WEBVTT

NOTE The New Deal and the Post-War International Monetary System

1
00:00:00.000 --> 00:00:30.000
We abandoned the story last night with the Genoa conference system, the Genoa system in the 1920s having collapsed with Britain having gone off the gold standard, Europe having gone off the gold standard, and then the United States finally in 30, no this was in 31, then the United States in 33, and then when the United States goes off the gold standard and the dollar devalues, the British suddenly found that the lorries of the devaluation of the pound might have another side of the coin, which is a dollar also might be devalued, and then they were in real trouble.

2
00:00:30.000 --> 00:00:41.000
So the British proposed a world economic conference in London in June 1933 to re-establish a workable international monetary system

3
00:00:41.000 --> 00:00:45.000
because what they could see looming ahead of them is what of course eventually did loom ahead of them,

4
00:00:45.000 --> 00:00:56.000
competing devaluations, fiat paper monies, currency blocks, exchange controls, world tariff wars and so forth and so on,

5
00:00:56.000 --> 00:00:59.000
leading to World War II as we'll go into them also.

6
00:00:59.000 --> 00:01:03.600
So they saw this prospect looming ahead and didn't like it, and then the conference was

7
00:01:03.600 --> 00:01:04.600
called.

8
00:01:04.600 --> 00:01:08.440
I can resume ruling from this tract.

9
00:01:08.440 --> 00:01:10.960
Preparations for the conference had been underway for a year under the guidance of the League

10
00:01:10.960 --> 00:01:17.680
of Nations, which reads, in parenthesis, Britain, a desperate attempt to aid the world economic

11
00:01:17.680 --> 00:01:21.240
and financial crisis by attempting, quote, the restoring of the currencies on a healthy

12
00:01:21.240 --> 00:01:22.240
basis.

13
00:01:22.240 --> 00:01:36.560
On the World Economic Conference, an excellent book, which I recommend by Leo Paszwolski,

14
00:01:36.560 --> 00:01:43.440
called Current Monetary Issues, published by Bookings in 1933, which is a detailed study

15
00:01:43.440 --> 00:01:44.440
of the soul.

16
00:01:44.440 --> 00:01:47.520
Paszwolski is one of the people at the conference, a detailed study of the whole business.

17
00:01:47.520 --> 00:01:50.740
The Hoover administration was planning to urge the restoration of the international

18
00:01:50.740 --> 00:01:57.740
and the gold standard, but the abandonment of Gold by the Roseau administration in March and April 1933 changed the American position radically.

19
00:01:57.740 --> 00:02:01.740
As the conference loomed ahead, it was clear that there were three fundamental positions.

20
00:02:01.740 --> 00:02:05.740
The gold block, a country still on the gold standard, headed by France.

21
00:02:05.740 --> 00:02:09.740
France had been a hard-money country since the late 20s, which desired immediate...

22
00:02:09.740 --> 00:02:14.740
Incidentally, France was the great French monetary advisor at the time of the Bank of France.

23
00:02:14.740 --> 00:02:16.740
There was Charles Riester, I mentioned, who was one.

24
00:02:16.740 --> 00:02:20.740
Another one was Jacques Rouef, who's still in there now in his 70s.

25
00:02:20.740 --> 00:02:25.740
He was de Gaulle's great gold standard economic advisor, which almost busted the dollar system in 68,

26
00:02:25.740 --> 00:02:31.740
which was prevented by the French Revolution of 68 or the French General Strike of 68.

27
00:02:31.740 --> 00:02:35.740
Maybe we work out some kind of conspiracy thing there, you know, the CIA,

28
00:02:35.740 --> 00:02:41.740
the CIA spurring on the malice of something in 68 and busting of de Gaulle's hard money position.

29
00:02:41.740 --> 00:02:53.740
that's pure speculation for us. So we have, and Jacques Rouat was still the great hard money gold standard person.

30
00:02:53.740 --> 00:02:57.740
It was clear that the gold block, the country still on the gold standard, headed by France,

31
00:02:57.740 --> 00:03:03.740
which desired immediate return to a full international gold standard with fixed exchange rates between the major currencies and gold.

32
00:03:03.740 --> 00:03:07.740
The United States, which now placed greatest stress on domestic inflation of the price level,

33
00:03:07.740 --> 00:03:20.740
So we were the most inflationist country. We are again now, by the way, since we've come back full circle from the, there's almost the cause of Bill's cyclical theory of history, except here the cycles come like every 20 years.

34
00:03:20.740 --> 00:03:35.740
And the British, supported by their dominions, wished some form of combination of the two things. The British, I mean, at least the United States position, although bad was coherent, and the French position was coherent, but the British position, the British somehow wanted to have that cake and eat it also.

35
00:03:35.740 --> 00:03:47.740
In the invitation of President Roosevelt, what was still unclear was whether a satisfactory compromise between these divergent views could be worked out.

36
00:03:47.740 --> 00:03:59.740
At the invitation of President Roosevelt, Prime Minister Ramsey MacDonald of Great Britain, leading statesmen of the other major countries, journeyed to Washington for individual talks with the President.

37
00:03:59.740 --> 00:04:06.540
All that emerged from these conversations were vague agreements of intent, but the most interesting aspect of the talks was an American proposal,

38
00:04:06.540 --> 00:04:13.140
originated by William C. Bullitt and rejected by the French, to establish a coordinated worldwide inflation and devaluation of currencies.

39
00:04:13.140 --> 00:04:23.140
Here we get to the, this is sort of the, one of the first evidences of what's really the great American dream,

40
00:04:23.140 --> 00:04:29.340
which is right now the great American establishment dream, which is a coordinated worldwide inflation with a world bank and that sort of stuff.

41
00:04:29.340 --> 00:04:59.340
The Serious Discussion of a Proposal Sponsored by the United States and vigorously opposed by the gold countries, that the whole world should embark upon a cheaper money policy, not only through a vigorous and concertive program of credit expansion and the stimulation of business enterprise by means of public works, but also through

42
00:04:59.340 --> 00:05:13.700
The American delegation to London was a mixed bag, but the conservative gold standard forces

43
00:05:13.700 --> 00:05:18.180
could take heart from the fact that staff economic advisor was James P. Warburg of Kim

44
00:05:18.180 --> 00:05:23.220
Morrow & Company, who had been eagerly working on a plan for international currency stabilization

45
00:05:23.220 --> 00:05:25.180
based on gold with new and realistic parodies.

46
00:05:25.180 --> 00:05:28.420
In other words, the ideas are, I forget about the old parodies, this is the same sort of

47
00:05:28.420 --> 00:05:30.900
thing I was talking about in the early 20s.

48
00:05:30.900 --> 00:05:36.380
He accepted the current devalued parodies and reestablished the gold standard at a more

49
00:05:36.380 --> 00:05:37.380
workable level.

50
00:05:37.380 --> 00:05:42.060
Furthermore, conservative professor Oliver M.W. Sprague and George L. Harrison, governor

51
00:05:42.060 --> 00:05:46.900
of the New York Fed, who had succeeded school, were sent to discuss proposals for temporary

52
00:05:46.900 --> 00:05:53.780
stabilization of major currencies who stabilized the thing until the duration of the conference.

53
00:05:53.780 --> 00:05:58.140
In contrast, the President paid no attention to the petition of 85 congressmen, including

54
00:05:58.140 --> 00:06:03.060
10 senators, that he appointed as economic advisor to the conference the radical inflationist

55
00:06:03.060 --> 00:06:06.100
and anti-gold priest, Father Charles E. Coughlin.

56
00:06:06.100 --> 00:06:09.580
This is one of the high points in current American history.

57
00:06:09.580 --> 00:06:14.860
Ten senators and 75 congressmen petitioned the President to appoint Father Coughlin as

58
00:06:14.860 --> 00:06:19.380
his economic advisor.

59
00:06:19.380 --> 00:06:24.460
The World Economic Conference, attended by delegates from 64 major nations, opened in

60
00:06:24.460 --> 00:06:26.180
London on June 12.

61
00:06:26.180 --> 00:06:29.860
The first crisis occurred over the French suggestion for a so-called, a temporary so-called

62
00:06:29.860 --> 00:06:34.060
currency truce, a de facto stabilization of exchange rates between the franc dollar

63
00:06:34.060 --> 00:06:37.460
and pound in the duration of the conference.

64
00:06:37.460 --> 00:06:40.440
Surely eminently reasonable, the plan was also a clever device for an entering wedge

65
00:06:40.440 --> 00:06:44.620
toward a hopefully permanent stabilization of exchange rates on a full gold basis.

66
00:06:44.620 --> 00:06:48.260
The British were amenable, provided the pound remained fairly cheap in relation to the dollar.

67
00:06:48.260 --> 00:07:17.260
Sprague & Harrison concluded an agreement with the British and French for temporary stabilization of the three currencies, setting the dollar sterling rate at about $4 per pound, and pledging the United States not to engage in massive inflation of the currency for the duration of the agreement.

68
00:07:17.260 --> 00:07:21.700
The American representatives urged Roosevelt to accept the agreement, spray warning, quote,

69
00:07:21.700 --> 00:07:26.020
that a failure now would be most disastrous, and Warburg declaring that without stabilization,

70
00:07:26.020 --> 00:07:29.820
quote, it would be practically impossible to assume a leading role in attempting to bring

71
00:07:29.820 --> 00:07:33.180
about a lasting economic peace, unquote.

72
00:07:33.180 --> 00:07:37.020
But Roosevelt quickly rejected the agreement on June 17th, giving two reasons.

73
00:07:37.020 --> 00:07:41.260
One, that the pound must be stabilized at no cheaper than $4.25, and it goes, we can't

74
00:07:41.260 --> 00:07:42.260
accept a $4 pound.

75
00:07:42.260 --> 00:07:46.260
We're going to push the pound up again so that American exports would be stimulated

76
00:07:46.260 --> 00:07:51.700
and British exports stopped and restricted, and two, that he could not accept any restraint

77
00:07:51.700 --> 00:07:54.900
on his freedom of action to inflate in order to raise domestic prices.

78
00:07:54.900 --> 00:07:59.780
Roosevelt ominously concluded, quote, that it is my personal view that far too much importance

79
00:07:59.780 --> 00:08:04.680
is being placed on existing and temporary fluctuations, unquote, and lest the American delegation

80
00:08:04.680 --> 00:08:08.860
take his reasoning as a stimulus to renegotiating the agreement, Roosevelt reminded Hull on

81
00:08:08.860 --> 00:08:13.860
June 20th, quote, remember the far too much influence is attached to exchange stability

82
00:08:13.860 --> 00:08:25.060
by Banker Influenced Cabinets." Here we have a new note of anti-banker hospitality.

83
00:08:25.060 --> 00:08:28.020
Upon receiving the presidential veto, the British and French were indignant, and George

84
00:08:28.020 --> 00:08:32.980
Harrison quit on a turn home to discuss. That was the first great resignation from the Roosevelt

85
00:08:32.980 --> 00:08:37.540
team. But the American delegation went ahead and issued its official statement on temporary

86
00:08:37.540 --> 00:08:42.780
currency stabilization on June 22nd. It declared temporary stabilization impermissible, quote,

87
00:08:42.780 --> 00:08:47.780
Because the American government feels that its efforts to raise prices are the most important contribution it can make.

88
00:08:47.780 --> 00:08:53.780
That already casts a great pull on the conference, obviously.

89
00:08:53.780 --> 00:08:57.780
I'm not a very happy foot to start off on.

90
00:08:57.780 --> 00:09:01.780
With temporary stabilization scuttled, the conference settled down to longer-range discussions,

91
00:09:01.780 --> 00:09:09.780
most important work being set out on the Sub-Commission on Immediate Measures of Financial Reconstruction of the Monetary and Financial Commission of the conference.

92
00:09:09.780 --> 00:09:39.780
The British delegation began by introducing a draft resolution, one, emphasizing the importance of quote, cheap and plentiful credit, unquote, in order to raise the world level of commodity prices and two, stating that the quote, that the central banks of the principal countries should undertake to cooperate with a view to securing these conditions and should announce their intention of pursuing vigorously a policy of cheap and plentiful money by open market operations. So essentially this is sort of the bullet thing. You emphasize coordinated, all the countries get together and coordinate an inflationary policy,

93
00:09:39.780 --> 00:09:48.780
The British thus laid stress on coordinated inflation, but said nothing about the sticking point, exchange rate stabilization.

94
00:09:48.780 --> 00:09:54.780
The Dutch, the Czechoslovaks, the Japanese and the Swiss criticized the British advocacy of inflation.

95
00:09:54.780 --> 00:10:00.780
The Italian delegate warned, quote, that the put one's faith in immediate measures for augmenting the volume of money and credit

96
00:10:00.780 --> 00:10:04.780
might lead to a speculative boom followed by an even worse slump.

97
00:10:04.780 --> 00:10:11.500
A hasty and unregulated flood of credit will lead to destructive results, and the French

98
00:10:11.500 --> 00:10:14.700
delegates stressed that no genuine recovery could occur without a sense of economic and

99
00:10:14.700 --> 00:10:20.540
financial security, who would be prepared to lend with the fear of being repaid in depreciated

100
00:10:20.540 --> 00:10:25.300
currency always before his eyes? Who would find the capital for financing vast programs

101
00:10:25.300 --> 00:10:29.820
of economic recovery and abolition of unemployment, as long as there is a possibility that economic

102
00:10:29.820 --> 00:10:54.820
The American delegation then submitted its own draft proposal, which was similar to the British, ignored currency stability, and advocated close cooperation between all governments and central banks,

103
00:10:54.820 --> 00:10:58.300
quote, that the carrying out of a policy of making credit abundantly and readily available

104
00:10:58.300 --> 00:11:04.960
to sound enterprise, especially by open market operations which expand to the money supply.

105
00:11:04.960 --> 00:11:08.500
Also government expenditures and deficits should be synchronized between the different nations.

106
00:11:08.500 --> 00:11:11.300
So it's the same sort of thing, coordinated inflation.

107
00:11:11.300 --> 00:11:14.820
The difference of views between the nations on inflation and prices, however, precluded

108
00:11:14.820 --> 00:11:17.320
any agreement in this area at the conference.

