eisler claims to be able to prove that his method of "compensated
46217—34

254

GOLD EESERVE ACT OF 1934

reflation" would totally absorb existing unemployment, assure to enterprise the
maximum profit consequent upon peak-load production and to labor the maximum
wages which the worker can command when every new entrepreneur has to induce
an employed worker to abandon his job for a new one.
Add at the end of section 43:
3. In case the Government of the United States enters into an agreement with
any government or governments under the terms of which the rate of exchange
between the United States unit of bank money and that of any other nation is
stabilized by international contract, on the basis of the purchase-power equation
prevailing at the time of the ratification of that contract and on the basis of an
agreement stipulating a parallel budgetary and monetary policy designed to raise
the national price levels to the figure which would insure the absorption of existing unemployment, but without regard to the value of the said monetary units
in terms of gold, the President is authorized by proclamation to fix in terms of
the said unit of United States bank money the price of an ounce of fine gold and
of an ounce of fine silver at which the United States Treasury will henceforward
buy any amount of the two precious metals offered to it against United States 3
month's Treasury bills; provided that under the terms of the said international
contract the treasury or central bank of the nation or nations entering into the
said agreement undertake to buy gold and silver at an equivalent price in terms
of their own national bank-money unit.
The United States Treasury is further authorized to exchange with the treasury
or treasuries of the nation or nations entering into such an agreement regularly
renewable 3 months' Treasury bills equivalent to the money value of 1 year's
trade between the nations concerned for the purpose of keeping the exchanges
between the monetary units of the United States and the respective nation or
nations stable by selling such Treasury bills on the money market of the issuing
nation whenever there is an excess demand of the one of the two moneys to be
stabilized in terms of each other.
IF CONGRESS SHOULD DESIRE TO REPLACE H.R. 3835, SECTIONS 42-44 BY NEW MANDATORY LEGISLATION THE FOLLOWING DRAFT IS RESPECTFULLY SUBMITTED
TO THE CONSIDERATION OF THE CONGRESS COMMITTEES ON BANKING AND
CURRENCY

A bill to provide an American money of account and contract of stable purchase power protecting the creditor as well as the debtor against loss consequent
upon inflation or deflation of the currency of the United States and American
labor against unemployment caused by monetary instability.
Be it enacted, etc., That henceforth it shall be the primary object of the monetary
policy of the United States to provide a monetary unit of substantially stable
purchase power in terms of retail prices of consumable goods and services essential for the maintenance of the average citizen's standard of life, to be used as
money of account in all contracts stipulating payment in terms of American legal
tender money.
SEC. 2. The legal fiction, hitherto commonly accepted as the basis for all
judicial interpretation of such contracts that circulating money proper, to wit:
The United States dollar defined as a fixed weight of gold of standardfineness,let
alone the silver dollar or a dollar of inconvertible paper money, as a stable measure of the exchange value of goods and services is hereby expressly declared as
contrary to the facts, a constant source of legalized fraud and iniquity in the
relations between debtor and creditor, whenever there is, in consequence of
various causes, an inflation or deflation of the currency and, therefore, wholly
inadmissible in court.
SEC. 3. All previous legislation whatsoever, as far as it is based on the legal
fiction that the unit of United States currency has or can ever have a stable
purchase power, is hereby declared void and null.
SEC. 4. All notes and all other coins and currencies heretofore or hereafter
coined or issued by or under the authority of the United States shall be legal
tender for all debts, public and private, to the extent of their actual purchase
power on the day of payment.
SEC. 5. (a) Half and quarter cents shall be coined in quantities to be determined by the Director of the United States Mint.
(b) The actual 5- and 10-cent coins shall be replaced by a new coinage of such
weight and shape that it cannot be used any more in slot machines operated by
the actual nickel and silver coins.

GOLD RESERVE ACT OF 1934

255

(c) The present nickel coins shall be sold at their face value for use as subwaytoken coins and similar purposes to the owners of slot machines to avoid imposing
the cost of altering such machinery on these concerns.
SEC. 6. The present dollar notes shall be gradually withdrawn and replaced
by new ones bearing the following text:
"This note, equivalent on the day of the ratification of the act of Congress
—
of the
of 1934, to one dollar, United States bank and contractmoney of account is legal tender to the extent of its actual purchase power on
the day of payment. The figure determining the value of this note in terms
of United States bank money is obtained by dividing its face value by the last
cost-of-living-index figure proclaimed before the day of payment."
SEC. 7. The term "actual purchase-power on the day of payment" is hereby
defined as the figures obtained by dividing the face value of the note or coin by
the last cost-of-living index figure legally proclaimed by the Secretary of the
Treasury before the day of payment.
SEC. 8. The cost-of-living index determining the purchase-power of the United
States currency shall be calculated and proclaimed as often as necessary, at least
each Sunday in time to be published together with convenient "ready reckoner}X
tables in the ^Monday morning papers.
SEC. 9. This cost-of-living index shall be calculated b y the United States
>
Bureau of Labor Statistics on the basis of the average retail price of the commodities and services constituting the real incomes of citizens paying the income-tax
but exempt from supertaxation. It must include the cost of rented houseroom,
of local public transport, and the cost of public services, as expressed by taxes
and rates.
SEC. 10. The proper weighting of the different items included in this index, as
"well as the periodical inclusion of new and the exclusion of obsolete items, shall
be determined by a committee of experts nominated by the Secretary of the
Treasury.
SEC. 11. The purchase power of the unit of United States bank money in terms
of wholesale prices of commodities entering into international trade shall be regulated by the credit policy of the Federal Reserve Bank System in such a way that
unemployment existing in the United States shall be as fully as possible reabsorbed.
SEC. 12. The Federal Reserve System is obliged to finance Government expenditure for public works, tax remittances, refinancing farm arid house loans,
thawing out of frozen bank deposits, etc., by discounting or buying Treasury
bills until the resulting rise of the wholesale price level results in absorbing existing unemployment.
SEC. 13. As soon as it appears that the rise of wholesale prices does not result
in any increase of employment, or of the physical volume of production, the wholesale price level, especially of goods entering into international trade, shall be
stabilized and maintained reasonably stable in terms of United States bank
money by the usual methods of central banking policy—i.e. raising the discount
rate and selling the securities previously bought from the Government or on the
open market—until prices cease to rise and begin to fall, and lowering the discount
rate and buying securities as soon as prices show a tendency to fall.
SEC. 14. The credit policy of the Federal Reserve banks shall be wholly
determined with regard to maintaining the price level of goods produced by
United States labor at the optimal level, insuring maximum employment of
available labor and plant.
SEC. 15. For the purpose defined in section 14, the monetary circulation of
the United States is to be expanded year after year as nearly as possible to the
extent of which the potential maximum productivity of labor per head and per
unit of time has increased during the period in question.
SEC. 16. Statistical experience having shown that under such conditions the
wholesale price level will tend to be stable, a slightly rising wholesale price level,
not more than roughly 1 percent for a year, shall not be checked by monetarymeasures.
SEC. 17. The maximum potential output per head arid per unit of time will
be ascertained by imposing on every producer the obligation to state in weekly,
monthly, or yearly returns the actual and the maximum potential amount of
output, the actual and the potential maximum number of workers employed
over the period in question. The Federal Reserve Board will regularly publish
efficiency-of-labor, employment, and physical volume of output indices and steer
its credit policy with due regard to the efficiency-of-labor and the wholesale-price
indices.

256

GOLD RESERVE ACT OF 193 4

SEC. 18. The stability of the exchanges between the dollar and foreign currencies will be maintained by an arrangement of mutual credits, taking the shape
of special issues of regularly renewable 3-month Treasury bills of the governments concerned, such Treasury bills to be issued by the one and accepted by the
other of the two nations contracting to keep the exchange of their currencies
stable and to be sold and bought on the national money markets according to the
needs of the exchange market influenced by movements of capital between the
various countries.
SEC. 19. The sales and purchases of these binational government securities
shall be managed in such a way that the United States shall be capable to absorb,
in the shape of long-term securities in terms of stabilized currencies, the maximum
payments accruing under the existing and future obligations of the various debtor
nations.
SEC. 20. The United States Treasury is authorized to buy any amount of gold
and silver offered to it at a minimum price per ounce, the said minimum price
to be the price of gold and silver paid on the free world market on the day of the
ratification of an agreement to stabilize the exchanges between the dollar, the
pound sterling and other currencies "off gold" by means of the procedure defined
in section 18, provided that the said agreement contains a clause obliging the
other central banks in question to buy the two precious metals at a corresponding
price.
SEC. 21. No obligation to sell gold at a fixed price shall ever be reimposed
•.either on the Treasury or the Federal Reserve System of the United States.

THE GOLD EESEEVE ACT OF 1934
MONDAY, JANUARY 22, 1934
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C.
The committee met at 10:30 a.m., pursuant to adjournment on
Saturday, January 20, 1934, in room no. 301 of the Senate Office
Building, Senator Duncan U. Fletcher presiding.
Present: Senators Fletcher (chairman), Glass, Wagner, Barkley,
Bulkley, Gore, Byrnes, McAdoo, Adams, Goldsborough, Townsend,
Walcott, Carey, Couzens, Steiwer, and Kean.
The CHAIRMAN. The committee will come to order, please. We
have a number of people to hear today, and inasmuch as this is the
last day of our hearings we will have to hurry along as fast as we
can in order to get through.
We will begin this morning with Dr. Warren. Will you please
state your name, address, and occupation or profession.
STATEMENT OF GEORGE F. WARREN, PROFESSOR OF AGRICULTURAL ECONOMICS, CORNELL UNIVERSITY
Mr. WARREN. My name is George F. Warren. I am professor of
agricultural economics at Cornell University. I have worked for
many years on price statistics.
Senator KEAN. Speak a little louder, Dr. Warren, so we can hear
you down at this end of the table.
The CHAIRMAN. Dr. Warren, have you examined the bill we have
under consideration ?
Mr. WARREN. I have.
Senator BARKLEY. Mr. Chairman, is this loud speaker arrangement working today ?
The CHAIRMAN. Yes; I so understand.
Senator WALCOTT. Mr. Chairman, let us get down to business, and
I suggest that we get order. We cannot hear while pictures are
being taken and all this talking is going on.
The CHAIRMAN. Order, please. Are you gentlemen through with
the taking of pictures now? Let us proceed. Dr. Warren, the committee would like to have your views about the bill.
Senator COUZENS. Dr. Warren, are you in the Government service
now?
Mr. WARREN. NO.

The CHAIRMAN. YOU may proceed, Dr. Warren.
Mr. WARREN. AS to the bill, I have no changes to propose. I have
brought in some statistics and charts which I think might be useful to
the committee.
The CHAIRMAN. Let us have order. We wish to proceed with the
hearings.
257

258

GOLD KESEBVE ACT OF 1 9 3 4

FIGURE 1. The Sauerbeck-Statist index number for England and a comparable index
number for the United States, 1929-33.
1913 = 100. Prices in currency.
By suspending the gold standard and raising the price of gold in September 1931,
England stopped the decline in prices. By raising the price of gold in 1933, prices in the
United States were brought to the English level.

