ABOUT THE AUTHOR
Walter E. Spahr
(1891 - 1970) received his M.A. from the University of Wisconsin and his Ph.D.
from Columbia University. After teaching at various colleges and universities
(including Dartmouth and Columbia) he joined the faculty of New York University
in 1923, where he taught until his retirement in 1956. He was the Chairman of
the Department of Economics from 1928 to 1956.
One of the founders
of the Economists' National Committee on Monetary Policy, Walter Spahr was its
Executive Secretary from 1933 until the time of his death, and the editor of
the widely distributed "Monetary Notes." From 1937 to 1966 he was one
of the trustees of the Tax Foundation.
Walter Spahr was
the author of numerous books and monographs.
A quarter of a century of monetary change
A quarter of a
century ago, Walter E. Spahr, who spent much of his life fighting for a sound
monetary system, published a monograph, "Our Irredeemable Currency
System," which at the time attained a fairly wide circulation. Much of
what Walter Spahr foresaw in 1950 has since come to pass, and his predictions
for the future have an ominous prophetic quality.
Twenty-five years
ago, Spahr spoke of the governments "profligate spending and deficit
financing" and warned that "the sands of time are running out on this
country with dangerous rapidity." Since then, between 1950 and 1975,
federal spending has risen from $43.6 billions to $324.5 billion, and the
national debt from $256 billion to $576 billion. Almost 12 per cent of the
national debt -- some $66 billion - has been financed abroad, which involves
annual interest payments to foreign creditors materially in excess of the
normal American export surplus. In 25 years the stock of money has quadrupled
in America, while the supply of goods and services has risen only about 120 per
cent. The dollar has been devalued twice, and its domestic purchasing power has
declined by about 55 per cent. And the future is growing progressively more
ominous.
The question of
irredeemability of which Walter Spahr wrote may seem somewhat theoretical and
"stuffy" today. Some of the terminology which Spahr used has changed
during the past 25 years, and so has the basic attitude toward money problems
on the part of the public and especially of the "experts".
Twenty-five years ago the soundness of the currency still involved a question
of public ethics. Today monetary policy has largely become a pragmatic tool of
political expediency. Some of the phrases which Walter Spahr used, and some of
his ideas, almost seem to come from a strange and different world; -- and, in
fact, they do by today's standards!
Within a quarter of
a century, the American monetary system has undergone a fundamental change,
which has seriously weakened one of the most important aspects of American
democracy: the control of the people over their rulers. There is much talk
about "government by the people," especially in an election year, yet
the country is drifting further and further away from this ideal. The
progressive irredeemability of the dollar from which the country has suffered
for more than forty years, deprives the people of one of the most effective
tools to control the power of the 30,000 politicians and top government
officials who determine the fate of 210 million Americans.
As long as the
supply of money and credit was tied to gold, and the people were free to
exchange the paper l.O.U.'s issued by the government for gold, the people could
control the amount of fiat money which the government could create out of thin
air. Deficit spending was limited, because the people could stop it at any time
by demanding gold for the government's paper promises, wherever the people felt
that their savings were endangered. Instead of having to rely on vague and
rarely kept campaign promises, the people had a direct and highly effective way
of expressing their choice between monetary stability and government spending,
by simply converting the government's paper promises into gold.
As Walter Spahr
pointed out, redeemability represents the basic control mechanism which the
people have over their rulers, and quite logically, most politicians, the vast
bureaucracy, and the pressure groups which benefit from public largess do not
like the democratic controls by the people. Over a period of more than forty
years they have, therefore, gradually "unshackled" themselves of
these restraints.
When Walter Spahr
wrote a quarter of the century ago, the country had traveled about half the way
toward monetary chaos which Spahr foresaw, and which is now threatening to
overtake us; - as it has already overtaken Britain.
The Committee for
Monetary Research and Education Inc. feels that a rereading of Spahr's dire
predictions made a quarter of a century ago should be helpful in the light of
present developments. They might help to awaken the American people to the
dangers which threaten the nation and the entire free world.
Except for the
omission of a number of lengthy tables and a few paragraphs which have no
bearing on the present situation, Walter Spahr's monograph has been reprinted
in its original form. But in order to put it into the proper historical
perspective and point out the drastic changes which have occurred since 1950
extensive footnotes have been added at appropriate places.
G. C. Wiegand,
Editor
A 5-MINUTE SUMMARY FOR THE BUSY READER1
I. Evils of Our
System of Irredeemable Currency
1. There is no
subtler, no surer, means of overturning the existing basis of society than to
debauch the currency.
2. Our irredeemable
currency is a dishonest currency. It gives our Treasury and Federal Reserve
authorities the power of creating money without the corresponding
responsibility.
3. Its use has
deprived our people of their power to exercise control over the government's
use of the public purse.
4. It enables our
government to purchase the support of pressure groups.
5. It makes
possible profligate spending and the dissipation of our national patrimony.
6. It is an open
gate to, and invites, Socialism. It is a necessary instrumentality of a
governmentally-managed economy.
7. So long as the
government can create money freely all efforts in behalf of economy in
government expenditure are futile.
8. The use of
irredeemable currency causes government bureaucracy to cripple private
enterprise.
9. Making the
dollar irredeemable has resulted in wide fluctuations of the value of the
dollar in international markets.
II. On the
Contentions of the Advocates of Our Irredeemable Currency
1. The contention
that our gold stock cannot support redemption is false provided, gold is
properly revalued.
2. The fear-of-runs
contention reveals that the defenders of our irredeemable currency think our
fiscal and monetary affairs are in worse condition than do the advocates of
redeemability.
3. Redeemability is
a repellant of, not an invitation to, hoarding of gold.
4. The argument
that people's motives cannot be trusted in demanding redemption contradicts the
basic democratic assumption that an informed public can be trusted to act
responsibly and rationally.
5. The desire of
Treasury and Federal Reserve officials to be free of problems inherent in the
fractional reserve system is a case of asking for privilege without
corresponding responsibility.
6. The contention
that our gold standard and redeemable currency did not prevent the crash of
1929 and other wide fluctuations in business and prices rests upon false
assumptions as to the functions of money and its responsibilities in such
episodes.
7. The argument
that irredeemable currencies are managed and that the operations of a gold
standard are automatic is false. Both are managed. Management under a gold
standard can be poor. But management of irredeemable currencies has been worse.
The problem is to get better management under the restraints of a redeemable
currency; it is not proper to free money managers of such restraints.
8. An irredeemable
currency invites monetary manipulation.
9. The contention
that the gold standard can operate only under favorable conditions is a case of
the people blaming the gold standard for their own abuse of credit.
10. The advocacy of
delay in the institution of redeemability has no valid defense and is an
invitation to trouble.
11. An irredeemable
currency involves a question of honesty and morals.
12. Advocates of
irredeemability support wittingly or unwittingly a governmentally-managed
economy.
III. Benefits to
be Expected from a Gold Standard And a Redeemable Currency
1. Widely
fluctuating quotations for the dollar would disappear.
2. Private
enterprise would be strengthened.
3. The return by
other nations to redeemable currencies would be made easier.
4. There would be a
revival of confidence and greater incentive for more saving, more investment,
more production, more trade, more and safer prosperity.
5. People would
have direct power once more over their public purse and a protection against
Socialism.
6. The fear of the
power of the people under a redeemable currency would tend to cause Congress to
end its profligate waste of the people's national patrimony.
7. Restorations of
a redeemable currency would free our people of the prospects of great trouble
or disaster inherent in an irredeemable currency, but it could not and would
not insure the people against sharp ups and downs in productive activity and
prices. No monetary system can do that
8. Our people would
once more have an honest currency and the benefits of standards of honesty
among officials in respect to the people's money.
IV. On Obtaining
a Redeemable Currency
1. We need to get
redeemability at the earliest possible date. The ratio of our gold stocks to
currency and demand deposits was 24.6 per cent in 1941, by 1950 it had dropped
to 13 per cent and by 1975 to less than .3 per cent. While in 1950 a resumption
of redeemability was possible, the vast deficit spending of the intervening 25
years will now make it necessary to increase the price of gold, i.e. to devalue
the dollar in terms of gold, before redeemability can be instituted.
2. The only hope to
restore redeemability lies either in persuading a majority of the Congress
under the present Administration to act or in electing opposition leaders who
will do it.
3. Apparently
neither hope can be realized unless leading citizens talk to their Senators and
Representatives and, if they are not responsive, to opposition leaders who can
be relied upon, if elected, to restore redeemability.
4. This requires
that all concerned and responsible citizens do all within their power to get
these desired and necessary results. The safety of this nation lies in the
hands of that group of citizens. The majority of the present Congress, like
that of all our Congresses since 1932, has shown itself to be irresponsible in
respect to the restoration of a redeemable currency and, consequently, in the
use of the people's purse.
Our
Irredeemable Currency System
"There is
no subtler, no surer, means of overturning the existing basis of society than
to debauch the currency." -Keynes
Writing in 1919,
John Maynard Keynes, of Kings College, Cambridge, said in part in his book, The
Economic Consequences of The Peace (Harcourt, Brace and Howe, New York,
1920), pp. 235-238: "Lenin is said to have declared that the best way to
destroy the Capitalist System was to debauch the currency. By a continuing
process of inflation, governments can confiscate, secretly and unobserved, an
important part of the wealth of their citizens. By this method, they not only
confiscate, but they confiscate arbitrarily; and, while the process
impoverishes many, it actually enriches some .
"Lenin was
certainly right. There is no subtler, no surer, means of overturning the
existing basis of society than to debauch the currency. The process engages all
the hidden forces of economic law on the side of destruction, and does it in a
manner which not one man in a million is able to diagnose.
But further, the
Governments of Europe, being many of them at this moment reckless in their
methods as well as weak, seek to direct on a class known as 'profiteers' the
popular indignation against the more obvious consequences of their vicious
methods. The 'profiteers' are, broadly speaking, the entrepreneur class of capitalists,
that is to say, the active and constructive element in the whole capitalist
society . . . . By directing hatred against this class, therefore, the European
Governments are carrying a step further the fatal process which the subtle mind
of Lenin has consciously conceived. The profiteers are a consequence and not a
cause of rising prices. By combining a popular hatred of the class of
entrepreneurs with the blow already given to social security by the violent and
arbitrary disturbance of contract and of the established equilibrium of wealth
which is the inevitable result of inflation, those Governments are fast
rendering impossible a continuance of the social and economic order of the
nineteenth century. But they have no plan for replacing it."
"We are thus
faced in Europe with the spectacle of an extraordinary weakness on the part of
the great capitalist class, which has emerged from the industrial triumphs of
the nineteenth century, and seemed a very few years ago our all-powerful
master. The terror and personal timidity of this class is now so great, their
confidence in their place in society and in their necessity to the social
organism so diminished, that they are the easy victims of intimidation. This
was not so in England twenty-five years ago. any more than it is now in the
United States.2 Then the capitalists
believed in themselves, in their value to society, in the propriety of their
continued existence in the full enjoyment of their riches and the unlimited
exercise of their power. Now they tremble before every insult; - call them
pro-Germans, international financiers, or profiteers, and they will give you
any ransom you choose to ask not to speak of them so harshly. They allow
themselves to be ruined and altogether undone by their own instruments,
governments of their own making, and a press of which they are the proprietors.
Perhaps it is historically true that no order of society ever perishes save by
its own hand."
Subsequent events
and the application of so many of the Keynes observations to practices now
being pursued in the United States justify careful weighing, by all thoughtful
and concerned people in this country, of those important truths stated by
Keynes in 1919.
We have an
irredeemable currency, and such a currency, regardless of the variety of forms
it may take, is a debauched currency. It is a dishonest currency and, of
necessity, rests upon a standard of dishonesty in our behavior. It was
introduced in this country by government repudiation of its contract to
bondholders, by administrative violation of pre-election commitments, and by
misstatement of fact as to the ability of our nation's gold stock to support a
redeemable currency. Where dishonesty enters, evil begins.
Both our
understanding and our honesty come into question in any worthwhile examination
of our system of irredeemable currency and of the forces that are operating
along with, or in consequence of, the introduction of such a currency into the
economy and lives of the people of the United States. All careful observers can
readily perceive the striking parallels between current events and tendencies
in this country and those described by Keynes as characteristic of Europe and
England after the first World War.
Perhaps the most
arresting characteristics of our general behavior in respect to our use of an
irredeemable currency are: (1) the tendency of a multitude of people, many of
them commonly called "leaders," much of "the press," and,
apparently, a majority of the United States Congress, to support and to
advocate an irredeemable currency which, to use Keynes' words, "engages
all the hidden forces of economic law on the side of destruction, and does it
in a manner which not one man in a million is able to diagnose"; and (2)
the reluctance of leading defenders of our irredeemable currency to examine
carefully and to state accurately the pertinent facts and principles involved,
and to apply the standard of honesty to this currency and in their allegations
regarding it.
