WEBVTT NOTE 62. The First New Deal: Dollar Nationalism 1 00:00:00.000 --> 00:00:03.000 The First New Deal 2 00:00:03.000 --> 00:00:05.000 Dollar Nationalism 3 00:00:05.000 --> 00:00:12.000 The international monetary framework of the 1920s collapsed in the storm of the Great Depression. 4 00:00:12.000 --> 00:00:19.000 Or rather, it collapsed of its own inner contradictions in a depression which it had helped to bring about. 5 00:00:19.000 --> 00:00:26.000 For one of the most calamitous features of the depression was the international wave of banking failures. 6 00:00:26.000 --> 00:00:35.000 and the banks failed from the inflation and overexpansion which were the fruits of the managed international gold exchange standard. 7 00:00:35.000 --> 00:00:48.000 Once the Jerry Bill pyramiding of bank credit had collapsed, it brought down the banking system of nation after nation as inflation led to a piling up of currency claims abroad. 8 00:00:48.000 --> 00:00:54.000 The cashing in of the claims led to a well founded suspicion of the solvency of other banks 9 00:00:54.000 --> 00:00:58.640 Banks, and so the failures spread and intensified. 10 00:00:58.640 --> 00:01:03.360 The failures in the weak currency countries led to the accumulation of strains in other 11 00:01:03.360 --> 00:01:09.960 weak currency nations and ultimately on the basis of the shaky pyramid, Britain and the 12 00:01:09.960 --> 00:01:12.080 United States. 13 00:01:12.080 --> 00:01:18.960 The major banking crisis began with the near bankruptcy in 1929 of the Baden-Kreditanstalt 14 00:01:18.960 --> 00:01:23.960 of the World, Altavienna, the major bank in Austria which had never recovered from its 15 00:01:23.960 --> 00:01:26.880 dismemberment at Versailles. 16 00:01:26.880 --> 00:01:32.960 Desperate attempts by J.P. Morgan, the House of Rothschild and later the New York Fed 17 00:01:32.960 --> 00:01:39.720 to shore up the bank only succeeded in a temporary rescue which committed more financial resources 18 00:01:39.720 --> 00:01:48.480 to an unsound bank and thereby made its ultimate failure in May 1931 all the more catastrophic. 19 00:01:48.480 --> 00:01:53.960 Rather than permit the outright liquidation of their banking systems, Austria, followed 20 00:01:53.960 --> 00:02:01.040 by Germany and other European countries, went off the gold standard during 1931. 21 00:02:01.040 --> 00:02:06.680 But the key to the international monetary situation was Great Britain, the nub and the 22 00:02:06.680 --> 00:02:10.720 base for the world's gold exchange standard. 23 00:02:10.720 --> 00:02:15.480 British inflation and cheap money, and the standard that had made Britain the base of 24 00:02:15.480 --> 00:02:20.840 of the World's Money, put enormous pressure on the pound sterling, as foreign holders 25 00:02:20.840 --> 00:02:26.180 of sterling balances became increasingly panicky and called on the British to redeem their 26 00:02:26.180 --> 00:02:30.000 sterling in either gold or dollars. 27 00:02:30.000 --> 00:02:35.440 The heavy loans by British banks to Germany during the 1920s made the pressure after the 28 00:02:35.440 --> 00:02:41.840 German monetary collapse still more severe, but Britain could have saved the day by using 29 00:02:41.840 --> 00:02:47.400 In the classical gold standard medicine in such crises, by raising bank interest rates 30 00:02:47.400 --> 00:02:53.000 sharply, thereby attracting funds to Britain from other countries. 31 00:02:53.000 --> 00:02:59.680 In such monetary crises, furthermore, such temporary tight money and checks to inflation 32 00:02:59.680 --> 00:03:04.920 give foreigners confidence that the pound will be sustained, and they then continue 33 00:03:04.920 --> 00:03:09.660 to hold sterling without calling on the country for redemption. 