109
00:11:17.320 --> 00:11:22.900
On the gold question, Great Britain submitted a policy declaration in the US, a draft resolution,

110
00:11:22.900 --> 00:11:26.260
which looked forward to eventual restoration of the gold standard, but again nothing was

111
00:11:26.260 --> 00:11:30.140
spelled out on exchange rates or on the crucial question of whether restoration or price inflation

112
00:11:30.140 --> 00:11:31.140
should come first.

113
00:11:31.140 --> 00:11:33.660
I mean, restoration or price inflation should come first.

114
00:11:33.660 --> 00:11:39.500
So it's sort of a pious hope about the gold standard, somewhere or from the future.

115
00:11:39.500 --> 00:11:43.020
In both the American and British proposals, however, even the eventual gold standard would

116
00:11:43.020 --> 00:11:46.380
be considerably more inflationary than it had been in the 20s.

117
00:11:46.380 --> 00:11:49.620
For all domestic gold circulation, whether coin or bullion, would be abolished.

118
00:11:49.620 --> 00:12:01.280
Gold used only as a medium for suppling international balances of payment and all gold reserve ratios

119
00:12:01.280 --> 00:12:05.020
to currency would be lowered.

120
00:12:05.020 --> 00:12:08.340
As could have been predicted before the conference, there were three sets of views on gold and

121
00:12:08.340 --> 00:12:09.340
currency stabilization.

122
00:12:09.340 --> 00:12:14.460
The United States, backed only by Sweden, favored cheap money in order to raise domestic prices,

123
00:12:14.460 --> 00:12:19.540
but currency stabilization would be deferred until a sufficient price rise had occurred.

124
00:12:19.540 --> 00:12:24.140
Whatever international cooperation was envisaged would stress joint inflationary action to

125
00:12:24.140 --> 00:12:26.900
raise price levels in some coordinate manner.

126
00:12:26.900 --> 00:12:29.940
The United States, moreover, went further even than Sweden in calling for reflating

127
00:12:29.940 --> 00:12:33.300
wholesale prices back to 1926 levels.

128
00:12:33.300 --> 00:12:37.100
The gold block attacked currency and price inflation, pointed to the early post-war experience

129
00:12:37.100 --> 00:12:41.900
of severe inflation and currency depreciation, and hence insisted on stabilization of exchanges

130
00:12:41.900 --> 00:12:42.900
and the avoidance of depreciation.

131
00:12:42.900 --> 00:12:47.380
In the confused middle were the British and the sterling block who wanted price reflation

132
00:12:47.380 --> 00:12:52.380
but also wanted eventual return of the gold standard and temporary stabilization of the key currencies.

133
00:12:52.380 --> 00:12:56.380
So again we have this sort of polar thing, the French and the gold block on one hand,

134
00:12:56.380 --> 00:13:00.380
the United States and the other pole, and the British and sterling block in the middle.

135
00:13:00.380 --> 00:13:04.380
As the London Conference founded on severe disagreements, the gold block countries began to panic.

136
00:13:04.380 --> 00:13:09.380
For on the one hand the dollar was falling in the exchange markets all this time that they were talking,

137
00:13:09.380 --> 00:13:12.380
thus making American goods and currency more competitive.

138
00:13:12.380 --> 00:13:21.380
And what is more, the general boom of the conference gave international speculators the idea that in the near future, many of these countries would themselves be forced to go off gold.

139
00:13:21.380 --> 00:13:30.380
Consequently, money began to flow out of the gold countries during June, and Holland, Switzerland lost over 10% of their gold reserves during that one month alone.

140
00:13:30.380 --> 00:13:40.380
Consequently, the gold countries launched a final attempt to draft a compromise resolution. The proposed resolution was a surprisingly mild one.

141
00:13:40.380 --> 00:13:44.900
2001. It committed the signatory countries to reestablishing the gold standard and stable

142
00:13:44.900 --> 00:13:48.700
exchange rates, but deliberately emphasized that the parity and date for each country

143
00:13:48.700 --> 00:13:52.820
to return the gold was strictly up to each individual country. The existing gold standard

144
00:13:52.820 --> 00:13:56.180
countries were pledged to remain on gold, which is not difficult since that was their

145
00:13:56.180 --> 00:14:00.460
fervent hope. The non-gold countries were to reaffirm their ultimate objective to return

146
00:14:00.460 --> 00:14:04.900
the gold, to try their best to limit exchange speculation in the meanwhile, and to cooperate

147
00:14:04.900 --> 00:14:07.360
with other central banks in these two endeavors.

148
00:14:07.360 --> 00:14:11.520
The innocuousness of the proposed declaration

149
00:14:11.520 --> 00:14:14.120
comes from the fact that it committed the United States

150
00:14:14.120 --> 00:14:16.240
to very little more than its own resolution

151
00:14:16.240 --> 00:14:17.980
of over a week earlier to return eventually

152
00:14:17.980 --> 00:14:21.080
to the gold standard, coupled with a vague agreement

153
00:14:21.080 --> 00:14:22.840
to cooperate in limiting exchange speculation

154
00:14:22.840 --> 00:14:24.820
in the major currencies.

155
00:14:24.820 --> 00:14:28.060
This joint declaration was agreed upon by Spray, Warburg,

156
00:14:28.060 --> 00:14:29.960
James M. Cox, head of the Monetary Commission

157
00:14:29.960 --> 00:14:31.840
at the conference, and by Raymond Moley,

158
00:14:31.840 --> 00:14:33.120
who had taken charge of the delegation

159
00:14:33.120 --> 00:14:39.680
Molley was Assistant Secretary of State and had been a monetary nationalist.

160
00:14:39.680 --> 00:14:52.680
Molley, however, sent a declaration to Roseville on June 30th urging the President to accept it, especially since Roseville had been willing a few weeks earlier to stabilize it at $4.25 a pound, while the depreciation of the dollar during June had now brought the market rate up to $4.40.

161
00:14:52.680 --> 00:15:01.280
So Roseville really had nothing to gripe it back because the pound was happily more expensive than up to $4.40.

162
00:15:01.280 --> 00:15:08.980
Of course, the Atlantic, Undersecretary of the Treasury, Dean Gooderham Atchison, who appears for the first time as a powerful figure in the United States,

163
00:15:08.980 --> 00:15:15.780
influential Wall Street financier, Bernal M. Baruch, and Louis W. Douglas also strongly endorsed the London Declaration.

164
00:15:15.780 --> 00:15:20.340
Not hearing immediately from the President, Moley frantically wired Roosevelt the next morning that, quote,

165
00:15:20.340 --> 00:15:23.760
success even continuous of the conference depends upon the United States agreement.

166
00:15:23.760 --> 00:15:27.760
Roosevelt cabled his rejection on July 1st, declaring, quote,

167
00:15:27.760 --> 00:15:33.760
that a sufficient interval should be allowed in the United States to permit a demonstration of the value of price-lifting efforts which we have well in hand,

168
00:15:33.760 --> 00:15:35.760
the value of reflating upwards.

169
00:15:35.760 --> 00:15:39.760
Roosevelt's rejection of even the innocuous agreement was in itself startling enough,

170
00:15:39.760 --> 00:15:42.760
but he felt that he had to add insult to injury,

171
00:15:42.760 --> 00:15:46.760
to slash away the London Conference so that no danger might exist of currency stabilization

172
00:15:46.760 --> 00:15:49.760
or of the reconstruction of an international monetary order.

173
00:15:49.760 --> 00:15:59.760
Hansi sent on July 3rd an arrogant and contemptuous public message to the London Conference, the famous bombshell message, so named for its impact on the conference.

174
00:15:59.760 --> 00:16:06.760
Roosevelt began by lambasting the idea of temporary currency stabilization, which he termed a specious fallacy in artificial and temporary diversion.

175
00:16:06.760 --> 00:16:12.760
Instead, Roosevelt declared that the emphasis must be placed on, quote, the sound internal economic system of a nation.

176
00:16:12.760 --> 00:16:15.160
In particular, quote,

177
00:16:15.160 --> 00:16:20.160
old fetishes of so-called international bankers are being replaced by efforts to plan national currencies,

178
00:16:20.160 --> 00:16:24.160
the objective of giving to those currencies a continuing purchasing power,

179
00:16:24.160 --> 00:16:27.560
which a generation hence will have the same purchasing and debt-paying power

180
00:16:27.560 --> 00:16:29.960
as the dollar value we hope to attain in the near future.

181
00:16:29.960 --> 00:16:33.960
That's the old, that's the thing, the Fisher motif of stabilization of the dollar.

182
00:16:33.960 --> 00:16:37.960
You can see, of course, how successful Roosevelt and his successors have been at this,

183
00:16:37.960 --> 00:16:40.160
pegging into the price level.

184
00:16:40.160 --> 00:16:46.160
That objective means more to the good of other nations than a fixed ratio for a month or two in terms of a pound or a franc.

185
00:16:46.160 --> 00:16:58.160
In short, the President was now totally committed to the nationalist Fisher-dash Committee of the Nation program for paper money, currency inflation, and very steep reflation of prices, and then stabilization at the higher internal price level.

186
00:16:58.160 --> 00:17:04.160
The idea of stable exchange rates in international monetary order could fade into limbo.

187
00:17:04.160 --> 00:17:08.880
The Royal Economic Conference limped along aimlessly for a few more weeks, but the Roosevelt

188
00:17:08.880 --> 00:17:12.640
bombshell message effectively killed the conference, and the hope for a restored international

189
00:17:12.640 --> 00:17:15.480
monetary order was dead for a fateful decade.

190
00:17:15.480 --> 00:17:19.880
From here on in the 1930s, monetary nationalism, currency blocks, and commercial and financial

191
00:17:19.880 --> 00:17:22.360
warfare would be the order of the day.

192
00:17:22.360 --> 00:17:27.200
The French were bitter, and the English stricken of the Roosevelt message.

193
00:17:27.200 --> 00:17:32.320
The Chagrin James P. Warburg promptly resigned as financial advisor of the delegation.

194
00:17:32.320 --> 00:17:36.320
This was the beginning of the exit of this highly placed economic advisor from Roosevelt administration.

195
00:17:36.320 --> 00:17:39.320
A similar fate was in store for Oliver Sprague and Dean Acheson.

196
00:17:39.320 --> 00:17:42.320
You know, one peculiar thing about Dean Acheson as a sort of aside here,

197
00:17:42.320 --> 00:17:47.320
when I was growing up, or first entered the movement, in quotes,

198
00:17:47.320 --> 00:17:51.320
Dean Acheson was considered to be a commie, an international Moscow conspirator, right,

199
00:17:51.320 --> 00:17:55.320
because he refused to turn his back on Alger Hiss and he lost us China.

200
00:17:55.320 --> 00:18:01.320
And then the peculiar thing is you look at the later record of Dean Acheson,

201
00:18:01.320 --> 00:18:29.320
In the early 30s, he was very conservative, and he wanted to bomb the Russians everywhere, and so on, and then you say, well, maybe he left us back in the 40s, and he turned right wing, turned conservative in the 60s, 50s, and 60s, but then you look back at the early 30s, and of course he was very conservative, and he left the Roosevelt administration on the gold standard question, which seems to indicate that he was not a commie in the 40s.

202
00:18:29.320 --> 00:18:41.320
As for Raymond Moley, who had been repudiated by the President's action, he tried to restore himself to Roosevelt's graces by a fawning and obviously insincere telegram, only to be ousted from office shortly after his return to the United States.

203
00:18:41.320 --> 00:18:49.320
Playing an ambivalent role in the entire affair, Bernard Baruch, who was privately in favor of the old gold standard, praised Roosevelt fulsomely for his message, quote,

204
00:18:49.320 --> 00:18:55.320
Until each nation puts its house in order by the same Herculean efforts that you are performing, Baruch wrote the President,

205
00:18:55.320 --> 00:18:59.320
there can be no common denominators by which we can endeavor to solve the problems.

206
00:18:59.320 --> 00:19:03.320
There seems to be one common ground that all nations can take, and that is the one outlined by you.

207
00:19:03.320 --> 00:19:11.320
Here we have this fawning, bootlicking message Baruch wrote to Roosevelt at the same time he's telling his friends that it's a terrible thing and we should have gone back to the old gold standard.

208
00:19:11.320 --> 00:19:28.960
Expressions of enthusiastic support for the President's decision came, as might be expected,

209
00:19:28.960 --> 00:19:33.720
from Irving Fisher and George F. Warren, who urged Roosevelt to avoid any possible agreement

210
00:19:33.720 --> 00:19:49.620
James A. Farley is recorded in his memoirs that Roosevelt was prompted to send his angry

211
00:19:49.620 --> 00:19:55.060
message by coming to suspect a plot that influenced Moley in favor of stabilization by Thomas

212
00:19:55.060 --> 00:19:59.620
W. Lamont, partner of J.P. Morgan & Company, working for Moley's conference aide and White

213
00:19:59.620 --> 00:20:03.900
White House advisor Herbert Bayard Swope was close to the Morgans and also a long-time

214
00:20:03.900 --> 00:20:04.900
confidant of Baruch.

215
00:20:04.900 --> 00:20:10.260
This is my well account for Roosevelt's bitter reference to the so-called international bankers.

216
00:20:10.260 --> 00:20:15.700
The situation is curious, however, since Swope was firmly on the anti-stabilizationist side,

217
00:20:15.700 --> 00:20:20.180
and Roosevelt's London message was read enthusiastically by Russell Leffingwell, a partner of J.P.

218
00:20:20.180 --> 00:20:23.740
Morgan, who apparently took little notice of its attack on the international bankers.

219
00:20:23.740 --> 00:20:27.900
Apparently, it rolled right off at least Russell Leffingwell's back.

220
00:20:27.900 --> 00:20:31.860
Nothing while I wrote to the President after he sent his message, the bombshell message, quote,

221
00:20:31.860 --> 00:20:35.980
You were very right not to enter into any temporary or permanent arrangements to peg the dollar

222
00:20:35.980 --> 00:20:38.020
in relation to sterling or any other currency.

223
00:20:38.020 --> 00:20:41.500
So it's kind of a curious situation there.

224
00:20:41.500 --> 00:20:45.140
We need some more wrapping up.