Monetary Reform
Comes From Leading Citizens And Statesmen, Not From Popular Demand
Popular
understanding of principles and pertinent facts regarding a nation's monetary
system is not to be expected. The field of money calls for long and intensive
study if correct answers are to be obtained. Those who have spent most of their
adult lives - say, twenty to forty years - as scientific students of the
history and principles of money, recognize the intricacies of the subject, how
much there is to learn, and the need for modesty and great care in offering
generalizations that are believed to be accurate.
Monetary reforms,
of necessity, must come from national leaders who are wise enough to be guided
by the most reliable specialists in the field. Furthermore, these leaders must
be honest, rather than merely politic. If a nation lacks such leaders, it is in
a dangerous position.
The contention,
sometimes advanced, that government officials - ours or those of other nations
- will proceed properly if they respond to popular demand and that the first
task is to educate the general public as to the essentials in monetary facts
and principles, is without any supporting evidence. Popular education - even
education of the majority of college students - in the field of money has never
been realized and, apparently, cannot be realized. The public, in general, are
inclined to advocate, in the field of money, the very devices that tend to
injure them. The general public's ideas on money apparently reach little beyond
the desire for more and more of it. As an irredeemable currency depreciates,
their common demand is for more, not less, of it. Suggestions of redeemability
either bring no sympathetic response or outright opposition, possibly because
they fear they may get less money when they are conscious of a need for more
buying power. William Jennings Bryan's famous speech, "Crucified on the
Cross of Gold," has become deeply imbedded in the mores of our people -
the feeling or belief being that gold is the rich man's money whereas silver
and paper money, especially irredeemable paper money, are the poor man's money.
It is for reasons such as these that government officials who adopt the policy
of responding to popular inclinations cannot provide reliable or good
leadership in the field of money.
Responsible government
leadership requires, first, an understanding of the pertinent facts and
principles regarding monetary systems, or at least sufficient understanding of
the intricacies involved to cause officials to seek the guidance of the most
competent specialist in the field. It requires, second, a determination to
provide the best system known - that is, it requires unqualified honesty in
ascertaining facts and principles and in acting upon them.
Our Brand Of
Irredeemable Currency Has Unique Features
The frequent or
common tendency to discuss our system of irredeemable currency as though it
were like all other systems of irredeemable currencies, or as though there is
only one type of irredeemable currency, confuses the issues. Irredeemable
currency systems have assumed a variety of forms. Among leading nations of the
world our system is apparently unique. Its virtues and faults cannot be
understood correctly unless we describe its characteristics accurately.
We have one type of
system applicable to our international relations and another type applicable
domestically. Described in over-simplified terms, we have an irredeemable
currency system domestically and a restricted gold bullion standard in our
international relations.3 This common, simplified
definition has great limitations in usefulness. Apparently there is no way in
which our hybrid domestic-international systems can be fitted accurately into a
brief definition. It seems necessary to describe separately our domestic and
international monetary arrangements. Under such analysis it will be revealed,
for example, that domestically some of our currency is redeemable (silver
certificates into silver)4 and that, in our
international relations, there is an element of irredeemability since
redeemability is confined to central banks and governments.
A. The Domestic
Characteristics of Our Currency System
1. The
Government Gives Our People Irredeemable Currency for Gold
All our currency - money and deposits- is irredeemable domestically in so far
as gold for domestic monetary use is concerned. The government, in 1933,
required that all holders of monetary gold turn it in to the government and
receive in return irredeemable promises to pay in the form of non-gold money
and deposits.
2. Indirect
Convertibility
Our domestic currency is tied to gold at the statutory rate of $35 per fine
troy ounce through a process of indirect convertibility related chiefly to
international payments and, secondarily, to the sale of domestically-mined gold
to our United States Treasury and the sale of Treasury gold for industrial
uses.5
Our Treasury and
Federal Reserve banks, figuratively, stand at our international boundary line
ready to make and to receive payments in gold to and from central banks and
governments at our statutory rate of $35 per fine ounce (ignoring handling
charges). Anyone in the United States, who needs to make foreign payments, thus
has his domestic money and deposits converted into gold, indirectly through his
bank and a Federal Reserve bank, at the statutory rate. Those receiving
payments in gold from abroad obtain domestic money and deposits at the
statutory rate of $35 per fine ounce. The central bank or government, shipping
gold to us, receives dollars at the rate of $35 per fine ounce of gold. The
domestic gold miner receives domestic money and deposits for his gold at the
rate of $35 per fine ounce. The domestic user of gold in industry pays domestic
money and deposits at the rate of $35 per fine ounce of gold. 6
Through these
procedures all our domestic money and deposits are linked definitely, but
indirectly, to gold at the statutory rate of $35 per fine ounce. In so far as
these transactions have been involved, all our domestic money and deposits have
been maintained on a parity with gold at this rate since our government
devalued our dollar on January 31, 1934.
It is in this
system of indirect convertibility that one finds a major difference between our
brand of irredeemable currency and what is sometimes called a thoroughgoing
system of irredeemability in which there is no fixed link between a nation's
domestic currency and gold. If a free market for gold is permitted under a
thoroughgoing system of irredeemable currency, such as we had from 1861 to
1878, gold is bought and sold in terms of the irredeemable currency at rates
that commonly fluctuate widely.7 A thorough-going
irredeemable currency system may also exist with trading in gold prohibited or
with markets in gold conducted in defiance of law.
Such depreciation
of our non-gold currency in terms of gold, as has been observed in recent
years, has been found abroad when and where holders of dollars, other than
central banks and governments, have exchanged their dollars at a discount in
terms of gold. Domestically, our non-gold currency has been exchanged at
varying rates of discount in what is called the "raw" gold market.
The depreciation of
our currency in the sense of its declining purchasing power in respect to goods
and services, domestic or foreign, and in terms of other nations' non- gold
currencies, is not to be confused with any depreciation of our non-gold
currency in terms of gold.
The defects of our
irredeemable currency, domestically, are not to be found in any important
depreciation or fluctuation in value of our currency in terms of gold. Our
system of indirect convertibility has thus far prevented such depreciation
domestically, except in the case of the prices of raw gold. 8 The defects lie in the loss
by the people of their power to exercise control over the government's use of
the public purse, in the consequences that flow from such loss, and in the
crippling of private enterprise in foreign trade and exchange.
3. Loss of the
Power of Our People to Control the Use of Their Public Purse
When the Federal
government, in 1933, deprived the people of the United Unites of a redeemable currency
it also deprived them of their power to exercise direct control over the
governments's use of the people's public purse. 9
When our people had
a currency redeemable in gold, every individual had power, to the extent he
possessed money and deposit currency, to register his disapproval of the
policies and practices of the banks and Treasury by demanding redemption of
their promises to pay. Each individual had the power to send his message of
disapproval to the central signal system in the Treasury and Federal Reserve
banks - to their gold reserves over the golden wires1 as it were,
provided by a system of currency redeemable in, or convertible into gold. When
distrust of the value of the banks' and Treasury's promises spread, the number
of warning signals increased. Every demand for redemption was recorded by a
drawing down of the gold reserves of the Federal Reserve banks or Treasury. No
individual needed to join with other individuals in some organization for the
purpose of sending a plea to the Reserve banks or to the Treasury or to
Congress in behalf of sounder monetary or fiscal procedures; each individual
could act alone and could record his judgment directly.
With the
institution of our system of irredeemable currency, all the golden wires,
running from all our people to the central signal system, were cut. The power
of the people to record, in an effective manner, their disapproval or distrust
of bank, Treasury, and government monetary and fiscal practices was destroyed.
The signal lights went out both at the central signal board and for the people
of the United States.
Since that time our
people have only had the power to protest and to appeal through other devices -
through organizations, appeals to Congressmen, letters to the press, and so on
- all of which efforts have been ineffective because they can be, and have
been, ignored.
When a government
deprives a people of the power to exercise direct control over its use of their
public purse, it frees itself from responsibility to them; it can and generally
does ignore their protests; and it can, and often does, become their boss.
a. The Control
of Our Government by Pressure Groups. When a government frees itself of the possibilities
of direct control by the people over its use of their purse, it cannot be held
effectively to an accounting and, if so disposed, it can use the people's purse
to buy the support necessary to keep itself in office. A basic policy then is
to gain the support of large vote-delivering pressure groups. The people's
money is distributed in a manner designed to insure the desired political
support. Vote-delivering pressure groups soon perceive that monetary favors are
to be obtained in exchange for political support and rush to Washington to make
the best terms possible. One result is that the government becomes the prisoner
of those whose support it can purchase, and the people's purse is passed by
Congress to the control of the vote-delivering and favor-seeking pressure groups.
That is, in the
main, the state of affairs that prevails in the United States today, the basic
cause of which lies in the institution by the Federal government in 1933 of our
system of irredeemable currency.
b. The Open Gate
to Socialism. The
purchase of the support of vote-delivering pressure groups places the
government on the road to Socialism in high degree or in a thorough-going
manner. Incomes of helpless groups must be funneled to the members of these
pressure groups. Wealth must be taken from some and given to others as
benefits. Projects pleasing to the pressure groups must be undertaken.
Competitive markets must be hampered, circumvented, or destroyed in order to
extend favors in the form of price controls, subsidies, rent controls, and so on
to those whom the government endeavors to favor. The government enters into
unfair competition with private enterprises by engaging in productive activity,
free of tax and similar burdens borne by private enterprise; by lending the
people's money at non-competitive rates; by extending other aids at prices
below those of competitive markets.
This great variety
of government undertakings, most or all of which constitute steps in the
direction of socialization or paternalism or totalitarianism, is made easy and
is invited by our system or irredeemable currency. The government is freed from
accountability to the people; money is made easy for the government and its
beneficiaries to get; the favors of pressure groups can be obtained without the
central signal board flashing any lights of protest and warning.
A nation may go
through a period of irredeemable currency without being led into Socialism. But
this requires that the government understand the dangers inherent in an
irredeemable currency, that it be determined to institute redeemability at the
earliest opportunity, and that it be not disposed to purchase the support of
pressure groups in order to maintain itself in power or to lead the people into
Socialism or government dictatorship in some other form..
On the other hand,
it seem reasonably clear that a government could not lead a people into
Socialism while the people have the power over the public purse which a
redeemable currency gives them. Socialism and a redeemable currency are,
fundamentally, natural enemies. It is for this reason that the British
government could not provide the people of England with a redeemable currency
if it is to foster and maintain Socialism.10
An irredeemable
currency not only provides a wide-open gate to Socialism but it invites it.
Moreover, it is a necessary instrumentality in a governmentally-managed
economy.
The government of
the United States has this instrumentality at its disposal, and it has been
employing it as a basic means of proceeding step by step on a course which
points to a thorough-going governmentally-managed economy.
There is,
apparently, no instrument as potent, or as fundamental, or as necessary, as an
irredeemable currency if a government is disposed to lead a people into Socialism.
Conversely, there is probably no more effective device, that can be employed to
arrest a march into Socialism, than to make the people's currency redeemable,
thus restoring to them the power to exercise direct control over the
government's use of their purse.
It should not be
surprising, therefore, that apparently all who would socialize our economy and
people are opposed to the restoration of a redeemable currency in the United
States. Either because they understand the relationship between an irredeemable
currency and the processes of socialization of the economy, or because they
simply note that Socialist, Communist, and Fascist governments employ
irredeemable currencies as a means of controlling and managing the people,
advocates of government dictatorship seem invariably to defend irredeemable
currencies with the utmost vigor. Those who, for a variety of reasons
apparently satisfactory to themselves, defend an irredeemable currency, while
at the same time professing to oppose the socialization of our economy, seem to
have missed the relationship of an irredeemable currency to the processes of
socialization and the significance of the fact that the advocates of government
dictatorship are, apparently, invariably advocates, also, of such a currency.
The evidence seems overwhelming that a defender of irredeemable currency is,
wittingly or unwittingly, an advocate of Socialism or of government
dictatorship in some form.
So long as a
government has the power over a people, that is provided by an irredeemable
currency, all efforts to stop a government disposed to lead a people into
Socialism tend to, and probably will, prove futile. The people of the United
States have observed all sorts of efforts, organized and individual, to bring
pressure upon Congress to end its spending orgy and processes of socialization.
It should be amply clear by this time that none of these efforts has succeeded.