34 00:03:09.660 --> 00:03:15.780 In earlier crises, for example, Britain had raised its bank rate as high as 10% early 35 00:03:15.780 --> 00:03:21.260 in the proceedings and temporarily contracted the money supply to put a stringent check 36 00:03:21.260 --> 00:03:23.180 to inflation. 37 00:03:23.180 --> 00:03:29.460 But by 1931, deflation and hard money had become unthinkable in the British political 38 00:03:29.460 --> 00:03:30.900 climate. 39 00:03:30.900 --> 00:03:36.180 And so Britain stunned the financial world by keeping its bank rate very low, never raising 40 00:03:36.180 --> 00:03:44.020 in it above 4.5% and in fact continuing to inflate sterling still further to offset gold 41 00:03:44.020 --> 00:03:46.220 losses abroad. 42 00:03:46.220 --> 00:03:52.100 As the run on sterling inevitably intensified, Great Britain cynically repudiated its own 43 00:03:52.100 --> 00:03:57.780 gold exchange standard, the very monetary standard that it had forced and cajoled Europe 44 00:03:57.780 --> 00:04:04.180 to adopt by coolly going off the gold standard in September 1931. 45 00:04:04.180 --> 00:04:11.660 Its own international monetary system was sacrificed on the altar of continued domestic inflation. 46 00:04:11.660 --> 00:04:17.560 The European monetary system was thereby broken up into separate and even warring currency 47 00:04:17.560 --> 00:04:24.600 blocks, replete with fluctuating exchange rates, exchange control and trade restrictions. 48 00:04:24.600 --> 00:04:29.900 The major countries followed Britain off the gold standard, with the exception of Belgium, 49 00:04:29.900 --> 00:04:35.540 Holland, France, Italy, Switzerland and the United States. 50 00:04:35.540 --> 00:04:40.700 Currency blocks formed with the British Empire forming a sterling block with parities mutually 51 00:04:40.700 --> 00:04:43.620 fixed in relation to the pound. 52 00:04:43.620 --> 00:04:48.060 It is particularly ironic that one of the earliest effects of Britain's going off 53 00:04:48.060 --> 00:04:54.840 gold was that the overvalued pound, now free to fluctuate, fell to its genuine economic 54 00:04:54.840 --> 00:05:07.440 and so Britain's grand experiment in returning to a form of gold at an overvalued par had 55 00:05:07.440 --> 00:05:13.200 ended in disaster for herself as well as for the rest of the world. 56 00:05:13.200 --> 00:05:19.360 In the last weeks of the Hoover administration, a desperate attempt was made by the US to restore 57 00:05:19.360 --> 00:05:22.420 and International Monetary System. 58 00:05:22.420 --> 00:05:27.220 This time the offer was made to Britain to return to the gold standard at the current 59 00:05:27.220 --> 00:05:34.240 eminently more sensible par in exchange for substantial reduction of the British war debt. 60 00:05:34.240 --> 00:05:39.680 No longer would Britain be forced by overvaluation to be in a chronic state of depression of 61 00:05:39.680 --> 00:05:41.980 its export industries. 62 00:05:41.980 --> 00:05:48.000 But Britain now had the nationalist bit in its teeth and it insisted on outright quote 63 00:05:48.000 --> 00:05:54.800 reflation of prices back up to the pre-depression 1929 levels. 64 00:05:54.800 --> 00:06:00.200 It had become increasingly clear that the powerful quote price stabilizationists were 65 00:06:00.200 --> 00:06:06.400 interested not so much in stabilization as in high prices and now they would only be 66 00:06:06.400 --> 00:06:11.520 satisfied with an inflationary return to boom prices. 67 00:06:11.520 --> 00:06:16.640 Britain's rejection of the American offer proved to be fatal for any hopes of international 68 00:06:16.640 --> 00:06:24.400 The world's monetary fate finally rested with the United States, the major gold standard 69 00:06:24.400 --> 00:06:26.820 countries still remaining. 