Questions Without Answers

Businessmen knew it, Congress knew it, the Brain Trust knew it, Mr. Homer Stille Cummings knew it: The Justices of the Supreme Court would do their duty as they saw it. Yet somehow nearly everyone had overlooked the obvious fact that the nine potent, grave and reverend judges would first take a good look at that duty. Last week when the Court in unmistakable fashion began that scrutiny, business fell into a dither, Congress chattered, the Brain Trust fretted and the Attorney General blushed.

Its dim semicircular little courtroom was crowded with lawyers, Senators, bigwigs, newshawks, as the Supreme Court on four successive days listened to arguments and asked questions about the right of Congress to invalidate "gold clauses" in public and private securities. For years the U. S. Government and most corporations promised to repay lenders their principal and interest "in gold coin of the present standard of weight and fineness." On June 5, 1933 Congress, having authorized the President to suspend the gold standard, forbade the writing of any more gold clauses, declared in effect that all those previously written were legally out of bounds. Hence came the four issues before the Supreme Court last week.

1) Norman C. Norman, 39, a bachelor in the jewelry manufacturing business with his father in Manhattan, demanded $16.60 from Baltimore & Ohio Railroad. He held a coupon of one of the railroad's bonds calling for an interest payment of $22.50 in gold. Since the railroad could not pay in gold he wanted $39.10 in devalued currency. Lower courts had upheld the railroad's refusal to pay Norman C. Norman the additional $16.60.

2) Bankers Trust Co., of Manhattan, as trustee for an issue of bonds issued by Iron Mountain Railroad (now part of Missouri Pacific) similarly demanded payment amounting to $1,690 in devalued currency for each $1,000 gold bond. As trustee it had to try to collect or be liable to the beneficiary of the trust. The railroad and the RFC (which wants to reorganize the railroad) both fought the case in lower courts, and won.

3) F. Eugene Nortz once held $106,300 of U. S. certificates in which the Treasury promised to pay the bearer on demand in good old-value gold coin. Mr. Nortz was compelled by Presidential order to turn his certificates in and take devalued dollars. So he sued the Government in the Court of Claims which put the case up to the Supreme Court.

4) John M. Perry, Manhattan lawyer, had owned a $10,000 Liberty Bond which specified repayment in gold. Since the Treasury would not give him gold, Lawyer Perry demanded $16,900 devalued dollars. His case also came up from the Court of Claims.

Contenders. Strange was the mixture of contenders at the bar. In a court room filled with elderly legalites in spats and morning coats, two young men in ordinary business suits rose to argue. One was Emanuel Redfield, representing Norman C. Norman. New to the highest court in the land, he opened the argument, choked over some of his words, swallowed others, was obviously abashed. The other sack-suited pleader was Attorney Perry arguing his own case, which he did with maximum brevity, maximum precision. Most embarrassing moment fell to James H. McIntosh, senior partner of the Manhattan firm of Alexander & Green and counsel for Bankers Trust. With learned dignity he made his argument and, in spite of apparent difficulty in pronouncing sibilant words, came to his peroration: "If you hold this resolution Constitutional, Congress will have put a stig--" at that point his false teeth popped clean out of his mouth. He grabbed his plate, just as it reached the green baize table, shoved it back in his mouth, continued "stigma on the good name of the country."

In upholding the cancellation of the gold clauses the sleek attorneys of the railroads joined with the Government. The Government's lawyerlike brief was signed by two of its bright young men, Paul A. Freund, onetime secretary to Mr. Justice Brandeis, and John G. Laylin, assistant to General Counsel Herman Oliphant, of the Treasury. But the Government's oral argument was definitely less than lawyerlike. Rather than risk his case in the uncertain hands of his Solicitor General, Attorney General Cummings put on his cutaway, striped trousers and derby and marched to the bar in person. Flanking him at this Thermopylae were competent but uninspired Stanley Reed, general counsel for RFC, and uninspired Angus D. Maclean, Assistant Solicitor General.

Argument. Attorneys pleading against cancellation of the gold clauses presented similar arguments: Contracts had been entered into for the payment of gold and Congress had set them aside. Either Congress had no right under the Constitution to set those contracts aside, or if it had the right to forbid payment in gold, the claimants were at least entitled to compensation in devalued dollars for the value of the gold denied them.

Attorney General Cummings listened to these opening arguments, placidly chewing gum, tobacco, paper or whatnot. After Frederick H. Wood, in sonorous periods, had launched B. & O.'s counterattack, Mr. Cummings took the stand. He argued little about the law, less about economics, a great deal about horrendous social consequences. He told the Court at length that a great emergency had existed in 1933. He estimated that there were $100,000,000,000 of Government and private gold obligations outstanding. If these had to be paid back in devalued dollars, it would take $169,000,000,000. Cried the Attorney General:

"The invalidating of this resolution would create a privileged class which in power and immunity would be unparalleled in human history. ... It would be a catastrophe which would stagger the imagination. It would not be a case of back to the Constitution. It would be a case of back to chaos. ... I hope this court will lay down in unequivocal language that actions in the control of currencies which are open to other nations shall not be denied the U. S. . . . . In acting as it did the Congress acted for the benefit of the country as a whole and not for that of particular groups of persons. . . . This is not a case of Federal activity reaching out into a private area. These gold clauses have invaded the Federal field. These payments are on Federal territory. They are squatters on the Federal domain."