Moreover, there is no good reason for supposing that any of them, except the
restoration of redeemability, can succeed in arresting our march into
Socialism. A government possessing the powers given it by an irredeemable
currency can ignore the pleas and protests of such groups and individuals. And,
if it be disposed to lead a people into Socialism - which appears to be the
policy or tendency of our Federal Government - it does ignore such groups and
individuals.
If, therefore, the
majority of Congress would spare the people of the United States the suffering
and disasters inherent in Socialism, that majority must face the fact that the
first and necessary, and possibly the only, means of doing this lies in the
restoration of redeemability in our currency.
B. The
International Characteristics of Our Currency System
1. Redeemability
for central banks and governments
Central banks and governments may sell gold to the United States for dollars,
or redeem their dollars in gold bullion, at the statutory rate of $35 per fine
ounce of gold (ignoring handling charges), under conditions prescribed by the
United States Treasury as authorized by the Gold Reserve Act of 1934. Other
foreign holders of dollars do not in general have this privilege.11
An important
question that arises is why central banks and governments have the privilege of
redeemability at the statutory rate of $35 per fine ounce while this right is
denied other holders of dollars. The ruling principle, is, of course, that only
the rights and demands of governments and of central banks, the latter
generally controlled by current governments, need be recognized. Governments,
by the use of irredeemable currencies, can control their own people; but they
cannot control other governments. The latter, consequently, must be paid in a
money of universal acceptability; one government cannot force another to accept
its irredeemable currency except at a discount, or at risk of discount, in
terms of gold.1 The rights of people give way to privileges
exercised by governments - privileges unaccompanied by recognition of
corresponding responsibilities to the people in general.
1 Since the
international convertibility of the dollar ended in 1971, the value of the
paper dollar has fluctuated widely in terms of hard
currencies, as the
former "yardstick", the dollar, became subject to rapidly
changing supply and demand. (G.C.W.)
2. Reserve
ratios and usable reserves
Our Federal Reserve banks are required to maintain a reserve of not less than
25 per cent in gold certificates against their Federal Reserve notes and
deposits.12 But the only holders of
notes and deposits who can draw down these reserves - more accurately, compel
the Reserve banks to redeem their gold certificates in gold and to pay out gold
- are central banks and governments. Although the reserves in gold certificates
are ostensibly held against all Federal Reserve notes and deposits, all
holders, other than central banks and governments, of claims against these
reserves are denied the right to exercise them. The reserves are not usable
domestically. They merely provide a basis for the calculation of the ratio of
reserves to deposits and Federal Reserve notes, which ratio serves as an
indicator of how far these liability items may be expanded. The domestic
function of the reserve thus differs from its functions in respect to that
portion of the Federal Reserve notes and deposits held by central banks and
governments. The reserves in the Federal Reserve banks and, with minor
exceptions in the United States Treasury, are therefore for the use of central
banks and governments, but not for our domestic institutions and people. The
latter must be satisfied with the irredeemable promises of the Federal Reserve
banks and Treasury and with over-valued silver and minor coin.13
3. Depreciation
of the dollar in foreign markets
Since holders, other than central banks and governments, of dollars in foreign
countries do not have the right of redemption at $35 per fine ounce, such
holdings possess an irredeemable currency. The tendency is for such a currency
to exchange at various rates of discount in terms of gold where gold can be
purchased as, for instance, in black or other non-official markets. This
situation means, of course, dual or multiple quotations for the dollar. And it
is evidence, again, of the discrimination against the individual and in favor
of central banks and governments. It is another instance of government
management of the people with the disadvantages falling upon them.14
4 Control
of foreign exchange by central banks and governments
Since gold imports and exports, legally made, are under the control of our
Federal Reserve banks and Treasury, these and other government-owned or
-dominated institutions automatically gain control of all legally-conducted
transactions in foreign exchange. Such control reaches to exchanges of goods,
to investments, and to travel, and subjects the ingenuity of private enterprise
to the crippling impedimenta of government regulation. Moreover, such controls
are reflected backward into the internal economy in a multitude of ways.
When the
ingenuity of private enterprise is given opportunity to function, exchanges of
goods and services, among people of various nations, become so complex in
nature that the mind of man cannot follow the transactions. As a consequence,
government control, such as that exercised as a part of our employment of a
restricted international gold bullion standard, has the effect of crippling and
distorting the exchanges that one might properly suppose would take place if
individuals were free to pursue their desires and advantages in trade, travel,
investment, and so on.
The nations of
the world in general probably reached the greatest degree of freedom in their
exchanges of goods and services and came closest to the concept of "one
world" when the gold standard and redeemable currencies were most widely
used and private ingenuity was relatively free to pursue an unhampered course.
Irredeemable currencies impede the flow of currencies, goods, services, and persons
across national boundaries and bring into being a great number of government
restrictions and controls, all of which are impedimenta in international
exchanges. A consequence of the almost universal use of irredeemable currencies
today is a trend away from the "one world" idea at the very time that
the latter is being advocated with vigor.
Although our
restricted international gold bullion standard is much superior in various ways
to the more thoroughgoing irredeemable currencies found in most other
countries, it contains restrictions in respect to the export and import of gold
and makes irredeemable the dollars held by all except central banks and
governments. These restrictions have the effect of placing the management of
our international exchanges in the hands of our government and its institutions
in the field of international finance. This is an important part of government
management of a nation's people and economy. It is totalitarianism at the
international boundary line; and, from that point of vantage, government
control is reflected back into the internal economy of our country in many and
often subtle and far-reaching ways.
The road to
greater production, trade, and prosperity - national and international is not
to be found in irredeemable currencies and government interference with and
management of international exchanges but in redeemable currencies and freedom
of exchanges with governments confining themselves to regulations, distinct
from management, designed to foster free and fair competition and to prevent
fraud and national injury.
The Question
Of The Ratio Of Our Gold Stocks To Our Non-Gold Money & Deposits
One of the
current arguments against the resumption of redeemability is that our gold
stock is inadequate considering the great expansion in recent years of our
non-gold money and deposits.15
The United
States fought through World War I without domestic suspension of redeemability
on gold ratios ranging (as yearly averages) from 8.1 to 10.9 per cent. That low
range compares with a ratio of 13 per cent as of October, 1949. When the ratio
was at its peak of 24.6 in 1941 and at 23.2 in 1942, Congress could not be
persuaded to institute redeemability "because", so the common reply
was, "we are at war." The fact that we fought World War I on ratios
ranging from less than half to less than one-third as high as that of 1941 was
not regarded as worthy of serious consideration. Now that the ratio in recent months
[early months of 1950, Ed.] has been in the range, roughly, of 13 to 15 per
cent, the argument is often advanced that our gold supply is inadequate even
though the range of ratios for the years 1915 - 1932, when redeemability was
maintained, was from 6.7 to 10.9, the average being 8.6 per cent.
The fact that
the ratio has fallen from 24.6 in 1941 to 13 in October, 1949, indicates the
importance of instituting redeemability while it is safe to do so and before an
expansion in money and deposits and a withdrawal of gold by foreign banks and
governments reduce the ratio to a point that would make the institution of
redeemability unsafe. With the return to deficit financing by the Federal
government, delay in instituting redeemability invites a situation in which
redeemability without devaluation may become impossible. Should that occur, it
should be expected that thereafter the approach of the day of reckoning will be
hastened.16
Opponents of
redeemability, when confronted with conclusive evidence on the adequacy of the
gold ratio, sometimes attempt to build a better case for themselves by
contending that Federal and state debts should be added to non-gold money and
deposits as claims on our gold stock. The office of The Gold Standard League (1
Lloyd Ave., Latrobe, Pa.) published in The Washington Bulletin of the
League, September 3, 1949, a table showing that the average ratio of gold
reserves to currency, plus total deposits and net federal and state debt was 5.4
per cent between 1916 and 1934, and 9.1 per cent between 1935 and 1949 despite
the sharp increase in the federal debt as a result of the second World War.17
Silver And
Asset Currency Ratios
In practice
all our circulating currency is convertible into the Treasury's stock of
silver. On October 31, that stock, held as reserve chiefly against silver
certificates, was $2,301,000,000. The ratio of that stock to non-silver money
and deposits was 1.2 per cent. No one has been concerned over the smallness of
that ratio. Because the people believe they can get the silver upon demand,
there is no unusual demand for it.18
But, when it
is recommended that provision be made for redeemability in gold having a ratio
of 13 per cent, the contention is often promptly advanced by opponents of
redeemability that our gold stock is inadequate.
Another
commentary on our lack of understanding of, and on our reactions to, the
reserve ratios is the fact that our people are not disturbed in the least by
the very small percentage of asset cash which the Federal Reserve banks usually
have to pay out against their liabilities in the form of Federal Reserve notes
and deposits. For example, on November 30, 1949, their liabilities were, in
Federal Reserve notes, $23,373,496,000, and in deposits, $17,792,864,000.
Against this combined liability of $41,166,360,000, the only cash the Federal
Reserve banks held as an asset which they could pay out was $237,434,000.19 This amounted to a
little over one-half of one per cent of their note and deposit liabilities.
This is the common ratio of the asset currency, which can be paid out, held by
the Federal Reserve banks against their Federal Reserve notes and deposits.
(The only asset cash which Federal Reserve banks hold and can pay out
domestically against their Federal Reserve notes and deposit liabilities is not
lawful money for purposes of reserve, and the only money that is lawful for
reserve purposes - gold certificates - cannot be paid out domestically - merely
to foreign central banks and governments in the form of gold.)
The people are
not disturbed by this extraordinarily low ratio of asset cash to the notes and
deposits of Federal Reserve banks, doubtless because they are not aware of it.
Had the
Federal Reserve banks been authorized to pay out gold or gold certificates on
that date against their Federal Reserve note and deposit liabilities, they
could have paid out $23,231,916,000 (ignoring penalties for going below the
minimum required ratio of 25 per cent). This gold certificate reserve amounted
to 56.4 per cent of their note and deposit liabilities. It was almost 100 times
larger in amount than the only asset cash which they could pay out
domestically.
The people of
this country are told by leading Federal Reserve officials that, despite this
situation which they do not describe nor explain to the interested public, it
is unwise to pass a law which would require the Federal Reserve banks to meet
their liabilities in terms of a reserve which is nearly 100 times larger in
amount than the only asset cash they can pay out under the present system. The
point is that the Federal Reserve authorities do not wish to be called upon to
meet their liabilities in anything except another liability. They wish to
continue to operate with liability currency - that is, to exchange their
Federal Reserve notes for their deposits and their notes.
There is no
valid reason why the Federal Reserve banks should be permitted to meet a
liability by substituting another if the demand is for the reserve held against
that liability.
When Federal
Reserve bank officials advocate a continuation of our system of irredeemable
currency, they are asking for special privileges for themselves - for privilege
without corresponding responsibility. It may be doubted that any valid reason
could be found on which to defend the granting of privilege without at the same
time exacting a corresponding responsibility or the employment of a standard of
ethics for Federal Reserve officials that ranks far below that required of
private individuals and enterprises under our body of contract law.
The
Scarcity-Of-Gold Argument
An argument
sometimes advanced in behalf of an irredeemable currency is that there is not enough
gold to go around if all who would have claims upon it should decide to
exercise them at the same time. That contention seems to imply, often or
usually, that the belief is that a currency cannot be made redeemable, safely
and properly, unless the gold or silver reserve is 100 per cent of the
liability.
The untenable
character of such a contention lies in the failure to recognize that scarcity
is a requisite of value; that all goods having value are, of necessity, scarce;
and that people practice economy in the use of scarce goods. There are not
enough bridges, ships, trains, airplanes, elevators, or anything else of value
to accomodate all people if they should all decide to demand their services at
the same time. All scarce goods are designed to meet the usual expected demand
- not the full demand that could be made at a particular time. Fire
escapes, exceptional devices, and policing are employed to meet unusual,
emergency, or unexpected demands.
Gold, being
scarce, has value. Therefore economy in its use is invited and is desirable.
Banks and government Treasuries have learned from experience that they can
safely keep fractional reserves against their note and deposit liabilities
since, ordinarily, not all holders of these liabilities will demand payment at
the same time. The problem is to avoid the creation of conditions which lead to
unusual demands and to provide proper "fire escapes" to meet such
demands should they arise. A well-organized clearing and collection system for
notes, checks, and drafts, combined with what we commonly call
"sound" banking procedures and a readiness to pay out reserves upon
demand, tends to reduce the need for reserves to a relatively low level. As a
consequence, fractional reserve systems have become an accepted and defensible
method throughout the world for economizing in the use of such scarce goods as
gold and silver.
The
Fear-Of-Runs Contention
Fears of an
inordinate demand for gold, which naturally and properly characterize life
under an irredeemable currency, are assumed, by many people, to be
characteristic of a period of redeemability in which such fears should no
longer exist since their causes should have been removed.