70 00:06:26.820 --> 00:06:31.520 Federal Reserve attempts to inflate the money supply and to lower interest rates during 71 00:06:31.520 --> 00:06:36.920 the depression further weaken confidence in the dollar, and gold outflows combined with 72 00:06:36.920 --> 00:06:43.160 runs and failures of the banks to put increasing pressure on the American banking system. 73 00:06:43.160 --> 00:06:48.760 Finally, during the interregnum between the Hoover and Roosevelt administrations, the 74 00:06:48.760 --> 00:06:52.680 nation's banks began to collapse in earnest. 75 00:06:52.680 --> 00:06:58.640 The general bank collapse meant that the banking system, always unsound and incapable of paying 76 00:06:58.640 --> 00:07:04.480 more than a fraction of its liabilities on demand, could only go in either of two opposite 77 00:07:04.480 --> 00:07:05.960 directions. 78 00:07:05.960 --> 00:07:11.240 A truly laissez-faire policy would have allowed the failing banks to collapse and thereby 79 00:07:11.240 --> 00:07:30.880 The other poll was for the government to declare massive bank holidays, that is, to relieve 80 00:07:30.880 --> 00:07:36.080 the banks of the obligation to pay their debts, and then move on to the repudiation 81 00:07:36.080 --> 00:07:43.160 of the Gold Standard and its replacement by inflated fiat paper issued by the government. 82 00:07:43.160 --> 00:07:47.920 It is important to realize that neither the Hoover nor the Roosevelt administrations had 83 00:07:47.920 --> 00:07:51.160 any intention of taking the first route. 84 00:07:51.160 --> 00:07:56.640 While there was a considerable split on whether or not to stay on the gold standard, no one 85 00:07:56.640 --> 00:08:00.280 endorsed the rigorous laissez-faire route. 86 00:08:00.280 --> 00:08:05.840 The new Roosevelt administration was now faced with the choice of retaining or going off 87 00:08:05.840 --> 00:08:16.840 While most everyone supported the temporary quote, bank holidays, there was a severe split on the longer run question of the monetary standard. 88 00:08:16.840 --> 00:08:31.840 While the bulk of the nation's academic economists stood staunchly behind the gold standard, the indefatigable Irving Fischer redoubled his agitation for inflation, spurred onward by his personal desire to reinflate stock prices. 89 00:08:31.840 --> 00:08:38.840 Since the Stable Money Association had been supposedly dedicated to price stabilization, 90 00:08:38.840 --> 00:08:44.720 and what Fisher and the inflationists wanted was a drastic raising of prices, the association 91 00:08:44.720 --> 00:08:51.280 liquidated its assets into the new and frankly inflationist Committee for the Nation to Rebuild 92 00:08:51.280 --> 00:08:54.320 Prices and Purchasing Power. 93 00:08:54.320 --> 00:09:01.640 The Committee for the Nation, founded in January 1933, stood squarely for the quote, reflation 94 00:09:01.640 --> 00:09:06.560 of Prices back to their pre-1929 levels. 95 00:09:06.560 --> 00:09:12.560 Stabilization of the price level was to proceed only after that point had been achieved. 96 00:09:12.560 --> 00:09:17.000 The Committee for the Nation, which was to prove crucially influential on Roosevelt's 97 00:09:17.000 --> 00:09:21.400 decision, was composed largely of prominent businessmen. 98 00:09:21.400 --> 00:09:26.820 The committee was originated by Vincent Bendix, president of Bendix Aviation, and General 99 00:09:26.820 --> 00:09:31.260 Robert E. Wood, head of Sears, Roebuck & Company. 100 00:09:31.260 --> 00:09:37.740 They were soon joined in the fall of 1932 by Frank A. Vanderlip, long close to Fisher 101 00:09:37.740 --> 00:09:43.980 and former president of the National Citibank of New York, by James H. Rand Jr. of Remington 102 00:09:43.980 --> 00:09:51.120 Rand and by Magnus W. Alexander, head of the National Industrial Conference Board. 