The New Deal, Going Off Gold
The international monetary system that the House of Morgan helped Great Britain cobble together in 1925
lay in ruins when Britain hastily abandoned the gold exchange standard in late September 1931.
The Morgans tried desperately to keep Britain on gold in 1931
and afterward tried to get their bearings in the newly chaotic monetary arena.
By the time of Roosevelt's accession to power in the spring of 1933, the Morgans had thrown in the towel on the American gold coin standard.
Indeed, the Morgan-oriented leadership of the Treasury, Mills and Ballantine, had been agitating for going off gold considerably earlier.
But the overriding Morgan concern was always their associates and colleagues in England,
Morgan, and they hoped for a rapid return to some kind of fixed exchange rate relation
to Britain, and perhaps, by extension, to the other major European currencies as well.
The Morgans wanted to reconstruct a regime of monetary internationalism as soon as possible.
But for the first time since the turn of the century, the Morgans were no longer dominant
over the monetary thinking of American financial and business elites.
In the midst of the cauldron of depression, a new economic and monetary nationalism, a
desire for domestic inflation untrammeled by international monetary responsibilities,
began to take hold.
Backed by proto-monetarist and proto-Keynesian economists eager to spur inflationist federal
policies to cure the depression, the shift of business groups toward inflation centered
in farm and agribusiness groups, which had been agitating for higher farm prices since
since the early 1920s, and in industrialists making products for the retail market who
wanted government to pour new money into consumption spending.
Thus, in January 1933, powerful business groups formed the Committee for the Nation, more
formally, the Committee for the Nation to Rebuild Prices and Purchasing Power, dedicated
to getting the government to quote, reflate prices back up to 1929 levels, and to get
off the gold standard so that the government could issue fiat paper money for that purpose.
The co-defenders of the Committee for the Nation were Vincent Bendix, head of Bendix
Aviation, and General Robert E. Wood, head of the mighty retail combine of Sears-Robuck.
Others who soon joined them were Frank A. Vanderlip, former president of the National
City Bank of New York, the flagship bank in the Rockefeller orbit, James H. Rand Jr.,
Production of Remington Rand Company, manufacturer of typewriters and other retail products,
Lesting Rosenwald, major owner of Sears Roebuck, Samuel S. Fels, producer of Fels Napta, Philip
K. Wrigley, head of William J. Wrigley Company, E. L. Cord of the Cord Automobile Company,
William J. McAvinney, president of Hudson Motor Company, R. F. Wurlitzer, producer of
of Wallets or Musical Instruments, Frederick H. Frazier, Chairman of the Board of the General
Baking Company, and a galaxy of farm leaders, Fred H. Sixauer, President of the Dairymen's
League Cooperative Association, Edward A. O'Neill, Head of the American Farm Bureau
Federation, and Louis J. Tabber, Head of the National Grange.
It should also be noted that Rockefeller's petroleum products were of course goods largely
sold at retail.
Another emboldened inflationist group was the silver mining interests centered in the
mountain states, which seemingly had lost out permanently to the McKinley and Republican
gold forces in the 1890s.
Mountain state senators led the silver block in Congress, and Senator Burton K. Wheeler,
Democrat from Montana, introduced a bimetallic bill to reinstitute the silver-gold standard
at the old 19th century ratio of 16 to 1.
The main theoretician and lobbyist for the silver block was New York banker Rene Leon,
who got himself appointed as advisor to the House Ways and Means Committee in unsuccessfully
pressing for an international conference to raise silver prices.
More generally, the Rockefeller and Harriman forces had been allied against the Morgan
since the turn of the century, and now they and other rising financial groups banded together
avidly to overthrow and dethrone the financial and political dominance achieved by the
The House of Morgan during the Republican Decade of the 1920s.
Again, influential in the new democratic regime was the veteran speculator and political manipulator Bernard Baruch,
who had been Tsar of the collectivized economy as head of the War Industries Board in World War I,
and who yearned to reestablish a similar, collectivist, cartelized regime in peacetime,
using the Depression as the means for achieving this goal.
Baruch, since childhood, had been a protege of the powerful Guggenheim family, who controlled
the American copper industry, but who liked to keep a low political profile and operate
through Baruch and his network of operatives.