Mr. WARREN. Since it is so difficult to present figures orally, I have
typed a few figures, which, if the members of the committee prefer
to follow during my statement, may aid in understanding the data
which I have to present.
(The tables of statistics are, as follows:)
TABLE 1.—Advance in prices from February to December
I

England

Gold
Cotton
Cottonseed oil
Wheat

Percent
5
6
-29
8

NewYork
Percent
56
68
26
51

England

Copper
Tallow
Silver

Percent
10
-7
11

New
York
Percent
63
50
67

259

GOLD EESEEVE ACT OF 1 9 3 4

FIGURE 2. The Sauerbeck-Statist index number for England and a comparable index
number for the United States, 1929-33.
1913 = 100. Prices in gold.
Index numbers of prices in gold have been nearly identical in the two countries.
Prices in currency have differed about in proportion to differences in the price of gold.

TABLE 2.—The Sauerbeck-Statist index number for England and a comparable
index number for the United States
Prices in currency
1913=100

1925
1926
1927
1928
1929
1930
1931
1932

United United United United
Kingdom States Kingdom States

-_
.

February 1933
November 1933

Prices in gold

_ ._ .

160
148
144
141
135
114
98
94
91
93

154
146
139
141
136
114
90
74
69
94

160
148
144
141
135
114
91
68
64
61

154
146
139
141
136
114
90
74
69
59

260

GOLD RESERVE ACT OF 1934

FIGURE 3. Prices of basic commodities in seven countries expressed in pre-war gold
currencies, 1929-33.
Pre-war = 100.
Prices declined with great rapidity from 1929 to 1932. Since that time the decline
has been less rapid.
TABLE 3.—Percentage advance in prices since February
25 inGold,
percent dustrial
above par stocks

March
April
May

June.
July
August
September..
October
November..
December

-. . .

_ _
_
_
_

0.2
5
18
23
40
37
48
49
60
56

5
41
64
77
60
79
67
58
74
76

United
States
30 basic
Prices
commod- Bureau paid to !
Labor farmers
ities
index
3
8
23
32
47
47
45
42
44
2 42

1
1
6
9
16
17
18
20
20
2 18

2
8
27
31
55
47
43
43
45
39

Cost of
living

1
Prices are for the 15th of the month.
2 Preliminary.
3 Advance over June*. In Massachusetts, the June index was 1 percent above February. Apparently
the advance since February has been about 6 percent.

261

GOLD RESERVE ACT OF 1934

TABLE 4.—Wholesale prices df commodities in various countries for August 19S3
(Pre-war=100)
Index
Number number
of com- August
modities
1933

Base
period

Prices in
pre-war
Gold
divisors gold curAugust
rencies
1933
August
1933

PRIMARILY, BASIC-COMMODITY INDEX NUMBERS

United Kingdom (Statist)
United States (Statist)
Netherlands

96
94
73

1913
1913
1913

_ _.
_

0)
48

1.48
1.37
1.00

65
69
73

LARGELY, BASIC-COMMODITY INDEX NUMBERS

Australia
New Zealand
Belgium
France
Italy
Denmark
Sweden

. .
-

__ _

1910-14
1909-13
31914
1913
1913
1913
1913

92
180
126
126
140
118
160

134
2 133
501
397
278
126
108

1.86
2 1.86
6.94
4.92
3.67
1.82
1.58

72
a 72
72
81
76
69
68

1913
1913
1910-14

400
502
784

94
108
102

1.00
1.45
1.37

94
74
74

ALL-COMMODITY INDEX NUMBERS

Germany
Canada
United States

....
2

i Table 2.

»April.

July.

TABLE 5

Total value of all listed stocks on New York Stock Exchange as reported in
the New York Stock Exchange Bulletin:
Mar. 1, 1933
$19, 700, 985,961
Jan. 1, 1934
33,094,751,244
Percentage increase, 68 percent.
All listed American securities—stocks and bonds:
Mar. 1, 1933
$45, 274,952,255
Jan. 1, 1934
61,166, 027, 745
Percentage increase, 35 percent.
According to the Federal Reserve Bulletin, the following advances in prices
of stocks occurred from February to October:
Percent

England
France, less than
Germany declined
TABLE 6.—Index numbers of the price of gold in various countries

15
1
4

England

South
Africa

Argentina

Sweden

Norway

Australia

New Zealand

Denmark

Canada

Month of December 1930
M o n t h of October 1931
M o n t h of October 1932
Apr. 18, 1933
July 18, 1933
September 16, 1933— _ ._
October 20, 1933
Nov. 15, 1933
Dec. 16, 1933
_ _
Jan. 16, 1934
___

100
100
100
103
146
149
141
169
157
162

100
112
110
122
151
154
146
166
156
162

100
125
143
142
146
154
152
152
149
155

100
100
100
142
146
153
151
151
148
154

128
186
165
170
167
164
167
167
1269
1254

100
116
153
148
157
164
162
162
159
165

100
121
156
153
160
168
166
166
163
169

125
163
179
178
183
193
189
190
186
194

100
138
157
177
183
192
189
190
186
193

100
122
152
176
180
190
187
187
183
191

Free rate. Official rates were: December, 199; January, 198.

Japan

United
States

[Par=100]

100
101
216
239
240
268
258
252
266

262

GOLD BESERVE ACT OF 1934

Senator BARKLEY. Mr. Chairman, I should like to ask a preliminary question.
The CHAIRMAN. Senator Barkley, you may proceed.
Senator BARKLEY. Professor Warren, it has been stated around
here, more or less loosely, that you drew this bill, or that you sat in
on its preparation. Is that correct?
Mr. WARREN. I did not draw the bill. I saw it before it was
presented.
Senator BARKLEY. Who actually drew the bill, if you know ?
Mr. WARREN. I don't know.
Senator GORE. Who had it when you saw it, if that is not confidential ; and, of course, I do not want to ask that you make public anything that is confidential.
Mr. WARREN. I saw it in the Treasury Department.
The CHAIRMAN. I think the bill was drawn in the Treasury
Department; is that so, Dr. Warren?
Mr. WARREN. I think so.
Senator BARKLEY. It is a composite bill, I suppose, worked out
after conference among many people; is that so ?
Mr. WARREN. I think so.
Senator BARKLEY. That hardly answers my question. Is it a composite bill worked out after conference among many people ?
Mr. WARREN. Unquestionably it is.
Senator BARKLEY. There was no one man who drew it and who is
responsible for it, as I understand. I merely want to get the record
correct on that, because
Mr. WARREN (interposing). Yes.
Senator BARKLEY (continuing). It was first stated that Dr. Tugwell drew the bill, and then it was stated that you drew the bill, or
that somebody else drew it. I do not know that that is important—
that is, as to who actually typed it, or who dictated it to a stenographer—but the bill is the composite product of those who conferred
in regard to it, as I understand the situation.
Mr. WARREN. Yes.
Senator WALCOTT.

That does not mean anything unless we know
their names. Who was largely responsible for this bill ?
Mr. WARREN. I should say the Treasury Department.
Senator WALCOTT. While you say you did not draw it, you admit
that it agrees with your views.
Mr. WARREN. It agrees with my views, but I certainly did not
draw the bill.
Senator WALCOTT. I do not mean the drafting of it, because that is
merely drafting work.
Mr. WARREN. I did not do that. But I was consulted after the bill
was drawn.
Senator WALCOTT. Did Dr. Tugwell have anything to do with it?
Mr. WARREN. Not to my knowledge.
Senator WALCOTT. Not at all ?
Mr. WARREN. Not that I know of.
Senator MCADOO. Wouldn't it simplify the question if you would
just state to us who conferred with you about the drafting of this
bill? I do not think there is any secret about it. I do not know
anything about that, but if anyone wants to know about the bill, I
do not see any reason why they should not know it.

GOLD RESERVE ACT OF 1934

263

Senator BARKLEY. I merely asked the question, because it was
stated here on Saturday that Dr. Warren drew the bill.
Mr. WARREN. That is not true. As far as I know the case, the
bill was drawn by the Treasury Department, but I do not know
by whom. The first time I saw the bill it was in the Treasury
Building.
Senator TOWNSEND. And you do not know who drew the bill?
Mr. WARREN. I do not know.
Senator KEAN. When did you first see the bill?
Senator GOLDSBOROUGH. Who were you in conference with when
you saw the bill ?
Senator WALCOTT. Let us get one question answered at a time.
The CHAIRMAN. Answer them all at once.
Mr. WARREN. I cannot state exactly when I saw the bill first. It
was a short time before its introduction.
Senator KEAN. Was it as much as a month ?
Mr. WARREN. NO ; I think not that long.
Senator WAGNER. That is not the main problem before this committee.
Senator GOLDSBOROUGH. I should like to repeat my question with
the consent of the chairman of the committee, and ask who Dr,
Warren was in conference with.
Mr. WARREN. At the conference at which I first saw it there were
present Secretary Morgenthau, Mr. Oliphant, Mr. Laylin, and Professor Rogers.
Senator GOLDSBOROUGH. Who was Mr. Oliphant and who was Mr.
Laylin ?
Mr. WARREN. They are employees of the Treasury Department.
I do not know their titles.
The CHAIRMAN. Mr. Oliphant was attorney for the Secretary of
the Treasury.
Mr. WARREN. Yes, sir.
Senator WAGNER. Prof.

Herman Oliphant, an eminent legal

scholar.
Mr. WARREN. Yes, sir.
Senator BARKLEY. And

he has been present at the most of these
hearings ?
The CHAIRMAN. Yes. And Dr. Eogers, I believe, was called to
South Carolina on account of illness in his family.
Senator BARKLEY. There are two Professor Rogers in Washington. Which one do you refer to ?
Mr. WARREN. Prof. J. H. Eogers.
Senator MCADOO. Professor Eogers, of Yale.
Mr. WARREN. Yes, sir. We did not draw the bill. We were called
in and asked our opinion about it, which we gave.
Senator BARKLEY. Let us get along now with the hearing.
The CHAIRMAN. YOU may proceed, Dr. Warren, in your own way.
Mr. WARREN. I have some data on prices which I have thought
might be of service to you; and as I have said, I have prepared them
on paper so that they might be a little more easily followed.
The first point that I should like to call to your attention is the
type of price reactions we have been getting since February. For
example, in England the price of gold, taking the daily average for

264

GOLD RESERVE ACT OF 1934

February and for December, increased 5 percent, and the average
of the daily prices in this country increased 56 percent. It was at
par in February and 56 percent above par for December. This 56
percent is not the R.F.C, price, which is for limited quantities of
gold, but is the London price and combined with the exchange rate
in New York, so that it is the price at which all gold offered could
have been moved.
Senator KEAN. YOU would say this is the price of gold in America ?
Mr. WARREN. I would say this is the effective price in dollars.
Senator KEAN. And you would say gold was worth that today in
America; is that right?
Mr. WARREN. Well, yes; it is economically worth that.
Senator MCADOO. YOU mean newly mined gold?
Mr. WARREN. NO. Newly mined gold is worth more than this.
That is, the R.F.C, has purchased all newly mined gold at a price
announced and has purchased limited amounts at world prices.
Now, of course, such a price would not be fully effective unless the
R.F.C, stood ready to buy all gold offered at that price.
Senator KEAN. Of course.
Mr. WARREN. But it did influence the price. The world price is
up 56 percent.
Senator KEAN. Well, the price of gold today in America is, would
you say, 34?
Mr. WARREN. It is 34.45.
Senator BARKLEY. Let us say that that is newly mined gold.
Mr. WARREN. Yes, sir.
Senator BARKLEY. DO you

know whether the R.F.C, has purchased
any gold in the United States at that price?
Mr. WARREN. I don't know, but I presume not except the newly
mined gold.
Senator BARKLEY. And you don't know how much of that, if any?
Mr. WARREN. NO. YOU would have to ask the R.F.C.
Senator BARKLEY. YOU are basing this 56 percent increase shown
here on your sheet, on the world price of gold at the present time.
Mr. WARREN. For December. It is the monthly average. If you
were a foreigner buying commodities in America, you would find
that the price of gold in dollars had gone up 56 percent in your
transactions. If you were an American selling to foreign countries
you would find that the effective price which concerns you in your
transactions had gone up 56 percent. Now, cotton has gone up 6 percent in England, and
Senator GORE (interposing). Has gone up how much?
Mr. WARREN. Six percent.
Senator GORE. Thank you.
Mr. WARREN. That is, it has very slightly risen in gold. But it
has gone up 68 percent in New York.
Senator WAGNER. Are you speaking now of the same parity in
connection with cotton?
Mr. WARREN. Cotton has gone up 6 percent in England in their
currency and 68 percent in New York in our currency.
Senator BARKLEY. It is rather difficult to understand these figures.
They do not produce any cotton in England, do they ?
Mr.