103 00:09:51.120 --> 00:09:56.300 Other members of the Committee for the Nation included Fred H. Tick-Sauer, president of 104 00:09:56.300 --> 00:10:02.160 The Dairyman's League Cooperative Association, Frederick H. Frazier, Chairman of the Board 105 00:10:02.160 --> 00:10:06.300 of the General Baking Company, Automobile Magnet E.L. 106 00:10:06.300 --> 00:10:14.980 Cord, Lestig J. Rosenwald, Chairman Sears Roebuck, Samuel S. Fells of Fells & Company, 107 00:10:14.980 --> 00:10:21.300 Philip K. Wrigley, President of William Wrigley Company, John Henry Hammond, Chairman of the 108 00:10:21.300 --> 00:10:27.740 Board of Bangor and Aroostook Railroad, Edward A. O'Neill, head of the American Farm Bureau 109 00:10:27.740 --> 00:10:35.720 Federation, L. J. Tauber, head of the National Grange, F. R. Wurlitzer, vice president of 110 00:10:35.720 --> 00:10:43.460 Rudolf Wurlitzer Manufacturing Company, William J. McAveaney, president of Hudson Motor Company, 111 00:10:43.460 --> 00:10:50.300 Frank E. Gannett of Gannett Newspapers, and Indiana banker William A. Wirt. 112 00:10:50.300 --> 00:10:55.420 Interestingly enough, this same group of highly conservative industrialists was later 113 00:10:55.420 --> 00:11:01.220 to become the Committee for Constitutional Government, the major anti-New Deal propaganda 114 00:11:01.220 --> 00:11:05.220 group of the late 1930s and 1940s. 115 00:11:05.220 --> 00:11:09.620 Yet the Committee was the major proponent of the inflationist policy of the early New 116 00:11:09.620 --> 00:11:14.420 Deal in reflating and abandoning the gold standard. 117 00:11:14.420 --> 00:11:18.760 Also associated with the Committee for the Nation was another great influence on Franklin 118 00:11:18.760 --> 00:11:25.460 and Roosevelt's Decision, Agricultural Economist George F. Warren of Cornell, who, along with 119 00:11:25.460 --> 00:11:31.560 his colleague Frank A. Pearson, was the inspiration for the reflationist Roosevelt program of 120 00:11:31.560 --> 00:11:35.400 continually raising the buying price of gold. 121 00:11:35.400 --> 00:11:40.600 The Committee for the Nation at first included several hundred industrial and agricultural 122 00:11:40.600 --> 00:11:45.960 leaders, and within a year its membership reached over 2,000. 123 00:11:45.960 --> 00:11:52.400 The recommendations, beginning with going off gold and embargoing gold exports and continuing 124 00:11:52.400 --> 00:11:57.500 through devaluing the dollar and raising the price of gold, were fairly closely followed 125 00:11:57.500 --> 00:12:00.160 by the Roosevelt administration. 126 00:12:00.160 --> 00:12:06.800 For his part, Irving Fisher, in response to a request for advice by President-elect Roosevelt, 127 00:12:06.800 --> 00:12:13.160 had strongly urged at the end of February a frankly inflationist policy of reflation, 128 00:12:13.160 --> 00:12:18.160 devaluation and leaving the gold standard without delay. 129 00:12:18.160 --> 00:12:24.720 By April 19th, when Roosevelt had cast the die for this policy, Fischer exalted, quote, 130 00:12:24.720 --> 00:12:31.240 Now I am sure, as far as we can ever be sure of anything, that we are going to snap out 131 00:12:31.240 --> 00:12:33.240 of this depression fast. 132 00:12:33.240 --> 00:12:38.520 I am now one of the happiest men in the world, end quote. 133 00:12:38.520 --> 00:12:43.760 In the same letter to his wife, an heiress of the substantial hazard family fortune, 134 00:12:43.760 --> 00:12:46.200 Bisher added, quote, 135 00:12:46.200 --> 00:12:50.280 My next big job is to raise money for ourselves. 