Questions. A tradition of the Supreme Court is that the Attorney General shall not be interrupted in his argument by questions from the bench. Therefore the real excitement did not begin until Mr. Cummings had finished his stump speech. Then the Justices who had asked only a few questions of the Government's opponents began to pop questions right & left at Messrs. Maclean and Reed. Some court room observers got an impression that the Justices' questions were hostile to the Government's case. Others felt that the Court, friendly to the Government's position, was trying to bring out the best possible arguments from the fog that enveloped the Government's presentation of the facts and the law. Regardless of the Court's purpose, Messrs. Maclean and Reed spent a number of uncomfortable hours before the high bar. Examples:

Mr. Justice Butler after Mr. Reed's contention that the Government has power to devalue the dollar as it saw fit: "In other words can Congress act to make a dime a dollar?"

Mr. Reed: "In my opinion it can. . . ."

Mr. Justice Van Devanter after Mr. Maclean argued that devaluation had been upheld in the courts of Great Britain and other nations: "What England can do, what Germany or any other nation can do has no controlling influence here. We must act under the Constitution of this country."

Mr. Justice Stone, when Mr. Maclean insisted that the Government would fulfill its obligations if it pays off Liberty Bonds in devalued dollars: "That's not what the bond says, is it?"

Biggest bombshell in the Government camp was exploded when Chief Justice Hughes said:

"Here you have a bond issued by the United States Government, issued in a time of war and in the exercise of its war powers, a bond which the Government promised to pay in a certain kind of money. Where do you find any power under the Constitution to alter that bond, or the power of Congress to change that promise?"

Consequences. Such questions did not necessarily indicate that the Court will decide against the Government. In this case, however, they brought little or no direct answer from the Government except that Congress under the Constitution has power to regulate the value of money, hence has an implied power to cancel gold clauses. But consequences followed from the mere asking of questions:

P: Attorney General Cummings, fearful that the case was going against him, made an unscheduled second argument in which he praised abrogation of the gold clauses as a piece of great and well-considered statesmanship, but offered no new arguments to show that the Government's action was legal.

P: The price of the Government's gold bonds was bid up in heavy trading. Liberty 3 1/2s reached 105.3, a record high. The stocks of railroads and other corporations which might have to pay $1,690 on $1,000 bonds slumped heavily. Trust companies feared they might be sued in cases where they had accepted devalued dollars in payment of principal and interest on gold bonds. Business was thoroughly jittery for nobody could more than guess whether Mr. Cummings' estimate of $75,000,000,000 of private gold obligations outstanding was high or low. In any event reinstatement of the gold clause would place many a great company in financial jeopardy.

P: Aware that an adverse decision would boost the Federal debt about $10,000,000,000, would wipe out the $2,000,000,000 Stabilization Fund, would have a highly deflationary effect upon their program, New Dealers began to figure what to do. They considered: 1) enlarging the Court so that the President could pack it with new members favorable to his cause; 2) declaring a moratorium until a Constitutional Amendment could be adopted forbidding the Court to declare Federal laws unconstitutional, declaring it retroactive; 3) paying in gold as demanded and establishing a 60% tax to get back the excess; 4) or simply letting the adverse decision stand and refusing to consent to the Government's being sued for the amounts due. And inflationists proposed simply settling up with the gold claimants by issuing some billions of greenbacks.

P: After the hearing, the Court held an extra long private session--five hours-- debating, presumably, gold clauses. Obviously the court would like to 1) decide the issue quickly because of its importance; 2) render a decision by a decisive vote, not by a 5-4 majority. Earliest likely date for a decision based on past precedent: Feb. 4. Latest probable date: three months hence.

Tight spot. Many an observer regarded the present make-up of the Supreme Court as fortunate, for today, when the U. S. is swayed by a politically powerful liberal movement, the Court is dominated neither by conservatives who would block all attempts at change, nor by liberals who would put no check on hasty attempts to alter the face of government. Yet this well-balanced court is in a tight spot. A majority may believe that it would be less serious for the U. S. to face the economic upset caused by upholding the gold clauses than to establish a precedent that may in future make all contracts into scraps of paper to be blown hither & thither by any political wind. But if the Court should decide to uphold the gold clauses, the reaction ot the country against the Court would be indeed serious. In the heat of partisanship a Constitutional Amendment might be passed that would vitally impair the Court's usefulness. The Justices were not ignorant of these facts. But their job is to follow the law as they see it, not the election returns. For the convenience of the country, if not the Court, a majority of the Justices would doubtless be glad to uphold the abrogation of the gold clauses if they can do so without sacrificing what they regard as vital principles. Several ingenious compromises are, however, open to the Court. Example: By upholding Mr. Cummings' contention that private persons who wrote gold clauses were squatting on the public domain, the Court could void such claims in private bonds but make the Government pay what is nominated in its own bonds, since obviously the Government cannot squat on its own domain.

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