People, while
living in a period of irredeemable currency and sensing quite correctly the desires
to get gold because of distrust of an irredeemable currency, seem to find it
difficult to realize that redeemability is a repellant of hoarding.
They seem
unable to bring themselves to a realization of the fact that redeemability
invites and results in dishoarding of gold, and that it is irredeemability, or
fear of it, that causes hoarding. That has always been true, both in this
country and abroad. To cite but one example in our history: When we instituted
gold redemption in 1879 there was more gold turned in during that year for
paper money than paper turned in for gold.
According to
the Report of The Secretary of The Treasury for 1879, p. ix: "The
total amount of United States notes presented for redemption, from January 1 to
November 1, 1879, was $11,256,678. . . . Meanwhile coin was freely paid into
the Treasury and gold bullion was deposited in the assay office and paid for in
United States notes. The aggregate gold and silver coin and bullion in the
Treasury increased, during that period, from $167,558,734.19 to
$225,133,558.72, and the net balance available for resumption increased from
$133,508,804.50 to $152,737,155.48."
The situation
was the same in 1880 (Report of The Secretary of The Treasury for 1880, p.
xiii): "The amount of notes presented for redemption for one year prior to
November 1, 1880, was $706,658. The amount of coin or bullion deposited in the
Treasury assay office, and the mints, during the same period was
$71,396,535.67."
If the paper
money is as good as gold, intelligent people do not wish to incur the expense
involved in holding gold.
The problem is
to convince a majority of Congressmen, disposed to act on facts, that the
institution of a redeemable currency, instead of encouraging inordinate demands
for gold, should eliminate all causes for them and all multiple quotations for
our dollar; should provide a potent force in the direction of an expansion in
production; should tend to open up foreign trade; and should give this nation a
new and confident lease on life provided the managers of our money and credit
behave themselves properly. It should be something like installing new and
strong rails in a dilapidated and dangerous railroad structure.
Unless we get
our facts in hand regarding reserve ratios and the causes of demands for gold,
and unless we correct confused thinking and attitude in respect to a redeemable
money, we may be destined to continue with an irredeemable currency under which
the fears as to its future value should be expected to become greater rather
than less, the consequence being that we may, and probably shall, end up in the
pit of Socialism since such a currency is both a wide-open gate and invitation
to that particular consequence.
Should
profligate spending and deficit financing be continued - and these are made
easy and invited by an irredeemable currency - the present very safe ratio of
our gold stock to non-gold money and deposits can soon be reduced to a point
which will make the institution of redeemability risky if not impossible. It is
for this reason that we need to hurry into redeemability. That is our best
protection against profligate spending, deficit financing, and Socialism.20
The
Implication Of The Prediction, Or Fear, Of Hoarding
A noteworthy
fact is that expressions of fear of hoarding of gold, or predictions that
hoarding would be very heavy, if redeemability were instituted, come chiefly
from the advocates of an irredeemable currency rather than from those who urge
a redeemable currency for this country.
If their
contention is valid, then the answer is that we should have instituted
redeemability some time ago and that we should rush it into effect at the
earliest possible date lest matters grow worse.
The fact of
course is that, if gold reserve ratios have any significance, there is no good
reason to suppose that hoarding would be any heavier than would be healthy in
the light of the government's fiscal and monetary policies arid the large
volume of surplus reserves held by the Federal Reserve banks. Since provision
for redeemability is a repellent to hoarding, it is possible that there would
be an insufficient amount of hoarding to inject the proper amount of fear into
our Congressmen in respect to a continuation of their profligate spending and
socialization. But the definite and correct answer is that no one can possibly
know what the holders of non-gold dollars would do in respect to exercising the
right to demand redemption. But, whatever it might be, that would be, and is,
their proper right. No government should be free to use the people's money and
credit in a manner that would make it desirable and profitable for people to
hoard a relatively large amount of gold.
The test of
our people's attitude toward our Federal government's fiscal and monetary
policies should be made at the earliest possible date by providing them with
the right to demand redemption of Federal Reserve bank and Treasury
"promises" to pay. Moreover, our people should always have the right
to make that test.
We cannot,
with consistency, talk about our belief in opportunity and freedom for our
people and at the same time deprive our people of the power to hold our Federal
government and Reserve banks to an accounting in the management of the people's
fiscal and monetary affairs.
The Contention
That The People Should Not Be Permitted To Demand Redemption Because Of Their
Possible "Undesirable" Behavior
Some of the
opponents of a redeemable currency have contended that the people cannot be trusted
with the right to demand redemption since they might become easily frightened,
or wish to speculate, or because they might fear currency depreciation, or
oppose government spending, and so on.
The answer to
that is that if people in general turn to a hoarding of gold it is because the
government and banks have provided them with a reason for doing so. It is this
fear that people might demand redemption that would cause Congressmen, the
Treasury, and the banks to exercise care in what they do. It is in this manner
that the people can keep a control over the government's and banks' use and
abuse of the people's money. They may not exercise this power when they should
or they may not exercise it well; but the fact that they have the power to do
so, regardless of whether the monetary authorities think the reasons for doing
so are good or bad, is a wholesome factor in enabling the people to keep a rein
on their government and monetary authorities.
Moreover the
people should not be questioned as to their reasons for demanding redemption.
If they hold a promise to pay upon demand, that promise is supposed to be met
by the promisor without any quibbling; otherwise, the promise is not what it
appeared to be when it was issued.
Presumably, if
our money were to be made redeemable in accordance with some of the notions
being expounded by some of our Federal Reserve authorities and other opponents
of irredeemability, the paper money would carry promises something like this:
"We promise to pay the face value upon demand provided the holder is not
acting upon an instinctive or speculative urge, or is not resisting large
government expenditures, or does not fear currency depreciation, or is not
suffering from panic caused by unsettled international conditions or fright concerning
the business outlook or one's individual security."
One Federal
Reserve authority has advanced the idea that out currency should not be made
redeemable in gold coin because "no government should make promises to its
citizens and to the world which it would not be able to keep if the demand
should arise." That suggests that provision for redeemability is not
defensible unless the reserve is 100 per cent of the liability. The fallacy in
that contention lies in the failure of its author to recognize the principle of
economy employed in the use of all scarce goods. The use of fractional reserves
is defensible and desirable if bankers proceed wisely. Insurance companies, for
example, could not function if an attempt were made to apply such an uneconomical
principle.
That argument
also ignores the discrimination involved in the fact that the Federal Reserve
banks will redeem in gold the dollars held by foreign central banks and
governments while denying the same right to other holders of dollars. That practice,
which is regarded as appropriate by that Federal Reserve official, simply means
that in his opinion the Federal Reserve banks should be free to redeem for some
and at the same time have no obligation to redeem for others whose claims
should be equally valid. If our Federal Reserve notes were made to state
accurately the theory of that official, they would read as follows:
"We
promise to pay the face value in gold on demand to all central banks and
government; to all other holders we promise nothing because we might not be
able to keep a promise to redeem should the demands for redemption exceed our
reserves "21
If the
principles of redeemability or non-redeemability, being enunciated by these
Reserve authorities, are defensible, they should not hesitate to have them
printed on our paper money and in our deposit books. As matters stand, the
legends (promises and statements as to security and redeemability) on our paper
money are either outright dishonest, or misleading, or meaningless. It would be
interesting indeed, though perhaps catastrophic, to see the principles of
redeemability or non-redeemability, advocated by these Reserve authorities,
printed accurately and lucidly on our paper money and in our deposit books.
The essence of
this issue is whether or not the people should have power to control their
Federal government and Federal Reserve banks, who are the people's agents in
the management of their national fiscal and monetary affairs, or whether these
"agents" are to be free to control our people in the manner of
dictators, accountable in practice to no one but themselves.
The Desire Of
The Treasury &Amp Federal Reserve Officials To Be Free Of Problems Inherent
In The Fractional Reserve System And Of Obligations To Meet Promises To Pay
If the Federal
Reserve banks and Treasury could maintain a gold reserve of 100 per cent
against their promises to pay on demand all problems of redeemability upon
demand would be reduced to a minimum or disappear.
But the
Federal Reserve banks and all banks - and the Treasury to some extent - operate
on the system of fractional reserves. The proper and safe size of this reserve
depends upon the organization of the banking structure, the effectiveness of
the clearing and collection system, the practices of the banks and their
depositors, and many other factors.
The problems
inherent in banking which operates on a fractional reserve system cannot be
solved properly by excusing the Federal Reserve banks from meeting in gold
their promises to pay on demand. Nevertheless Congress has freed those banks
from that proper responsibility and they have been, and are, fighting with
every device at their command to keep this position of unwarranted privilege
which is now free of a proper and corresponding responsibility.
Proper banking
procedure and proper banking responsibility require that bankers understand the
problems and appropriate practices that go with a fractional reserve system.
They do not imply that because reserves are fractional they are not subject to
withdrawal by all claimants or that they are not to be paid out except to
foreign central banks and governments. They do not imply that bankers should be
excused from meeting their demand liabilities in terms of gold and silver
reserves.
Nevertheless,
our Federal Reserve authorities have managed to escape their proper
responsibilities in three fundamental ways: (1) they are not required to pay
out their reserves domestically nor to anyone other than central banks and
governments abroad; (2) they substitute one liability for another in making
payment, except for the small percentage of non-reserve asset cash which they
may use; (3) all their notes and deposits and all the asset cash they can pay
out are irredeemable currency in so far as the use of gold for domestic
currency is concerned.
This
situation, defended by the Federal Reserve authorities, has become a case of
the Federal Reserve banks and Treasury versus the welfare of the people of the
United States.
The dangers to
the people of this country, inherent in the demands of Federal Reserve and
Treasury officials for privilege without corresponding responsibility, are
further high-lighted by the fact that they advocate and fight for an
irredeemable currency in the face of the huge volume of Federal debt already
sold and still being sold to our people. Because of its nature, an irredeemable
currency carries within itself the power to impair greatly, and even to destroy
completely, the value of the savings of our people as represented by this great
debt.22
Every experienced person knows that the value of the people's investment in
this Federal debt has already been seriously impaired in recent years. Despite
this fact, our Federal officials, as they ask people to buy more and more
Federal securities, do not apprise the potential buyers of this depreciation
nor of the fact that the risks of depreciation are increased because we employ
an irredeemable currency.
The
willingness of Federal Reserve and Treasury authorities to ask for an
irredeemable currency in the face of the huge Federal debt owned by our people,
to say nothing of the great volume of savings stored up in the form of
pensions, savings accounts, annuities, fixed incomes from investments, and so
on, is an arresting commentary on official ethics or morality in our Federal
government and Federal Reserve circles today.23
The Contention
That Our Gold Standard And Redeemable Currency Did Not Prevent The Crash Of
1929 And Other Wide Fluctuations In Business And Prices
This
contention implies that there is such a thing as a single cause for business
and price fluctuations and that this single cause can be, or has been, a gold
standard and redeemable currency.
Neither
assumptions can find support in fact. Our most competent and careful students
of business and price fluctuations have accumulated sufficient evidence to
justify the conclusion that the causal factors in such fluctuations are many
and operate in various combinations, and that there is no single-cause theory
that can be supported by fact.
Those who
assert that the gold standard is defective because it did not do this or
prevent that are offering an indefensible contention not only for these reasons
but for others as well. The functions of a gold standard, of gold money, and of
a redeemable currency, as presented by careful scientists in the field, have
never included, in so far as this author knows, that of preventing business or
price fluctuations. To advance such an unwarranted assumption would be
analogous to an assertion that laying good steel rails on a railroad bed would
prevent wrecks despite the quality of the rolling equipment and the behavior of
the operating personnel.
The functions
of gold in a nation's monetary structure are (1) to provide a standard of
value; (2) to provide a standard for deferred payments; (3) to serve as a
reliable storehouse of value; (4) to serve as a medium of exchange; (5) to
serve as a reserve against promises to pay; (6) to serve as a settler of adverse
balances of payments.
While gold is
used to settle balance of payments deficits, it is also used for many other
purposes, since it is perhaps the most readily marketable commodity in foreign
trade. It is used to buy goods and services, to seek a place of safety, to
escape currency depreciation, to buy another currency, and so on.24
On top of a
gold money is built a variety of substitutes such as paper, silver, minor-coin
money and bank deposits in the interests of convenience and economy in the use
of valuable gold. The employment of these substitutes has often been pushed to
great lengths and the proper connections with gold strained or broken. In so
far as the nature of a country' currency becomes an important element among the
causal factors in the fluctuations of business and prices, it seems quite clear
that the trouble will invariably be found in people's mismanagement of paper
money and other forms of credit.