136 00:12:50.280 --> 00:12:55.080 Probably we'll have to go to sister, his wife's sister Carolyn, again. 137 00:12:55.080 --> 00:13:00.060 I have defaulted payments the last few weeks, because I did not think it was fair to ask 138 00:13:00.060 --> 00:13:04.840 sister for money when there was a real chance that I could never pay it back. 139 00:13:04.840 --> 00:13:10.320 I mean that if FDR had followed Glass, we would have been pretty surely ruined. 140 00:13:10.320 --> 00:13:15.080 So would a lied chemical, in which much of his wife's family fortune was invested, and 141 00:13:15.080 --> 00:13:17.200 the U.S. government. 142 00:13:17.200 --> 00:13:22.840 Now I can go to sister with a clean conscience." 143 00:13:22.840 --> 00:13:28.280 If Irving Fisher's interest was personal as well as ideological, economic interests 144 00:13:28.280 --> 00:13:32.560 also underlay the concern of the Committee for the Nation. 145 00:13:32.560 --> 00:13:38.920 The farm groups wanted farm prices driven up, including farm export prices, which necessarily 146 00:13:38.920 --> 00:13:44.400 increase in terms of other currencies whenever a currency is devalued. 147 00:13:44.400 --> 00:13:50.080 As for the rest of the committee and other inflationists, Herbert Feis notes, 148 00:13:50.080 --> 00:13:56.840 By the spring of 1933, diverse organizations and groups were crying aloud for some kind 149 00:13:56.840 --> 00:14:01.400 of monetary inflation or devaluation or both. 150 00:14:01.400 --> 00:14:05.280 Most effective, probably, was the Committee for the Nation. 151 00:14:05.280 --> 00:14:11.360 Among its members were prominent merchants such as the head of Sears Roebuck, some journalists, 152 00:14:11.360 --> 00:14:15.820 some Wall Street operators, and some foreign exchange speculators. 153 00:14:15.820 --> 00:14:21.100 Their purpose was to get the United States off the gold standard and to bring about devaluation 154 00:14:21.100 --> 00:14:26.620 of the dollar from which they would profit either as speculators in foreign exchange 155 00:14:26.620 --> 00:14:28.860 or as businessmen. 156 00:14:28.860 --> 00:14:33.500 Another group, more conservative, who stood to gain by devaluation were those who had 157 00:14:33.500 --> 00:14:39.600 already exported gold or otherwise acquired liquid deposits in foreign banks. 158 00:14:39.600 --> 00:14:44.260 They conceived that they were merely protecting the value of their capital. 159 00:14:44.260 --> 00:14:49.420 Then there were the exporters, especially of farm products, who had been at a disadvantage 160 00:14:49.420 --> 00:14:54.020 ever since Great Britain had gone off the gold standard and the value of sterling had 161 00:14:54.020 --> 00:15:00.260 fallen much below its previous parity with the dollar." 162 00:15:00.260 --> 00:15:05.000 Also advocating and endorsing the decision to inflate and leave the gold standard were 163 00:15:05.000 --> 00:15:10.980 such conservative bankers as James P. Warburg of Kuhn-Leb and Company, one of Roosevelt's 164 00:15:10.980 --> 00:15:37.340 Leffingwell told Roosevelt that his action, quote, was vitally necessary and the most 165 00:15:37.340 --> 00:15:52.260 I welcome the reported action of the President and the Secretary of the Treasury in placing 166 00:15:52.260 --> 00:15:55.080 an embargo on gold exports. 167 00:15:55.080 --> 00:16:00.140 It has become evident that the effort to maintain the exchange value of the dollar at a premium 168 00:16:00.140 --> 00:16:05.740 as against appreciated foreign currencies was having a deflationary effect upon already 169 00:16:05.740 --> 00:16:30.580 Other prominent advocates of going off gold were publishers J. David Stern and William 170 00:16:30.580 --> 00:16:37.480 from Randolph Hearst, financier James H.R. Cromwell and Dean Wallace Donham of the Harvard 171 00:16:37.480 --> 00:16:39.380 Business School. 