Newer Jewish Wall Street investment banking houses, more anti-Morgan than Kuhn-Leb, were
also rising to help challenge Morgan, notably Goldman Sachs and Lehman Brothers.
The Lehman Family Contributing New Deal Governor of New York, Herbert H. Lehman, to the American
political scene.
Furthermore, Jewish retail interests, led by the Boston Phelan brothers, were in favor
of more inflation and consumer spending, and long-time Phelan and retailer attorney Lewis
D. Brandeis had become powerful in the Democratic Party and was helping run the New Deal surreptitiously
from his seat on the U.S. Supreme Court.
Brandeis was a long-time enemy of the Morgans as attorney for opposing corporate interests
and a dedicated supporter of retail cartels supported by the government.
Moreover, all these financial and industrial groups were swinging notably leftward, not
simply in monetary matters, but also in advocating far more government intervention, including
promotion of labor unions, than the Morgans were willing to accept.
Thus, these anti-Morgan groups, now gathered in the Democratic Party, were happy to form
a coalition with left-wing intellectuals, technocrats, economists and social workers
who wished to staff the planning agencies, all to advance their common New Deal and ultra-statist
agenda.
Particularly powerful in the New Deal and in the Democratic Party was the underrated W.
Hugh Averell Harriman, scion of the great Harriman interests and long-time enemy of
the Morgans.
Harriman dominated a highly influential new agency set up in the New Deal, the Business
Advisory Council, or BAC, of the Department of Commerce, which transmitted the influence
of the pro-New Deal wing of industry and finance.
Also dominant in the BAC was Sidney J. Weinberg of Goldman Sachs.
The Franklin Roosevelt, High Park, Democrat wing of the Roosevelt family had always been
close to their Hudson Valley neighbors, the Astores and the Herrimans, whereas the Oyster
Bay, Theodore Roosevelt, Republican wing of the family had always been close to the Morgans.
To return to monetary policy, Eugene Meyer, who, after all, had three years to go in a
ten-year term as governor of the Federal Reserve Board, refused President Hoover's request
to Resign Immediately Upon the Inauguration of President Roosevelt.
But Meyer found out quickly that he could not agree to going off the gold standard and
an inflationary higher gold price, and he tendered his resignation as Fed Chief in early
May 1933.
President Roosevelt's early monetary appointments set an important signal of his new orientation
and policies.
To succeed Meyer, Roosevelt appointed his friend, the young Georgia banker Eugene R. Black,
who had been governor of the Federal Reserve Bank of Atlanta.
Black's orientation may be gauged by the fact that, when he left the Fed a year later,
he was to spend 16 years climbing up the executive ladder at the powerful Chase National Bank,
which by this time had shifted firmly from the Morgan to the Rockefeller camp.
Indeed, for the rest of his working life, Eugene Black was to serve at Chase as protege
of none other than the eminent Winthrop W. Aldrich, Chairman of the Board at Chase and
a close kinsman of the Rockefeller family.
Roosevelt's first Secretary of the Treasury was William H. Wooden, who received the appointment
after it was turned down by Melvin Traylor, President of the First National Bank of Chicago,
One of the main commercial banks in the Rockefeller orbit.
Wooden had spent most of his career as a high official of the American Car and Foundry Company
in New York and was now chairman of the board of the American Locomotive Company.
Wooden was also a director of such important enterprises as the Harriman-controlled American
Ship and Commerce Corporation, as well as the Rockefeller-dominated Remington Arms Company.
He had also been a founding director of the County Trust Company of New York, along with
the influential Vincent Astor and Herbert H. Lehman.
Wooden's financial associations in New York were therefore in the Harriman-Astor-Lehman-Rockefeller
ambit rather than in the Morgan Network.
Ill health forced Wooden to resign in December 1933, however, and his place was taken by
Henry Morgan Thoe, Jr., who was to be an important and controversial treasury secretary for the
The Remainder of Roosevelt's Reign and Office
Morgenthau, who rose from undersecretary, was a long-time friend and neighbor of Roosevelt's
and a gentleman farmer interested in agriculture.
He was backed by his wealthy father, who had been ambassador to Turkey under Wilson, but
more important was Henry Jr.'s close links to the powerful investment banking family
of Lehman Brothers.
Indeed, Henry Jr. was married to a Lehman.