A government
and central banking system may extend credit to such an extent that the gold
reserves can no longer support the superstructure of credit. Confidence in the
credit may be weakened as people observe the fall of the reserve ratio to a low
level, and fears may lead to widespread liquidation and to a fall in prices and
a decline in business. We had such a state of affairs in 1920. In the
first part of that year eight of the twelve Federal Reserve banks paid tax
penalties for deficiencies in reserves. But, in so far as money and credit were
involved as causal factors, the trouble lay with the over-expansion of credit,
not with some defect in the gold standard, or in gold as a money, or in a
redeemable currency.25
When the crash
came in 1929, the monetary gold stock was at a relatively high level - it was
at its peak for 1929 - and the ratio of the reserves of the Federal Reserve
banks to their notes and deposits ranged in that year from 69.3 to 73.3 per
cent.
One might,
with much accuracy, stress the low reserve ratio of the nation's gold and
reserves of Federal Reserve banks against the greatly expanded credit as an
important proximate causal factor among all that were operating to
precipitate a sharp drop in prices and a contraction in business in 1920. But,
even as one of the proximate causes, it was more a symptom of a situation than
a basic cause. As the Federal Advisory Council pointed out on May 18, 1920:
"There are many contributing causes (to the continued expansion of
credit), of which the following may be regarded as paramount: (1) We recognize,
of course, that the first cause is the Great War; (2) great extravagance,
national, municipal, and individual; (3) inefficiency and indifference of
labor, resulting in lessening production; (4) a shortage of transportation
facilities, thus preventing the normal movement of commodities; the vicious
circle of increasing wages and prices." (Seventh Annual Report of the
Federal Reserve Board, 1920, p. 602).
In respect to
the collapse of 1929, any emphasis on gold and reserve ratios as causal
factors, even as one of several proximate causes, would have no
validity. Nevertheless one hears it stated over and over, as though the
observation deserved serious consideration, that the gold standard either
caused or did not prevent the severe business recession and drop in prices that
began in October, 1929.
The simple
answer is that no type of monetary standard known to man can prevent expansions
and recessions in business and prices. Furthermore, there is no valid reason
for supposing that it could or should. One of the practices of some defenders
of irredeemable currency is to point out, quite correctly, that prices
fluctuated widely under the gold standard while at the same time they fail to
point out the part played by money managers and the fact that the greatest
fluctuations that the world has ever seen have been those associated with
irredeemable currencies.
The common
practice of advocates or irredeemable currency, of contending that the gold
standard and a redeemable currency either caused, or at least did not prevent,
the severe recession beginning in 1929 in this country and the catastrophies
abroad, seems to have developed early in the 1930's. And it has been cultivated
persistently since.
A closely-related
doctrine as to the evils of a gold standard and redeemable currency, also
cultivated with persistence, during and since the early 1930's, was that
business recoveries were caused by, and came quickest with, the introduction of
irredeemable currencies.26
To test the validity of this widely-expounded and widely-accepted notion, Dr.
Rufus S. Tucker examined the evidence provided by the experences of thirty-four
countries and published his observations and supporting statistics in a study
called "Business Recovery Not Brought About by Suspension of the Gold
Standard." in The Annalist (August 21, 1936). The net result of his
study was that the common assertions that the suspension of specie payments and
depreciation or devaluation of the currency caused a prompt turn toward
recovery was not supported by the evidence. He said: "It is clear that the
turning point in the United States and nine of the leading industrial countries
of Europe came in the months of June, July, or August, 1932, whether or not the
countries had abandoned the gold standard. It is also plain that recovery
followed quickly on the abandonment of the gold standard in only two countries
- Latvia and Japan. It usually came either before abandonment, or at least seven
months later. In seventeen countries recovery came first; in sixteen countries
depreciation came first; in one country, Palestine, the two came together.
There is no reason to conclude that currency depreciation caused or helped
recovery."
Apparently the
evidence produced by Dr. Tucker has never been successfully challenged nor
refuted by any equally responsible and careful investigator. Nevertheless,
unsupported assertions, contradicted by the Tucker evidence, are commonly
propounded as though they had a factual basis.
The Argument
That Irredeemable Currencies Are Managed And That The Operations Of A Gold
Standard Are Automatic
The contention
is common and widespread, even in academic circles where responsibilities to
the standards of science are not always fulfilled, that an irredeemable
currency is a managed currency whereas a gold standard is automatic in nature.
Out of this common assertion is developed the further contention that a managed
currency can be managed properly whereas a gold standard, being automatic, not
only cannot be managed but brings disaster upon a people.
The fact is
that all currencies, including a gold standard, are managed. Perhaps the chief
difference in respect to management is that a gold standard and redeemable
currency provide brakes that can operate on the management of a people's money
and credit whereas an irredeemable currency provides no effective brake -
chiefly an accelerator.
With the
introduction of the Federal Reserve System in this country in 1914, the
currency managers were given a large field of management even with the
restrictions that a gold standard and redeemable currency can, but may or may
not ultimately, bring. During World War I and up to May, 1920, the managers of
our fiscal and monetary affairs, along with all the other forces operating on
business and prices outside their control, were part of a picture in which
credit expansion ran to a point at which the brake of gold-reserve ratios began
to take hold.
When the crash
of 1929 came, the brake of reserve ratios was inoperative. Management had no
restraints upon it in so far as the functioning of the gold-reserve brake was
concerned. And the economic crash was apparently one of the worst ever
experienced in our country.
These two
cases demonstrate that our currency managers have not been able to prevent nor
to control sharp swings in productive activity and prices even when they knew
they were running into the braking influences of the gold reserve ratio in 1920
and when the reserve ratio was too high to exercise any influence in 1929.
In the face of
such a record, our money managers wish to be free of any braking influence. In
1945, when the reserve ratios in the Federal Reserve banks began to fall close
to the legal limits of 40 per cent of gold certificates against Federal Reserve
notes and 35 per cent against their deposits, they simply persuaded Congress to
lower the ratios to 25 per cent after which they were free to go on with their
expansion.27
As a part of the way of doing things then current, Congress also gave the
Federal Reserve banks authority indefinitely to use direct obligations of the
United States as collateral security for Federal Reserve notes.28
An
irredeemable currency structure such as ours invites that sort of procedure.
Although one cannot turn the clock back to see what might have been done were
the currency redeemable in gold at that time, logic suggests, at least, that
Congress might not have taken those steps with such ease if at all. In any
event, it was not attempted in 1920.
The freedom
that an irredeemable currency gives money managers not only makes possible
extremely bad management but it invites manipulation. We were provided with an
illustration of that in 1942 - 1943 when the Federal Reserve and Treasury, in
collusion, engaged in a manipulation in the issuance of Federal Reserve bank
notes. The Treasury issued $660,000,000 of these notes as Treasury currency,
although under the law these notes could be issued legally only by the Federal
Reserve bank as a bank liability. By this manipulation, the Treasury received
$660,000,000 of deposit credit, to which it was not legally entitled, on the
books of the Federal Reserve banks by depositing those notes for credit. The
Federal Reserve banks received these notes as reserve whereas they should have
been liabilities. By adding $660,000,000 of these notes - which were unsecured
(fiat) money - to their reserves, they were able, at the legal reserve ratios
then prevailing, to support an additional expansion of bank deposits in the
banking system to the extent of $9,900,000,000. An account of this manipulation
is given in a pamphlet by this author [Prof. Spahr] entitled The
Manipulation of Our Federal Reserve Bank Notes (Economists' National
Committee on Monetary Policy, 1944, 31 pp.) It may be doubted that this
manipulation could have been undertaken had our currency been redeemable.
The plea of
our Federal Reserve and Treasury authorities that they should be free of any
restrictions which gold reserve ratios and redeemability could ultimately place
upon them finds its answer in what tends to happen when monetary managers are
given such freedom. Monetary managers have not done well even when these
ultimate restrictions have operated to call a halt on their great expansion of
credit; but the story of monetary management has been infinitely worse when
these managers have been free of these restrictions.29 The common practice
today is to ignore these facts as though they do not exist.
We are living
in a period in which the money managers, who want great, or practically
absolute, freedom from any ultimate restrictions on themselves, have been able
to make a majority of Congress and many of our people believe that their
shortcomings in currency management were not really their shortcomings but
rather a manifestation of the evils inherent in a gold standard and a
redeemable currency. They ask for freedom to regulate the people's currency,
but they do not wish the people to have any effective power to put any brakes
on them at any time. Some of the members of the Board of Governors and their
staff have even gone so far as to urge that the Federal Reserve banks not be
curbed or hindered by any reserve requirements.30
The people of
a nation are headed into trouble when they permit any such powers to reside in
the hands of money managers. The lesson on that procedure has been repeated
many times. If we are not intelligent enough to understand and to profit by it,
we may be destined to learn it by firsthand and bitter experience.
Undoubtedly
one of our great difficulties in respect to profiting from lessons experienced
many times by others is an apparent conviction on our part that we are exempt
from such experiences. We like to deplore the cry of Wolf! Wolf! We like to say
"Well, it hasn't happened yet!" Indeed, we seem to take the position
that a sequence of unpleasant events that recurs with a high degree of
regularity for others need not concern us unless the event that is supposed to
arrive in due course arrives promptly and in advance of the predicted date as
proof that the event will arrive! Until it occurs, we pretend that we have no
satisfactory proof; the evidence on probability does not interest nor convince
us; we are convinced only when the unpleasant event engulfs us. We seem to be
inviting that sort of result for the people of the United States by continuing
to adhere to a system of irredeemable currency.31
The Contention
That The Gold Standard Can Operate Only Under Favorable Conditions
It is often
stated by opponents of redeemability that the gold standard is a fair-weather
standard and that since conditions are as they are it is both unwise and futile
to institute a redeemable currency.
Occasionally
one can read or hear the contention advanced that the gold standard could and
did operate only when most of the countries were on a laissez-faire basis.
Laissez- faire is a concept; it apparently never operated in pure form in any
important degree; there has always been government control or regulation in
some degree. That variety of argument or straw man is of the same class as the
common assertion that the gold standard was, or is, an automatic standard.
The contention
that the gold standard is a fair weather standard raises the question of
whether the conditions now - i.e. in 1950 - prevail in the United States under
which it could operate. Advocates of redeemability maintain that they do exist
and have existed since the reopening of the banks in 1933. Evidence as to
ratios demonstrates that to be a fact. But, in general, opponents of
redeemability ignore such factual data; their arguments are fundamentally and
essentially a defense of a governmentally- managed economy of which an
irredeemable currency is a necessary part. Their basic position is that the
people should not have the power over a government which a redeemable currency
places in their hands.
Furthermore,
when they point out that the gold standard cannot stand up under all
conditions, they rarely if ever deal accurately with the logic involved in that
contention. For instance, they neglect to point out that anything devised by
man can be destroyed by man. Because there are limits to the abuse which gold
will take from man - it will flee, if it can, to places where greatest value is
attached to its services - people condemn it rather than the abusive practices
that cause it to seek places of safety. Among varieties of money, gold stands
at the top in value; but, like a fine watch or automobiles, its best and proper
use presupposes intelligence, rather than abuse. When it seeks safety to escape
abuse, it leaves its abusers with silver, copper, nickel, or irredeemable
paper. Then, by a peculiar process of reasoning, those left with a cheap paper
money, which can be manufactured as rapidly as the printing presses can run,
begin to argue that this is proof that an irredeemable paper money is superior
and preferable to gold since it can stay with them despite any abuse. The
simple facts are that an irredeemable currency not only stays with those who
abuse better currencies, but it tends to expand and to grow with abuse and to
carry the abusers to their destruction.
Irredeemable
currency is man's monument to his abuse and poor management of gold and a
redeemable currency - the currencies to which the world attaches the greatest
value.
The Advocacy
Of Delay In The Institution Of Redeemability
Many who seem
to find no satisfactory grounds on which to defend our system of irredeemable
currency as one that we should wish to retain indefinitely nevertheless
advocate delay in the institution of redeemability.