172 00:16:39.380 --> 00:16:44.480 Conservative Republican senators such as David A. Reed of Pennsylvania and Minority Leader 173 00:16:44.480 --> 00:16:49.040 Charles L. McNary of Oregon also approved the decision. 174 00:16:49.040 --> 00:16:54.400 And Senator Arthur Vandenberg, Republican of Michigan, happily declared that Americans 175 00:16:54.400 --> 00:17:02.680 could now compete in the export trade, for the first time in many, many months. 176 00:17:02.680 --> 00:17:08.480 Vandenberg concluded that, abandonment of the dollar externally may prove to be a complete 177 00:17:08.480 --> 00:17:14.960 answer to our problem, so far as the currency factor is concerned. 178 00:17:14.960 --> 00:17:20.280 Amidst this chorus of approval from leading financiers and industrialists, there was still 179 00:17:20.280 --> 00:17:23.720 determined opposition to going off gold. 180 00:17:23.720 --> 00:17:28.980 Aside from the bulk of the nation's economists, the lead in opposition was taken again by 181 00:17:28.980 --> 00:17:34.680 two economists with close ties to the banking community, who had been major opponents of 182 00:17:34.680 --> 00:17:41.960 the strong Morgan policies during the 1920s, Dr. Benjamin M. Anderson of the Rockefeller-oriented 183 00:17:41.960 --> 00:17:48.420 Chase National Bank and Dr. H. Parker Willis, editor of the Journal of Commerce and chief 184 00:17:48.420 --> 00:17:54.180 Chief Advisor to Senator Carter Glass, Democrat of Virginia, who had been Secretary of the 185 00:17:54.180 --> 00:17:56.760 Treasury under Wilson. 186 00:17:56.760 --> 00:18:01.380 The Chamber of Commerce of the United States also vigorously attacked the abandonment of 187 00:18:01.380 --> 00:18:06.900 gold as well as price level stabilization, and the Chamber of Commerce of New York State 188 00:18:06.900 --> 00:18:09.820 called for prompt return to gold. 189 00:18:09.820 --> 00:18:15.700 From the financial community, leading opponents of Roosevelt's decision were Winthrop W. Aldrich, 190 00:18:15.700 --> 00:18:21.580 A Rockefeller kinsman and head of Chase National Bank and Roosevelt's budget director, Lewis 191 00:18:21.580 --> 00:18:28.020 W. Douglas of the Arizona mining family, who was related to the J. Henry Schroeder International 192 00:18:28.020 --> 00:18:33.420 Bankers and was eventually to become head of Mutual Life Insurance Company and ambassador 193 00:18:33.420 --> 00:18:35.100 to England. 194 00:18:35.100 --> 00:18:40.460 Douglas fought valiantly but in vain within the administration against going off gold 195 00:18:40.460 --> 00:18:44.060 and against the remainder of the New Deal program. 196 00:18:44.060 --> 00:18:49.780 By the end of April 1933, the United States was clearly off the gold standard and the 197 00:18:49.780 --> 00:18:55.820 dollar quickly began to depreciate relative to gold and the gold standard currencies. 198 00:18:55.820 --> 00:19:02.460 Britain, which a few weeks earlier had loftily rejected the idea of international stabilization, 199 00:19:02.460 --> 00:19:04.760 now became frightened. 200 00:19:04.760 --> 00:19:10.480 Currency blocks and a depreciating pound to aid British exports were one thing. 201 00:19:10.480 --> 00:19:16.400 of the dollar to spur American exports and injure British exports was quite another. 202 00:19:16.400 --> 00:19:21.080 The British had the presumption to scold the United States for going off gold. 203 00:19:21.080 --> 00:19:26.440 They now rested their final hope for a restored international monetary system on the World 204 00:19:26.440 --> 00:19:31.960 Economic Conference scheduled for London in June 1933. 