Proposals

Five proposals about the future of the C. S. dollar were the substance of the President's money message to Congress: 1) To issue no more gold coins; in future to keep all the monetary gold of the U. S. in the form of bullion [big gold bars] which will be used only in settlement of international trade balances. This step, generally foreseen, caused no surprise. Since gold coin is in little demand except in times of crisis and at such times goes into hoarding, it is worse than useless to the nation as a whole. 2) To have the Treasury take all the gold in the Federal Reserve Banks and give to the Federal Reserve, in exchange, gold certificates. These certificates would be in the amount of $3,560,000,000 (value of the Reserve's gold holdings in terms of the old 100-c- dollar) but the certificates will in future be backed only by the amount of gold in the new dollar. Thus if the gold content of the dollar is legally cut in half the Reserve Banks' gold certificates will call for only half as much gold as they will give up to the Treasury. The other half of the gold will be a "profit" belonging to the U. S. Government. Although the President claimed he already had authority to take this step, he asked that a special law be passed stamping it with Congressional approval. 3) To have Congress immediately specify that the dollar, when revalued, shall be revalued at not more than 60-c- of the pre-Roosevelt dollar. Thus the President (who already had power to reduce the dollar to not less than 50-c-) postponed the fixing of an exact new value for the dollar. But this new step would be a step toward a stabilized, fixed dollar because it would be a promise that the new dollar would have a value of between 50-c- and 60-c-. Immediately after the President's message was read the Treasury boosted the domestic gold price which for 21 business days had stood still at $34.06 an ounce (60 2/3-c- dollar) to $34.45--or a 60-c- dollar, the upper limit set, announced that future purchases would be made not by the RFC but by the New York Federal Reserve Bank for the Treasury. The monetary gold stock of the U. S. including the gold to be taken from the Reserve Banks is $4,300,000,000. So the "profit" to the Treasury from revaluation will be not less than $2,900,000,000 (if the dollar is valued at 60-c-) and not more than $4,300,000,000 (if the dollar is valued at 50-c-) 4) To set aside $2,000,000,000 from these profits of devaluation and to authorize the Treasury to use it not only to buy gold at home and abroad but also to buy foreign exchange. As stabilization of the dollar draws nearer the vast amount of U. S. capital which went abroad in 1933 because of uncertainty of the dollar's value is likely to start home again. Moreover foreigners uneasy about the future of their own money may send their capital to the U. S. Not only would this force France off the gold standard, force down the value of both franc and pound, but it would destroy every trade advantage that the U. S. has gained from the cheapening of the dollar in foreign exchange. Only way to prevent this is by buying sterling and francs as fast as those currencies are sold by Americans who want to bring their money home. Instead of allowing the hundreds of millions of U. S. capital abroad to be brought home, the Treasury will in effect have to take over that capital (leaving it abroad until a more convenient time for repatriating it) and pay off its owners in the U. S. out of the profits of devaluation. The President also proposed that the Treasury be authorized to use part of the same $2,000,000,000 to buy Government securities -- to help stabilize the market for Government bonds while the U. S. is marketing the $10,000,000,000 of new and refunding issues planned between now and July1. 5) To do something eventually toward the use of more silver as a monetary base, but to let that wait till the effect of the London silver agreement (under which the Treasury is now buying all U. S. mined silver at 64.64-c- an ounce) had been seen. Persuasion. The language in which the President urged Congress to these steps: "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. . . . 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 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. . . . "Permit me once more to stress two principles: Our National currency must be maintained as a sound currency which, in so far 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. . . ."

"Robbery." Appropriate bills were rushed to both Senate and House, and the President promptly issued three executive orders tightening the Government's control over gold and foreign exchange. Speculators hailed the five proposals as inflationary. Stocks soared, wheat jumped 4-c- a bushel, cotton $2 a bale. But most businessmen, who regard the dollar's stability as more important than its value, heaved a sigh of relief. And their feeling was reflected in a rising market for both Government and corporate bonds. Said the Baltimore Sun: "It is a paradox that a Presidential message which proposes to perpetuate revolutionary changes in the nation's monetary system should carry encouragement to conservatives, and yet that is the probable effect." Even the Republican Philadelphia Inquirer opined: "The President is for sound money. There is not a crumb of confidence ... for inflationists of the printing press type." But throughout the land many voices chimed in unison with Virginia's Senator Carter Glass, who remarked: "Humanitarians can find some excuse for a man who steals when he has to, but what excuse is there for stealing when there is no need for it." Delaware's Senator Daniel O. Hastings merely snapped: "Robbery!"

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