WARREN. NO.

GOLD KESEEVE ACT OF 193 4

265

Senator BARKLEY. They buy it from abroad, the most of it from
this country, and we sell practically half of our cotton abroad. That
is sold, presumably, at the world price. I do not quite understand
your statement that cotton rose in England, where they produce
none, and where they buy from us, 6 percent, but that the cotton we
sold rose 68 percent. I am not disputing these figures, but I just
do not understand them.
Senator WALCOTT. Professor Warren, isn't what you are doing'
here merely this: You are interpreting the decline of the dollar in
terms of the advance of gold.
Mr. WARREN. Yes.
Senator WALCOTT. It
Mr. WARREN. Yes.

is the same thing exactly.
Now, in England the price of cotton has

risen from
Senator GOLDSBOROUGH (interposing). May I interrupt you right
there for a moment: If gold has gone up the dollar has gone down.
Mr. WARREN. Yes, sir.
Senator BARKLEY. YOU

do not mean the identical cotton we would
sell in England represents a 6 percent increase in England, but that
the same cotton represents a 68 percent increase in this country.
Mr. WARREN. Yes, sir; in the two moneys. For instance, the
Englishman buys cotton in terms of his money, and he finds that
that cotton has increased 6 percent. We sell cotton in our money
and we find that that cotton has gone up 68 percent.
Senator BARKLEY. It is the relationship between the English and
American exchanges?
Mr. WARREN. It shows how that relationship has affected prices.
Senator MCADOO. May I ask you right there, because it is not
shown on this statement, when the gold-buying policy began in this
country, when it was inaugurated ?
Mr. WARREN. The gold-buying policy was announced on October
22. It actually began 2 or 3 clays later; the exact date I do not
remember. But it was in effect for all of December.
Senator BARKLEY. But that was not the beginning of this difference between the English and the American price?
Mr. WARREN. NO.
Senator BARKLEY.

The dollar had been going down for some
months as compared with English exchange?
Mr. WARREN. Yes.
Senator MCADOO. It
Senator KEAN. YOU

has been going down since we went off gold.
haven't figured out what it means in the case
of France, which is on a gold basis, nor for the Netherlands, which
is on a gold basis. If you were to take countries on the gold basis,
wouldn't it show that these commodity prices have practically not
risen at all?
Mr. WARREN. Yes; or have slightly declined. But I have that
for you a little later.
Senator KEAN. All right,
Mr. WARREN. That is, in gold. I will show you that data a little
later. There has been no rise, or a slight decline in general.
Senator BULKLEY. Dr. Warren, what period are you discussing?
Mr. WARREN. The changes from February to December; comparing 2 complete months. Now, some persons think that if the price

266

GOLD BESERVE ACT OF 193 4

of gold rose, every commodity should rise exactly the same, but
there are other factors affecting prices. Cottonseed oil dropped 29
percent in England and rose 26 percent here; so that we are getting
a similar relationship in that connection, but not an equal rise.
Senator BYRNES. What is your explanation of that ?
Mr. WARREN. The world supply of cottonseed oil and the demand
for it, compared with the supply of gold and the demand for it, were
such that in gold cottonseed oil fell. If it had fallen exactly as much
in gold as our dollar fell in gold, our first guess would be that it
would have been stationary in our money.
Senator TOWNSEND. Where is our market for cottonseed?
Mr. WARREN. I do not know what percentage of it is exported.
It is used very extensively both in this country and in Europe for
the making of oleomargarine and as a substitute for lard.
The CHAIRMAN. YOU may proceed, Dr. Warren.
Mr. WARREN. Wheat rose 8 percent in England and 51 percent
here. Copper rose 10 percent in England and 63 percent here. Tallow fell 7 percent in England and rose 50 percent here. Silver rose
11 percent in England and 67 percent here. Silver rose just a trifle
in gold; that is, silver is worth slightly more in gold than it was.
There is one other type of commodity that I did not put on this
statement: Hams rose 38 percent in England and only 21 percent
here.
Senator BARKLEY. Did you say the price of hams rose 38 percent
in England?
Mr. WARREN. Yes; and 21 percent in America. This is probably because of restrictions in England, with a limitation on the
importation of hams. If we had been perfectly free to move them
over there it would not have operated in this way.
Of course, an index number is much better than cases of individual
commodities, because you see they vary individually. An index
number in England, which is one of the oldest, is the SauerbeckStatist index number. We have prepared an index number for the
United States which is as nearly like the Sauerbeck-Statist as we
could make it.
There are two differences in commodities. They have palm oil in
it and we do not have palm oil quoted here, so we put in an equal
amount of cottonseed oil. They have flax fiber in their index and
we do not have such a product, so we put in an equal amount of cotton. Otherwise the index numbers are as nearly alike as possible.
The English Sauerbeck-Statist index number for February was 91,
and 1913 it was 100.
Senator MCADOO. Which sheet of your paper are you now referring to?
Mr. WARREN. The second sheet, the last two lines. The price in
currency according to the Sauerbeck-Statist index was 91 in February, and according to our index, which is like it, it was 69 here. But
by November prices in England had risen from 91 to 93, and here
they rose from 69 to 94 in currency.
Senator BARKLEY. What does that represent as an average of all
commodities ?
Mr. WARREN. There are 45 quotations which are largely basic
commodities. It is a good representative list.

GOLD BESERVE ACT OF 1934

267

Senator BARKLEY. In other words, it is a cross-section.
Mr. WARREN. It is a good cross-section of the largely basic commodities, such as coal, iron, copper, tin, lead, tea, coffee, sugar, wheat,
and so on.
Senator KEAN. I think if you will take the French index for the
same period you will find that it has varied a great deal less than
that.
Mr. WARREN. This is England compared with her own prices, and
ourselves compared with our own prices. Freight differentials
existed at both periods.
Senator KEAN. I did not speak of freight. It was of France that
1 spoke.
Mr. WARREN. Oh, I beg your pardon.
Senator KEAN. The French index will show that it is almost
Mr. WARREN (interposing). I have some figures that will show
that in the case of France it did not rise.
Senator KEAN. That is what I wanted to bring out.
Mr. WARREN. England went up from 91 to 93, and we went from
69 to 94, so that we are one point ahead of them now. But in the
case of gold, instead of 91 in February the English price level was
64 in gold and ours was of course 69. In England prices in gold
have dropped from 64 to 61, and we have dropped from 69 to 59.
So that in the case of gold there was a slight decline and in the case
of currency a rise in both countries, in England a rise of a small
amount, and with us a very decided rise.
Now, according to the Federal Reserve bulletin, from February
to October—I haven't the November figures—prices in France fell
2 percent, prices in Holland rose 1 percent, prices in Italy fell 4 percent. These countries are on gold, and there is little change.
These two index numbers are shown in figure 1 so that you can
see that a rapid decline occurred, beginning with 1929, in prices in
both England and in the United States. In 1931 England left the
gold standard, and thereafter her prices were more or less stabilized.
We continued on the gold, standard and our prices continued to
decline. At a time when prices in gold were rapidly falling England
left the gold standard, and her currency depreciated at about the
same rate that gold appreciated. So she stood about still. She did
not get a rise in prices but she was relieved from the decline. She
could have had a rise if she had depreciated her currency more.
Senator GORE. But she did leave the gold standard and her prices
continued to fall.
Mr. WARREN. Her gold prices continued to decline up to this fall.
We left the gold standard in February, at a time when prices in
gold were declining only slightly, so we got a decided rise in currency prices, and for November we were one point ahead of England.
Senator KEAN. But our prices are still declining in gold.
Mr. WARREN. Yes. The next page, being figure 2 of my statement, shows prices in gold. The lowest point in gold (1913 is
shown at 100), for England was an index of 59 in October. Our
lowest point is an index of 59 in November. In 1926 these index
prices were: For England, 148—and that is not shown on the chart—
and for the United States, 146. The latter figure happens to be the

268

GOLD RESERVE ACT OF 193 4

same as the Bureau of Labor index number when 5 years before the
war = 100. It was in England, 148 and in the United States, 146,
and then fell to the low point which it has reached, 59, or each is
just about 40 percent, at the low point, of what it was in 1926.
That is prices in gold.
I have a curve in figure 3 which is the average of basic commodities for seven countries, which is a little smoother than it would be
for a single country.
Senator TOWNSEND. What countries are they?
Mr. WARREN. The Netherlands, the United Kingdom, Sweden,
Canada, France, Italy, and the United States. These are prices of
basic commodities or largely so. These prices declined with great
rapidity for 2 years from 1929 to 1931. Since 1931 prices in
gold have declined but not with so great rapidity—a moderate decline. As we had 2 years of extremely rapid decline in gold, followed by a moderate decline, it looks as if the appreciation in the
value of gold, which has been going on rather slowly, or not nearly
so rapidly as during the 2 years, might be approaching the end.
And we find these two index numbers at about 40 percent of the
1926 price level.
On the next page, being table 3 of my statement, I have presented
some figures showing the changes in several things, and this is for
the United States: From February to December the price of gold
rose 56 percent; the price of 25 industrial stocks, according to the
New York Times index, rose 76 percent; the prices of 30 basic commodities rose 42 percent; and the prices paid to farmers, as reported
by the Department of Agriculture, rose 39 percent. The Bureau
of Labor index, of all commodities, rose 18 percent.
There is much misunderstanding about the Bureau of Labor index
for all commodities. When prices fall manufactured goods decline
slowly and sometimes not at all for several years. They would ultimately decline to the new price level if given time. They are fairly
stable. Then, if prices of some of them fall far and some not at
all, some a little, if something comes in which tends to raise prices
it raises emphatically those which fell emphatically, but those which
had not fallen are merely relieved from the necessity of falling.
An index which is mixed, therefore, including many manufactured
goods for which prices have not fallen or have fallen little, does not
rise as much as the price of gold.
The cost of living in the United States from June to December
rose 5 percent. We do not know what it rose from February,
because the figures are not available. But in Massachusetts their
index rose 1 percent up till June from February. We can therefore
guess that the cost of living in the United States may have risen
6 percent since February. It did rise 5 since June.
Senator KEAN. That is measured in dollars, of course?
Mr. WARREN. What is it?
Senator KEAN. That is measured in dollars, and not in gold?
Mr. WARREN. This is dollars.
Senator KEAN. Yes.
Mr. WARREN. This is all American dollars. The cost-of-living
index, if you cut the dollar in two in the middle, say for illustrative
purposes, the cost-of-living index should, of course, not be expected

