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NOTE 46. The New Deal: Going off Gold

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The New Deal, Going Off Gold

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The international monetary system that the House of Morgan helped Great Britain cobble together in 1925

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lay in ruins when Britain hastily abandoned the gold exchange standard in late September 1931.

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The Morgans tried desperately to keep Britain on gold in 1931

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and afterward tried to get their bearings in the newly chaotic monetary arena.

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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.

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Indeed, the Morgan-oriented leadership of the Treasury, Mills and Ballantine, had been agitating for going off gold considerably earlier.

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But the overriding Morgan concern was always their associates and colleagues in England,

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Morgan, and they hoped for a rapid return to some kind of fixed exchange rate relation

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to Britain, and perhaps, by extension, to the other major European currencies as well.

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The Morgans wanted to reconstruct a regime of monetary internationalism as soon as possible.

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But for the first time since the turn of the century, the Morgans were no longer dominant

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over the monetary thinking of American financial and business elites.

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In the midst of the cauldron of depression, a new economic and monetary nationalism, a

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desire for domestic inflation untrammeled by international monetary responsibilities,

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began to take hold.

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Backed by proto-monetarist and proto-Keynesian economists eager to spur inflationist federal

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policies to cure the depression, the shift of business groups toward inflation centered

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in farm and agribusiness groups, which had been agitating for higher farm prices since

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since the early 1920s, and in industrialists making products for the retail market who

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wanted government to pour new money into consumption spending.

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Thus, in January 1933, powerful business groups formed the Committee for the Nation, more

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formally, the Committee for the Nation to Rebuild Prices and Purchasing Power, dedicated

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to getting the government to quote, reflate prices back up to 1929 levels, and to get

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off the gold standard so that the government could issue fiat paper money for that purpose.

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The co-defenders of the Committee for the Nation were Vincent Bendix, head of Bendix

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Aviation, and General Robert E. Wood, head of the mighty retail combine of Sears-Robuck.

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Others who soon joined them were Frank A. Vanderlip, former president of the National

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City Bank of New York, the flagship bank in the Rockefeller orbit, James H. Rand Jr.,

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Production of Remington Rand Company, manufacturer of typewriters and other retail products,

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Lesting Rosenwald, major owner of Sears Roebuck, Samuel S. Fels, producer of Fels Napta, Philip

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K. Wrigley, head of William J. Wrigley Company, E. L. Cord of the Cord Automobile Company,

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William J. McAvinney, president of Hudson Motor Company, R. F. Wurlitzer, producer of

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of Wallets or Musical Instruments, Frederick H. Frazier, Chairman of the Board of the General

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Baking Company, and a galaxy of farm leaders, Fred H. Sixauer, President of the Dairymen's

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League Cooperative Association, Edward A. O'Neill, Head of the American Farm Bureau

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Federation, and Louis J. Tabber, Head of the National Grange.

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It should also be noted that Rockefeller's petroleum products were of course goods largely

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sold at retail.

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Another emboldened inflationist group was the silver mining interests centered in the

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mountain states, which seemingly had lost out permanently to the McKinley and Republican

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gold forces in the 1890s.

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Mountain state senators led the silver block in Congress, and Senator Burton K. Wheeler,

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Democrat from Montana, introduced a bimetallic bill to reinstitute the silver-gold standard

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at the old 19th century ratio of 16 to 1.

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The main theoretician and lobbyist for the silver block was New York banker Rene Leon,

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who got himself appointed as advisor to the House Ways and Means Committee in unsuccessfully

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pressing for an international conference to raise silver prices.

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More generally, the Rockefeller and Harriman forces had been allied against the Morgan

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since the turn of the century, and now they and other rising financial groups banded together

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avidly to overthrow and dethrone the financial and political dominance achieved by the

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The House of Morgan during the Republican Decade of the 1920s.

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Again, influential in the new democratic regime was the veteran speculator and political manipulator Bernard Baruch,

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who had been Tsar of the collectivized economy as head of the War Industries Board in World War I,

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and who yearned to reestablish a similar, collectivist, cartelized regime in peacetime,

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using the Depression as the means for achieving this goal.

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Baruch, since childhood, had been a protege of the powerful Guggenheim family, who controlled

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the American copper industry, but who liked to keep a low political profile and operate

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through Baruch and his network of operatives.

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Newer Jewish Wall Street investment banking houses, more anti-Morgan than Kuhn-Leb, were

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also rising to help challenge Morgan, notably Goldman Sachs and Lehman Brothers.