The common
assertions are that the time is not propitious, we should wait until European
countries stabilize their currencies, we cannot have a redeemable currency
until other countries adopt a gold standard too, we must first reduce Federal
expenditures and balance our budget,32 we must wait until we have the conditions
which would insure the successful operation of the gold standard, we must wait
until we have settled our differences with Russia lest Russian agents stir up
runs on our banks, and so on.33
None of these
arguments has any validity. In general they seem to be offered as excuses by
those who cannot readily be required to offer proof as to their validity. In
part, they are the common material of those who employ hit-and-run tactics in
opposing prompt provision for redeemability. In part, they seem to be the tools
of those afflicted with what might be called a case of pernicious inertia but
which is apparently regarded as a manifestation of wise caution. That they
belong to the field of psychology seems clear.34
The
propounders of such arguments seem not to consider the fact that we have
already delayed redemption for a period of seventeen years (1933 - 1950); that
our gold ratio is ample to support redeemability;35 that this ratio has
fallen from 24.6 per cent in 1941 to a ratio of 13 per cent (in 1950), and
that, in the face of our Federal government's profligate spending and deficit
financing, the sands of time are running out on this country with dangerous
rapidity; that the delay they advocate is an invitation to continuation of
wasteful Federal spending and to the introduction of thorough-going statism in
this country.36
They ignore such facts as that we maintained a gold standard and redeemable
currency during World War I and down to 1933 on gold reserve ratios ranging
from 6.7 per cent to 10.9 per cent; that we maintained a redeemable currency
while currencies abroad were depreciating, being devalued, and collapsing; that
while Europe was experiencing such chaos during World War I and in the 1920's
our dollar was regarded, and properly so, as a factor of stability in a world
of great instability; that we maintained a redeemable currency during the
period of unbalanced Federal budget in 1917, 1918, and 1919 with the budget
unbalanced to the extent of $13,363,000,000 in 1919; and that, in so far as
foreign central banks and governments are concerned, we have been maintaining a
gold standard and redeemability at $35 per fine ounce for a period of seventeen
years.
This author
has yet to see an advocate of delay in our return to redeemability produce an
argument that is supportable. Such advocates are engaging in a dangerous
enterprise despite the fact that by conventional standards many of these people
are commonly rated as among our most responsible leaders. They undoubtedly have
fears regarding redeemability - perhaps in many cases arising from a confusion
of those attitudes of people, including their own, which characterize a period
of irredeemability with what they incorrectly suppose would exist if
redeemability were instituted. Being thoroughly conscious of these fears under
an irredeemable currency, they clutch at any vague argument that would seem to
enable them to oppose with respectability a change to a state of affairs they
obviously fear might be undesirable.
The fact that
they cannot, and do not, produce evidence in support of the vague arguments
they offer as an excuse for delay seems to be brushed by them to one side with
relative ease. This is apparently because those who resort to this procedure
cannot be held to an accounting before a critical and competent jury able to
say publicly "You stultify yourself unless you produce facts that will
support your assertions."
The continuation
of an irredeemable currency in this country is a dangerous undertaking. Every
supposedly- responsible person who speaks out in public on this matter has the
obligation to be as accurate as possible. It seems reasonably clear that for
many people the battle over redeemability versus irredeemability is a sort of
game in polemics or politics rather than a matter of scientific procedure in
dealing with facts and principles. Congressmen seeking facts in respect to
redeemability versus irredeemability will not get help in support of
redeemability from that active group of economists who are Socialist or
advocates of a governmentally-managed economy in some other form since an
irredeemable currency is a necessary instrumentality of a dictatorial
government. It is on the side of Socialists, Communists, and advocates of other
forms of governmentally-managed economy that the proponents of delay in
instituting a redeemable currency find themselves.
For the first
time in our history we have had, since 1933, a government that has been willing
to take advantage of the ignorance of the mass of people regarding the
principles involved in a redeemable versus an irredeemable currency. Similarly,
for the first time we have had what appears to be a majority - or at least an
aggressive minority - of the academic profession in the social science fields
rushing into, and giving support to, a political movement in the direction of a
governmentally- managed economy.
During the
past suspensions of specie payments in this country, there have been statesmen
of the type of John Sherman who recognized full well that popular understanding
and attitudes in respect to irredeemable currency were not reliable guides as
to what is good or bad in money and who set about to give the people a good
money despite the inability of the mass of people to distinguish the good from
the bad in money and monetary principles. That sort of statesmanship has been
lacking since 1933, and, unless it emerges, our people are apparently destined
to continue with the poison of irredeemable currency permeating their economy
and political and social system until a day of reckoning teaches once more a
very old and oft-repeated lesson.
The advocates
of delay in instituting redeemability are inviting that danger and result.
The Evasion Of
The Issue Of Dishonesty Involved In Our System Of Irredeemable Currency
Another
noteworthy aspect of the arguments offered by the defenders of our system of
irredeemable currency is the practically uniform avoidance of the question of dishonesty
involved in the use of such a currency.
Occasionally
one of its defenders attempts to dispose of the issue by stating, simply, that
there is no question of honesty or morality involved. But a mere assertion that
an Irredeemable currency involves no question of honesty or morality is
valueless without supporting evidence. This author has yet to hear or read any
local and defensible reason why an irredeemable currency is not a dishonest
currency and why its issuance does not rest upon an act of dishonesty.
The general
avoidance of this issue by defenders of our system of irredeemable currency
raises the question as to why, if such a currency is honest in nature, that
fact is not presented in lucid and accurate terms. If, for example, the
issuance of irredeemable promises to pay by the Treasury and Federal Reserve
banks rests upon the standard of honesty, why would not an individual also be
honest if he issued promises to pay which he does not redeem? In his case, he
is held to a different standard - that of fulfillment or declaration of
bankruptcy - by our body of con- tract law. On points such as this, the
defenders of our irredeemable currency are silent. They do not wish to discuss
the matter. They slip away without providing answers.
This nation cannot
be served well when issues of dishonesty are dodged. This evasion, which in
itself reveals a trait of dishonesty, is possibly one of the evil effects of an
irredeemable currency which every experienced monetary economist knows
undermines the integrity of people in a multitude of ways.
It would be
hard to find in the scholarly literature on money and monetary standards a
defense of an irredeemable currency as an honest money or of its issuance or
maintenance as an act of honesty.
If, after
seventeen years (1933 - 1950) of irredeemable currency in this country, its
most competent defenders cannot produce a valid set of contentions as to the
principles of honesty on which such a currency rests, one may be assured that
common standards of honesty need not be altered, that they stand with as much
validity and firmness today as in generations and centuries past, and that they
indict an irredeemable currency as one of the manifestations of the fact that
governments are often dishonest.
What Should Be
Expected Under A Redeemable Currency
1. Multiple
quotations for the dollar should disappear
With provision for redemption of our currency into god we would have in nature
the best type of monetary standard and paper money thus far evolved by man. The
gold certificate and gold would be interchangeable. All our other currency
would be convertible into, and have equal value with, gold. Multiple quotations
for different kinds of dollars should disappear.
2. Private
enterprise in foreign trade should be revived
Return to a thorough-going gold standard and redeemable currency would permit a
free flow of all our money into and out of the country. Private individuals,
free to go when and where they can and will with their dollars of all kinds,
should revive and stimulate foreign exchanges of goods and services in every
form. Private ingenuity could go to work once more; and, when millions of
interested people, in search of profit and pleasure, are given freedom and
opportunity to accomplish their purposes, they usually manage to succeed in
high degree. No government agency or plan can match the accomplishments of
private individual initiative in the development of international exchange of
goods and services.37
3. The
return by other nations to redeemable currencies should be made easier
With the great benefits of private ingenuity freely available once more in
international exchange, and with all our dollars freely interchangeable with
gold at a fixed rate, at least those aspects of the difficulties in exchange
which now exist between us and the rest of the world, because of the
irredeemable features of our currency, would be eliminated. The great benefits
of our return to redeemability, which should soon be obvious, should set an
encouraging example for other countries, should hasten the removal of
restrictions by them, and should in the end make their road back to redeemable
currencies much easier.38
4. Great
domestic social benefits should be invited
In so far as the basic money of a nation can be an influential factor in the
economic life of a people, the introduction of redeemability should instill
confidence and provide incentive for more saving, more investment, more
production, more trade and, consequently, more and safer prosperity.
This has been
the common, though not universal, experience of a people following resumption
of specie payments.
The
consequences depend much upon the management of credit and the behavior of all
the other forces that affect production and prices. A good basic monetary
system, like good strong rails on a railway, is a great facilitating instrument
and, moreover, contains some elements of safety. But neither provides an
insurance against the consequences of human foolishness, or stupidity, or
recklessness, or bad management. Although, the institution of redeemability
should invite great social benefits, bad fiscal and banking policies and
practices could precipitate a serious situation despite the existence of a gold
standard and redeemable currency. The problem is to get good monetary
management under the restraints of a redeemable currency. The solution is not
to be found in freeing money managers from these restraints.
5. People
would have direct power once more over their public purse and a protection
against Socialism
Power to control the government's use of the people's purse would be returned
to their hands where such power belongs. The fact that they might exercise that
power slowly or too late, as has been the case sometimes in the past, does not
alter the fact that the constant threat of its use tends to keep a government
and the banks within bounds which do not raise fears. Every individual would be
free to exercise his own judgment as to what percentage of his dollars he would
prefer to put in gold in an effort to protect the value of his savings. If,
with this freedom of choice, people are misled and fail to take the proper
protective measures, they cannot charge their misfortune to a lack of power to
use their own judgment. With a redeemable currency at their disposal, they
would have a power not possessed today, and, it seems reasonable to suppose, if
our government should continue with its pro- grams of profligate spending and
dissipation of our national patrimony, many people would begin to exercise
their power to protect their savings and to this degree tend to bring this
practice to a halt.
The fact that
the government could 'again plunge them into an irredeemable currency to
deprive them of this power - a point sometimes offered by defenders of an
irredeemable currency as an argument against redeemability - merely means that
governments can and often do take possession of the people's purse and become
their dictatorial bosses. The implication of such argument is that since governments
can engage in bad practices we should not endeavor to arrest such a practice if
it is in current use. That remarkable contention by a defender of irredeemable
currency does not alter the fact that the power over the people's purse must
rest with the people if they are to have protection against an autocratic
government.
Although in
principle, an anti-Socialist political party, if elected to office and if
determined to save our people from Socialism, could change the trend even under
an irredeemable currency, the last seventeen years (1933 - 1950) have
demonstrated that the people of this country cannot count on either political
party to bring big government to a halt and to start a strong trend toward the
encouragement and development of private enterprise so long as the support of
vote-delivering pressure groups can be purchased so easily with irredeemable
currency and so long as both parties have that as a basic purpose. A
restoration of a system of redeemable currency provides the best and apparently
the only assurance that our march into Socialism will be brought to a halt.
6. It would
free our people of the prospects of great trouble or disaster inherent in
irredeemable currency
A restoration of redeemability could' not and would not insure the people
against sharp ups and downs in productive activity and prices. All that it
could do is to provide the best type of currency known - one that, by its
nature, does not cause a country to take the course to disaster made possible
by an irredeemable currency. Before that unfortunate course can be taken the
redeemability of a currency must be destroyed.
Business and
price fluctuations are the result of a multitude of forces. The part played by
a redeemable currency might well be of minor or negligible importance in the
fluctuations of production and prices. In no event could it be the controlling
factor. In high degree it is a facilitating instrument, a self-liquidating, and
therefore sound, medium of exchange -- a passive factor. It is an irredeemable
currency that becomes a potent causal force because the element of depreciation
and the potential dangers inherent in such a currency enter into people's
calculations and plans. A gold standard and redeemable currency, on the other
hand, do not carry these germs of disease; they must come from outside - from
abuse in the use of credit.
7. Our
people would once more have an honest currency and the benefits of standards of
honesty among official in respect to the people's money
A resumption of redeemability would involve a return to standards of honesty in
respect to honoring promises to pay on demand. Dishonesty is a fatal element in
the social and political fabric of a nation. Its consequence is trouble. There
is no valid defense of dishonest practices. And there is no ground on which to
justify the implied contention that government and Federal Reserve bank
officials may properly practice dishonesty while private citizens, by a
highly-developed body of contract law, may be compelled to fulfill their
promises to pay and the other obligations of contract. Indeed, if there is to
be any difference shown in standards of ethics, the highest should be among
governments and Federal Reserve officials. But they have given themselves, and
they are fighting to keep, a standard of responsibility that is not recognized
in the legal obligations of contract applicable to private persons and
non-government enterprises.
The employment
of a low standard of honesty in officialdom can have, and tends to have, a
demoralizing effect upon other people. Such practice diffuses its evil
influence in many and subtle ways throughout a nation. When the bonds of
integrity are loosened at the official level, the disease of dishonesty spreads
rapidly through the foundations of society and its social institutions. The
general avoidance of this issue by the defenders of an irredeemable currency,
or their denial that there is a moral issue involved, has not been to their
credit, nor has it been helpful.
The people of
the United States cannot be served well in respect to this serious and urgent
matter of our irredeemable currency system unless all facts and issues involved
are faced fully, honestly, and completely, and an accurate picture is presented
- so that a majority of Congress can understand it and act wisely in behalf of
the best interests of the people of this country. Ignorance has to be excused.