225
00:20:45.140 --> 00:20:50.780
From the date of the torpedoing of the London Monetary Conference, monetary nationalism prevailed for the remainder of the 1930s.

226
00:20:50.780 --> 00:20:55.020
The United States finally fixed the dollar at $35 an ounce in January 1934,

227
00:20:55.020 --> 00:21:04.020
and mounting to a two-thirds increase in the gold price of the dollar from its original moorings less than a year before into a 40% devaluation of the dollar, which had been $20.50.

228
00:21:04.020 --> 00:21:11.020
The gold nations continued on gold for two more years, but the greatly devalued dollar now began to attract a flood of gold from the gold countries,

229
00:21:11.020 --> 00:21:19.020
and France was finally forced off gold in the fall of 1936, with the other major gold countries, Switzerland, Belgium and Holland, falling shortly thereafter.

230
00:21:19.020 --> 00:21:24.020
While the dollar was technically fixed in terms of gold, there was no further gold coin or bullion redemption within the United States.

231
00:21:24.020 --> 00:21:47.020
The only significant act of international collaboration after 1934 came in the fall of 1936, at about the time France was forced to leave the gold standard.

232
00:21:47.020 --> 00:21:55.020
Probably to assist the French, the United States, Great Britain and France entered into a tripartite agreement beginning on September 25th, 1936.

233
00:21:55.020 --> 00:22:01.020
The French agreed to throw in the exchange rate sponge and devalue the franc by between one quarter and one third.

234
00:22:01.020 --> 00:22:08.020
At this new par, the three governments agreed not to stabilize their currencies, but to iron out day-to-day fluctuations in them,

235
00:22:08.020 --> 00:22:13.020
to engage in mutual stabilization of each other's currencies only within each 24-hour period.

236
00:22:13.020 --> 00:22:29.020
This was scarcely stabilization, but did constitute a moderating of fluctuations, as well as political-monetary collaboration, which began with the three Western countries and soon expanded to include the other former gold nations, Belgium, Holland, and Switzerland.

237
00:22:29.020 --> 00:22:40.020
This collaboration continued until the outbreak of World War II. So this was the United States, Great Britain, France, Belgium, Holland, and Switzerland.

238
00:22:40.020 --> 00:22:44.220
At least one incident marred the harmony of the tripartite agreement.

239
00:22:44.220 --> 00:22:48.620
In the fall of 1938, while the United States and Britain were hammering out a trade agreement,

240
00:22:48.620 --> 00:22:50.660
the British began pushing the pound below $4.80.

241
00:22:50.660 --> 00:22:55.580
At the threat of this cheapening of the pound, U.S. Treasury officials warned Secretary of

242
00:22:55.580 --> 00:23:02.340
Treasury Henry Morgenthau Jr. that if, quote, Sterling drops substantially below $4.80,

243
00:23:02.340 --> 00:23:05.500
our foreign domestic business will be adversely affected, end quote.

244
00:23:05.500 --> 00:23:09.060
In consequence, Morgenthau successfully insisted that the trade agreement with Britain must

245
00:23:09.060 --> 00:23:37.900
Human may touch only on a fascinating historical problem, which has been discussed by revisionist

246
00:23:37.900 --> 00:24:07.900
by the famous historians of the 1930s, to what extent was the American drive for war against Germany the result of anger and conflict over the fact that in the 1930s, the 1930s world of economic and monetary nationalism, the Germans, on the guidance of Dr. Helmar Schacht, went their way successfully on their own, totally outside the Anglo-American control of the confinements of what remained of the cherished American open door.

247
00:24:07.900 --> 00:24:18.900
The treatment of this question will serve as a prelude to examining the aim of the war-born second New Deal of reconstructing the new international monetary order, an order that in many ways resembled the lost world of the 1920s.

248
00:24:18.900 --> 00:24:30.900
German economic nationalism in the 1930s was, first of all, conditioned by the horrifying experience that Germany had had with runaway inflation and currency depreciation during the early 1920s, culminating in the monetary collapse in 1923.

249
00:24:30.900 --> 00:24:47.900
The whole German schtick in the depression, starting in 1931, was shocked as the economic wizard, so to speak, and continued thereafter through the 30s, was totally conditioned by this experience.

250
00:24:47.900 --> 00:24:54.900
The Germans were going through this fantastic runaway inflation, the first hyperinflation in modern times of an industrial nation.

251
00:24:54.900 --> 00:25:00.900
The mark was worth, you know, one, two billion marks were worth something like one piece of bubble gum

252
00:25:00.900 --> 00:25:05.900
and people were papering the war with mark notes and trillion mark notes and all the rest of it.

253
00:25:05.900 --> 00:25:10.900
And the Germans, the German public, matched on as sort of a symbol on the cause of all this,

254
00:25:10.900 --> 00:25:14.900
exchange rate depreciation, devaluation of exchange rate.

255
00:25:14.900 --> 00:25:19.900
So even though the Germans could cunningly increase the money supply and supply of marks in Germany,

256
00:25:19.900 --> 00:25:24.900
And they could not, could not, not, not, regardless of who was in power, devalue the mark.

257
00:25:24.900 --> 00:25:29.900
So the fixed thing, which the Germans had to face in this period, is the mark had to remain at the old par.

258
00:25:29.900 --> 00:25:34.900
If there was any even hint of devaluation of the mark, they would have had a revolution.

259
00:25:34.900 --> 00:25:36.900
So, okay, so that was their, that was their thing.

260
00:25:36.900 --> 00:25:41.900
Here we have a situation where the, every, currencies are collapsing, everybody goes off the gold standard,

261
00:25:41.900 --> 00:25:43.900
and the German mark is overvalued.

262
00:25:43.900 --> 00:25:50.900
What do you do about it if you can't devalue the mark?

263
00:25:50.900 --> 00:25:55.780
What the Germans did about it was to start, since they were outside, then, the international

264
00:25:55.780 --> 00:26:01.760
monetary order, since the mark was overvalued, they started a system of exchange controls

265
00:26:01.760 --> 00:26:07.620
and bilateral trade agreements, that they're really, in this sense, outside the multilateral

266
00:26:07.620 --> 00:26:08.620
system.

267
00:26:08.620 --> 00:26:13.380
And in the course of doing that, they were attacked bitterly by the United States as

268
00:26:13.380 --> 00:26:40.380
The Court was an overvalued power as each European country went off the gold standard.

269
00:26:40.380 --> 00:26:43.500
No German government could have politically succeeded in engaging once again in the dreaded

270
00:26:43.500 --> 00:26:44.500
act of devaluation.

271
00:26:44.500 --> 00:26:49.240
No longer on goal and unable to devalue the mark, Germany was obliged to engage in strict

272
00:26:49.240 --> 00:26:50.240
exchange control.

273
00:26:50.240 --> 00:26:56.660
In this economic climate, Dr. Schach was particularly successful in making bilateral trade agreements

274
00:26:56.660 --> 00:27:02.060
with individual countries, agreements which amounted to direct quote border unquote arrangements

275
00:27:02.060 --> 00:27:06.460
and anger of the United States and other western countries and totally bypassing gold and other

276
00:27:06.460 --> 00:27:09.020
international banking and financial arrangements.

277
00:27:09.020 --> 00:27:15.060
In the anti-German propaganda of the 1930s, the German barter deals were agreements in

278
00:27:15.060 --> 00:27:18.300
which Germany somehow invariably emerged as coercive victor and exploiter of the other

279
00:27:18.300 --> 00:27:24.540
country involved, say Bulgaria or Romania, in exchanging manufactured goods for wheat,

280
00:27:24.540 --> 00:27:27.380
even though they were mutually agreed upon and therefore presumably mutually beneficial

281
00:27:27.380 --> 00:27:28.380
exchanges.

282
00:27:28.380 --> 00:27:31.800
Actually, there's nothing either diabolic or unilaterally exploitive about the barter

283
00:27:31.800 --> 00:27:32.800
deals.

284
00:27:32.800 --> 00:27:37.340
Part of the essence of the barter arrangements has been neglected by historians.

285
00:27:37.340 --> 00:27:42.140
The deliberate overvaluation of the exchange rates of both currencies involved in these deals.

286
00:27:42.140 --> 00:27:46.540
And typically that would happen.

287
00:27:46.540 --> 00:27:51.940
The German market, we have seen, was deliberately overvalued as the alternative to the expected currency depreciation.

288
00:27:51.940 --> 00:27:54.940
The situation of the other currencies was a bit more complex.

289
00:27:54.940 --> 00:27:57.940
Thus, in the border agreements between Germany and the various Balkan countries,

290
00:27:57.940 --> 00:28:00.940
especially Romania, Bulgaria, Hungary and Yugoslavia,

291
00:28:00.940 --> 00:28:04.940
in which the Balkans exchanged agricultural products for German manufactured goods,

292
00:28:04.940 --> 00:28:11.240
The Balkan currencies were also fixed at an artificially overvalued rate, vis-a-vis gold, and the currencies of Britain and the other western countries.

293
00:28:11.240 --> 00:28:22.540
So we had the Markov's overvalued in these agreements, particularly, the Markov's overvalued, also the Bolgar and the RUM, or whatever the names of these currencies are.

294
00:28:22.540 --> 00:28:32.940
This meant that Germany agreed to pay higher than world market rates for Balkan agricultural products, while the Balkan countries pay higher rates for German manufactured products.

295
00:28:32.940 --> 00:28:39.500
And what was the point of this? What benefits from this peculiar arrangement were both currencies that were overvalued?

296
00:28:39.500 --> 00:28:47.780
The point was that for the Balkan countries, the point was to force Balkan consumers of manufactured goods to subsidize their own peasants and agriculturists.

297
00:28:47.780 --> 00:28:57.300
In other words, this is an end run by which the Romanian government forces the Romanian consumer to subsidize the Romanian peasant.

298
00:28:57.300 --> 00:29:03.980
The Romanian consumer who buys manufactured goods is in this way forced to sort of like a new deal of farm programs.

299
00:29:03.980 --> 00:29:07.740
It's done roundabout through the currency system, the exchange rate and currency system.

300
00:29:07.740 --> 00:29:16.500
So the Romanian urban person or whatever, a businessman who buys manufactured goods is really subsidizing the Romanian peasant and landlord.

301
00:29:16.500 --> 00:29:25.180
The external consequence of this was that Germany was able to freeze out Britain and other Western nations from buying balkan food and raw materials because they were paying a higher price.

302
00:29:25.180 --> 00:29:39.180
Germany was paying a higher price than the British would pay on the market, and since the British could not compete in paying for Balkan produce, the Balkan countries in the bilateral world in the 1930s did not have sufficient pound sterling or dollars to buy manufactured goods from the West.

303
00:29:39.180 --> 00:29:51.180
Thus, Britain and the West were deprived of raw materials and markets for their manufactures by the astute policies of Hilmar Schacht and mutually agreeable border agreements between Germany and the Balkan and others, including Latin American countries.

304
00:29:51.180 --> 00:30:13.180
May not Western anger at successful German competition through bilateral agreements and Western desire to liquidate such competition have been an important factor in the Western drive for war against Germany.

305
00:30:13.180 --> 00:30:18.660
Lloyd Gardner has demonstrated the early hostility of the United States toward German economic

306
00:30:18.660 --> 00:30:23.820
controls and broader arrangements, as attempts to pressure Germany to shift to a multilateral

307
00:30:23.820 --> 00:30:28.320
open-door system for American products, and the repeated American rebuffs the German proposals

308
00:30:28.320 --> 00:30:30.780
for bilateral exchanges between the two countries.

309
00:30:30.780 --> 00:30:37.460
I have some other stuff here, instead of integrating, I'll just sort of add the other stuff which

310
00:30:37.460 --> 00:30:39.500
I've done since this paper has come out.

311
00:30:39.500 --> 00:30:56.500
As early as June 26, 1933, the Influential American Consul General of Berlin, George Messersmith, was warning that such continued policies would make Germany a danger to world peace for years to come.

312
00:30:56.500 --> 00:31:05.500
This danger to world peace has nothing to do with any German troops marching or anything of that sort. It's German bilateral trade agreements and exchange controls.

313
00:31:05.500 --> 00:31:14.500
In pursuing this aggressive policy, President Roosevelt overrode A.A.A. Chief George Peek, who at this point becomes an, quote, isolationist, unquote, for World War II.

314
00:31:14.500 --> 00:31:22.500
From then on, Peek and Johnson, by the way, hive off the general liberal foreign policy as it's beginning to shape up.

315
00:31:22.500 --> 00:31:29.500
George Peek, who favored accepting bilateral deals with Germany, and perhaps not coincidentally, was to be an ardent isolationist in the late 1930s.

316
00:31:29.500 --> 00:31:34.500
Instead, Roosevelt followed the policy of a leading interventionist and spokesman for an open door for American products,

317
00:31:34.500 --> 00:31:39.600
Products, Secretary of State Cordell Hull, as well as Assistant Secretary Francis B.

318
00:31:39.600 --> 00:31:41.500
Sayre, son-in-law of Woodrow Wilson.

319
00:31:41.500 --> 00:31:46.980
Woodrow Wilson pops up again, if only as an ancestor.

320
00:31:46.980 --> 00:31:51.820
By 1935, American officials were calling Germany an aggressor because of its successful bilateral

321
00:31:51.820 --> 00:31:57.540
trade competition, and Japan was similarly castigated for much of the same reasons.

322
00:31:57.540 --> 00:32:02.220
By late 1938, G. Pierpont Moffat, head of the Western European Division of the State

323
00:32:02.220 --> 00:32:06.380
Department, was complaining that German control of Central and Eastern Europe would mean,

324
00:32:06.380 --> 00:32:10.580
quote, a still further extension of the area under a closed economy, unquote.

325
00:32:10.580 --> 00:32:15.620
And more specifically, in May 1940, Assistant Secretary of State Breckinridge Long warned

326
00:32:15.620 --> 00:32:19.020
that a German-dominated Europe would mean, quote, that every commercial order will be

327
00:32:19.020 --> 00:32:23.340
routed to Berlin, rooted to Berlin, and filled under its order somewhere in Europe rather

328
00:32:23.340 --> 00:32:25.700
than in the United States, unquote.