Her mother was a sister of Herbert H. and Arthur Lehman, and Henry's nephew Jules
Erich had married a sister of Philip Lehman.
Moreover, Henry Sr. had long been a major stockholder of the Underwood Typewriter Company,
and several of his fellow board members were Philip Lehman, Philip's cousin Arthur Lehman,
Morris Wertheim, who had married Henry Jr.'s sister Alma, and Waddell Catchings, a top
official of Goldman Sachs.
Two fateful monetary steps were taken in 1933 by the incoming Roosevelt administration.
The first and most revolutionary deed, accomplished in April, was to go off the gold standard,
to confiscate almost all the gold of American citizens and place it under the ownership
of the Federal Reserve, to embargo the export of gold, and to devalue the dollar to $35
a gold ounce.
This swift policy carried out almost completely the program of the Committee for the Nation.
But in March and April, even the Morgans had been convinced by the banking crisis to go
off gold.
Democratic Morgan partner Russell Leffingwell was influential in urging Roosevelt to go
off gold and devalue the dollar.
And Jack Morgan himself applauded Roosevelt's decision to inflate and go off gold.
The major theoretician of the inflationists, who had liquidated the assets of his own prior
stable money association into the Committee for the Nation, was Yale professor Irving
Fisher, the intellectual forerunner of Milton Friedman, who has hailed Fisher as, quote,
the greatest economist of the 20th century, and who mechanistically had believed that
since the price level was not rising in the 1920s, there was no inflation to worry about
and no coming crash.
Fisher strongly urged the inflationist devaluation and fiat standard upon Roosevelt, who had
asked him for advice.
When Roosevelt cast the die against gold, Fisher exalted to his wife, quote, Now I am
sure, as far as we ever can be sure of anything, that we are going to snap out of this depression
fast.
I am now one of the happiest men in the world, end quote.
Fisher had a personal as well as an ideological stake in rapid inflation.
Sure of a permanent prosperity and stock boom in the late 1920s, he had invested all of
his wife's and most of his sister-in-law's substantial hazard family fortune in the stock
market and he was desperately anxious for Roosevelt to reflate and drive up stock prices.
As Fisher added in the same letter to his wife, quote, I mean that if FDR had followed
Glass who had urged him to stay on gold, we would have been pretty surely ruined."
As it happened, the fiat money policy did not restore the stock market and Fischer's
and his wife's and sister-in-law's fortune was ruined by his unwise speculations, a mute
testimony to the unsoundness of Fischer and monetarism in explaining or counteracting
business cycles.
On the other side of the gold standard decision were the bulk of the nation's economists
who signed a mass petition urging immediate return to gold.
They were led by two dowdy hard-money men, Dr. H. Parker Willis, who had staunchly opposed
the strong Morgan inflationism of the 1920s and urged rapid liquidation of unsound assets
to promote recovery, and Dr. Benjamin M. Anderson, long-time hard-money economist of Chase National
Bank, who had influenced Chase President Albert Wiggin in favor of hard money and laissez-faire
policies.
In the executive branch, the major opponent of the new fiat regime was Louis W. Douglas,
Arizona Scion of the Phelps-Dodge copper mining interests, and Roosevelt's head of the Bureau
of Budget.
The fiscally conservative Douglas had, in early 1933, persuaded Roosevelt to make severe
and the clear cuts in the proposed appropriations of the executive agencies.
Even though monetary nationalism had triumphed, the Morgan interests and the other monetary
internationalists were anxious to reestablish fixed exchange rates with Britain and to rebuild
the special relationship with Morgan allies in Britain and Western Europe.
The ultra inflationists, led by the Committee for the Nation, were strongly opposed to fixed
The World Economic Conference with delegates from 64 nations met on June 12.
The gold block at the conference, led by the French, urged an immediate restoration of
the full classical gold standard.
The British wanted fixed exchange rates, tied to gold or not, but emphasizing that the pound
must be cheaper at $4 so as not to lose the export advantage Britain had built up in the
past two years.
The United States, on the other hand, wanted to place prime emphasis on continued domestic
inflation.
Currency stabilization, which should not put the pound below $4.25, could wait until some
future date after domestic prices had risen.
From the beginning, however, there was great tension between the bulk of the American delegation
to London and the Roosevelt administration in Washington.