But presentation of half truths, the setting up of straw men, the misstatement
of issues, the distortion or neglect of pertinent facts by debaters who are in
positions of responsibility and are supposed to be able to get and to recognize
facts are inexcusable. Supposedly smart quips and cliches, hit-and-run
statements, hollow pontifications, ponderous and platitudinous pronouncements
of the do-nothing variety, although common current substitutes for careful
presentation of verifiable fact and principle, are not in the least helpful to
a Congress that needs facts and reliable aid.
If we mend our
ways and get our facts, principles, and lessons in hand, and if, then, Congress
will act upon them, and thus in the best interests of the people of this
country, we should expect our currency to be made redeemable. The reason is
that there is no valid argument for maintaining an irredeemable currency in this
country. To argue for an irredeemable currency is to argue for a diseased
monetary agent.
On The
Prospects Of Obtaining A Redeemable Currency
Monetary
history teaches that there never has been a permanent suspension of specie
payments. The reason is that paper is paper and gold is gold. Paper is no
better, in the long run, than the value of the promise made by the promisor.
Such promises have a notoriously poor record. Gold, on the other hand, is free
of these weaknesses of human beings. It carries fulfillment in settlement in
accordance with the weight and fineness of the amount of gold employed. It does
not falsify. Its value does not depend on the promise of any man.
Many
governments have attempted to put men's promises to pay on a par with gold
without using gold to fulfill those promises; but, in due course, such attempts
have been, and are, subjected to the acid test of their value as against
fulfillment in gold, and failure in part or fully has been, and is the common
result.
Our
government, as others have done, may profit from past experiences and return to
redeemability before morn severe damage is done our people. Or, it may follow a
course, also common, of letting our present experiment with irredeemability
carry us to a point of collapse in our fiscal and monetary affairs following
which we shall be compelled to face the basic facts regarding the virtues of a
redeemable versus an irredeemable currency as we attempt to dig ourselves from
the ruins then engulfing us.
As matters
stand, the Executive Department of the United States Government, the Treasury,
most Federal Reserve authorities, the majority of Congress, and, of course, the
general public, including a large number of economists of the Socialist,
pro-government-management variety, seem determined to continue with this
dangerous enterprise.
The only hope
that the United States may be spared the tragedy to be expected from the
continuation of this course rests with the efforts of the thousands of
concerned and responsible citizens scattered across this country who may
succeed in persuading a majority of Congress to act or in developing an
opposition party with statesmen who will succeed in the restoration of
redeemability of our government's and Federal Reserve banks' promises to pay.
There is undoubtedly
a rapidly-growing movement among disturbed and responsible citizens to do all
within their power to see to it that our currency is made redeemable at the
earliest possible date. Busy men with heavy burdens, many of them tired and in
need of rest, are devoting time, energy, and money, in an effort to find, if
possible, a majority in Congress, or opposition leaders, or both, who will act
in behalf of our national welfare by providing a redeemable currency. These men
and women are making this supreme effort with the utmost unselfishness and
patriotism. They are Democrats and Republicans, industrialists, bankers,
insurance executives, professional people, economists, government officials,
financial writers, and a multitude of others from practically every field of
human activity.
If this nation
is to be saved from the logical consequences of using an irredeemable currency,
it will be because this body of intelligent, patriotic, and unselfish men and
women succeed in their efforts. If they should fail, then we may expect the
United States and its people to be confronted in the course of time with a
major tragedy in monetary and fiscal affairs.39
NOTES
1 Walter Spahr provided a
"7-Minute Summary" which has been reduced here to "5
Minutes" by eliminating a few points which are of little concern at
present, and by bringing paragraph IV.1 up-to-date.
2 The symptoms which Keynes
observed in Britain after the first World War, and which he thought were absent
in the United States at that time, have since become only too obvious in
America as well. In Britain as in the USA, the middle class and business
"allow themselves to be ruined and altogether undone by . . . governments
of their own making." In his classic "Fiat Money inflation in
France" Andrew D. White quoted Mirabeau as saying in 1789, on the even of
the revolution, that irredeemable currency is "a nursery of tyranny,
corruption and delusion; a veritable debauch of authority in delirium."
3 The international
redeemability of the dollar was progressively reduced during the 1960's under a
cloak of "international cooperation."
In April 1967,
for instance, Germany agreed officially not to demand gold in exchange for the
growing dollar balances held by the Bundesbank, after such a policy had been
pursued informally for some time. Japan, Canada and Italy also agreed not to
demand gold, while France, the Netherlands and Belgium declined to give such an
assurance.
In its
"Business in Brief," the Chase Manhattan Bank suggested at the time
that Washington should make it "unmistakably clear" that in case of a
crisis, the U.S. would stop converting dollars into gold, thus leaving
"the burden of decision regarding the defense of the dollar" to the
European governments. In a speech before the New York Chamber of Commerce,
Rudolph A. Peterson, the President of the Bank of America, suggested that if
the strain were to become "intolerable," the U.S. "as a last
resort" should stop the international convertibility of the dollar.
"There is no overwhelming reason why we should sustain the dollar value of
gold."
The
international redeemability of the dollar was finally ended on August 15, 1971,
foreign exchange rates were allowed to float, the dollar depreciated in terms
of hard currencies, and the prices of imports rose sharply.
4 As the price of silver
increased, and the value of the silver content of silver coins rose above the
face value of the coins, the convertibility of Silver Certificates into silver
dollars was ended in 1968, and the U.S. Mint discontinued the coinage of silver
10¢, 25¢, 50¢, and $1 coins, using an inferior alloy instead.
5 These indirect links ended
August 15, 1971.
6 This indirect link between
the dollar and gold ended with the closing of the gold window in 1971. While
the official price of gold was raised in two stages first to $38 and then to
$42.22, the free market price rose to an average of $159 in 1974 and $162 in
1975. More important, the decision to terminate the limited international
redeemability of the dollar destroyed the last ties between the dollar and
gold, and thus removed the last restraints upon the government which was now
free to create paper dollars without limit. Between August 1971 and the end of
1975 the money stock (M2) increased by more than 45 per cent, while the output
of goods and services grew by less than 10 per cent, resulting in an increase
in consumer prices by more than 35 per cent.
Washington did
not plan it that way. In the State of the Union Message of February 1961
President Kennedy stated clearly, "we need not - and we shall not - take
any action to increase the dollar price of gold from $35 an ounce. . . . This
Administration will not distort the value of the dollar in any fashion. And
this is a commitment." And in August 1964, Treasury Secretary Douglas
Dillon declared at the IMF meeting in Tokyo: "The fixed price of gold is,
of course, the anchor of price stability for the world."
But the
chronic and growing federal deficits caused by the rapidly expanding welfare
state resulted in a vast expansion of credit (the commercial bank credit grew
from $199 billion to $461 billion between 1960 and 1970), a rapid increase in
the supply of paper money (from $213 billion to $418 billion) and a rise in
consumer prices by almost 35 per cent. Between 1933, when the price of gold was
fixed at $35 an ounce, and 1975, consumer prices in America rose by 320 per
cent, so that an increase in the price of gold to $1 12 merely reflects the
depreciation of the dollar, making no allowance for the growing demand for
gold.
7 In 1975, the price of gold
in London, for instance, fluctuated between $197 and $128 an ounce.
8 As the price of gold
fluctuated widely after 1971, the value of the dollar rose and declined in
terms of gold, which, however, had only an indirect effect on the American
economy. On the other hand, the 'value" of the dollar, expressed in its
domestic purchasing power, declined by about 35 per cent between August 1971,
when the international convertibility of the dollar was ended, and the end of
1975.
While the huge
Federal deficits and the sharp increase in the money supply, both made possible
through the removal of the gold standard restrictions, probably had a more
direct effect on the price level, the formal act of "closing the gold
window" symbolized that the final restraints upon the government's
monetary policy had been removed.
9 Under the gold standard, a
nation's money supply, and the level of world liquidity were tied to the supply
of gold, which effectively limited the amount of money and credit which
governments could create. Neither a runaway inflation nor chronic inflation
were possible under the traditional gold standard. Governments could not
manipulate the economy by creating fiat money, and provide special benefits for
pressure groups. The modern, all-powerful state, therefore, strives to rid
itself of the restraints of gold. As Morgenthau noted about the early years of
the New Deal Administration: "They unshackled themselves. . . and made the
manipulation of the value of the currency an open and admitted instrument of
public policy." During the subsequent 40 years, the dollar lost about 75
per cent of its value.
10 The same is true, of
course, of the United States. The welfare statism of the 1960's and 1970's,
which favors powerful groups of voters, the politicians and the bureaucracy at
the expense of the majority of the people, virtually precludes a return to
sound monetary policy. It assures continued inflation and the progressive
expropriation of the middle class and private business.
11 All these arrangements
which prevailed before and after the second World War were officially abandoned
in 1971.
12 Under the Federal Reserve
Act of 1913, the Federal Reserve was required to keep a gold reserve of 40 per
cent against Federal Reserve Notes and of 35 per cent against the Member Bank
deposits. The reserve ratio was changed in 1 945, when Congress fixed the
reserve at a flat rate of 25 per cent, which enabled the Federal Reserve to
provide enough money to feed the inflationary boom of the postwar years. In
twenty years, 1945 - 1965 the money supply (M2) increased by about 90 per cent,
and prices rose by about 80 per cent. In 1965, Congress wiped out the 25 per
cent reserve requirement for Member Bank deposits held by the Federal Reserve,
thus making it possible for the Federal Reserve to increase the money supply
more rapidly. The "experts" suggested that all reserves be removed,
but President Johnson vetoed the idea because it might undermine the confidence
in the dollar.
Two years
later, however, the reserves against the dollar notes were removed and the last
restraints fell. The government had completely "unshackled" itself.
At the same time, the IMF promoted the idea of SDRs, the international paper
l.O.U.'s to "supplement" gold. As The New York Times commented
at the time: "The growth of reserves in the future will be controlled
rather than subject to such haphazard factors as how much gold is mined in
South Africa." (NYT 9-30-67, p.1). Actually, the removal of the gold
"shackles" removed all controls. While prior to 1965, the money
supply in the United States had increased by 90 per cent in twenty years, it
increased more than twice as fast after the last barriers had been removed,
i.e. by more than 110 per cent within ten years.
13 This distinction
disappeared in 1971 when the gold window was closed, and not only individuals
but also the foreign central banks lost all control over the creation of paper
dollars by the United States government.
14 During the 1960
presidential campaign, the London gold price suddenly shot up to $40, and under
the existing regulations which prohibited the sale of gold by the U.S.
government to anyone but governments and central banks, the Federal Reserve
could not intervene to hold down the gold price. As a result of this incidence,
the so-called London "gold pool" was created to maintain the price of
gold at $35 an ounce by manipulating the London gold market. The attempt cost
the participating central banks $1 - 2 billion of their gold holdings.
15 This was a central argument
against the resumption of convertibility during the 1940's and 1950's and well
into the 1960's, and Professor Spahr made it a point to contradict the argument
by showing in a number of lengthy tables (which are omitted in this reprint)
that between 1915 and 1933, the ratio of gold stocks to total money and
deposits exceeded 10 per cent only in one year, 1917. During the remaining 18
years, the ratio fluctuated between 9.8 per cent (1916) and 7.2 per cent
(1928), and nobody regarded the ratio as inadequate. Following the increase in
the official price of gold from $20.67 to $35 per ounce in 1934, the ratio
increased to 15.3 per cent, and as a result of the heavy influx of foreign gold
as a result of the war rose to 24.6 per cent. By 1946 it had again declined to
10.6 per cent and by 1949, when about 60 per cent of the world's monetary gold
was concentrated in the U.S., it stood at 13 per' cent, well above the average
which prevailed between 1913 and 1933 when the dollar was fully convertible.
The popular argument of those who opposed resumption of the gold standard that
the available gold reserves were inadequate was thus obviously without
foundation at the beginning of the 1950's.
During the
subsequent 10 years (1950 - 1959) the U.S. lost about 20 per cent of its
monetary gold (the holdings declined from $24.5 to 19.5 billion) and during the
1960's another 40 per cent (at the end of 1969 gold reserves amounted to $11.8
billion). At the same time, the money supply expanded rapidly, thus reducing
sharply the ratio of gold stocks to total money and deposits. By the end of
1975 the ratio of gold stock to currency and deposits (M2) stood at about 1.75
per cent. A resumption of convertibility on basis of the then official price of
$42.22 would thus seem risky in a turbulent world.
To restore a
ratio between gold stock and currency and total deposits to the level of about
8 per cent prevailing during the 1930's, the price of gold would have to be
increased to about $190, an increase of 50 per cent above the free market price
prevailing during the first half of 1976.