GOLD RESERVE ACT OF 1934

269

to double. It has not declined fully. That is to say, take such a
thing as a telephone charge. If the telephone rate has not been
reduced, it need not be doubled. It is already adjusted to a higher
price level.
Senator MCADOO. That is protected by law anyway.
Mr. WARREN. Yes; but there are multitudes of things in the cost
of living which move slowly. That is the only point I am interested
in. That is, many things in the cost of living have declined to only
a limited extent. Having declined to only a limited extent, they
are now high relative to general level of commodities prices and
would not be expected to rise in proportion.
Senator MCADOO. The point I am making on the telephone is this:
With certain utilities where the price is regulated by law, that is in
a sense an artificial price regardless of conditions; is that not true?
Mr. WARREN. Yes; but there are many other prices that move
very slowly.
Senator MCADOO. Yes; but I was talking about only these regulated utilities where the price is established by law.
Senator TOWNSEND. The telephone is not an element in the cost
of living with millions of our people, either.
Mr. WARREN. That is true. I perhaps should not have used the
telephone and kept my statement general, because all I am interested
in is the price of many items of cost of living which have not
declined quickly.
Senator KEAN. HOW about flour?
Mr. WARREN. Flour declines fairly promptly, bread much more
slowly.
Senator KEAN. Bread has already gone up.
Mr. WARREN. Bread did not decline in proportion to the general
decline of prices.
Senator KEAN. Bread has already risen.
Mr. WARREN. Risen some. The cost of living has risen 5 percent.
Senator MCADOO. Bread has to rise to be bread, doesn't it?
Mr. WARREN. The only point I wish to make is that with a lot of
things which decline very slowly and rise slowly that index does
not need to rise and will not rise in proportion to the general level
of basic commodities. It is relieved from falling.
The December figure for the cost-of-living index was 135, when
1913 was 100. The statist index number for November for the
United States was 94,
Senator MCADOO. That is not on this sheet, is it ?
Mr. WARREN. NO ; that is not on the sheet. The cost of living for
December was 135 when 1913 was 100. But these basic commodities in the statist index were 94, so they are still far out of line with
the cost of living.
Senator BARKLEY. Have you any statistics or data as to the increase in cost of living since last June in this country, and what the
increase is today ?
Mr. WARREN. Five percent.
Senator BARKLEY. That is all.
Mr. WARREN. From June to December 5 percent is the Bureau
of Labor figure.
Senator BARKLEY. DO you think that is accurate ?
46217—34

270

GOLD RESERVE ACT OF 193 4

Mr. WARREN. Yes.
Senator BARKLEY. AS accurate as
Mr. WARREN. Of course, no cost

it can be ?
of living figure can be exactly

accurate for each individual.
Senator BARKLEY. Oh, yes; I understand. I mean as statistics
you think those are accurate ?
Mr. WARREN. I think it is a reliable figure.
Senator BARKLEY. SO that the average cost of commodities would
have to rise from 94 to 135 in order to be on a parity with the
relationship between the two in 1913 ?
Mr. WARREN. Yes.
Senator GLASS. Doctor,

do you have there any comparative statement which will contrast the expansion in these various manufactured staple articles and the production of staple crops that would
have any relationship whatsoever to the differentiations in cost of
living and in prices ?
Mr. WARREN. NO, I haven't that data here. An index number
for the cost of living or prices of course is made up of a multitude
of things, each one acting according to its own supply and demand
and the whole mass acting in relationship very largely to money.
For example, we have a rather large supply of cattle. A large
supply coupled with unemployment makes meat relatively cheap.
And we have a short supply of corn, which tends to make corn
higher than it would otherwise be. It is high relative to meat.
When all these things are put in a large index they are fairly well
ironed out.
Senator GLASS. I understood you to say as I came in that the
appreciation of gold was affected by a multitude of other things.
Mr. WARREN. The appreciation of gold is primarily affected by
the demand for it, as the supply of it does not change much in a
year.
Senator KEAN. Dr. Warren, isn't it true that the increase in
gold at the present time is almost 4 percent ?
Mr. WARREN. YOU mean the yearly production?
Senator KEAN. Yes.
Mr. WARREN. Yes; it is true that the yearly production is something like 4 percent of stocks. But previous to the war for a long
period of years, in order to have the gold supply increased rapidly
enough to maintain stable prices we had to mine about 5.6 percent
of what we had. That would add about 3.15 percent to our monetary stocks under normal conditions, the remaining going into industry.
Senator KEAN. Wasn't that based on the time when you had gold
coin circulated among the people so that everybody was carrying
gold coin in their pockets, and at the present time gold coin is concentrated in banks?
Mr. WARREN. A limited amount of gold coin was circulating.
Senator KEAN. All Europe was circulating gold coin.
Mr. WARREN. Yes; they circulated a considerable amount of paper
also.
Senator KEAN. Not prior to the war.
Mr. WARREN. Well, most of the European countries had some
paper money.

GOLD RESERVE ACT OF 19 34

271

Senator BARKLEY. When did the increase in the production of gold
reach 4 percent per annum? For how long had it been maintained
at that rate?
Mr. WARREN. It is rather recent. Gold production is low compared with anything that has been normal for our previous experiences.
Senator BARKLEY. The reason that I asked that question is that
I read a statement from another economist the other day to the
effect that from 1922 to 1929 the stock of monetary gold in the
world increased only 1.8 percent.
Mr. WARREN. NO ; that is a mistake.
Senator GORE. IS that per annum, Senator?
Senator BARKLEY. Per annum; yes.
Mr. WARREN. Oh, per annum?
Senator BARKLEY. Per annum; yes.
Mr. WARREN. I don't know the figure, but that does not sound
unreasonable.
Senator GORE. 1932 was the largest production in all history,
wasn't it?
Mr. WARREN. Yes. Gold production in 1932, was 23,718,000
ounces. That was 5 percent greater than the output 20 years previous. This year's production promises to be—we don't know yet—
but 1933's production promises to be just a trifle under 1932.
Senator BARKLEY. If the production in 1932 represents only a
5 percent increase over 1912, that represents only about one-fourth
of 1 percent increase per annum ?
Mr. WARREN. I t is a small increase over the production of 1912.
Senator GORE. But 1912, 1913, 1914, and 1915 were the peak years,
were they not, of gold production?
Mr. WARREN. Yes.
Senator GORE. And then it declined materially.
Senator BARKLEY. SO that, with the fluctuations

in the production of gold over a period of 20 years, we are now only producing 5
percent more than we did 20 years ago ? Is that true ?
Mr.

WARREN.

Yes.

Senator BARKLEY. HOW does that compare with the increase in
the world business in that same 20 years?
Mr. WARREN. I haven't the data on that particular basis, but from
1914 to 1928 the world physical volume of production of basic commodities increased 38 percent, and the world monetary stocks of
gold in the same period increased 38 percent.
Senator KEAN. HOW about the last 4 years, Professor ?
Mr. WARREN. The last 4 years the physical volume of production
was, of course, entirely abnormal.
Senator KEAN. Wasn't it abnormal before?
Mr. WARREN. NO. I think in 1928 our physical volume of production had nothing abnormal about it.
Senator BARKLEY. Doctor, I am unable to reconcile those figures
that you have just given. A moment ago you stated that for 1932
the production of gold was 5 percent greater than it was 20 years
ago, whicfi was in 1912. But you say that from 1914 to 1928 the
increase in the monetary gold of the world was 38 percent.
Senator BARKLEY. I cannot reconcile those.

272

GOLD RESERVE ACT OF 193 4

Senator GORE. It is cumulative.
Mr. WARREN. One is an annual production and the other is art
accumulation of stocks. So they are not inconsistent. That is, we
might have no increase in gold production. But if the production
were high enough year by year the stocks would gradually grow.
Senator GLASS. Well, assuming, Doctor, that we have no increase
in production of gold, no appreciable increase or decrease in the production of gold, but would have a decided overproduction in agricultural products or a very large overproduction in manufactured
products, what would be the result of a condition of that sort?
Mr. WARREN. That would lower prices. That assumes, however,
that we do get a very large overproduction in total agricultural products in the world, and it is very doubtful whether we have or ever
had any decided and very large overproduction in all of agriculture
for the world. We do get overproduction of one commodity or
another.
Senator GLASS. If we do not have an overproduction, why did
Congress appropriate a half a billion dollars to take care of the
overproduction of wheat and cotton?
Mr. WARREN. TO answer that properly I think I should have t a
digress from the question a moment and come back to it.
Senator GLASS. I do not want to interrupt the thread of your
discourse.
Mr. WARREN. Let us take cotton: The question arises whether the
world production of cotton is excessive. But agriculture is an industry that cannot stop easily. If a man abandons his fields, abandons
his farm, it is difficult to start in again. Therefore, agriculture
tends to go on fairly steadily, even though times are very bad.
Now, with the terrible unemployment which the whole world has
been suffering for years, the consumption of cotton has been
very low, and if a man goes without a new shirt long enough, he
does not, when he gets a job, have to come back and use as many as
he would have bought. And so, with the continued underconsumption, you get an accumulation of stocks due to underconsumption
rather than to overproduction. Now, temporarily, that is just as'
serious to the producer as though it were overproduction. It is an
under market, and you get stocks accumulated which are troublesome, due to the unemployment and underconsumption primarily.
Senator ADAMS. Professor Warren, looking on your tabulation on
page 6 I note that the only thing that kept pace with the increase in
price of gold has been the 25 industrial stocks. That is, that the
prices paid to the farmers increased 39 percent, while gold increased
56. Apparently the labor index increased 18, while the gold 56, and
basic commodities 42.
And the other point I wanted to draw you attention to is: I
noticed in the tabulation of prices paid to farmers that it reached a
point of 55 in July and then receded to 39 in December. I am
wondering what is the explanation of that, where at the same time
your gold prices were going up ?
Mr. WARREN. Of course, prices in gold throughout the world have
in general fallen a little this year. As to why farm prices first outran the gold price and then subsequently declined, I think that the
anticipation of a further decline in the dollar or. further, rise in the

GOLD RESERVE ACT OF 19 3 4

273

price of gold led people to overbid somewhat on farm products in
July, and the price of gold you will notice from November to
December fell, and declined in August.
So pessimism came into the situation, I should think. That is,
we would not expect these to keep in exact order. If the price of gold
is going up rapidly for several months, prices may outrun it. If it is
going downward they may outrun it again.
Senator ADAMS. YOU need a tabulation of public optimism and
pessimism to go along with this there.
Mr. WARREN. Prices continue to outrun the forces which cause
them to move either way.
The next chart, which is table 4, shows prices in currency in
various countries and prices in gold in various countries.
For example, in the third line there are prices in the Netherlands
for 48 commodities. The index in August was 73, when 1913 was
100. Since the Netherlands have their pre-war currency, their prices
in gold are 73 when 1913 is 100.
The next line is Australia, and the index for 92 commodities stood
at 134 in August, but their price of gold had been raised 86 percent.
So that prices in gold were 72, practically the same as Holland.
In Belgium, skipping one line, prices with 1914 as 100, were 501
in August. But Belgium has raised the price of gold by 6.94 times.
So that in gold her prices were 72.
Taking just these three cases, we have actual prices in currency
73, 134, and 501; in gold 73 and 72.
Senator BARKLEY. Did the fact that the Belgian Government
established a new unit of value which has a relationship of about
7 to 1 in Belgian currency, representing a devaluation from about
290 to 60 something, I believe, in the fineness of their gold, have
anything to do with this change in index prices ?
Mr. WARREN. I think it had everything to do with it. I think it
is the cause of it. That is, in Holland on a pre-war currency their
price level was 73. Belgium's price level in pre-war gold is Y2, but
it is 501 in currency. Whereas Australia in gold is 72, but the price
of gold is raised and the actual currency price is 134.
That is, these countries have, given a little time for adjustment,
determined the relationship of their currency prices to gold prices
in other countries by the amount of devaluation.
Table 5 shows the total value of all listed stocks on the New York
Stock Exchange according to the New York Stock Exchange Bulletin,
On March 1 last they were $19,700,000,000 plus in value. On January 1 of this year they had gone to 33 billion plus. The total value
of all these stocks has increased 68 percent.
Senator TOWNSEND. What has been the decline in the dollar in
that time?
Mr. WARREN. The rise in the price of gold was 56. The figure for
January would be somewhat more.
Senator TOWNSEND. Then the actual difference would be 68 percent compared with 56 percent decline in the dollar ?
Mr. WARREN. NO. That 56 was for the whole month of December,
and the stocks are for January 1.
Senator MCADOO. There was no decline in the value of our domestic
dollar?