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The Lehman Family Contributing New Deal Governor of New York, Herbert H. Lehman, to the American

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political scene.

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Furthermore, Jewish retail interests, led by the Boston Phelan brothers, were in favor

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of more inflation and consumer spending, and long-time Phelan and retailer attorney Lewis

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D. Brandeis had become powerful in the Democratic Party and was helping run the New Deal surreptitiously

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from his seat on the U.S. Supreme Court.

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Brandeis was a long-time enemy of the Morgans as attorney for opposing corporate interests

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and a dedicated supporter of retail cartels supported by the government.

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Moreover, all these financial and industrial groups were swinging notably leftward, not

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simply in monetary matters, but also in advocating far more government intervention, including

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promotion of labor unions, than the Morgans were willing to accept.

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Thus, these anti-Morgan groups, now gathered in the Democratic Party, were happy to form

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a coalition with left-wing intellectuals, technocrats, economists and social workers

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who wished to staff the planning agencies, all to advance their common New Deal and ultra-statist

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agenda.

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Particularly powerful in the New Deal and in the Democratic Party was the underrated W.

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Hugh Averell Harriman, scion of the great Harriman interests and long-time enemy of

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the Morgans.

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Harriman dominated a highly influential new agency set up in the New Deal, the Business

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Advisory Council, or BAC, of the Department of Commerce, which transmitted the influence

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of the pro-New Deal wing of industry and finance.

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Also dominant in the BAC was Sidney J. Weinberg of Goldman Sachs.

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The Franklin Roosevelt, High Park, Democrat wing of the Roosevelt family had always been

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close to their Hudson Valley neighbors, the Astores and the Herrimans, whereas the Oyster

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Bay, Theodore Roosevelt, Republican wing of the family had always been close to the Morgans.

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To return to monetary policy, Eugene Meyer, who, after all, had three years to go in a

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ten-year term as governor of the Federal Reserve Board, refused President Hoover's request

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to Resign Immediately Upon the Inauguration of President Roosevelt.

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But Meyer found out quickly that he could not agree to going off the gold standard and

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an inflationary higher gold price, and he tendered his resignation as Fed Chief in early

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May 1933.

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President Roosevelt's early monetary appointments set an important signal of his new orientation

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and policies.

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To succeed Meyer, Roosevelt appointed his friend, the young Georgia banker Eugene R. Black,

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who had been governor of the Federal Reserve Bank of Atlanta.

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Black's orientation may be gauged by the fact that, when he left the Fed a year later,

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he was to spend 16 years climbing up the executive ladder at the powerful Chase National Bank,

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which by this time had shifted firmly from the Morgan to the Rockefeller camp.

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Indeed, for the rest of his working life, Eugene Black was to serve at Chase as protege

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of none other than the eminent Winthrop W. Aldrich, Chairman of the Board at Chase and

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a close kinsman of the Rockefeller family.

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Roosevelt's first Secretary of the Treasury was William H. Wooden, who received the appointment

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after it was turned down by Melvin Traylor, President of the First National Bank of Chicago,

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One of the main commercial banks in the Rockefeller orbit.

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Wooden had spent most of his career as a high official of the American Car and Foundry Company

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in New York and was now chairman of the board of the American Locomotive Company.

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Wooden was also a director of such important enterprises as the Harriman-controlled American

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Ship and Commerce Corporation, as well as the Rockefeller-dominated Remington Arms Company.

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He had also been a founding director of the County Trust Company of New York, along with

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the influential Vincent Astor and Herbert H. Lehman.

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Wooden's financial associations in New York were therefore in the Harriman-Astor-Lehman-Rockefeller

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ambit rather than in the Morgan Network.

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Ill health forced Wooden to resign in December 1933, however, and his place was taken by

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Henry Morgan Thoe, Jr., who was to be an important and controversial treasury secretary for the

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The Remainder of Roosevelt's Reign and Office

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Morgenthau, who rose from undersecretary, was a long-time friend and neighbor of Roosevelt's

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and a gentleman farmer interested in agriculture.

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He was backed by his wealthy father, who had been ambassador to Turkey under Wilson, but

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more important was Henry Jr.'s close links to the powerful investment banking family

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of Lehman Brothers.

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Indeed, Henry Jr. was married to a Lehman.

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Her mother was a sister of Herbert H. and Arthur Lehman, and Henry's nephew Jules

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Erich had married a sister of Philip Lehman.