16 At the end of the 1950's -
ten years after this was written - a resumption would still have been possible
without incurring a major risk, since the gold reserves were still equal to
about 9.75 per cent of the currency and total bank deposits. But during the
subsequent five years of "getting the economy going again" the
situation changed very rapidly. By the end of 1964 the ratio had declined to
5.4 per cent, and five years later to 3 per cent. Thus in ten years of planned
inflation and social engineering the basis for a redeemable stable dollar was
destroyed.
17 The situation did not
change materially during the 1950's, but by the end of the 1960's the ratio had
declined to 1.5 per cent.
18 In 1950, three major types
of paper money were in circulation in the U.S. By far the most important were
the Federal Reserve Notes of which $23.3 billion were in circulation, but in
addition there were $2.1 billion Silver Certificates which were convertible
dollar for dollar into silver dollars, and $313 million United States Notes. To
this must be added the minor coin and various types of paper money in the
process of being withdrawn, all-in-all about $700 million. All these types of
money were interchangeable and could thus be exchange for Silver Certificates
which in turn could be redeemed in silver dollars. The ratio of silver in the
Treasury against the potential call on these silver reserves was thus minute.
In the early
1960's the Treasury sold a substantial portion of its silver to hold the market
price down to the official price of $1.29. By 1 965, however, hoarding spread
and more and more Silver Certificates were redeemed against silver dollars. In
fact Silver Certificates sold at a premium in terms of other paper currency and
rapidly disappeared from circulation. Finally, in July 1968 the Treasury ceased
to redeem Silver Certificates and thus defaulted on its promise clearly
inscribed on the Certificates at a time when some $269 million of the Silver
Certificates were still in circulation.
19 The amount consists of
minor coin and a small amount of U.S. Notes.
20 Between 1950 and 1975,
public spending grew from $65 billion to about $535 billion, the number of
public employees from five million to well over fourteen million, and the
public debt from $256 to $576 billion. The money supply (M2) rose from less
than $170 to more than $660 billion, and the dollar lost about 55 per cent of
its purchasing power.
21 In 1963 a subtle but
extremely important change took place in the American monetary system. For
fifty years the Federal Reserve Notes has been l.O.U.'s, providing clearly that
the issuing Federal Reserve Bank, the Federal Reserve System and the United
States Treasury "will pay to the bearer on demand" a specified sum of
money, and that the Notes were "redeemable in lawful money at the United
States Treasury, or at any Federal Reserve Bank."
After 1963,
the two phrases promising payment in "lawful money" were dropped, and
the notes merely specified that the notes were "legal tender for all
debts, public and private." The Federal Reserve Notes, the nation's basic
currency thus ceased to be promises to pay money, and became "money"
in their own right. The change was made perfectly legally in accordance with
the Federal Reserve Act which provided that the Federal Reserve Notes
"shall be in form and tender as directed by the Secretary of the
Treasury." In other words, without a special act of Congress, the American
currency was turned from l.O.U.'s into l.O.U. nothings.
It may be
argued that the change in the wording really did not affect the existing
situation. Since 1933, the American people had been unable to convert their
paper money into gold, which prior to that date had been the "lawful money."
The people could only demand United States Notes and minor coin. The change in
the wording thus merely removed what had in effect been a fictitious promise
for half a century. And yet, the change symbolized the end of an era. As
Justice Joseph P. Bradley wrote in the famous Legal Tender Cases of 1871, the
issuance of United States Notes during the Civil War was "not an attempt
to coin money out of valueless material. . . . It is a pledge of national
credit. It is a promise by the national government to pay dollars; it is
not an attempt to make dollars. No one supposes that these government
certificates are never to be paid."
The Federal
Reserve Notes issued since 1963, on the other hand, "are never to be
paid." They are "money coined out of valueless material" and
they can be printed without any legal or institutional restrictions.
22 In 25 years, since this was
written, the dollar lost almost 55 per cent of its domestic purchasing power.
23 In 1950 the total debt,
public and private, amounted to about $550 billion. By 1960 it had risen to
just short of one trillion. During the 1960's the debt more than doubled
reaching $2.1 trillion in 1970. By 1975, the debt was approaching $3.2
trillion. Debt represents past consumption and investments in excess of current
earnings. The repayment of the debt requires a reduction in consumption, and
thus the lowering of the standard of living. Only by repudiating part of the
debt can the burden of repayment (and the resulting impact on the standard of
living) be avoided, and the easiest way of repudiation is continued inflation.
The 500 per cent increase in total indebtedness over a period of 25 years thus
in itself has become an inducement to repudiation through inflation and a
barrier to the restoration of a stable monetary standard.
24 The wide fluctuations in
its price since 1971 has greatly impaired the usefulness of gold as an
international medium of exchange. At Bretton Woods the price of gold was fixed
at $35. In 1973 it averaged $97, in 1974 $159, and in 1975, despite a general
steady downtrend, $162. The attempt to replace the system of stable foreign
exchange rates based on gold by a system of "free floating" or
"managed floating" rates resulted in fluctuations in the exchange
value of the dollar in relation to other key currencies of twenty and more per
cent within a year, thus making any form of long-term international financing
extremely difficult.
25 The growth of Federal
Reserve Bank credit and commercial bank credit (which ultimately rests on the
Federal Reserve Bank credit) is shown in the following table: (in billion
dollars)
|
End of Year |
Federal
Reserve Bank Credit |
Commercial
Bank Credit |
|
1950 |
$21.6 |
$127.6 |
|
1960 |
$29.1 |
$199.4 |
|
1970 |
$66.7 |
$461.2 |
|
1975 |
$99.7 |
$771.4 |
The figures
indicate clearly the explosive growth of Federal Reserve Bank and commercial
bank credit beginning in the 1960's as the restraints formerly provided by the
partial convertibility of the dollar were progressively removed.
26 In a similar vein, politicians
and intervention-minded economists have been arguing during the depression of
the 1970's that a return to prosperity can best be achieved through even larger
deficit spending and the creation of even more money. The form of the argument
changes over the decades, but the substance remains the same: prosperity can
supposedly be achieved through paper money inflation. Yet the records of the
postwar years seem to indicate that the countries with the lowest rate of
inflation showed the greatest rate of economic growth and the highest level of
employment. The most often cited examples are the development during the 30
years following the end of the war in Britain (which followed an inflationary
policy) and in Germany (which fought inflation).
27 From 1913 to 1945 the
Federal Reserve was required to maintain gold reserves (after 1933 in the form
of Gold Certificates) of 40 per cent against Federal Reserve Notes and of 35
per cent against member bank deposits (which in turn regulated the amount of
credit which the member banks could create). In 1945, the rate was reduced to a
flat 25 per cent; in 1965 the reserves against member bank deposits were
removed; and in 1967 the reserves against the Federal Reserve Notes were done
away with. The Federal Reserve was thus free to create money and credit without
institutional restrictions, which largely explains the more than 80 per cent
increase in the money supply between 1967 and 1975.
28 Originally, the Federal
Reserve could only rediscount, and make advances on basis of, so-called
"eligible paper," created for "productive purposes, ' i.e.
commercial paper and bank acceptances representing goods in the process of
production or goods in transit. The maturity of the eligible paper was limited
to 90 days, except for agricultural paper which could have a nine months
maturity. The original Federal Reserve Act did not provide for the monetization
of the federal debt. As part of the World War I emergency, however, the Federal
Reserve was authorized to provide 90 day advances to member banks secured by
direct obligations of the United States government. Instead of financing the
production of goods, the Federal Reserve was thus empowered to finance the
deficit spending of the federal government, and what had been an emergency
measure during the first World War, gradually became the accepted practice
during the 1930's and 1940's, until, by this time about 90 per cent of the
Federal Reserve Bank credit is based on government paper and virtually none on
"eligible paper" created for "productive purposes." The
supply of money is thus no longer tied to the production of goods, but to the
deficit spending of the government.
29 The following table
indicates the growth of the money stock (M2) in relation to the real GNP and
the resulting increase in the cost of living during the three postwar decades:
(G.C.W.)
|
Years |
Increase in
M2 |
Increase in
Real GNP |
Rise in
Consumer Price Index |
|
1945-1954 |
25.7% |
34.1% |
52.7% |
|
1955-1964 |
47.2% |
21.9% |
17.4% |
|
1965-1974 |
114.3% |
59.6% |
56.3% |
30 The last reserve
requirements, as we pointed out, were removed in 1967.
31 During the 25 years since
this was written, the dollar lost more than 55 per cent of its purchasing
power.
32 Similarly, at the Jamaica
conference of 1976, the participants agreed that there was no way of
establishing a stable international monetary system until the major countries
return to sound monetary and fiscal policy at home. This argument completely
disregards the basic notion of a system of redeemable currencies and fixed
international exchange rates, which, prior to the Great Depression, was assumed
to bring pressure upon the respective governments to pursue non-inflationary
policies at home. When inflation became the widely accepted instrument of domestic
policy in virtually all countries, the restraints resulting from a redeemable
currency (i.e. the threat that the country would lose its gold reserves) and
stable foreign exchange rates became inconvenient and were thus progressively
abolished.
Yet the public
is being told that governments will do without restraints, what they refused to
do while they were still partially restrained, i.e. stop the printing presses.
33 To these traditional
arguments is now added a new argument which is the direct result of the
inflationary policies of the past 25 years. Between 1950 and 1975 the money
stock (M2) grew from $168 billion to $663 billion, and the portion of the
Federal debt held abroad increased to more than $66 billion, while at the same
time the American monetary gold reserves declined from more than 650 million
ounces (valued at $22.8 billion on basis of $35 an ounce) to less than 275
million ounces (valued at $11.6 billion on basis of $42.22 an ounce). In view
of the drastic decline in America's international liquidity since 1950 -
brought about by unsound monetary and fiscal policies which the irredeemability
of the dollar made possible - the opponents of a redeemable currency now argue
that by this time it is obviously impossible to return to the monetary restraints
of redeemability.
The argument
becomes less convincing, of course, if the official gold price were raised to
$125 or $150 an ounce which would correspond to the average market price which
prevailed during 1974 - 1976.
34 The basic reason for the opposition
to a return to a stable monetary system - in 1950 and in 1975 - is not economic
in nature but political. Monetary stability impedes inflation, and inflation
has come to be regarded as the politically most expedient tool of shifting
wealth from the productive to the less productive - at home and internationally
thus furthering greater economic equality which is the aim of our age. The
arguments against convertibility and monetary stability are essentially
ideological, and hence cannot be countered by economic reasoning.
35 If the price of gold were
properly adjusted.
36 In 1950 public spending
accounted for about 21 per cent of the GNP and there were 6 million public
employees. By 1975 the share of public spending had risen to 35 per cent of the
GNP, and the number of public employees had risen to well over 14 million.
37 Despite the fact that the
dollar has been irredeemable for American citizens since 1933, and as far as
international monetary institutions and foreign central banks are concerned
since 1971, there have been only minor restrictions on the freedom of travel,
trade and international financial transactions by American citizens. This is
not true of course, in other countries where these freedoms have been severely
curtailed, and even in the U.S. the government has tried at one time or another
to impede American travel abroad and restrict foreign investments.
Nor has the
growing international monetary instability seriously affected international
trade. Between 1970 and 1974 world trade grew from less than $290 billion to
$750 billion, or, eliminating the impact of inflation, from $288 billion to
$404 billion. But the rapid growth of international trade, despite the
impediment of widely fluctuating foreign exchange rates, was probably due to
the explosive growth of international credit. In 1975 the volume of
international trade dropped by 6 per cent, the largest drop since the second
World War.
38 Since the late 1960's, the
United States has actually been more opposed to stable foreign exchange rates
than some of the European countries and Japan, because of the vast deficit
spending and rapid growth in the supply of money and credit resulting from the
welfare state experiment.
39 Since this was written in
1950, the dollar has been devalued twice; its domestic purchasing power has
declined by 55 per cent; the per capita tax burden has risen from less than
$470 to well over $2,200; the number of government employees, planning and
regulating the lives of the people down to the minutest details, has increased
from 6 million to well over 14 million; the share of public spending has risen
from 21 per cent of the GNP to 35 per cent; and at the 'modest' rate of
inflation of 5 per cent a year, those Americans who were frugal and saved part
of their income, are robbed every year of about $150 billion of their savings,
with the federal government alone in effect repudiating some $25 billion of its
debts by progressively reducing the value of the dollar. As Professor Spahr
wrote: "The sand is running out."
(c)1976 Committee for Monetary Research and Education
|
CONTACT INFORMATION Larry
Parks, Executive Director |
|