Chief Economic Advisor to the American delegation was James P. Warburg of Coonleb, who took
the Morgan line of favoring a new international gold standard at new and more realistic exchange
rates.
Morgan-oriented George L. Harrison of the New York Fed and Professor O.M.W.
Sprague were sent by FDR to work on an agreement for temporary stabilization of exchange rates
for the duration of the conference.
When, however, Sprague and Harrison concluded an agreement on June 16 with the British and
French for temporary stabilization of the three currencies, setting the dollar sterling
rate at $4 a pound and pledging the United States not to inflate the currency in the
meanwhile, Roosevelt angrily rejected the agreement.
Roosevelt gave two reasons to the chagrin Sprague and Harrison.
The pound must be no cheaper than $4.25, and Roosevelt could accept no restraint on his
freedom to inflate to raise domestic prices.
Harrison quit in disgust and returned home, a harbinger of the fate of the Morgans in
the years to come.
The World Economic Conference proceeded with lengthy discussions, both the Americans and
British talking about an eventual quote, gold standard, which would enjoy no domestic gold
gold coin or bullion circulation, with gold to be used only as a medium for settling international
balances of payments, a foretaste of the eventual Bretton Woods system after World War II.
The stubbornness of the United States finally forced the assembled delegates to agree on
an innocuous final declaration at the end of June that committed the United States to
very little more than its own resolution for eventual return to a sadly denatured gold
This declaration, weak as it was, seemed to offer hope of eventual stabilization, and
so it was strongly supported by Sprague, Warburg, and by Chief Braintruster Raymond Moley, Assistant
Secretary of State, who was head of the American delegation to London.
Within the administration, the agreement was strongly supported by Douglas, Baruch, and
by Undersecretary of the Treasury, Dean G. Acheson Acheson was a disciple of Morgan-oriented
lawyer Henry L. Stimson and one of his Washington law partners, J. Harry Covington, was a director
of the Guggenheim-controlled Kennecott Copper Corporation.
Sending the proposed declaration to Roosevelt on June 30th, Moley pointed out that dollar
depreciation during June had brought the pound-dollar rate up to $4.40, well above the $4.40 that
$25.25 that Roosevelt had insisted on.
On July 1st, however, FDR stunned Moley, the delegates, and the American supporters of
the agreement by flatly rejecting the declaration, stating that the United States should be allowed
the time, quote, to permit a demonstration of the value of price-lifting efforts which
we have well in hand, end quote.
But adding insult to injury, Roosevelt followed up this rejection on July 3rd with an arrogant
and contemptuous message to the London Conference, which became known as his famous, quote, bombshell
message.
Here, Roosevelt denounced any idea of currency stabilization as a, quote, specious fallacy.
In particular, he thundered, quote, old fetishes of so-called international bankers are being
The idea of stable exchange rates or an international monetary order would fade away for the remainder
of the 1930s, and monetary nationalism, currency blocks, and economic warfare would be the
order of the day for the remainder of the decade.
The chagrined supporters of the aborted London Monetary Agreement soon found it necessary
to leave the Roosevelt administration.
This included Atchison, Warburg, who had been offered the job of Undersecretary of the Treasury
The Committee for the Nation has long been known as the prime mover behind the fiat money
and inflationist policy of the early New Deal.
What has not been known until recently was the powerful, behind-the-scenes role in the
Committee, played by the Rockefeller Empire, in conjunction with their long-time international
rival, the British Royal Dutch Shell Oil, financed by the Rothschild interests.
Thus, a top financier of the Committee for the Nation was James A. Moffat, a long-time
director and high official of the Rockefeller flagship company, the Standard Oil Company
of New Jersey.
Robert Moffat, friend and early supporter of Roosevelt, coordinated his behind the scenes
agitation for inflation and against the London Economic Conference with New York banker and
leading silver block agitator Rene Leon, who functioned as an agent for the powerful Sir
Henry Dieterding, head of Royal Dutch Shell, who was heading the international agitation
for a worldwide cartelized increase in the price of silver.
Dieterding pressured Roosevelt for inflation, not so much in his capacity as an oil leader
as in a financier of silver production.
It turns out that Moffat and Leon, working in tandem, were most influential in successfully
pressuring Roosevelt to torpedo the London Economic Conference.
Here was a startingly clear case of Rockefeller and Royal Dutch Shell against Morgan.