329
00:32:25.700 --> 00:32:29.500
So begin to see here that maybe the reason for the American drive to war with Germany

330
00:32:29.500 --> 00:32:44.500
Not for a crusade to save 6 million European Jews, but for less ideological, so to speak, less abstract ideological reasons.

331
00:32:44.500 --> 00:32:50.500
And shortly before American entry into the war, John J. McCloy, later to be U.S. High Commissioner,

332
00:32:50.500 --> 00:32:54.500
occupied Germany and the number one establishment person in the Rockefeller M.

333
00:32:54.500 --> 00:32:58.300
was to write in a draft for a speech by Secretary of War Henry Stimson, quote,

334
00:32:58.300 --> 00:33:02.500
with German control of the buyers of Europe and her practice of government control of all trade,

335
00:33:02.500 --> 00:33:06.500
it would be well within our power as well as the pattern she had thus far displayed,

336
00:33:06.500 --> 00:33:11.500
the shuttle of our trade with Europe, with South America and with the Far East, unquote.

337
00:33:11.500 --> 00:33:18.500
Not only were Hull and the United States ardent in oppressing an anti-German policy against its bilateral trade system,

338
00:33:18.500 --> 00:33:22.500
but sometimes Secretary Hull had to whip even Britain into line, even our heroic ally,

339
00:33:22.500 --> 00:33:29.540
Thus, in early 1936, Cordell Hull warned the British ambassador, and quote, the clearing

340
00:33:29.540 --> 00:33:33.340
arrangements reached by Britain with Argentina, Germany, Italy and other countries were handicapping

341
00:33:33.340 --> 00:33:37.440
the efforts of this government to carry forward its broad program of the favorite nation policy

342
00:33:37.440 --> 00:33:38.440
underlying it.

343
00:33:38.440 --> 00:33:43.260
In other words, the open door, multilateral, most favorite nation policy.

344
00:33:43.260 --> 00:33:47.140
The tendency of these British arrangements was, quote, to drive straight toward bilateral

345
00:33:47.140 --> 00:33:51.260
trading, and they were therefore milestones on the road to war.

346
00:33:51.260 --> 00:33:56.920
So here's a sort of direct angry threat that you're pursuing a policy which the Germans

347
00:33:56.920 --> 00:33:59.980
have been pursuing of bilateral trading and that's the road to the war and this is also

348
00:33:59.980 --> 00:34:04.060
going to be the road to the war, presumably with us.

349
00:34:04.060 --> 00:34:07.620
One of the United States government's biggest economic worries was the growing competition

350
00:34:07.620 --> 00:34:10.020
of Germany and its bilateral trade in Latin America.

351
00:34:10.020 --> 00:34:13.180
Here it gets really hairy, of course.

352
00:34:13.180 --> 00:34:17.940
As early as 1935, Cordell Hull concluded that Germany was, quote, straining every tendon

353
00:34:17.940 --> 00:34:21.940
and to undermine United States trading relations with Latin America."

354
00:34:21.940 --> 00:34:24.940
A great deal of political pressure was used to combat this competition.

355
00:34:24.940 --> 00:34:29.940
Thus, in the mid-1930s, the American Chamber of Commerce in Brazil repeatedly pressed the

356
00:34:29.940 --> 00:34:33.940
State Department to scuffle with Germany-Brazil border deal.

357
00:34:33.940 --> 00:34:37.940
That was to put enormous political pressure on the Brazilians to scuffle it, which the

358
00:34:37.940 --> 00:34:41.940
chamber termed, quote, the greatest single obstacle to free trade in South America.

359
00:34:41.940 --> 00:34:45.940
Brazil was finally induced to cancel its agreement with Germany in exchange for $60 million loans

360
00:34:45.940 --> 00:34:56.940
America's exporters, grouped in the National Foreign Trade Council, issued resolutions against German trade methods and pressured the government for stronger action.

361
00:34:56.940 --> 00:35:11.940
In late 1938, President Roosevelt asked Professor James Harvey Rogers, an economist and disciple of Irving Fisher, to make a currency study of all of South America in order to minimize German and Italian influence on this side of the Atlantic.

362
00:35:11.940 --> 00:35:22.940
There's no wonder the German diplomats in Brazil, Chile and Uruguay reported home that the United States was, quote,

363
00:35:22.940 --> 00:35:28.940
exerting very strong pressure against Germany commercially, unquote, which included economic, commercial and political opposition

364
00:35:28.940 --> 00:35:32.940
designed to drive Germany out of the Brazilian and other South American markets.

365
00:35:32.940 --> 00:35:39.940
In the spring of 1935, the German ambassador to Washington, desperately anxious to bring an end to American political and economic warfare,

366
00:35:39.940 --> 00:35:43.940
asked the United States what Germany could do to end American hostilities.

367
00:35:43.940 --> 00:35:47.940
The American answer, which amounted to the demand for unconditional economic surrender,

368
00:35:47.940 --> 00:35:50.940
was that Germany abandon its economic policy in favor of America.

369
00:35:50.940 --> 00:35:53.940
In other words, abandon its whole bilateral trading change control business

370
00:35:53.940 --> 00:35:59.940
and allow us export, non-discriminatory export into Germany.

371
00:35:59.940 --> 00:36:02.940
I'll go a little bit more into that in a minute.

372
00:36:02.940 --> 00:36:08.940
The second reply really meant, noted Pierpont Moffatt, quote,

373
00:36:08.940 --> 00:36:14.940
fundamental acceptance by Germany, and this is what we demanded in this reply,

374
00:36:14.940 --> 00:36:18.940
fundamental acceptance by Germany of our trade philosophy,

375
00:36:18.940 --> 00:36:22.940
and a thoroughgoing partnership with us along the road of equality of treatment and the reduction of trade barriers.

376
00:36:22.940 --> 00:36:27.940
That really means, of course, reduction of German trade barriers, our trade barriers.

377
00:36:27.940 --> 00:36:30.940
The United States further indicated that it was interested that Germany accept,

378
00:36:30.940 --> 00:37:00.940
In the spring of 1936, Secretary Hull refused to settle for a bilateral deal to sell Germany a large store of American cotton, holding

379
00:37:00.940 --> 00:37:02.940
The President of Brazil announced the idea as blackmail.

380
00:37:02.940 --> 00:37:04.940
The predictable result was, in the next couple of years,

381
00:37:04.940 --> 00:37:09.940
the source of raw cotton imported into Germany shifted sharply from the United States to Brazil and Egypt,

382
00:37:09.940 --> 00:37:12.940
which had been willing to make barter sales of cotton.

383
00:37:12.940 --> 00:37:15.940
And it starts the arras of the Brazilian problem.

384
00:37:16.940 --> 00:37:21.940
When war broke out in September 1939, Bernard Baruch's reaction,

385
00:37:21.940 --> 00:37:25.940
when he heard of this, was to tell President Roosevelt, quote,

386
00:37:25.940 --> 00:37:38.940
If we keep our prices down, there is no reason why we shouldn't get the customers of the belligerent nations that they have had to drop because of the war.

387
00:37:38.940 --> 00:37:44.940
That was Baruch's first reaction. And nothing about saving six million Jews. His first reaction was the commercial crush.

388
00:37:44.940 --> 00:37:48.940
And in that event, Baruch exalted Germany's border system will be destroyed.

389
00:37:48.940 --> 00:37:58.940
But particularly significant is a retrospective comment made by Secretary Hull, he made in his memoirs after the war.

390
00:37:58.940 --> 00:38:06.940
Quote, War did not break out between the United States and any country with which we had been able to negotiate a trade agreement.

391
00:38:06.940 --> 00:38:13.940
It is also a fact that with very few exceptions, the countries with which we signed trade agreements joined together in resisting the Axis.

392
00:38:13.940 --> 00:38:17.940
political lineup follows the economic lineup

393
00:38:17.940 --> 00:38:20.500
underline, underline that

394
00:38:20.500 --> 00:38:22.580
uh... now the thing is, you know, when I first

395
00:38:22.580 --> 00:38:25.020
I sort of knew about this when I was

396
00:38:25.020 --> 00:38:28.500
growing up in a graduate school, et cetera, and read this stuff, and I sort of

397
00:38:28.500 --> 00:38:32.500
the tendency that was sort of dismissed how I was sort of a free trade nut

398
00:38:32.500 --> 00:38:35.820
and they kept making these statements and nobody believed them

399
00:38:35.820 --> 00:38:38.580
and if we re-

400
00:38:38.580 --> 00:38:43.820
re-listen or re-read Hull's statements in this regard and begin to take them seriously and say maybe

401
00:38:43.820 --> 00:38:52.820
Maybe he was, after all, he was the Secretary of State during this whole period, and if he said the major cause of war with Germany was this economic struggle, maybe he was right, at least there was a chance that he might be right.

402
00:38:55.820 --> 00:39:12.820
Or as I say here, considering that Secretary Hull was the leading maker of American foreign policy throughout the 1930s and through World War II, there's certainly a possibility that his remarks should be taken not as a quaint testimony to Hull's edifice and reciprocal trade, but as a positive causal statement of the thrust of American foreign policy.

403
00:39:12.820 --> 00:39:18.820
Right in that light, Hull's remark becomes a significant admission, rather than a flight of speculative fancy.

404
00:39:18.820 --> 00:39:32.820
Reinforcing this interpretation will be a similar reading of a testimony before the House of Representatives in 1945 of top Treasury aide, Harry Dexter White, defending the Bretton Woods agreements he had come to, White declared, quote,

405
00:39:32.820 --> 00:39:44.380
I think it would very definitely have made a considerable contribution to checking the war and possibly might have prevented it.

406
00:39:44.380 --> 00:39:50.060
What's he talking about if the war is over with Jews and all that sort of stuff on the Rhineland and Danzig?

407
00:39:50.060 --> 00:39:51.460
And possibly might have prevented it.

408
00:39:51.460 --> 00:40:00.260
A great many of the devices which Germany and Japan utilize would have been illegal in the international sphere had these countries been participating members.

409
00:40:00.260 --> 00:40:12.260
Is White saying that the Allies deliberately made war upon the Axis because of these bilateral exchange control and other competitive devices, which a Bretton Woods, or for that matter, 1920s system, would have precluded?

410
00:40:14.260 --> 00:40:23.260
When I wind up this part of the paper, by noting the assertion of the influential London Times well after the start of the war, I quote,

411
00:40:23.260 --> 00:40:32.620
Quote, one of the fundamental causes of this war, said this in October 1940, has been the

412
00:40:32.620 --> 00:40:39.580
un-relaxing efforts of Germany since 1918 to secure wide enough foreign markets to straighten

413
00:40:39.580 --> 00:40:43.980
her finances at the very time when all of her competitors were forced by their own debts

414
00:40:43.980 --> 00:40:46.380
to adopt exactly the same course.

415
00:40:46.380 --> 00:40:47.380
Continuous friction was inevitable.

416
00:40:47.380 --> 00:40:54.380
Once again, we have the Economic Interpretation, this time a very distinguished British journal.

417
00:40:54.380 --> 00:41:00.380
Okay, I have more which sort of fits into this, going parallel more or less.

418
00:41:00.380 --> 00:41:07.380
And here I refer to this forum, this module, which I just read fairly recently by Professor Thomas Etzold.

419
00:41:07.380 --> 00:41:14.380
I have the title in bibliography, something like Why the United States Fought German in World War II.

420
00:41:14.380 --> 00:41:19.380
As a connoisseur of this, I happen to hear this undoubtedly unpublished.

421
00:41:19.380 --> 00:41:28.380
Professor Garrity of Columbia gave a very interesting, long paper at the OAH Organization of American Historians meeting in Chicago this April.

422
00:41:28.380 --> 00:41:37.380
And the paper largely focused on the comment that Hitler and the Nazis' attitude toward the New Deal in the early period, 33, 35, etc., before the friction began.

423
00:41:37.380 --> 00:41:39.380
And it was laudatory.

424
00:41:39.380 --> 00:41:43.980
Hitler and the Nazis loved to do the, kept praising Roosevelt for doing in the United

425
00:41:43.980 --> 00:41:47.780
States what Hitler was doing in Germany and then fixing up the economic system and corporatizing

426
00:41:47.780 --> 00:41:54.780
it and putting in, saving capitalism or whatever, whatever the praxeology was, it was laudatory

427
00:41:54.780 --> 00:41:56.780
in the extreme.

428
00:41:56.780 --> 00:42:05.780
Okay, what went, for the things that went wrong in this multilateral business, deals

429
00:42:05.780 --> 00:42:11.660
Deals with the whole tariff question, basically. One of the problems was that by German law,

430
00:42:11.660 --> 00:42:17.140
this had nothing to do with Hitler, this was the German system, tariffs were not a legislative

431
00:42:17.140 --> 00:42:22.660
matter, they were treaties negotiated with each country. So Germany would settle a tariff

432
00:42:22.660 --> 00:42:26.980
with Britain by having a treaty negotiation and find out the tariff there and so on. In

433
00:42:26.980 --> 00:42:31.460
the United States, of course, tariffs are outside treaties. Tariffs are passed by Congress

434
00:42:31.460 --> 00:43:01.460
and so here we have this peculiar system. First of all, the United States, you see, can then insist that everybody else be multilateral, because we're multilateral, we're not discriminating against German exports or French exports, and we raise our tariff 200%, we're keeping at everybody equally, we're not discriminating against any foreign country. So we can take a very high moral tone about non-discrimination and multilateralism. Anytime the poor Germans did not have this kind of system, but it says they negotiate a treaty of

435
00:43:01.460 --> 00:43:06.780
and the tariff is negotiated with each country, they can't be multilateral, it's almost impossible

436
00:43:06.780 --> 00:43:09.320
to be multilateral in the same sense.