274

GOLD RESERVE ACT OP 193 4

Mr. WARREN. The price of gold was up 58 percent on January 2.
Senator MCADOO. But there was no decline in the value, for instance, of our domestic dollar? It was just the same?
Mr. WARREN. There was a decline in the purchasing power.
Senator MCADOO. There was an increase in the price of commodities ?
Mr. WARREN. Yes.
Senator MCADOO. But

what I mean to say is the fact that we are off
the gold basis has not affected the dollar in our domestic markets ?
Mr. WARREN. It buys less.
Senator MCADOO. It buys less, of course, but enhancement in value
of commodities is the reason for the decrease in the purchasing power
of our paper dollar?
Mr. WARREN. NO. I should say the other way, that the decrease in
the gold value of the dollar was the primary cause of the enhancement in the prices of commodities.
Senator MCADOO. Either way the fellow who has a fixed income
gets it in the neck, doesn't he ?
Mr. WARREN. The man who gets a fixed income
Senator MCADOO (interposing). Wages, I mean, or salaries?
Mr. WARREN. He may or may not. It depends on whether his income is based on the kind of a price level we had been having last
spring.
Senator MCADOO. Let us take Government employees, or anybody
who is working on a salary.
Mr. WARREN. Any person who is working on a salary and has not
had a considerable cut would be faring better than he was faring
before the depression came, and any person who had securities that
were paying their former jdeld would be faring better than he would
have fared before the depression, because the things he buys are still
lower than they were before the depression.
Senator MCADOO. Well, that may be true, but I am speaking of the
present situation; that if the purchasing power of the dollar is decreased by these movements, why, the Government employee on a
salary and anybody working on a salary, the white-collar class, so to
speak—even labor—the buying power of the dollar in our domestic
markets is to that extent reduced ?
Mr. WARREN. Yes. The person who is getting his 1929 salary has
much more than his 1929 purchasing power at present, but not as
much more as he would have had last February.
Senator BYRNES. If the salary were fixed in 1928, at the time of the
passage of the so-called " Welch Act ", what would his status be today
with reference to this price level and the purchasing power now and
in 1928?
Mr. WARREN. I could not answer that at this time. It is perfectly
evident that if his salary was fixed in 1928, and if he still gets it and
got it in February, his condition in February was far better than it
was in 1928, and his condition now is far better than 1928, but not as
good as February.
Senator GLASS. But nobody but railroad presidents have the same
salary.
Senator MCADOO. And bank presidents—don't forget that.
Senator GORE. These aviation company heads have.

GOLD RESERVE ACT OF 1934

275

Mr. WARREN. I have no data on wages here. If you wish to go
into them, I would suggest that you take the matter up with some
of the persons from the Bureau of Labor Statistics. I can only
state it in a general way.
Senator MCADOO. Doctor, generally I would just like to have your
opinion. We reduced the salaries of all Government employees 15
percent last year. Now, what is the effect upon those people as a
result of the increase in commodity prices or cost of living?
Mr. WARREN. A person who was receiving a given salary last
February and is receiving 15 percent less now would be in a less
favorable position than he was last February. There was about a
5-percent increase in cost of living in that time.
Senator WALCOTT. About 20-percent difference then ?
Mr. WARREN. According to the Bureau of Labor statistics.
Senator MCADOO. I was just interested in your view.
Mr. WARREN. I would not want to go into that question without
further data.
Senator BARKLEY. Let me ask you this rather hypothetical question. If we might assume that wages and salaries had declined in
the past 4 years in the same proportion that commodity prices had
declined, and assume, also, that both were too low economically,
which must start up first?
Senator GORE. That depends on whether we have an N.K.A. or not.
Dr. WARREN. They may go together, in many cases, or one may
start in ahead of the other. Most frequently commodity prices will
start first, but not necessarily in all cases.
Senator BARKLEY. If there had to be a test as to a rise in commodities or in wages and salaries, which would logically precede the
other?
Dr. WARREN. The commodities, to start the business and get men
employed, and then to raise wages.
Senator BARKLEY. Theoretically, as commodity prices go up
profits are increased to those who produce the commodities, resulting
theoretically in an increase in wages; whereas if you increase wages
and salaries first to the extent that those who had them increased
would have their purchasing power increased, that might stimulate
business, but it would not necessarily stimulate it all along the line?
Is that true ?
Dr. WARREN. The commodity prices would ordinarily start up
first; but we do not want wages to lag behind too long.
Senator BARKLEY. NO. If there were any way to make the increase simultaneous, of course it would be much better; but I am
assuming that that cannot be done.
Dr. WARREN. Of course, commodity prices have risen 42 percent
on basic commodities.
Senator MCADOO. But your question, Senator, does not touch the
Government employee. His wages are fixed by law, regardless of
economic conditions.
Senator BARKLEY. But we are not dealing in this matter purely
from the standpoint of the Government employee.
Senator MCADOO. N O ; I understand that. But I was wanting to
get the effect upon Government employees and I wanted to bring
out the fact that despite these variations in the prices of gold and all

276

GOLD RESERVE ACT OF 193 4

these stock-exchange conditions, and so forth, the Government employee is in a greatly different position. He is not affected by it one
way or the other, except adversely.
Senator BARKLEY. While the Government employee has had a cut
of 15 percent in his salary, the aggregate Government employment
has increased and had increased even prior to March 1.
Senator MCADOO. The number of people; yes. You are talking
about the C.W.A.
Senator BYRNES. If the salary was fixed in 1928, in February of
1933 would the purchasing power of that salary fixed in 1928 be
greater or less in February 1933?
Dr. WARREN. It would be greater.
Senator BYRNES. Then if in February 1933 there was a reduction
of 15 percent, would that bring it back to the price level of 1928, when
the salary was fixed ? Would 15 percent bring it back ?
Dr. WARREN. In terms of the cost of living, I think not.
Senator BYRNES. The employee naturally would be affected adversely compared with February 1933, but how would he be affected
as compared with 1928 when his salary was fixed?
Dr. WARREN. I have no data from which to answer that question,
and if I wrere to answer it I would want to begin with whether the
salaries in 1928 were adjusted to the conditions of 1928, and then
follow through. But I have not the data here from which really
to answer that question.
Senator GORE. Doctor, I want to ask you a question or two. I
read an article about a month ago which took January and February
1933 as the base line, and it said that from that base line down to
the date of the article, about a month ago, the dollar had declined
about 37 percent; that the general price level had advanced about 17
percent, and that if the general price level had reacted mathematically to the decline of the dollar, prices would have advanced
37 percent instead of 17 percent. Do you know whether that is
approximately true or not?
Dr. WARREN. That must refer to the Bureau of Labor figures, the
17 percent.
Senator GORE. I think it does; yes.
Dr. WARREN. There was an incomplete decline, and many manufactured commodities naturally had no occasion to rise very much.
Senator GORE. That brings me to the next point. About that same
time I saw a statement showing that for groups some commodities
had advanced, I think, for six or eight groups perhaps, 9 percent.
The highest, as I remember, was an advance of 46 percent. That
shows that these groups do react very differently to the decline of the
dollar, does it not ?
Mr. WARREN. Yes.
Senator GORE. YOU

say that farm products have advanced about
39 percent. Cotton has gone up from about 6 cents during this
period to about 11 cents now. Does any part of that represent the
processing tax ?
Dr. WARREN. NO. Cotton in London has gone up 6 percent and
here 68 percent; and the processing tax would presumably raise it
a very small amount on manufactured cotton goods, but not cotton.

GOLD RESERVE ACT OF 1934

277

Senator GORE. I am not talking about cotton goods. The processing tax adds about $21 to a bale of cotton, does it not?
Dr. WARREN. Not to the price in New York. It is only the manufactured cotton that has a processing tax.
Senator WALCOTT. But it comes actually as an advance to the
manufacturer of approximately 40 percent of the present price.
Dr. WARREN. But the price of cotton is quoted previous to the
imposition of the tax.
Senator WALCOTT. Exactly, and the tax costs the manufacturer
and, eventually, the consuming public about 40 percent more for
cotton.
Senator GORE. According to that it would run it up to about 15.
Senator MCADOO. The farmer would be the beneficiary of the
processing tax.
Senator TOWNSEND. HOW would he be benefited if he buys the
cotton back manufactured into goods ?
Senator BARKLEY. According to that theory, he would have to give
his cotton away because thereby he would get his goods back free.
Senator GORE. Taking exports of cotton during August, September, October, and November of 1932, in those 4 months we exported
about 3,200,000 bales. During the corresponding months in 1933,
August, September, October, and November, we exported 3,350,000
bales, approximately; about 150,000 bales more than we exported in
the preceding year. The exports in 1932 brought in gold $128,000,000. The exports in 1933 brought in dollars $178,000,000, but in gold,
on the basis of a 60-cent dollar, brought only $108,000,000. So that
with an increase of 150,000 bales of cotton in the fall of 1933 as
against 1932, the decline in the gold value of the larger quantity was
about $24,000,000.
Dr. WARREN. Your figure of the 60-cent dollar is less than the
exporter would receive.
Senator GORE. Sixty-six and two thirds would make it about $114,000,000, which would be about $14,000,000 less than the year before.
Now, with reference to total exports and imports for the corresponding period in August, September, October, and November
1932, all our exports aggregated $432,000,000. For the same period
in 1933 they aggregated, I believe, $669,000,000. But on the basis of
a 60-cent dollar they brought $401,000,000—about $31,000,000 less
than in 1932.
The imports in 1932, August, September, October, and November,
amounted to $400,000,000. For the corresponding period of 1933
they amounted to five hundred and seventy million and odd dollars, I
believe. On the basis of a 60-cent dollar there was a material reduction of over $50,000,000. That represented in gold about $348,000,000
in 1933 as against $400,000,000 in 1932. So that the value of our
foreign commerce measured in gold has slightly declined.
What is the effect or the significance as to our commerce and trade
and our recovery generally ?
Dr. WARREN. SO far as cotton is concerned, it has been nearly
stationary in gold. A bale of cotton this fall brought a slight amount
more gold to us than it would have done last winter.
Senator GORE. At present quotations it would; yes.

278

GOLD RESERVE ACT OF 19 3 4

Dr. WARREN. The reason for the general decline in export and
import values in gold is, in part at least, due to the very high value
which gold has acquired. So far as its effect on our prosperity is
concerned, our prosperity is primarily indicated by the dollars that
our people get.
Senator GORE. AS you understand it, is the philosophy of this bill
the commodity dollar ?
Dr. WARREN. NO.