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Moreover, Henry Sr. had long been a major stockholder of the Underwood Typewriter Company,

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and several of his fellow board members were Philip Lehman, Philip's cousin Arthur Lehman,

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Morris Wertheim, who had married Henry Jr.'s sister Alma, and Waddell Catchings, a top

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official of Goldman Sachs.

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Two fateful monetary steps were taken in 1933 by the incoming Roosevelt administration.

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The first and most revolutionary deed, accomplished in April, was to go off the gold standard,

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to confiscate almost all the gold of American citizens and place it under the ownership

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of the Federal Reserve, to embargo the export of gold, and to devalue the dollar to $35

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a gold ounce.

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This swift policy carried out almost completely the program of the Committee for the Nation.

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But in March and April, even the Morgans had been convinced by the banking crisis to go

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off gold.

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Democratic Morgan partner Russell Leffingwell was influential in urging Roosevelt to go

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off gold and devalue the dollar.

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And Jack Morgan himself applauded Roosevelt's decision to inflate and go off gold.

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The major theoretician of the inflationists, who had liquidated the assets of his own prior

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stable money association into the Committee for the Nation, was Yale professor Irving

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Fisher, the intellectual forerunner of Milton Friedman, who has hailed Fisher as, quote,

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the greatest economist of the 20th century, and who mechanistically had believed that

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since the price level was not rising in the 1920s, there was no inflation to worry about

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and no coming crash.

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Fisher strongly urged the inflationist devaluation and fiat standard upon Roosevelt, who had

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asked him for advice.

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When Roosevelt cast the die against gold, Fisher exalted to his wife, quote, Now I am

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sure, as far as we ever can be sure of anything, that we are going to snap out of this depression

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fast.

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I am now one of the happiest men in the world, end quote.

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Fisher had a personal as well as an ideological stake in rapid inflation.

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Sure of a permanent prosperity and stock boom in the late 1920s, he had invested all of

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his wife's and most of his sister-in-law's substantial hazard family fortune in the stock

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market and he was desperately anxious for Roosevelt to reflate and drive up stock prices.

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As Fisher added in the same letter to his wife, quote, I mean that if FDR had followed

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Glass who had urged him to stay on gold, we would have been pretty surely ruined."

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As it happened, the fiat money policy did not restore the stock market and Fischer's

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and his wife's and sister-in-law's fortune was ruined by his unwise speculations, a mute

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testimony to the unsoundness of Fischer and monetarism in explaining or counteracting

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business cycles.

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On the other side of the gold standard decision were the bulk of the nation's economists

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who signed a mass petition urging immediate return to gold.

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They were led by two dowdy hard-money men, Dr. H. Parker Willis, who had staunchly opposed

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the strong Morgan inflationism of the 1920s and urged rapid liquidation of unsound assets

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to promote recovery, and Dr. Benjamin M. Anderson, long-time hard-money economist of Chase National

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Bank, who had influenced Chase President Albert Wiggin in favor of hard money and laissez-faire

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policies.

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In the executive branch, the major opponent of the new fiat regime was Louis W. Douglas,

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Arizona Scion of the Phelps-Dodge copper mining interests, and Roosevelt's head of the Bureau

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of Budget.

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The fiscally conservative Douglas had, in early 1933, persuaded Roosevelt to make severe

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and the clear cuts in the proposed appropriations of the executive agencies.

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Even though monetary nationalism had triumphed, the Morgan interests and the other monetary

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internationalists were anxious to reestablish fixed exchange rates with Britain and to rebuild

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the special relationship with Morgan allies in Britain and Western Europe.

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The ultra inflationists, led by the Committee for the Nation, were strongly opposed to fixed

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The World Economic Conference with delegates from 64 nations met on June 12.

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The gold block at the conference, led by the French, urged an immediate restoration of

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the full classical gold standard.

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The British wanted fixed exchange rates, tied to gold or not, but emphasizing that the pound

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must be cheaper at $4 so as not to lose the export advantage Britain had built up in the

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past two years.

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The United States, on the other hand, wanted to place prime emphasis on continued domestic

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inflation.

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Currency stabilization, which should not put the pound below $4.25, could wait until some

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future date after domestic prices had risen.

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From the beginning, however, there was great tension between the bulk of the American delegation

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to London and the Roosevelt administration in Washington.