437
00:43:09.320 --> 00:43:15.100
So we have this culture clash, and from the very beginning, from 1931 on, this whole thing

438
00:43:15.100 --> 00:43:19.060
collapses, the monetary thing collapses, the United States is constantly attacking Germany

439
00:43:19.060 --> 00:43:23.740
for discriminating against American products, and because of the way their thing is structured

440
00:43:23.740 --> 00:43:28.940
and not giving us this benefit of multi, misfavor of nation clauses and so forth, and the Germans

441
00:43:28.940 --> 00:43:31.640
Germany has been accusing us of being hypocritical because they don't care that we're also keeping

442
00:43:31.640 --> 00:43:35.340
out Bulgarian products with our high tariffs. They're worried about the fact that German

443
00:43:35.340 --> 00:43:39.100
exports are being kept at. We say, who cares about Bulgarian tariffs? That's a legislative

444
00:43:39.100 --> 00:43:43.620
matter. The point is we're not discriminating against you personally. So this goes on for

445
00:43:43.620 --> 00:43:49.580
the whole 1930s, this whole communication gap, if you want to call it that.

446
00:43:49.580 --> 00:43:56.140
More specific, during the late 1920s, during the great foreign lending boom, Germany had

447
00:43:56.140 --> 00:44:03.420
has been one of the largest debtors in the United States, a close symbiotic debtor-debtor

448
00:44:03.420 --> 00:44:07.020
relationship between the United States and Germany.

449
00:44:07.020 --> 00:44:15.300
By the time of the 1931 crash, American creditors had almost $700 million in German short-term

450
00:44:15.300 --> 00:44:20.500
securities and over $1.2 billion in long-term German securities.

451
00:44:20.500 --> 00:44:30.860
So we were virtually the biggest creditors and comes the crash and comes the overvalued

452
00:44:30.860 --> 00:44:34.980
markets and the Germans have great difficulty in getting dollars up to pay the American

453
00:44:34.980 --> 00:44:35.980
creditors.

454
00:44:35.980 --> 00:44:39.820
This is another big, one problem was the whole tariff caper, the other problem was the whole

455
00:44:39.820 --> 00:44:44.260
devaluation, over-evaluation of bilateral agreements with Eastern Europe and Latin America

456
00:44:44.260 --> 00:44:47.660
and the third problem was the American creditors, the American creditors are only on the German

457
00:44:47.660 --> 00:45:03.660
And the Germans are griping because our tariffs keep going up, so how can they acquire dollars

458
00:45:03.660 --> 00:45:05.780
in a rather sensible position?

459
00:45:05.780 --> 00:45:08.340
We're telling them to get dollars and pay off American creditors, and they're saying

460
00:45:08.340 --> 00:45:12.060
how can we acquire dollars if you won't buy German, allow us to sell German products in

461
00:45:12.060 --> 00:45:15.060
the United States?

462
00:45:15.060 --> 00:45:18.100
The German exports in the United States kept falling because of the higher U.S. tariffs,

463
00:45:18.100 --> 00:45:25.380
the Smooth Holy Tariff, for example, 31, which ended in this period, and the Germans now put

464
00:45:25.380 --> 00:45:30.220
on exchange controls to limit foreign exchange payments, because they have this, the mark

465
00:45:30.220 --> 00:45:34.020
being overvalued, they have the usual effect of that, which is a foreign exchange shortage.

466
00:45:34.020 --> 00:45:49.060
And the Germans, by 1933, the Germans reduced their service, in other words their debt service,

467
00:45:49.060 --> 00:45:54.220
their debt payment on medium and long term German bonds, which are mostly debts of German

468
00:45:54.220 --> 00:46:01.700
municipalities, which we daily gave them during the Great Foreign Lending Movement in the 20s.

469
00:46:01.700 --> 00:46:06.900
The bankers would go over to Germany and practically force them to borrow from them and build these

470
00:46:06.900 --> 00:46:15.700
city halls and German municipal works and that sort of thing.

471
00:46:15.700 --> 00:46:23.660
And the shock that was in this bind and the policy, and shock blamed, I mean, excuse me,

472
00:46:23.660 --> 00:46:27.740
how to blame Hitler because the Germans had reduced American debt payments in 1933, actually

473
00:46:27.740 --> 00:46:32.420
Germany was shocked. Hitler was in favor of servicing paying American debts, and shock

474
00:46:32.420 --> 00:46:36.340
told them, no, I can't do that because we haven't got the money. Shock had been running

475
00:46:36.340 --> 00:46:46.040
this thing since 1931. And then Germany goes over by the summer of 1933 this bilateral

476
00:46:46.040 --> 00:46:50.860
system where they announced that Germany would only buy abroad what it could pay for. It

477
00:46:50.860 --> 00:46:54.180
would limit its imports, the classical mercantilist thing, if you're in this bilateral thing,

478
00:46:54.180 --> 00:47:04.180
To limit their imports from each nation, depending on the balance of trade, in other words, to try to have a balanced balance of payment with each country.

479
00:47:04.180 --> 00:47:16.180
To quote an American, they had a big balance of payment deficit with the United States, Germany at this point, so they had to coercibly reduce American exports to Germany.

480
00:47:16.180 --> 00:47:20.860
Hull of course protested very bitterly and we had this whole culture conflict. Culture

481
00:47:20.860 --> 00:47:30.960
dash, you can know my conflict. And Hull was constantly attacking Germany for these quotas

482
00:47:30.960 --> 00:47:39.740
of reducing American exports to Germany and so forth. There's also a whole complicated

483
00:47:39.740 --> 00:47:45.620
deal here which I'm not going to go into where the German export, how the way German exchange

484
00:47:45.620 --> 00:47:50.620
Control Works, and it was a whole complicated scheme, which the Americans write that, because

485
00:47:50.620 --> 00:47:53.620
again, it's limited American exports to Germany.

486
00:47:53.620 --> 00:48:01.740
Meantime, to aggravate all this, in 1933 and 1934, the United States discovered that Germany

487
00:48:01.740 --> 00:48:06.620
was paying their full debt service, the full debt charges, to other countries like Britain,

488
00:48:06.620 --> 00:48:09.020
Holland, Switzerland.

489
00:48:09.020 --> 00:48:12.620
So we got very riled up about this, and the demand and explanation for shocks and shocks

490
00:48:12.620 --> 00:48:13.620
as well.

491
00:48:13.620 --> 00:48:16.460
When we have a dollar shortage, we have huge deficits in the balance of payments by the

492
00:48:16.460 --> 00:48:22.660
United States because he's on this bilateral ambit.

493
00:48:22.660 --> 00:48:26.500
And the United States is vastly illegal and all that sort of stuff.

494
00:48:26.500 --> 00:48:33.900
Hull gets very legalistic, of course, at all times, especially when it fits his export ideology.

495
00:48:33.900 --> 00:48:41.180
And then we have this whole tariff thing and all that, which I mentioned before.

496
00:48:41.180 --> 00:48:50.380
In March 1935, the Germans get panicky because the United States is getting more and more

497
00:48:50.380 --> 00:48:55.380
aggressive on this thing, refusing any kind of compromise. And Germany finally is ready

498
00:48:55.380 --> 00:49:02.580
to capitulate. They say, okay, we accept the first-favorite nation principle. In the spring

499
00:49:02.580 --> 00:49:06.940
of 1935, to show their good faith, Germany resumes partial debt service on some of the

500
00:49:06.940 --> 00:49:11.940
The U.S. held bonds, the German bonds, and Schott even sent word to the United States

501
00:49:11.940 --> 00:49:14.940
that he was ready to adopt a whole United States program, even the Reciprocal Trade Treaty,

502
00:49:14.940 --> 00:49:21.940
because at this time they were getting pretty scared. So Holt decides to, quote, test, quote,

503
00:49:21.940 --> 00:49:28.940
German good faith. As noted in June 2835, he demands that Germany allocate foreign exchange

504
00:49:28.940 --> 00:49:32.940
and quotas and give the United States' commerce its proportional share in the German market,

505
00:49:32.940 --> 00:49:36.540
and give an immediate quota, something like the equivalent of affirmative action plans

506
00:49:36.540 --> 00:49:41.780
in the American university system, and give an immediate quota for proportionate share

507
00:49:41.780 --> 00:49:48.700
in the German market, and make reductions in German tariffs and US exports.

508
00:49:48.700 --> 00:49:53.260
And we insisted, not only did we insist on this sort of overkill thing, unconditional

509
00:49:53.260 --> 00:49:57.500
economic surrender, as I mentioned before, but Helen insisted, this is typical of Hellenism,

510
00:49:57.500 --> 00:50:06.140
Germany would have to meet every one of these demands before we could even talk about it.

511
00:50:06.140 --> 00:50:12.180
This is the origins of this famous non-negotiable demand of the New Left.

512
00:50:12.180 --> 00:50:16.700
First you split your throat and then we'll sit down and talk about the whole thing.

513
00:50:16.700 --> 00:50:23.220
So this fantastic ultimatum, really, on the German multilateral system, in which every

514
00:50:23.220 --> 00:50:27.180
cause has to be met before negotiating.

515
00:50:27.180 --> 00:50:38.140
Germany agreed to meet all the conditions except one. They said they couldn't allocate

516
00:50:38.140 --> 00:50:43.100
dollars in advance. In other words, they couldn't before, they can't promise us, guarantee us

517
00:50:43.100 --> 00:50:48.500
foreign exchange, in other words, dollars to pay back our creditors, in advance of payment

518
00:50:48.500 --> 00:50:50.700
because they don't know how much dollars they're going to get. They don't know how they'll

519
00:50:50.700 --> 00:50:55.940
be able to do in the trade system and so on. So they can't guarantee this in advance of

520
00:50:55.940 --> 00:51:01.020
Trade and Investment, because they couldn't be sure of trade surplus with other countries

521
00:51:01.020 --> 00:51:03.540
so they can maneuver around and get dollars.

522
00:51:03.540 --> 00:51:06.500
Hover of fuel, so that's it.

523
00:51:06.500 --> 00:51:16.020
We tested that good site and had it and from now on everything is up to shoot.

524
00:51:16.020 --> 00:51:24.140
And this is when J.P. or Paul Moffatt come out, we had the man of the unconditional economic

525
00:51:24.140 --> 00:51:28.140
Surrender, and the first thing that was the end of that.

526
00:51:28.140 --> 00:51:35.140
Okay, that's a new deal on our national monetary system in the thirties.

527
00:51:35.140 --> 00:51:42.140
Now let's press on to Bretton Woods.

528
00:51:42.140 --> 00:51:47.140
And interestingly enough, the whole controversy among American diplomatic historians about

529
00:51:47.140 --> 00:51:50.140
what was America's war aims during World War II.

530
00:51:50.140 --> 00:51:54.140
I'm not, you know, my expertise is not diplomatic history, but

531
00:51:54.140 --> 00:51:58.140
Harry M. Barnes, for example, claimed that our war aims are simply

532
00:51:58.140 --> 00:52:02.140
maximum killing of all Germans, you know, as many Germans as possible.

533
00:52:02.140 --> 00:52:06.140
Whether or not that was true, we did have very definite economic

534
00:52:06.140 --> 00:52:10.140
monetary war aims, which we were very firm about from the very beginning of the war.

535
00:52:10.140 --> 00:52:14.140
Whether, to one extent, German economic nationalism was a cause

536
00:52:14.140 --> 00:52:18.140
for the American drive toward war, at one point

537
00:52:18.140 --> 00:52:40.740
Well, anyway, at one point it was clear that we had a clear war aim, an economic monetary

538
00:52:40.740 --> 00:52:47.500
war aim, and the war aim was to reestablish an international monetary system, this national

539
00:52:47.500 --> 00:53:00.500
Competing National Devaluation Currency Center hadn't worked, it brought about war, but we're going to reestablish a genoa type system with a couple of key differences.

540
00:53:00.500 --> 00:53:10.500
One difference was no more of this nonsense about domestic, because before that in the 20s the United States had redeemed in gold, the only currency redeemed in gold.

541
00:53:10.500 --> 00:53:13.500
Now we have differences, nobody's going to redeem in gold domestically.

542
00:53:13.500 --> 00:53:18.500
The only gold reduction would be in foreign transactions, as the United States did in the 30s.

543
00:53:18.500 --> 00:53:24.500
The second difference is more politically far-reaching, for instead of two joint partner key currencies, the pound and the dollar,

544
00:53:24.500 --> 00:53:31.500
for the dollar's workhorse, Junior Subaltern, the only key currency now is to be the dollar, which is to be fixed at $35 for the gold balance.

545
00:53:31.500 --> 00:53:37.500
So now we have the new Bretton Woods, the so-called Bretton Woods, which has become the Bretton Woods system.

546
00:53:37.500 --> 00:53:41.500
The same gold exchange standard is going on, same business.

547
00:53:41.500 --> 00:54:10.500
The pound had had it. Just as the United States was to use the Second World War to replace British imperialism with its own far-flung empire,

548
00:54:10.500 --> 00:54:17.500
So in the monetary sphere, the United States was now to move in and take over, with a pound no less subordinate than all the other major currencies.

549
00:54:17.500 --> 00:54:22.500
It was truly a triumph in dollar-imperialism, the parallel of the imperial-American thrust in the political sphere.

550
00:54:22.500 --> 00:54:27.500
As Secretary of the Treasury Henry Morgenthau Jr. was later to express it,

551
00:54:27.500 --> 00:54:35.500
the critical and eminently successful objective was, quote, to move the financial center of the world, unquote, from London to the United States Treasury.

552
00:54:35.500 --> 00:54:45.500
This is what was done. We might not have been successful in the political sphere, but we were certainly very successful, at least within this framework of our goals, in achieving them.

553
00:54:45.500 --> 00:54:58.500
And all this was eminently in keeping with the prophetic vision of Cordell Hull, a man who, in the words of Gabriel Coco, had, quote, the basic responsibility for American political and economic planning for the peace.

554
00:54:58.500 --> 00:55:04.660
for Holland urged upon Congress as far back as 1932, way, way back, that America gird

555
00:55:04.660 --> 00:55:10.300
itself, quote, gird itself, yield to the law of manifest destiny, or we heard that before,

556
00:55:10.300 --> 00:55:16.580
and go forward as a supreme world factor economically and morally, unquote. World War II is the occasion

557
00:55:16.580 --> 00:55:20.300
for a new coalition to form behind the New Deal. I'll get back to the domestic New Deal

558
00:55:20.300 --> 00:55:25.500
later. A coalition which reintegrated many conservative internationalists in, quote,

559
00:55:25.500 --> 00:55:43.100
This reintegration of the entire conservative financial community was particularly true in

560
00:55:43.100 --> 00:55:46.140
the field of international economic and monetary policy.