Senator GORE. What is the general scheme ? It provides for changing the gold content of the dollar from time to time, and that is
implicit in the commodity dollar, as I understand it.
Dr. WARREN. The world is in a period of monetary chaos which
it has been in for a considerable number of years; the desire for
some latitude in the fixing of the gold content of the dollar is that
you might not know exactly where to fix it at the moment, and if
you did know exactly what was right at the moment, it might not
be right later.
Senator GORE. Then this bill does not provide the mechanics for
establishing the commodity dollar?
Dr. WARREN. No; I should say not. I t does provide within a
certain range for the changing of the price of gold.
Senator BARKLEY. The facts which you have been reciting, the
comparison between the prices of commodities, have bearing chiefly
with respect to the devaluation of gold provided for in this bill ?
Dr. WARREN. Yes.
Senator BARKLEY. DO

you believe that the gold dollar ought to be

reduced ?
Dr. WARREN. Yes.
Senator BARKLEY.

Are you coming to a discussion of that more
concretely a little later?
Dr. WARREN. Yes, sir. I will just take 2 or 3 minutes more on
this phase of it.
Senator WAGNER. I would like to ask you one question. Whether
commodity prices go up first or wages go up first, I am not so much
concerned; but you agree that they must go up pretty well together?
Dr. WARREN. Yes.

Senator WAGNER. If they do not, we are inviting another recession?
Dr. WARREN. Yes. If either one gets far out of line with the
other, you are in trouble.
In general, the process of recovery is aided by placing primary
emphasis on volume of employment and volume of business for
manufactured goods, rather than immediately place emphasis on
wage rates and prices of manufactured goods.
When prices decline, prices of basic commodities decline more
than prices of manufactured goods, wages, or the cost of living.
In recovery, those things which declined most in general should, and
do, rise first and most. But at the present time the price structure
is in such a chaotic situation that any generalization must be used
with great caution.
Senator GLASS. YOU mean, Doctor, that they could go up together;
you do not mean that they necessarily must go up together ?
Dr. WARREN. In actual experience in the past, commodity prices
have run ahead of the wage increases by varying amounts. One

GOLD EESERVE ACT OF 19 3 4

279

factory gets an order and' is doing very well and raises the wages of
its employees. Another factory may not have any new orders at all.
So you might say it is a movement taking place in many spots. But
the desirable thing is for them to go nearly together.
Senator WAGNER. In 1927, 1928, and 1929, the time of the crash,
do not the figures indicate pretty definitely that commodity prices
and profits went up very much faster than wages ?
Dr. WARREN. Commodity prices were not rising materially. I
liave not the data on profits.
Senator KEAN. What made gold go up ? Was it not that we bid
for gold in any amount that was offered, and therefore it made the
price of gold go up as compared with the dollar?
Dr. WARREN. After the gold-buying policy came in our buying
unquestionably affected the price of gold.
Senator KEAN. If we bid for the entire amount of gold that is
offered, naturally the market must go up.
Senator ADAMS. Under the existing conditions we have had our
American currency, roughly, on a 62- to 64-cent basis. If we devalue
gold to 50 cents will we get a 31- or 32-cent dollar?
Dr. WARREN. NO. If we have been having a 60-cent dollar we
would have, roughly, a 50-cent dollar.
Senator ADAMS. Then, our currency dollars redeemable in gold
theoretically have been selling at, say, 60 cents, due to the appreciation of the price of gold. My mathematical mind is not equal
to working out that, if }^ou cut the redemption of the dollar from
a certain quantity of gold to half that quantity, you will not cut
the value of your currency in the same proportion.
Dr. WARREN. If }7ou cut the dollar by 40 percent it is equivalent to
& rise in the price of gold of 66% percent. If you cut the dollar
by 50 percent, it is equivalent to a rise in the price of gold of 100
percent.
Senator KEAN. Just one more question there, Professor Warren.
If you cut the dollar and keep forcing it down, when you relieve
that pressure the dollar is going back somewhat, is it not s
Dr. WARREN. In external trade the dollar is comparatively strong.
If we do not buy any gold I have no doubt that the dollar will rise
in foreign exchange; the gold value of it will rise.
Senator WALCOTT. Possibly as high as 80 cents?
Dr. WARREN. That would be pretty hard to determine.
Senator KEAN. When France cut her franc, although she depressed
it down to 2 cents, she valued it too low, and the consequence is that
she has been suffering from undervaluation ever since, has she not?
Dr. WARREN. I would not say that France's difficulty at present
was related to the figure at which she revalued. It is related to the
fact that she revalued at a time when gold had a relatively small
value throughout the world for commodities; then she has been confronted with falling price level due to the rising value of gold and
not to the point at which she had previously revalued.
Senator KEAN. If we under-value our dollar, then the $2,000,000,000 that we are talking of giving to the Secretary of the Treasury
will not last very long, will it?
Dr. WARREN. If we offer to buy all the gold offered at a given
price, I do not think the control will be impossible.

280

GOLD RESERVE ACT OF 193 4

Senator TOWNSEND. DO you know on what basis the price of gold
has been fixed from time to time as the purchases have been made?
Dr. WARREN. Only as stated in the President's address.
Senator WALCOTT. Professor Warren, I would like to see if we
cannot define the goal toward which this argument is drifting. I t
seems to me, from what I have read of your writings and what you
have said here today, that one of the most important theories you
have on the relation of gold to commodity prices, which is what we
are discussing, is that unless the gold production equals 5.6, I think
is your figure, in percentage of the gold stocks, then commodity
prices must fall; and to amplify I would like to read from an article
published January 11 in the New York Herald-Tribune, written
by Rufus S. Tucker. I t is just a short paragraph. It reads as
follows [reading] :
If we take the years in which the United States was actually on the gold
standard, from 1834 to date, we find that in 51 of them gold production was
less than 5.6 percent of the stock at the end of the preceding year. In 23 of
these years prices rose; in 2 they remained unchanged; in 26 they fell. This
shows only a chance relationship between gold production and prices. Taking
prices for the next succeeding year—i.e., allowing a lag of 1 year—we find
that in 21 years they rose, in 4 they remained unchanged, and in 24 they fell.

He says that Professor Warren's " theory worked in less than half
the cases."
If there is no objection, Mr. Chairman, I would like to put this
article in the record. It is written by Prof. Rufus S. Tucker. He is
president of the Brookings Institute and was formerly an expert in
the Treasury Department.
Senator GLASS. That may be done.
Senator BARKLEY. What is he now ?
Senator WALCOTT. Expert economist at Brookings Institute.
(The article referred to and submitted by Senator Walcott, entitled "Warren Theories Versus Facts ", written by Rufus S. Tucker,
and published in the New York Herald-Tribune of Jan. 11, 1934, is
here printed in full, as follows:)
[New York Herald Tribune, Jan. 11, 1934]
WARREN
[By

THEORIES VERSUS
RUFUS

FACTS

TUCKER]

Although economic theories are said to be hard to understand, the theories
of Prof. George F. Warren, who is said to be the President's chief financial
adviser, are very easy to understand, and the facts supporting them are plainly
stated in his book.
Because of the importance of sound currency to every citizen, it is worth
while to examine how closely these theories agree with the facts.
There are three principal theories concerning the relation of gold to commodity prices. They are all based on pre-war experience, and prices have not
conformed to them in any way since 1914, as Professor Warren admits, although
he has a number of excuses for the failure of his theories during this period.
The first theory is stated on page 80 of Professor Warren's book in these
words:
" F o r 75 years before the World War world monetary stocks of gold had
to increase at the same rate as the world physical volume of production in
order to maintain stable commodity prices in England. If gold stocks increased
more rapidly than other things, prices rose; if they increased less rapidly,
prices fell."

GOLD KESERVE ACT OF 1934

281

Taking Professor Warren's own figures froin the table on pages 78 and 79
of his book, we find that in 37 of the 75 years from 1840 to 1914 world monetary stocks of gold increased more rapidly than world physical volume of production, and therefore, according to Professor Warren's theory, prices should
have r.sen. In fact, prices fell in 17 of those years and rose in only 16, remaining stable in 4. In 30 of the 75 years world gold stocks increased less rapidly
than physical volume of production, and according to Professor Warren prices
should have fallen. They actually rose in 15 years and fell in only 14, 1 being
stable. In 8 years gold stocks and physical volume of production rose at the
. same rate. In 3 of these prices rose, in 3 they fell, and in 2 remained unchanged.
The number of years in which prices conformed to Professor Warren's theory
was 32, the years in which prices moved contrary to his theory numbered 38 and
in 5 years they failed to move when his theory said that they should. Of
course, if the theory had no truth in it at all, the number of years conforming
would have been, according to the laws of chance, about 37%, and if the theory
had any real significance the number of years conforming would have been at
least 45.
So much for the first theory. The second is as follows:
" For the 35 years before the World War prices (in the United States) rose
if the monetary stocks of gold increased faster than the production of other
things, and fell if gold increased less rapidly." (Prices, p. 83.)
In those 35 years the world stock of gold rose faster than the physical volume
of production 19 times; in 8 cases prices rose; in 9 they fell; and in 2 remained
unchanged. The stock of gold rose more slowly than the physical volume of
production 14 times; in 11 cases prices rose (absolutely contrary to Warren's
theory) ; in only 2 cases they fell, and in 1 remained unchanged. In the 2 years
in which Professor Warren's theory called for stable prices, prices were not
stable. In the whole 35-year period Professor Warren's theory was supported
by the facts 10 times; it was flatly contradicted 20 times; and failed to operate
5 times.
Professor Warren's third theory is as follows:
" For the 30-year period—1885 to 1914—monetary stocks of gold in the United
States had to increase at the same rate as the physical volume of production in
the United States in order to maintain the stable commodity prices. If gold
stocks increased more rapidly than the production of other things, prices rose;
if gold increased less rapidly, prices fell."
This statement is absolutely false. In the 30 years under discussion gold
stocks rose more rapidly than production, according to Professor Warren's own
tables, 17 times; in 9 of those years prices rose, in 7 they fell, and in 1 they
remained unchanged. On the other hand gold stocks rose less rapidly than
physical volume of production 13 times, and prices fell in only 3 of those
years, they rose in 8, and remained unchanged in 2. The proportion of
years of rising prices to years of falling prices was greater when the gold
stock rose less than the physical production than in the years when the gold
stock rose more than the physical production. Professor Warren's theory was
borne out by the facts in only 12 of the 30 years, was contradicted by the
facts in 15, and failed of confirmation in the remaining 3. This 30-year
period is the only period in history which appears to support his theory,
even when drawn on a small-scale chart in such a way and with such a
choice of base as to give his theory the best possible chance.
*
*
*
*
*
*
*
None of Professor Warren's three theories concerning the effect of gold
stocks and physical production on prices was in any way supported by the
movement of prices in the corresponding year. Was there perhaps a lag?
Did prices move in the next year the way Professor Warren expected? In the
majority of cases they did not.
The figures show that Professor Warren's first theory of the ratio of world
stocks of gold to world volume of physical production correctly foretold the
movement of English prices in the following year only 32 times in 75 years—
five times less often than tossing pennies would have done.
His second theory correctly foretold the movement of United States prices
in the following year only 19 times out of 35.
His third theory was successful 16 times out of 30. Almost as many failures
as successes in the one period of our history (1880-1914) when it is possible to
see even a surface resemblance between his theories and the facts.

