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This Week in History:
April 17 - 23, 1933
Gold Standard vs. Gold Reserve

April 2011

The highlight of this week, during President Franklin Delano Roosevelt's Hundred Days of emergency action to save the nation, occurred on April 19. It was on that day that the President made the formal announcement taking the U.S. dollar permanently off the gold standard.

There are several contexts in which to see FDR's move, including the massive political pressure which was being applied to him by citizens and Congressmen who were unable to get credit, and the ongoing raid on the nation's gold supply which was being carried out by major European banks, especially in Amsterdam. But its primary significance is succinctly presented by author Arthur M. Schlesinger, Jr., in his The Coming of the New Deal. Schlesinger wrote this about the shift away from the gold standard:

"It meant that American monetary policy was no longer to be the quasi-automatic function of an international gold standard; that it was to become instead the instrument of conscious national purpose."

To put it in the language of today's analysis by Lyndon LaRouche, what Roosevelt did was to assert the sovereign right of the nation to control its credit, rather than permit the "international marketplace" to determine what credit would be available. And he did it because the general welfare of the population depended upon it.

Gold standard vs. gold reserve

Before we get more into the story, it's important to clarify the issue of two ways of looking at the gold standard: the "British" gold standard, whereby every piece of currency is convertible, and the gold-reserve standard, which permits gold to be used as a standard for international valuation, but at a ratio to the currency emitted. In the first, gold basically limits the credit which can be issued; in the second, gold works as a stabilizer, but the fundamental reality of the fact that it is production, not precious metal, which comprises wealth, is made clear.

What FDR did with his moves on gold, which were followed up in international conferences, up to the New Bretton Woods Conference itself, was to move the U.S. from the gold standard -- which had been imposed with Species Resumption back in the 1870s, as a reaction against U.S. sovereign control of currency through the greenbacks -- to the gold-reserve standard.

The Gold Question

President Roosevelt had, of course, dealt with the gold question earlier on, at the same time that he instituted his banking reform. On March 5, he had suspended all transactions in gold, and given authority over any such matters to the Secretary of the Treasury. On April 5, he had gone further, issuing an executive order against hoarding of gold.

But in the ensuing weeks, pressure had been building up on the dollar from the European bankers, who were allied with the virulently anti-Roosevelt Wall Street forces here in the United States. Acting through Morgan interests in Europe and the private U.S. banks, including Brown Brothers, Harriman, the Bank of England launched an all-out assault on the dollar. Since the break with gold now appeared inevitable, the plan was to do it with the maximum amount of chaos and to organize a counterreaction that could ultimately reverse the policy, and hand Roosevelt a defeat.

On April 11, the first waves of the attack broke against the dollar. They grew in intensity over the next three days. The New York bankers asked through the Fed to lift the gold embargo and be allowed to ship $10,000,000 to Europe, to Holland and England. The New York agents of the British upped the ante: They asked for an additional $15,000,000 in gold shipment licenses. Roosevelt ordered part of the request granted. But the requests kept escalating in an almost geometric ratio. And tons of gold were being shipped out of the country.

Political Pressures

At the same time, the political heat was increasing on the President to provide credit for bankrupt industries and farms. Powerful Congressmen and Senators were beginning to agitate for a loosening of credit, either through the adoption of the William Jennings Bryan-style monetization of silver, or other means. One of those other means was raised by Oklahoma Senator Elmer Thomas, who, in an amendment, raised the option of using greenbacks, not used since the time of Abraham Lincoln, to generate cheap credit for the economy.

In addition, as we have been referencing, the President knew he had to move rapidly to a jobs creation program, something which a regime of constricted credit, based on the gold standard, would not permit.

So, on the evening of April 18, President Roosevelt pulled together a number of his chief advisers, including banker James Warburg and Budget Director Lewis Douglas, and baldly announced that he had decided to take the U.S. off the gold standard, and to go with the Thomas Amendment. An all-out brawl erupted, but the President prevailed.

Then, on April 19, the President called a press conference, his 13th since inauguration, in which he announced that, effective that day, he would not permit the "exporting of gold, except earmarked gold for foreign governments ... and balances of commercial exchange." While insisting that the U.S. wanted to go back to the gold standard eventually, the President was acting to stop the constraint which the strict gold standard was exerting over his control of U.S. credit.

—Nancy Spannaus

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