561
00:55:46.140 --> 00:55:50.580
Here Dr. Leo Paszwolski, a conservative economist who had broken the New Deal on scuttling the

562
00:55:50.580 --> 00:55:54.260
London Economic Conference, returned to a crucial role as Secretary of Health's special

563
00:55:54.260 --> 00:55:56.260
and Postwar Planning.

564
00:55:56.260 --> 00:56:01.760
Dean Atchison, also disaffected by radical monitoring measures in 1933-34, was now back

565
00:56:01.760 --> 00:56:06.380
as Assistant Secretary of State for Economic Affairs, playing a key role.

566
00:56:06.380 --> 00:56:10.460
And when the alien Cordell Hull retired in late 1944, he was replaced by Edwards de Teneas,

567
00:56:10.460 --> 00:56:13.980
son of a Morgan partner and himself former president of Morgan Oriental United States

568
00:56:13.980 --> 00:56:14.980
Steel.

569
00:56:14.980 --> 00:56:19.060
De Teneas chose as Assistant Secretary for Economic Affairs, the man who quickly became

570
00:56:19.060 --> 00:56:29.300
William L. Clayton, former leader of the Anti-Nuclear Liberty League and chairman and major partner

571
00:56:29.300 --> 00:56:36.700
of Anderson Clayton Company, the world's largest cotton export firm. Clayton's major focus

572
00:56:36.700 --> 00:56:41.500
in post-war planning was to promote and encourage American exports, with cotton not unnaturally

573
00:56:41.500 --> 00:56:52.500
Even before America entered into the war, U.S. economic war aims were well defined

574
00:56:52.500 --> 00:56:56.620
and rather brutally simple. They hinged on a determined assault upon the 1930s system

575
00:56:56.620 --> 00:57:00.620
of economic and monetary nationalism so as to promote American exports, investments and

576
00:57:00.620 --> 00:57:05.460
financial dealings overseas. In short, the open door for American commerce. In the sphere

577
00:57:05.460 --> 00:57:08.820
of commercial policy, this took the form of pressure for reduction of tariffs on American

578
00:57:08.820 --> 00:57:15.180
and the elimination of quantitative import restrictions on those products.

579
00:57:15.180 --> 00:57:18.880
The Allied sphere of monetary policy is meant to break up a powerful nationalistic currency

580
00:57:18.880 --> 00:57:23.180
bloc and the restoration of an international monetary order based on the dollar, in which

581
00:57:23.180 --> 00:57:26.740
currencies would be convertible into each other at predictable and fixed parities and

582
00:57:26.740 --> 00:57:30.380
would be a minimum of national exchange control over the purchase and use of foreign currencies.

583
00:57:30.380 --> 00:57:34.580
And even as the United States was prepared to enter the war to save its ally Great Britain,

584
00:57:34.580 --> 00:57:38.380
it was preparing to bludgeon the British at a time of great peril to abandon their sterling

585
00:57:38.380 --> 00:57:43.300
Law, which they had organized effectively since the Ottawa agreements of 1932. World

586
00:57:43.300 --> 00:57:48.220
War II would presumably deal effectively with the German bilateral trade and currency menace,

587
00:57:48.220 --> 00:57:53.260
but what about the problem with Great Britain? How do you solve that? British economists

588
00:57:53.260 --> 00:57:57.420
would urge the policy of all-out economic and monetary nationalism on behalf of inflation

589
00:57:57.420 --> 00:58:01.380
and full employment. It'd go on so far as to hail Roosevelt's torpedoing of the London

590
00:58:01.380 --> 00:58:06.420
Economic Conference, because the path is then clear for economic nationalism. Keynes's visit

591
00:58:06.420 --> 00:58:10.820
in Washington on behalf of the British government in the summer of 1941, now spread gloom about

592
00:58:10.820 --> 00:58:15.420
the British determination to continue their bilateral economic policies after the war.

593
00:58:15.420 --> 00:58:20.920
High State Department official J. Pierpont Moffat despaired, quote, the future is clouding

594
00:58:20.920 --> 00:58:25.660
up rapidly and despite the war, the Hitlerian commercial policy will probably be adopted

595
00:58:25.660 --> 00:58:32.700
by Great Britain. So what do we do about this? Are we going to start bombing Britain after

596
00:58:32.700 --> 00:58:38.060
The United States responded by putting the pressure on Great Britain at the Atlantic

597
00:58:38.060 --> 00:58:46.000
Conference in August 1941. Under the Secretary of State Sumner Wells insisted that the British

598
00:58:46.000 --> 00:58:50.400
agree to remove discrimination against American exports and abolish their politics of autarky

599
00:58:50.400 --> 00:58:55.220
exchange controls and imperial preference blocks. Prime Minister Churchill partly refused,

600
00:58:55.220 --> 00:58:58.740
but the United States was scarcely prepared to abandon its crucial aim of breaking down

601
00:58:58.740 --> 00:59:00.340
and the Sterling Block.

602
00:59:00.340 --> 00:59:02.060
As President Roosevelt privately told his son,

603
00:59:02.060 --> 00:59:03.340
Eliot, at the Atlantic Conference,

604
00:59:03.340 --> 00:59:06.180
this was in the days when Eliot's books were authorized

605
00:59:06.180 --> 00:59:07.620
by FDR and such, right?

606
00:59:07.620 --> 00:59:13.580
quote, it's something that's not generally known,

607
00:59:13.580 --> 00:59:16.820
this is Roosevelt talking to his kid at his knee,

608
00:59:20.060 --> 00:59:21.300
it's something that's not generally known,

609
00:59:21.300 --> 00:59:24.020
but British bankers and German bankers

610
00:59:24.020 --> 00:59:25.580
have had world trade pretty well sewn up

611
00:59:25.580 --> 00:59:27.820
in their pockets for a long time.

612
00:59:27.820 --> 00:59:33.100
Well now, that's not so good for American trade, is it?

613
00:59:33.100 --> 00:59:37.620
If in the past, German and British economic interests have operated to exclude us from world trade,

614
00:59:37.620 --> 00:59:40.900
kept our merchant shipping closed down, closed us out of this or that market,

615
00:59:40.900 --> 00:59:45.380
and now Germany and Britain are at war, what should we do?

616
00:59:45.380 --> 00:59:49.400
So Roosevelt, at least, apparently, in addition to Hull and these other guys, are also thinking

617
00:59:49.400 --> 00:59:50.800
of economic determinists,

618
00:59:50.800 --> 00:59:56.420
foreign trade, except for monetary terms, rather than high moral principles.

619
00:59:56.420 --> 01:00:00.540
Assigning one lease agreement was the ideal time for wringing concessions from the British,

620
01:00:00.540 --> 01:00:05.500
but Britain consented to sign the agreement's Article VII, which merely involved a vague

621
01:00:05.500 --> 01:00:09.520
commitment to the elimination of discriminatory treatment in international trade, only after

622
01:00:09.520 --> 01:00:11.860
intense pressure by the United States.

623
01:00:11.860 --> 01:00:15.620
The agreement was signed at the end of February 1942, and a return on the State Department

624
01:00:15.620 --> 01:00:19.820
pledged to the British that the US would pursue a policy of economic expansion and full employment

625
01:00:19.820 --> 01:00:20.820
after the war.

626
01:00:20.820 --> 01:00:25.340
It means inflation, in parenthesis, inflation.

627
01:00:25.340 --> 01:00:28.380
Even under these conditions, however, Britain soon maintained that the Lend-Lease Agreement

628
01:00:28.380 --> 01:00:30.540
committed to virtually nothing, after all.

629
01:00:30.540 --> 01:00:39.740
To court al-Hall, however, the agreement on Article 7 was decisive and constituted, quote,

630
01:00:39.740 --> 01:00:43.580
a long step toward the fulfillment, after the war, of the economic principles for which

631
01:00:43.580 --> 01:00:45.540
I had been fighting for half a century.

632
01:00:45.540 --> 01:00:53.940
The United States also insisted that other nations receiving Lend-Lease sign a virtually

633
01:00:53.940 --> 01:00:58.940
and the identical commitment to multilateralism after the war, so this is part of the quid pro quo from Lynne Lees.

634
01:00:58.940 --> 01:01:05.940
The first major public address, you notice how hard-headed and consistent we are on this aspect of our foreign policy.

635
01:01:05.940 --> 01:01:11.940
This first major public address in nearly a year, Hull in July 1942, could now look forward confidently to quote,

636
01:01:11.940 --> 01:01:20.940
leadership toward a new system of international relationships and trade and other economic affairs will devolve very largely upon the United States because of our great economic strength.

637
01:01:20.940 --> 01:01:26.940
We should assume this leadership and responsibility that goes with it, primarily for reasons of pure national self-interest.

638
01:01:30.940 --> 01:01:38.940
In the post-war planning for economic affairs, the State Department was in charge of commercial and trade policies, while the Treasury conducted the planning in the areas of money and finance.

639
01:01:38.940 --> 01:01:43.940
In charge of post-war international financial planning for the Treasury was the economist Harry Dexter White.

640
01:01:43.940 --> 01:01:49.220
In early 1942, White presented its first plan, which was to be one of the two major foundations

641
01:01:49.220 --> 01:01:52.940
of the post-war monetary system. White's proposal was, of course, within the framework

642
01:01:52.940 --> 01:01:56.860
of American post-war economic objectives. The countries of the world were to join a

643
01:01:56.860 --> 01:02:02.960
stabilization fund, totaling $5 billion, which would lend funds at short-term to deficit

644
01:02:02.960 --> 01:02:08.060
countries to iron out temporary balance of payments difficulties. But in return for

645
01:02:08.060 --> 01:02:11.940
this provision of greater liquidity and short-term aid to deficit countries, exchange rates of

646
01:02:11.940 --> 01:02:15.260
Currencies were to be fixed in relation to the dollar and hence the gold, with the gold

647
01:02:15.260 --> 01:02:20.100
price to be set at $35 an ounce, and exchange controls were to be abandoned by the various

648
01:02:20.100 --> 01:02:21.100
nations.

649
01:02:21.100 --> 01:02:25.020
While the White Plan envisioned a substantial amount of inflation to provide greater currencies

650
01:02:25.020 --> 01:02:29.500
and liquidity, the British responded with a Keynes Plan that was far more inflationary.

651
01:02:29.500 --> 01:02:33.420
By this time, Lord Keynes had abandoned economic and monetary nationalism for Britain under

652
01:02:33.420 --> 01:02:37.220
severe American pressure, and his aim was to salvage as much domestic inflation and

653
01:02:37.220 --> 01:02:46.300
The Keynes Plan, a vision of an international clearing union, which in return for agreeing

654
01:02:46.300 --> 01:02:50.540
to stable exchange rates between currencies and the abandonment of exchange control, provided

655
01:02:50.540 --> 01:02:57.340
a huge loan fund to its members of $26 billion, in contrast to the $5 billion white plan.

656
01:02:57.340 --> 01:03:00.860
The Keynes Plan, moreover, provided for a new international monetary unit, the Bancor,

657
01:03:00.860 --> 01:03:05.300
which could be issued by the clearing union, and such larger masses to provide almost unchecked

658
01:03:35.300 --> 01:03:42.900
The World Bank issues more unitas or bank wars than ships them to the United States.

659
01:03:42.900 --> 01:03:47.660
The United States ships them to Germany, and Germany is stuck with the unitas.

660
01:03:47.660 --> 01:03:52.220
And then the World Bank can coordinate a worldwide inflation, like the Federal Reserve is coordinating

661
01:03:52.220 --> 01:03:53.220
a nationwide inflation.

662
01:03:53.220 --> 01:03:58.420
So this is the great objective and goal, to coordinate a worldwide, unlimited inflation

663
01:03:58.420 --> 01:04:11.220
of the American Monetary Establishment, the Keynes Plan, the nations would consult with

664
01:04:11.220 --> 01:04:16.540
each other about correcting balance of payments disequilibria through altering their exchange

665
01:04:16.540 --> 01:04:17.540
rates.

666
01:04:17.540 --> 01:04:21.580
The Keynes Plan furthermore provided automatic access to the fund of liquidity but none of

667
01:04:21.580 --> 01:04:25.420
the embarrassing requirements is included in the White Plan for deficit countries to cease

668
01:04:25.420 --> 01:04:30.380
is creating deficits by inflating their currency. Whereas the White Plan authorizes the Stabilization

669
01:04:30.380 --> 01:04:35.460
Fund to require deficit countries to cease inflating in return for fund loans, the Keynes

670
01:04:35.460 --> 01:04:39.860
Plan envisioned that inflation would proceed unchecked, but all the burden of necessary

671
01:04:39.860 --> 01:04:42.780
adjustments would be placed on the hard-money creditor countries. This is now popping up

672
01:04:42.780 --> 01:04:46.300
in the idea that Japan and Germany have to keep raising their value there of the mark

673
01:04:46.300 --> 01:04:52.580
and the yen, et cetera, instead of the dollar being devalued. The hard-money creditor countries

674
01:04:52.580 --> 01:05:01.780
The White Plan was stringently attacked by the conservative nationalists and inflationists

675
01:05:01.780 --> 01:05:07.080
in Britain, particularly G.R. Boeckby, Lord Beaverbrook, the London Times and the London

676
01:05:07.080 --> 01:05:11.700
Economist. The Keynes Plan was attacked by conservatives in the United States, as was

677
01:05:11.700 --> 01:05:15.700
even the White Plan for interfering with market forces and for automatic extension of credit

678
01:05:15.700 --> 01:05:19.660
to deficit countries. Critical of the White Plan were the guaranteed survey of the guaranteed

679
01:05:19.660 --> 01:05:24.020
Trust Company, and the American Bankers Association. Furthermore, The New York Times and The New

680
01:05:24.020 --> 01:05:28.380
York Tribune call for the return of the classical gold standard and attack the large measure

681
01:05:28.380 --> 01:05:32.740
of government financial planning envisioned by both the Keynes and White proposals.