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Chief Economic Advisor to the American delegation was James P. Warburg of Coonleb, who took

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the Morgan line of favoring a new international gold standard at new and more realistic exchange

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rates.

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Morgan-oriented George L. Harrison of the New York Fed and Professor O.M.W.

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Sprague were sent by FDR to work on an agreement for temporary stabilization of exchange rates

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for the duration of the conference.

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When, however, Sprague and Harrison concluded an agreement on June 16 with the British and

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French for temporary stabilization of the three currencies, setting the dollar sterling

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rate at $4 a pound and pledging the United States not to inflate the currency in the

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meanwhile, Roosevelt angrily rejected the agreement.

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Roosevelt gave two reasons to the chagrin Sprague and Harrison.

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The pound must be no cheaper than $4.25, and Roosevelt could accept no restraint on his

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freedom to inflate to raise domestic prices.

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Harrison quit in disgust and returned home, a harbinger of the fate of the Morgans in

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the years to come.

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The World Economic Conference proceeded with lengthy discussions, both the Americans and

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British talking about an eventual quote, gold standard, which would enjoy no domestic gold

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gold coin or bullion circulation, with gold to be used only as a medium for settling international

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balances of payments, a foretaste of the eventual Bretton Woods system after World War II.

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The stubbornness of the United States finally forced the assembled delegates to agree on

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an innocuous final declaration at the end of June that committed the United States to

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very little more than its own resolution for eventual return to a sadly denatured gold

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This declaration, weak as it was, seemed to offer hope of eventual stabilization, and

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so it was strongly supported by Sprague, Warburg, and by Chief Braintruster Raymond Moley, Assistant

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Secretary of State, who was head of the American delegation to London.

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Within the administration, the agreement was strongly supported by Douglas, Baruch, and

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by Undersecretary of the Treasury, Dean G. Acheson Acheson was a disciple of Morgan-oriented

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lawyer Henry L. Stimson and one of his Washington law partners, J. Harry Covington, was a director

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of the Guggenheim-controlled Kennecott Copper Corporation.

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Sending the proposed declaration to Roosevelt on June 30th, Moley pointed out that dollar

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depreciation during June had brought the pound-dollar rate up to $4.40, well above the $4.40 that

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$25.25 that Roosevelt had insisted on.

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On July 1st, however, FDR stunned Moley, the delegates, and the American supporters of

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the agreement by flatly rejecting the declaration, stating that the United States should be allowed

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the time, quote, to permit a demonstration of the value of price-lifting efforts which

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we have well in hand, end quote.

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But adding insult to injury, Roosevelt followed up this rejection on July 3rd with an arrogant

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and contemptuous message to the London Conference, which became known as his famous, quote, bombshell

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message.

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Here, Roosevelt denounced any idea of currency stabilization as a, quote, specious fallacy.

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In particular, he thundered, quote, old fetishes of so-called international bankers are being

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The idea of stable exchange rates or an international monetary order would fade away for the remainder

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of the 1930s, and monetary nationalism, currency blocks, and economic warfare would be the

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order of the day for the remainder of the decade.

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The chagrined supporters of the aborted London Monetary Agreement soon found it necessary

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to leave the Roosevelt administration.

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This included Atchison, Warburg, who had been offered the job of Undersecretary of the Treasury

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The Committee for the Nation has long been known as the prime mover behind the fiat money

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and inflationist policy of the early New Deal.

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What has not been known until recently was the powerful, behind-the-scenes role in the

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Committee, played by the Rockefeller Empire, in conjunction with their long-time international

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rival, the British Royal Dutch Shell Oil, financed by the Rothschild interests.

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Thus, a top financier of the Committee for the Nation was James A. Moffat, a long-time

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director and high official of the Rockefeller flagship company, the Standard Oil Company

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of New Jersey.

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Robert Moffat, friend and early supporter of Roosevelt, coordinated his behind the scenes

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agitation for inflation and against the London Economic Conference with New York banker and

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leading silver block agitator Rene Leon, who functioned as an agent for the powerful Sir

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Henry Dieterding, head of Royal Dutch Shell, who was heading the international agitation

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for a worldwide cartelized increase in the price of silver.

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Dieterding pressured Roosevelt for inflation, not so much in his capacity as an oil leader

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as in a financier of silver production.

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It turns out that Moffat and Leon, working in tandem, were most influential in successfully

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pressuring Roosevelt to torpedo the London Economic Conference.

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Here was a startingly clear case of Rockefeller and Royal Dutch Shell against Morgan.