282

GOLD BESERVE ACT OF 193 4

If the ratio of gold stocks to the physical volume of production of other
commodities has any effect on prices at all, it obviously must affect the prices
of the goods then in existence or then being produced—not the prices of goods
produced several years later. Consequently, if Professor Warren's theories
are not supported by the movement of prices within the given year or the following year, it is absurd to try to justify them by what may have happened to
prices 5, 10, or 13 years later, as he and his followers occasionally do.
Moreover, if any attempt is going to be made to manage the currency so as
to keep the price average level it would be absurd to base it on theories that
are so thoroughly contradicted by the historical record.
Professor Warren also has several other theories, frequently inconsistent^
that cannot be checked so easily by the figures published in his book, because
they are not so specifically stated.
Perhaps the most important of these is the theory that gold production must
equal 5.6 percent of existing gold stocks to prevent commodity prices from
falling. If we take the years in which the United States was actually on the
gold standard, from 1834 to date, wTe find that in 51 of them gold production,
was less than 5.6 percent of the stock at the end of the preceding year. In
23 of these years prices rose; in 2 they remained unchanged; in 26 they fell.
This shows only a chance relationship between gold production and prices.
Taking prices for the next succeeding year, i. e., allowing a lag of 1 year, we
find that in 21 years they rose, in 4 they remained unchanged, and in 24 they
fell. His theory worked in less than half the cases.
If Professor Warren's first theory were correct, the price index in Great
Britain (reckoned in gold) would now be about twice as high as it is. If his
second theory were correct, the price index in the United States would be,,
in gold, nearly twice as high as it is, and in paper money at least 25 percent
higher than it is.
If Professor Warren's third theory were correct, the price index in the United
States would be, in gold, three times as high as it is, and in paper well over
twice as high as it is.
Since none of them is or ever has been correct, wouldn't it be a fine thing
for the country if the President would dismiss Professor Warren as his financial
adviser and take in his place some economist whose theories have at least
some relation to the facts?
Senator BARKLEY. HOW many theories of economics are there,.

Doctor?
Dr. WARREN. I would like to insert a correction in the answer that
I gave you, Senator Townsend, as to the reason
Senator TOWNSEND. My question was as to the basis on which you
fix the price of gold.
Dr. WARREN. It is my understanding that the price of gold was
fixed in such a way as to stop the very serious decline that obtained
in October.
Senator TOWNSEND. But it was an arbitrary fixing of the price by
some one, was it not?
Dr. WARREN. Yes; as I understand it, it was fixed by the President, the Secretary of the Treasury, and the head of the Keconstruction Finance Corporation.
Senator GLASS. That was the supposition; but was it a fact ?
Dr. WARREN. It is a fact, as far as I know.
Senator WALCOTT. The Secretary of the Treasury stated it as a fact
the other day. The Secretary of the Treasury stated that those
three fixed the price of gold—the President, the Secretary of the
Treasury, and the chairman of the R.F.C.

GOLD RESERVE ACT OF 19 34

283

Senator TOWNSEND. Chairman Jones testified that the price was
handed to him. He does not know where it was fixedSenator GLASS. Therefore I say that it is a supposition and not a
fact.
Senator TOWNSEND. I am only quoting the Secretary of the
Treasury.
Mr. WARREN. Answering the other question as to the quotation
by Mr. Tucker, in 75 years there was no trend away from the relationship of gold to prices. In 1850, for example, the ratio—dividing
the world's, monetary stocks by world production of basic commodities—was 105. Prices in England were 105. Sixty years later, although the monetary stocks had increased from an index of 23 to
147, the physical volume of production of the world had increased
from 22 to 140, and we had the same ratio. In other words, in 1910
the ratio of the world's monetary gold to the world's production of
commodities was the same as it was 60 years before.
Senator GORE. Would the fact that silver was in use as money
then react on prices and destroy its analogy ?
Mr. WARREN. I think not.
Senator GORE. YOU think gold exercised the power, notwithstanding?
Mr. WARREN. I am giving you the figures as they are, regardless
of gold, which is the question in point in this discussion. Mr.
Tucker's question is not why this happened, but is it true ?
Senator GORE. Let me interrupt you with another question. I saw
a statement the other day by an economist who remarked that you
had to consider the phases of these cycles. He made the point that
they were entirely different; and it was rather a coincidence, the
correspondence in the price levels of 1850 and 1910, and that one
trend was in one direction at one date and in another at another
date. I do not know enough about this subject to have an opinion.
What is your reaction to that?
Mr. WARREN. I think my answer to the question that Mr. Tucker
raised will answer that also. If I have not answered it sufficiently
when I complete my answer to this other question, I will come back
to it again. May I repeat, that the ratio of the world's gold stocks
to the production of basic commodities in 1850 was the same as the
ratio of 1910, 60 years later. Prices in England in 1850 were 105,
and in 1910 they were 106. That is, there was no trend away from
this ratio.
But the year-to-year changes fluctuate around this line as the
waves fluctuate about sea level. If you count the waves and how
they differ from sea level, I do not know how you will come out, but
I am sure the waves fluctuate about sea level; and I think the best
answer to the question is merely to look at the curves on the charts
that I will pass down the line, and you will see how the two lines
in this book called Prices fit. The one is fluctuating about the other.
One may be going up and the other down, but they are going
together.

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GOLD RESERVE ACT OF 193 4

FIGURE 60.—RATIO OF WORLD'S MONETARY GOLD STOCKS TO
WORLD PHYSICAL VOLUME OF PRODUCTION COMPARED WITH
WHOLESALE PRICES IN ENGLAND, 1839-1932.
1880-1914 = 100.
For the 75 years before the World War, prices rose if the world's monetary
stocks of gold increased faster than the production of other things and
fell if gold increased less rapidly. An exception occurred during and after
the World War when most of the countries of the world discontinued the
gold standard. However, the relationship has been restored.

Senator GORE. DO you accept the quantity theory of money, whatever that is?
Mr. WARREN. I should have to enter into
Senator GORE. What I was getting at is this
Senator WALCOTT. Let him finish this answer, please, Senator.
Senator GORE. Oh, I beg your pardon.
Mr. WARREN. That long-time relationship fitted just as well as
those two curves fit. But the essential point is that there are no
trends away from the relationship, and not that they fitted in any
given year precisely. The curves speak for themselves.
Carrying this one step further, the world's gold supplies in 1928
were 38 percent greater than they were in 1914. The world's production of basic commodities was 38 percent greater than in 1914, and,
therefore, if the conditions of 75 years before the war had continued,
we would have expected prewar prices as nearly as those two curves
had fitted in the past—prewar prices plus or minus some small difference which, if it were minus would before many years become
plus, and if it were plus would before many years have been minus,
if past experience had held.
In other words, the assumption would have been approximately
prewar prices in 1928. Why were prices throughout the world, in
gold, roughly 50 percent above prewar for a long period? The
answer, I believe, is a very important consideration in this situation. The reason, I believe, was on the demand side for gold. The
continent of Europe went out of the gold business. It discontinued
bidding for gold, not only went on paper, but actually discontinued
bidding for gold, and much of the gold went elsewhere. That
which did not go elsewhere lost value, because gold was in low
demand everywhere, so that throughout the world gold was in low
demand and prices in gold rose.

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Senator GORE. What period was that, in point of years?
Mr. WARREX. That was from 1915 up to 1929, when the break
came. During that period it was much as if a large part of the
world had demonetized gold and had gone to copper money, or anything else. The remaining parts of the wTorld were the only bidders
for gold, and the gold was cheap, and we had a price level, roughly
50 percent above prewar.
Many persons who challenge this gold statement formerly said
that the price level would remain up, and their arguments today
for it going back are precisely the same as the arguments they then
had for it remaining up—clearly fallacious—I think. There was
no reason for expecting that any such price level would remain when
the world attempted to return to gold; when the world attempted
to return to gold, prices in gold collapsed.
There was no increase in the world's gold supply to justify the
expectation that all of a sudden the countries formerly on gold
could be on gold with a price level 50 percent above the level
which the gold supply would, by historical experience, be expected
to support. A sudden change of that sort is very improbable, but
the cessation of demand reduced the value of gold. Prices in gold
rose. The return of the demand caused the crash.
France returned to gold in June of 1928, and the panic was soon on.
She was in a peculiarly strong position with respect to gold. The
Germans had had to pay reparations. Those reparations were
largely paid by Americans and other investors who lent money to
Germany. The gold was still here, in many cases, and in some cases
in England, but it was passed to German possession, then passed to
French possession, and still was located in the same spot. But
when France began to attempt to return to gold she was in a very
strong position with gold credits, and the crash was soon on. I am
not blaming France. I am merely saying that when the world attempted to return to gold there was not gold enough to maintain
that cheap gold, and France happened to be the country which was
in a very peculiarly strong position, and the turning point came
soon after she returned to gold. But it would have come anyway.
We had one other illustration like this—and only one other in
our history of any comparable degree—and that was in the other
period of world-war experience—the Napoleonic Wars period. At
that time France was one of the leading industrial nations of the
world.
Senator WALCOTT. YOU are going back to the period of the
assignats ?
Mr. WARREN. Yes. France was one of the leading industrial
nations of the world, and she did much the same as Europe did this
time, discontinued to bid for gold and silver. At that time gold and
silver were both commonly used. Both gold and silver lost value
suddenly, and prices in the United States from 1790 to 1795 rose
46 percent. That was not due to the world having discovered suddenly a great supply of gold and silver. It was due to a portion
of the world which had oeen using gold and silver suddenly discontinuing to be in the market for them, and they lost value in other
countries. Prices in England rose 34 percent.
46217—34

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GOLD RESERVE ACT OF 193 4

Senator GORE. That was due in part to the war and the war
demand for commodities, was it not ?
Mr. WARREN. I think I will answer that in just a moment. I
hope I do not forget it. I would rather wait just a moment, if you
will pardon me.
Senator GORE. Excuse me.
Mr. WARREN. We were then for a long period on this high-price
level. During the War of 1812 the United States for a short period
discontinued the metal standard. In March 1817 we returned to the
metal standard, but our prices were more than 50 percent above
the prices of 1790.
Then England started to return to the metal standard; it took her
2 or 3 years. She completed the process in 1821, and her prices and
ours both fell nearly to the level of 1790, from which there was no
recovery. There was a recovery when we found gold in California,
but no cyclical recovery.
There is one peculiar difference in the two situations, that in this
war only the gold-using countries discontinued bidding for their
metallicbase and only the gold-using countries had the inflation of
1914 to 1920. China did not have the inflation of 1914 to 1920. Her
prices, which had been rising gradually for many years, continued
to rise gradually during our inflation of 1920. She did not have the
deflation of 1929, but is right now having serious deflation. I have
shown you elsewhere that silver has been rising in value relative to
gold. She is getting some deflation now.
In the Napoleonic-French Eevolution period both gold and silverusing countries had a rise in prices. Countries which suspended
metallic currencies used gold and silver, and both gold and silver got
cheap. Both gold-using countries and silver-using countries had
inflation, and when the^ returned to the metallic standard both goldand silver-using countries had deflation simultaneously. This time
China did not have the inflation which we had, which, I thinks
suggests the answer, in part, to the war question of Senator Gore.
Senator WALCOTT. Dr. Warren, it might be interesting to add to
that very interesting recital of yours that following the reign of the
profligate Louis and the assignats, France was plunged into a reign
of terror and the guillotine, caused by too much paper. The first
proclamation that Napoleon made was that they return to the specie
payment. That is a pretty important observation.
Mr. WARREN. Yes.
Senator WALCOTT.