682
01:05:32.740 --> 01:05:39.340
After negotiating during 1943 until the spring of 1944, the United States and Britain hammered

683
01:05:39.340 --> 01:05:44.020
out a compromise of the White and Keynes plans in April 1944. The compromise was adopted

684
01:05:44.020 --> 01:05:47.620
by a World Economic Conference in July of Bretton Woods, New Hampshire. It was Bretton

685
01:05:47.620 --> 01:06:03.660
Compromise established an international monetary fund as a stabilization mechanism. Its total

686
01:06:03.660 --> 01:06:09.380
funds were fixed at $8.8 billion, far closer to the White than the Keynes prescriptions.

687
01:06:09.380 --> 01:06:13.740
Its balance of IMF international control as against domestic autonomy lay between the

688
01:06:13.740 --> 01:06:18.260
The White and Keynes Plan, leaving the whole problem highly fuzzy. It was very fuzzy about

689
01:06:18.260 --> 01:06:21.620
how much control the IMF would have over the deficit countries and how much could they

690
01:06:21.620 --> 01:06:25.580
force them to stop inflating and so forth. On the one hand, national access to the fund

691
01:06:25.580 --> 01:06:29.580
was not to be automatic. On the other, the fund could no longer require corrective domestic

692
01:06:29.580 --> 01:06:35.020
economic policies of its members. On the question of exchange rates, the Americans yielded to

693
01:06:35.020 --> 01:06:38.620
the British insistence in allowing room for domestic inflation even at the expense of

694
01:06:38.620 --> 01:06:42.620
stable exchange rates. The compromise provided that each country could be free to make a

695
01:06:42.620 --> 01:06:55.620
In order to make a 10% change in its exchange rate, the larger changes could be made to correct fundamental, quote, fundamental disequilibria, unquote, and ensure that a chronically deficit country could devalue its currency rather than check its own inflation, at least by 10%.

696
01:06:55.620 --> 01:07:01.620
And then we're actually more than that, if there's so-called disequilibria fundamental to what that means.

697
01:07:01.620 --> 01:07:09.620
Furthermore, the United States yielded again on allowing creditor countries to suffer, and committing deficit countries imposed exchange controls on so-called scarce currencies.

698
01:07:09.620 --> 01:07:20.620
After World War II, for example, it was the dollar that was scarce, because the dollar was harder in other countries, and so we permitted, in this agreement, we permitted European deflationary countries to put exchange controls on the dollar.

699
01:07:20.620 --> 01:07:30.620
This meant, in effect, that the major European countries whose currencies would be fixed at existing highly overvalued rates in relation to the dollar, in those days the dollar was the hard money,

700
01:07:30.620 --> 01:07:35.980
must be permitted to enter the IMF with chronically overvalued currencies and then impose exchange

701
01:07:35.980 --> 01:07:39.620
controls on scarce undervalued dollars, so-called scarce dollars.

702
01:07:39.620 --> 01:07:44.500
But despite these expensive concessions, there is no bank core, no Keynesian bank core, the

703
01:07:44.500 --> 01:07:49.340
dollar fixed at $35 per gold ounce is now to be firmly established as the key currency

704
01:07:49.340 --> 01:07:51.620
base of the new world monetary order.

705
01:07:51.620 --> 01:07:55.140
The size for the dollar to be undervalued and other major currencies to be overvalued

706
01:07:55.140 --> 01:07:57.140
greatly spurs American exports.

707
01:07:57.140 --> 01:08:01.940
So this is hot char for American exports, which is one of the basic aims of the entire

708
01:08:01.940 --> 01:08:02.940
operation.

709
01:08:02.940 --> 01:08:07.300
U.S. Ambassador to Great Britain, John G. Wynant, reported the deceptive hostility to

710
01:08:07.300 --> 01:08:10.300
the Bretton Woods Agreement by the majority of the directors of the Bank of England.

711
01:08:10.300 --> 01:08:14.940
For these men saw, quote, says Wynant, that if the plan is adopted, financial control

712
01:08:14.940 --> 01:08:19.580
will leave London and sterling exchange will be replaced by dollar exchange.

713
01:08:19.580 --> 01:08:26.900
Quote, the proposed International Monetary Fund ran into a storm of conservative opposition

714
01:08:26.900 --> 01:08:35.840
The American attack on the IMF was essentially launched by two major groups, conservative

715
01:08:35.840 --> 01:08:38.900
eastern bankers and midwestern isolationists.

716
01:08:38.900 --> 01:08:43.040
Among the bankers, the American Bankers Association attacked the unsound inflationary policy

717
01:08:43.040 --> 01:08:46.820
of allowing debtor countries to control access to international funds.

718
01:08:46.820 --> 01:08:50.900
And W. Randolph Burgess, president of the American Bankers Association, denounced the provision

719
01:08:50.900 --> 01:08:56.340
for debtor rationing of scarce currencies as an abomination.

720
01:08:56.340 --> 01:09:00.400
The New York Times urged rejection of the IMF and proposed making loans to Britain in

721
01:09:00.400 --> 01:09:04.700
exchange for the abolition of exchange controls and quantitative restrictions on imports.

722
01:09:04.700 --> 01:09:08.700
Another banker group came up with the so-called Key Currency Proposal as a substitute for

723
01:09:08.700 --> 01:09:10.380
Bretton Woods.

724
01:09:10.380 --> 01:09:14.900
This Key Currency Plan was proposed by economist John H. Williams of Harvard, also Vice President

725
01:09:14.900 --> 01:09:18.420
of the Federal Reserve Bank of New York, and endorsed by Leon Fraser, President of the

726
01:09:18.420 --> 01:09:22.720
First National Bank of New York and by Winsor W. Oldridge, head of the Chase National Bank.

727
01:09:22.720 --> 01:09:26.720
This envisioned a bilateral pound-dollar stabilization, really getting back to the old Genoa thing.

728
01:09:26.720 --> 01:09:31.720
Fueled by a large transitional American loan or even grant to Great Britain,

729
01:09:31.720 --> 01:09:35.720
thus the key currency people were ready to abandon temporarily not only the classical gold standard,

730
01:09:35.720 --> 01:09:41.720
but even an international monetary order, and to stay temporarily in a modified version of the world in the 1930s.

731
01:09:41.720 --> 01:09:48.720
The Midwestern isolationist critics of the IMF were led by Senator Robert A. Taft, Republican of Ohio,

732
01:09:48.720 --> 01:09:53.720
would charge that while the bulk of the valuable hard money placed in the fund were the American dollars,

733
01:09:53.720 --> 01:09:58.720
the dollars would be subject to international control by the fund authorities and therefore by the debtor countries.

734
01:09:58.720 --> 01:10:03.720
The debtor countries could then still continue exchange controls and sterling block kind of practices.

735
01:10:03.720 --> 01:10:08.720
Here Taft failed to realize that formal informal structures in the Bretton Woods design

736
01:10:08.720 --> 01:10:14.720
would ensure effective United States control of both the IMF and the Allied International Bank, which we don't have to go into.

737
01:10:14.720 --> 01:10:21.360
The administration countered the critics of Bretton Woods with a massive propaganda campaign,

738
01:10:21.360 --> 01:10:25.360
which was able to drive the agreement through Congress by mid-July 1945.

739
01:10:25.360 --> 01:10:28.720
The campaign emphasized that the U.S. government would have effective control, at least of

740
01:10:28.720 --> 01:10:31.060
its own representatives, of the fund.

741
01:10:31.060 --> 01:10:35.600
It played up, in what proved to be gross exaggeration, the favorable aspects of the various ambiguous

742
01:10:35.600 --> 01:10:39.240
provisions, insisting that debtor access to the fund would not be automatic, and exchange

743
01:10:39.240 --> 01:10:43.040
controls would be removed, and exchange rates would be stabilized.

744
01:10:43.040 --> 01:10:46.040
It pushed heavily the vague idea that the fund was crucial to the post-war international

745
01:10:46.040 --> 01:10:48.560
cooperation to keep the peace.

746
01:10:48.560 --> 01:10:51.880
Particularly interesting was the argument of William L. Clayton and others that Bretton

747
01:10:51.880 --> 01:10:55.420
Woods would facilitate the general commercial policy of eliminating trade discrimination

748
01:10:55.420 --> 01:10:57.960
and barriers against American exports.

749
01:10:57.960 --> 01:11:00.960
This argument was put particularly boldly by Secretary of Treasury Morgenthau in a speech

750
01:11:00.960 --> 01:11:03.600
to Detroit industrialists.

751
01:11:03.600 --> 01:11:07.120
Morgenthau promised that the Bretton Woods agreement would lead to a world trade free

752
01:11:07.120 --> 01:11:11.080
from exchange control and depreciated currencies, and this would greatly increase the exports

753
01:11:11.080 --> 01:11:12.080
of American Automobiles.

754
01:11:12.080 --> 01:11:16.980
Since the fund would begin operations the following year, by accepting the existing

755
01:11:16.980 --> 01:11:21.040
grossly overvalued currency parity that most of the nations assisted upon, this method

756
01:11:21.040 --> 01:11:24.880
Morgenthau might have known whereof he spoke.

757
01:11:24.880 --> 01:11:28.420
For if other currencies are overvalued and the dollar undervalued, American exports are

758
01:11:28.420 --> 01:11:35.380
indeed encouraged and subsidized.

759
01:11:35.380 --> 01:11:39.400
It's perhaps understandable that not only the major foreign labor and New Deal liberal

760
01:11:39.400 --> 01:11:51.680
American approval in mid-1945 was followed after lengthy soul-searching by the approval

761
01:11:51.680 --> 01:11:53.720
of Great Britain at the end of the year.

762
01:11:53.720 --> 01:11:56.720
By the end of its existence, therefore, the Second New Deal had established a triumphant

763
01:11:56.720 --> 01:12:00.120
dollar as the base of a new international monetary system.

764
01:12:00.120 --> 01:12:03.800
The dollar had displaced the pound and within the general political framework in which the

765
01:12:03.800 --> 01:12:06.320
American Empire had replaced the British.

766
01:12:06.320 --> 01:12:11.680
Moving forward perceptively to the post-war world in January 1945, Lamar Fleming Jr.,

767
01:12:11.680 --> 01:12:15.360
president of Anderson Clayton Company, wrote to his long-time colleague William Clayton

768
01:12:15.360 --> 01:12:19.200
that the, quote, the British Empire and British international influence is a myth already,

769
01:12:19.200 --> 01:12:20.200
unquote.

770
01:12:20.200 --> 01:12:27.200
This is for our heroic allies, that nasty tone there.

771
01:12:27.200 --> 01:12:32.600
The United States would soon become the British protector against the emerging Russian landmass,

772
01:12:32.600 --> 01:12:33.600
prophesied Fleming.

773
01:12:33.600 --> 01:12:38.180
This will mean, quote, the absorption into the American Empire of the parts of the British

774
01:12:38.180 --> 01:12:45.080
Empire which we will be willing to accept, unquote.

775
01:12:45.080 --> 01:12:49.840
As the New Deal came to a close, the triumphant United States stood ready to reap its fruits

776
01:12:49.840 --> 01:12:54.960
on a worldwide scale.

777
01:12:54.960 --> 01:13:12.600
Well, let me get to the consequences maybe tomorrow, since I'm on a monetary kick.

778
01:13:12.600 --> 01:13:16.080
I read you the epilogue also.

779
01:13:16.080 --> 01:13:19.240
Bretton Woods' agreement established the framework of the international monetary system

780
01:13:19.240 --> 01:13:20.240
down to the present day.

781
01:13:20.240 --> 01:13:21.240
I mean, he's now in 1971.

782
01:13:21.240 --> 01:13:23.520
This was written a couple of years ago.

783
01:13:23.520 --> 01:13:27.120
The new and more stricted international dollar-gold exchange standard has replaced the collapsed

784
01:13:27.120 --> 01:13:30.440
dollar-pound-gold exchange standard of the 1920s.

785
01:13:30.440 --> 01:13:33.760
During the early post-war years, the system worked quite successfully within its own terms

786
01:13:33.760 --> 01:13:37.720
and the American banking community completely abandoned its opposition.

787
01:13:37.720 --> 01:13:43.280
With the European currencies inflated and overvalued and European economies exhausted,

788
01:13:43.280 --> 01:13:46.360
the under-evaluated dollar was the strongest and hardest of world currencies, the world

789
01:13:46.360 --> 01:13:50.520
dollar shortage prevailed and the dollar could base itself upon the vast stock of gold in

790
01:13:50.520 --> 01:13:54.840
of the United States, much of which had fled from war and devaluation, devastation and

791
01:13:54.840 --> 01:13:55.840
ruin.

792
01:13:55.840 --> 01:14:00.960
But in the early 1950s, the world economic balance began slowly but emphatically to change.

793
01:14:00.960 --> 01:14:04.080
For while the United States, influenced by Keynesian economics, proceeded blithely to

794
01:14:04.080 --> 01:14:09.000
fight the dollar, seemingly relieved of the limits imposed by the classical gold standard,

795
01:14:09.000 --> 01:14:12.240
several European countries began to move in the opposite direction.

796
01:14:12.240 --> 01:14:15.600
Under the revived influence of conservative free market and hard money oriented economists

797
01:14:15.600 --> 01:14:19.440
in such countries as West Germany, France, Italy and Switzerland, these newly recovered

798
01:14:19.440 --> 01:14:23.360
countries began to achieve prosperity with far less inflated currencies.

799
01:14:23.360 --> 01:14:26.960
Hence, these currencies became ever stronger and harder, while the dollar became softer

800
01:14:26.960 --> 01:14:28.440
and increasingly inflated.

801
01:14:28.440 --> 01:14:36.640
In this connection, the key people, interestingly enough, in this whole thing, leading these

802
01:14:36.640 --> 01:14:41.840
various countries toward much harder money and less inflation, were all students of Ludwig

803
01:14:41.840 --> 01:14:46.640
von Mises, the last Austrian economist on the board.

804
01:14:46.640 --> 01:14:52.720
West Germany, the key, the West German policy, both in free trade and free market and hard

805
01:14:52.720 --> 01:14:59.960
money, of Ludwig Erhard was essentially influenced by his theoretician economist, Alfred Müller-Armack,

806
01:14:59.960 --> 01:15:05.640
who was a student of Wilhelm Röpke in Switzerland, who in turn was a student of von Mises in

807
01:15:05.640 --> 01:15:13.080
Austria. So they have this whole Mises-Röpke-Miller-Romar connection. In France, Jacques Rouef was hard

808
01:15:13.080 --> 01:15:17.880
at Work, and I mentioned before, he was also a Mises student. And in Italy, Luigi Arnotti,

809
01:15:17.880 --> 01:15:23.120
president of Italy, had a great deal of influence on shifting Italy rightward after World War

810
01:15:23.120 --> 01:15:29.080
II. He was also a friend and colleague, and we found a student who was closely associated

811
01:15:29.080 --> 01:15:36.800
with Mises from a long time in Italy. So, this is sort of like the last gasp of the

812
01:15:36.800 --> 01:15:41.680
old Austrian influence. Continuing inflation of the dollar began to have two important

813
01:15:41.680 --> 01:15:47.080
Consequences. One, that the dollar was increasingly overvalued in relation to gold, and two, that

814
01:15:47.080 --> 01:15:50.680
the dollar was also increasingly overvalued in relation to the West German mark, the French

815
01:15:50.680 --> 01:15:55.560
and Swiss francs, the Japanese yen, and other hard money currencies. The result was a chronic

816
01:15:55.560 --> 01:15:59.640
and continuing deficit in the American balance of payments beginning in the early 1950s and

817
01:15:59.640 --> 01:16:03.640
persisting ever since. The consequence of the chronic deficit was a continuing outflow

818
01:16:03.640 --> 01:16:07.400
of gold abroad and a heavy piling up of dollar claims in central banks of the hard money

819
01:16:07.400 --> 01:16:19.560
In short, just as inflation in England and the United States during the 1920s led finally

820
01:16:19.560 --> 01:16:23.640
to the breakdown of the international monetary order then, so has inflation in the post-war

821
01:16:23.640 --> 01:16:28.360
key country, the United States, led to increasing strains and fissures in the triumphant dollar

822
01:16:28.360 --> 01:16:30.400
order of the post-World War II world.

823
01:16:30.400 --> 01:16:35.000
A footnote to that, of course, led now to the breakdown of that system too.

824
01:16:35.000 --> 01:16:52.000
has become increasingly evident that an ever more inflated and overvalued dollar cannot continue as a permanently secure base of the world monetary system, and therefore, this ever more strained and insecure system cannot long continue in anything like its present form, written like six months or a year before a big crash.

825
01:16:52.000 --> 01:16:59.000
In fact, the post-war system has already been changed considerably in an ultimately futile attempt to preserve its basic features.

826
01:16:59.000 --> 01:17:04.320
In the spring of 1968, a severe monetary run on the dollar by Europeans redeeming dollar

827
01:17:04.320 --> 01:17:09.640
claims led to two major changes. One was the partial abandonment of the fixed $35 per ounce

828
01:17:09.640 --> 01:17:15.120
gold price. Instead, a two-price or two-tier gold price system was established. The dollar

829
01:17:15.120 --> 01:17:19.160
and gold were allowed to find their own level in the free gold markets of the world. With

830
01:17:19.160 --> 01:17:22.280
the United States no longer standing ready to support the dollar in the gold market at

831
01:17:22.280 --> 01:17:27.000
$35 an ounce. On the other hand, $35 still continues as a supposedly eternally fixed

832
01:17:27.000 --> 01:17:32.000
the price for the world's central banks were pledged not to sell gold in the world market or to buy it either.

833
01:17:32.000 --> 01:17:36.000
It's supposed to be completely sealed off from the free gold market.

834
01:17:36.000 --> 01:17:41.000
Keynesian economists were convinced that with the dollar and gold severed on the world market, and also the Freemanites too,

835
01:17:41.000 --> 01:17:44.000
the price of gold would then fall on the freely fluctuating market.

836
01:17:44.000 --> 01:17:48.000
And all these guys were predicting, except for a couple of us crazy gold bugs,

837
01:17:48.000 --> 01:17:53.000
all the top economists in the country were predicting the price of gold now that it was no longer supported by the dollar.

838
01:17:53.000 --> 01:17:57.560
The price of gold will fall to its natural, industrial price, you know, for jewelry and

839
01:17:57.560 --> 01:18:00.960
teeth and all that sort of stuff, of $10 an ounce.

840
01:18:00.960 --> 01:18:04.920
That was the firm prediction of Mofflop and Friedman and all these other guys.

841
01:18:04.920 --> 01:18:11.200
Of course, we now know it's something like $120 an ounce, so never fall below $35, it's

842
01:18:11.200 --> 01:18:12.200
skyrocketed.

843
01:18:12.200 --> 01:18:19.200
The reverse, however, has occurred since the world market continued to have more faith

844
01:18:19.200 --> 01:18:24.360
and the soundness and relative hardness of gold and an increasingly inflated dollar.

845
01:18:24.360 --> 01:18:28.240
The second change is the creation of special drawing rights, a new form of paper gold,

846
01:18:28.240 --> 01:18:32.480
of newly created paper which can supplement gold as an international currency reserve

847
01:18:32.480 --> 01:18:35.040
behind each currency.

848
01:18:35.040 --> 01:18:39.360
While this indeed put more backing behind the dollar, the quantity of SDRs has been

849
01:18:39.360 --> 01:18:42.880
too limited to make an appreciable difference to a world economy that trusts the dollar

850
01:18:42.880 --> 01:18:44.880
less with each passing year.

851
01:18:44.880 --> 01:18:47.720
Understatement at this point.

852
01:18:47.720 --> 01:18:50.920
These two minor repairs, however, failed to change the fundamental over-evaluation of

853
01:18:50.920 --> 01:18:55.040
the ever more inflated dollar. In the spring of 1971, a new monetary crisis finally led

854
01:18:55.040 --> 01:19:00.240
to a massive revaluation of several of the hard currencies. If the United States suddenly

855
01:19:00.240 --> 01:19:04.160
refused to lose face by raising the price of gold or by otherwise devaluing the dollar

856
01:19:04.160 --> 01:19:07.960
down to its genuine value in the world market, then the harder currencies, such as West Germany,

857
01:19:07.960 --> 01:19:11.760
Switzerland and the Netherlands, found themselves reluctantly forced to raise the value of their

858
01:19:11.760 --> 01:19:15.480
currency. This course has been continuing since then, too. Their alternative, a massive

859
01:19:15.480 --> 01:19:19.480
The calling upon the United States to redeem in gold, thereby the smashing of the façade

860
01:19:19.480 --> 01:19:23.020
of dollar reduction in gold, was too much of a political break with the U.S. for these

861
01:19:23.020 --> 01:19:24.020
nations to contemplate.

862
01:19:24.020 --> 01:19:27.680
Actually, this is what they did, apparently, in August 71, I wrote this obviously in the

863
01:19:27.680 --> 01:19:28.680
spring of 71.

864
01:19:28.680 --> 01:19:33.120
By August 71, the central banks in Europe were beginning to say, look, we have 80 billion

865
01:19:33.120 --> 01:19:37.040
dollars piled up of dollars here, and you've got only 10 billion or 9 billion dollars worth

866
01:19:37.040 --> 01:19:40.760
of gold to redeem it, we're going to start cashing in, we're sick of piling up the dollars.

867
01:19:40.760 --> 01:20:04.280
For the United States to preserve the façade of gold redemption at $35 has been using intense

868
01:20:04.280 --> 01:20:09.320
political pressure on its creditors to retain their dollar balances and not to redeem them

869
01:20:09.320 --> 01:20:10.320
in gold.

870
01:20:10.320 --> 01:20:13.760
In the late 1960s, General de Gaulle, under the influence of classical gold standard advocate

871
01:20:13.760 --> 01:20:17.460
Jacques Rouef, was apparently preparing to make just such a challenge, to break the dollar

872
01:20:17.460 --> 01:20:21.400
standard as a move toward restoring the classical gold standard in France and much of the rest

873
01:20:21.400 --> 01:20:22.400
of Europe.

874
01:20:22.400 --> 01:20:26.760
But the French domestic troubles in the spring of 1968 ended that dream, at least temporarily,

875
01:20:26.760 --> 01:20:29.880
as France was forced to inflate the franc for a time in order to pay the overall wage

876
01:20:29.880 --> 01:20:32.760
increase and agreed upon under the threat of a general strike.

877
01:20:32.760 --> 01:20:36.920
What happened there, of course, is the workers are insisting on a general wage increase of

878
01:20:36.920 --> 01:20:51.920
The French finally agreed to pay it, and they inflate the currency by 14%, and prices go up by 14%, and by the end of the year, a year or so, the French workers know better what they were before, and the French franc has been softened.

879
01:20:51.920 --> 01:20:58.000
Despite these hasty repairs, it is becoming increasingly evident that they are makeshift

880
01:20:58.000 --> 01:21:02.220
stop gaps and that a series of more aggravated crises will shake the international monetary

881
01:21:02.220 --> 01:21:06.520
order until a fundamental change is made. A hard money policy in the United States that

882
01:21:06.520 --> 01:21:09.800
put an end to inflation and increased the soundness of the dollar might sustain the

883
01:21:09.800 --> 01:21:14.160
current system, but this is so politically remote it would be hardly a likely prognosis.

884
01:21:14.160 --> 01:21:18.520
There are several possible monetary systems that might replace the present deteriorating

885
01:21:18.520 --> 01:21:22.880
The new system desired by the Keynesian economists and by the American government would be a

886
01:21:22.880 --> 01:21:26.600
massive extension of paper gold to de-monetize gold completely and replace it by new monitoring

887
01:21:26.600 --> 01:21:31.600
units such as the Keynesian bank core and a paper currency issued by a new World Reserve

888
01:21:31.600 --> 01:21:32.600
Bank.

889
01:21:32.600 --> 01:21:36.680
If this were achieved, then the new American-dominated World Reserve Bank would be able to inflate

890
01:21:36.680 --> 01:21:40.760
any currencies indefinitely and allow inflating currencies to pay for any new oil deficits

891
01:21:40.760 --> 01:21:41.760
on infinitum.

892
01:21:41.760 --> 01:21:45.600
While such a scheme embodied in the Triffin Plan, the Brinstein Plan and others is now

893
01:21:45.600 --> 01:21:49.240
and now the American Dream has met the term in opposition by the hard-money countries

894
01:21:49.240 --> 01:21:52.520
and it remains doubtful that the United States will be able to force these countries to go

895
01:21:52.520 --> 01:21:54.180
along with the plan.

896
01:21:54.180 --> 01:21:58.760
The other logical alternative is the Ruach Plan returning to the classical gold standard

897
01:21:58.760 --> 01:22:02.760
after a massive increase in the world price of gold, known as jack it up to $150, $200

898
01:22:02.760 --> 01:22:06.320
an ounce, $300 or whatever and then go back to the gold standard.

899
01:22:06.320 --> 01:22:10.720
But this too is unlikely, especially under over-powerful American opposition.

900
01:22:10.720 --> 01:22:15.280
Borrowing acceptance of a new world currency, the Americans would be content to keep inflating

901
01:22:15.280 --> 01:22:18.920
and simply force the hard-money countries to keep appreciating their exchange rates.

902
01:22:18.920 --> 01:22:22.040
But again, it is doubtful that German, French, Swiss and other exporters

903
01:22:22.040 --> 01:22:24.920
may tend to keep crippling themselves in order to subsidize dollar inflation.

904
01:22:24.920 --> 01:22:28.040
We still, of course, have that problem.

905
01:22:28.040 --> 01:22:32.600
Perhaps the most likely prognosis is the formation of a new hard-money European currency block

906
01:22:32.600 --> 01:22:36.400
which might eventually be strong enough to challenge the dollar, politically as well as economically.

907
01:22:36.400 --> 01:22:39.720
In that case, the dollar standard will probably fall apart.

908
01:22:39.720 --> 01:22:42.120
We may see a return of the currency blocks in the 1930s,

909
01:22:42.120 --> 01:22:45.080
of the European Bloc, this time on a harder and quasi-gold basis.

910
01:22:45.080 --> 01:22:49.680
It is at least possible that the future will see gold in the hard European currencies at

911
01:22:49.680 --> 01:22:52.400
last be thrown with triumphant but increasingly uneasy dollar.

912
01:22:52.400 --> 01:22:57.240
But what we have now is essentially a 1930s bank again, with shifts back and forth and

913
01:22:57.240 --> 01:22:58.240
then temporary.

914
01:22:58.240 --> 01:23:03.840
But we're getting to a prognosis for the monetary future, which is a pretty bleak one, because

915
01:23:03.840 --> 01:23:11.720
what we have is a situation where the whole currency media have broken down and we have

916
01:23:11.720 --> 01:23:15.720
exchange rates shifting back and forth from fluctuating to fixed and various combinations

917
01:23:15.720 --> 01:23:22.640
of so-called dirty float where the exchange rate is supposedly fluctuating freely but

918
01:23:22.640 --> 01:23:28.640
then the central bank sticks its nose in and interferes with its clean float, some quotes.

919
01:23:28.640 --> 01:23:33.280
And what we can envision in this thing, because there doesn't seem to be any hope of restoring

920
01:23:33.280 --> 01:23:38.520
any kind of stable system, what we can envision is going back to the thirties, currency blocks,

921
01:23:38.520 --> 01:23:51.520
Competing devaluations, export industries in control of the governments, and we're going to have one more devaluation of high-popular exports, higher tariffs, exchange controls, keeping out Japanese products, and all the rest of it.

922
01:23:51.520 --> 01:23:59.520
And if Kodahal was right, that the political conflict follows economic conflict, we'd expect some hefty international wars, perhaps.

923
01:23:59.520 --> 01:24:11.520
One of my sort of quasi-jokes, which really is only a half-joke at best, is the darn good thing that Japan isn't very fully armed yet.

924
01:24:11.520 --> 01:24:21.520
Otherwise, we could have provoked another Pearl Harbor and had another war against the evil grinning Japanese, which would be coming back.

925
01:24:21.520 --> 01:24:28.520
So I hope that Japan continues to be relatively unarmed to avoid this kind of setup.

926
01:24:28.520 --> 01:24:36.520
Ok, this sort of covers the New Deal internationally. I'm going to try again with some New Deal domestic stuff now.