I am not suggesting that this bill does it, but
is it not a possibility that if the stabilization fund that is proposed
should fail—and I personally do not see how it could succeed in
competition with the combined forces of Europe—we might be drifting into a period of extreme inflation, willy nilly, of paper currency ?
Mr. WARREN. The occasions of extreme inflation, so far as I have
been able to find them in history, have been preceded by governmental bankruptcy and usually as the result of revolution or extended war at the time. If we should drift into wild inflation, it
would be a very unusual historical occasion, unless we, previous to
that, had had a revolution.
Senator MCADOO. YOU mean a violent revolution or an economic
revolution ?
Mr. WARREN. I mean a violent revolution.

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287

Senator MCADOO. By force ?
Mr. WARREN. Yes. Of course there is no danger of that.
Senator GLASS. Doctor, what was the percentage of rise in commodity prices in France in the period of the assignats ?
Mr. WARREN. The rise in prices ? The assignats finally became
substantially valueless, much as the German inflation this time. I
cannot tell you offhand what prices became, but they were practically
infinite. German prices this time went up to something like a trillion to one. That may not be quite right. The currency was finally
revalued at a trillion to one. With such wild inflation prices go
to indefinite heights.
Senator GLASS. YOU have the mathematical figures for the picture, have you?
Mr. WARREN. I have the mathematical figures for Germany.
Senator GLASS. I mean for France. They are not understandable,
are they?
Mr. WARREN. It is pretty difficult to understand paying a trillion
marks for a handkerchief, for example.
Senator GORE. They tried to prevent the advance of prices in
France through the guillotine, the death penalty.
Mr. WARREN. Whenever prices start to rise violently the governments begin to try to stop them, but, of course, if they are having
wild paper inflation, their trying is of no avail.
Senator GLASS. They first guillotined those who refused to engage
in the inflation, and later they guillotined those who started the
inflation.
Senator GORE. A sort of retributive justice.
Senator MCADOO. I think there is a very wide-spread confusion in
the public mind about the meaning of this bill. When we get into
the discussion of these complicated statistics they do not clarify the
public thought at all. Perhaps I am rather stupid myself, but I
must confess that I do not find anything convincing in these various
statistics covering more than a century. We are dealing with a
present condition. This bill has a specific purpose. Could you not,
in simple language that the average layman can understand, tell
us what benefits will result to the country, in your opinion, if this
bill enacted into law ?
Mr. WARREN. What benefits will come to the country from a bill
of this sort? One thing that it does is to narrow the range within
which the dollar is to be revalued. That, I think, is a steadying
effect, both here and elsewhere, both from the force of deflation
and the force of inflation. It tends to check the risk of either. The
easiest way to bring inflation is to persist in deflation, beyond what
you can carry out. I think that that range is of benefit.
Senator MCADOO. Aside from that, I think we have to consider
first the fundamental purpose here of devaluation itself. I think
that is the most important thing for us to consider in reaching a
conclusion about the measure, and I would like to know what you
think, as accurately as you can judge it—of course you cannot do it
specifically, but so far as you can—give us your ideas as to the
benefits that are likely to come from devaluation to 60 percent, or
to 50 percent, especially with reference to the masses of the people
of the country.

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GOLD RESERVE ACT OF 19 3 4

Mr. WARREN. Why any devaluation?
Senator MCADOO. Yes.
Mr. WARREN. The last page which you have, table 6, shows the
prices of gold in various countries. Ours is among the low group.
You will note that in Australia, New Zealand, and Denmark, gold
prices are over 90 percent above par. This is the price of gold, and
not prices in gold. They have nearly cut their currency in two in
the middle. The group comprising England, South Africa, Canada,
and the United States are from 50 to 60.
Senator BULKLEY. HOW is the gold price determined in the United
States?
Mr. WARREN. This gold price is the London price of gold in
shillings, and the closing quotation on the exchange rate in New
York of that day.
Senator BULKLEY. In other words, your price in the United States
is determined by the London price transferred into American currency ?
Mr. WARREN. Yes. I use that because that is the price which
men dealing with us in business affairs have to pay for their dollars.
Senator MCADOO. I would like to bring you back to my original
question.
Mr. WARREN. I am coming to that, Senator.
Senator MCADOO. I know; but we are getting back into these vast
statistics again.
Mr. WARREN. Yes.
Senator MCADOO. I

would like to get, if possible, in as simple
language as we can, language that would be understandable by the
average layman, what specific or general benefits will come, in your
judgment, from this devaluation and from the enactment of this bill
into law.
Mr. WARREN. If }7ou will give me just half a minute more on the
statistics, I think you will see the relationship.
Senator MCADOO. I see them, but I think myself that generally
they are not understood. I mean to say that statistics are so difficult for the average person to comprehend that he does not get the
proper deductions from mere statistics. I think we have to explain
it in simple language.
Mr. WARREN. Suppose I do it without any figures.
Owing to reduced demand for gold, gold lost a lot of its value.
Prices in gold-using countries rose very high, and stayed there for a
long time. Our whole civilization got adjusted to high prices.
Everything we paid for got adjusted to a high-price level. Our
debts were up; our public and private debts were up; wages and
salaries; the price of a hair cut; taxes; the price of wheat and
cotton; the price of houses went up, and men began to carry large
amounts of life insurance because of their increased incomes. That
was loaned out on these houses at high prices. We got adjusted to
a high-price level through no fault of ours, and I would explain it
because the rest of the world discontinued bidding for gold. But
it is immaterial whether I am right or wrong in my explanation.
We got adjusted to a high-price level.
Senator MCADOO. Was not the tariff a very large factor in that
situation ?

GOLD EESERVE ACT OF 1934

289

Mr. WARREN. NO. It is world-wide.
Senator MCADOO. SO far as our home market is concerned?
Mr. WARREN. Our rising tariffs were to cure the depression. The
depression started under low tariffs in this country, or relatively low.
We never have had really low tariffs.
Senator MCADOO. I was only speaking of it as a factor in the situation, therefore minimizing the effect of gold.
Mr. WARREN. The world-wide movement to raise tariffs has been
to cure the depression. The depression came first, and the tariffs
came afterward. When you find your prices are falling, then there
is a world-wide movement to say " We must hold our markets for
our own people, and we will put up the barriers." That, in turn,
becomes a troublesome thing, but it is caused by the panic. The raising of the tariffs, caused by the decline in prices, then, in turn,
becomes a troublesome thing.
Senator BARKLEY. There had been no decline in prices when we
started to raise our tariffs in this country.
Mr. WARREN. AS I recall it, Mr. Harding came in on a program
of raising tariffs in order to improve the situation.
Senator BARKLEY. But in 1929, immediately after the election of
1928, began the process of raising tariffs in this country, which did
not complete itself until 1930, but the Congress started in to raise
tariffs long before there was any crash and long before there was
any depression in this country. There may have been processes
working independently of the tariffs that finally brought the collapse, but I recall that one of the strong arguments some of us made
against the tariff of 1930 was that there was no need nor expectation of an increase in tariffs over those of 1922, and the process by
which this tariff was increased was started months before there was
any evidence of depression in this country, and it was completed
in the very midst of the depression, so far as it had developed following the crash of 1929.
Senator MCADOO. I want to apologize for interrupting the doctor
in connection with the tariff issue, because I would like to get back
to the other thing.
•Mr. WARREN. These excessive tariffs and these trade barriers have
been very largely augmented in an effort to prevent the declining
price level from affecting each particular country.
Senator GLASS. DO you think the almost insane speculation or
gambling in stocks had anything to do with the depression ?
Mr. WARREN. TO a limited extent. We became adjusted to a
high-price level, and one of the reasons for the boom in stocks was
because of the high-price level. That was one of the accompanying
things.
Senator GLASS. YOU do not think it was one of the causes ?
Mr. WARREN. TO a limited extent; not the fundamental cause.
Senator GLASS. Would you undertake statistically to delimit it?
Senator MCADOO. I tried to get away from statistics, Senator.
Senator GLASS. All right. I will withdraw the question.
Mr. WARREN. For some reason the gold-using world had a highprice level, and having it, it could do nothing else than become
adjusted to it. For some reason prices in gold-using countries collapsed. I would say it was because of returning demand for gold.
Senator BARKLEY. Because of what?

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GOLD RESERVE ACT OF 19 3 4

Mr. WARREN. The return of the demand for gold; attempts to reestablish the gold standard—I will say, as I have been saying since
1918, that any country which attempts to maintain its pre-war currency in gold may expect prices below pre-war for an indefinite
period, unless some important countries demonetize gold and stop
bidding for it.
If the gold-using world returns to gold, or keeps bidding for gold,
we may expect prices in gold-using countries to be below pre-war
for some years. I have been making that statement since 1918. The
reasons now projected by various economists for saying that we can
return to former prices and all be on gold, and have pre-war currency, are the same reasons that those and other economists used
from 1918 to 1929 in their conclusion that prices would not fall, and
some of them, in connection with banks, advised lending money on
the basis of that high price level to various countries and various
individuals. That was a clear indication of their belief that prices
would not fall. I would like to submit that prices have fallen.
Senator GLASS. Doctor, may I ask right there, if it does not interrupt the course of your reply to Senator McAdoo, what occasion
this country had to bid for gold when the reserves of all the reserve
banks and all the member banks were way above the legal requirements ?
Mr. WARREN. Would you mind if I just hold that for a moment,
and return to it later ?
Senator GLASS. Very well.
Mr. WARREN. I will just say a little more, and then come to that
directly.
Any country can stand a certain amount of deflation. No country can stand an unlimited amount. England and the United States
will stand about as much as any country before they will do anything
to interfere with their money.
Senator TOWNSEND. The same theory applies to inflation.
Mr. WARREN. Yes. The world has been attempting to deflate.
One country after another has found it impossible. Thirty-four
countries have now tried it and given up. We were the last of the
34. Two countries still are maintaining their pre-war currencies,
Holland and Switzerland, and doing it with great difficulty.
This is a world-wide situation, not made by our country or any
other country. Thirty-four experiments in deflation have been tried.
We were the thirty-fourth to give it up. The amount of deflation
was more than could be carried through, and the key to the turning
point is probably wThen it became impossible to collect, to foreclose,
to carry out the processes of deflation. Deflation means cut. I t
means to take property away from people who cannot pay and sell
it to others; but if there is too much property, there become few
buyers. We tried to the point where we could not collect. We could
not foreclose, and so we, too, left the gold standard, along with the
rest: and so far as I can observe, none of the 33 countries—or ourselves either—is very seriously proposing to attempt again to restore
pre-war currencies.
It then becomes a matter not of attempting again the impossible—
we tried it heroically—but of how to proceed from where we are.
We gave up that attempt, and I do not need to recall to you the

GOLD RESERVE ACT OF 19 3 4

291

situation the country was in last February. The question then becomes how to proceed from where we are.
Now, let us take up the question of buying gold, which Senator
Glass asked about. What reason was there for the United States to
begin to buy gold last fall ? To control the value of the dollar.
Senator MCADOO. May I interrupt, Doctor, to ask this. Since the
President had the power under the act of Congress to devalue the
gold dollar by 50 percent, was it necessary to buy gold in foreign
countries to enable him to perform that function ?
Mr. WARREN. Of course, there are many legal complications that
were involved, and, as I understand, this legislation is intended to
clear those up.
Senator MCADOO. N O ; I am talking about the actual devaluation
of the dollar. It was not necessary to buy gold at constantly increasing prices in Europe in order to devalue the gold dollar by 50
percent. That could have been done at any time by Executive order.
Mr. WARREN. Of course, you have a number of questions involved
which are largely legal. Being no lawyer, I hesitate to go