205 00:19:31.960 --> 00:19:36.240 Preparations for the conference had been underway for a year under the guidance of the League 206 00:19:36.240 --> 00:19:42.320 of Nations, in a desperate attempt to aid the world economic and financial crisis by attempting 207 00:19:42.320 --> 00:19:48.240 the quote, restoring of the currencies on a healthy basis, end quote. 208 00:19:48.240 --> 00:19:52.360 The Hoover administration was planning to urge the restoration of the international 209 00:19:52.360 --> 00:19:57.580 gold standard, but the abandonment of gold by the Roosevelt administration in March and 210 00:19:57.580 --> 00:20:02.900 April 1933 changed the American position radically. 211 00:20:02.900 --> 00:20:08.300 As the conference loomed ahead, it was clear that there were three fundamental positions. 212 00:20:08.300 --> 00:20:14.040 The gold block, the countries still on the gold standard, headed by France, which desired 213 00:20:14.040 --> 00:20:19.500 immediate return to a full international gold standard with fixed exchange rates between 214 00:20:19.500 --> 00:20:25.700 the major currencies and gold, the United States, which now placed greatest stress on 215 00:20:25.700 --> 00:20:31.700 domestic inflation of the price level, and the British, supported by their dominions 216 00:20:31.700 --> 00:20:35.380 who wished some form of combination of the two. 217 00:20:35.380 --> 00:20:40.700 What was still unclear was whether a satisfactory compromise between these divergent views could 218 00:20:40.700 --> 00:20:42.520 be worked out. 219 00:20:42.520 --> 00:20:47.680 At the invitation of President Roosevelt, Prime Minister Ramsay MacDonald of Great Britain 220 00:20:47.680 --> 00:20:52.780 and leading statesmen of the other major countries journeyed to Washington for individual talks 221 00:20:52.780 --> 00:20:54.660 with the president. 222 00:20:54.660 --> 00:20:59.620 All that emerged from these conversations were vague agreements of intent, but the most 223 00:20:59.620 --> 00:21:04.580 Most interesting aspect of the talks was an American proposal, originated by William C. 224 00:21:04.580 --> 00:21:12.120 Bullitt and rejected by the French, to establish a coordinated worldwide inflation and devaluation 225 00:21:12.120 --> 00:21:15.460 of currencies. 226 00:21:15.460 --> 00:21:20.380 There was serious discussions of a proposal, sponsored by the United States and vigorously 227 00:21:20.380 --> 00:21:25.700 opposed by the gold countries, that the whole world should embark upon a quote, cheaper 228 00:21:25.700 --> 00:21:31.660 for Money Policy, not only through a vigorous and concerted program of credit expansion 229 00:21:31.660 --> 00:21:36.420 and the stimulation of business enterprise by means of public works, but also through 230 00:21:36.420 --> 00:21:42.900 a simultaneous devaluation by a fixed percentage of all currencies which were still at their 231 00:21:42.900 --> 00:21:46.860 pre-depression parities." 232 00:21:46.860 --> 00:21:52.380 The American delegation to London was a mixed bag, but the conservative gold standard forces 233 00:21:52.380 --> 00:21:57.940 Mises could take heart from the fact that staff economic advisor was James P. Warburg, 234 00:21:57.940 --> 00:22:02.820 who had been working eagerly on a plan for international currency stabilization based 235 00:22:02.820 --> 00:22:06.340 on gold at new and realistic parities. 236 00:22:06.340 --> 00:22:13.180 Furthermore, conservative Professor Oliver M. W. Sprague and George L. Harrison, Governor 237 00:22:13.180 --> 00:22:18.340 of the New York Fed, were sent to discuss proposals for temporary stabilization of the 238 00:22:18.340 --> 00:22:20.380 major currencies. 239 00:22:20.380 --> 00:22:26.640 In contrast, the president paid no attention to the petition of 85 congressmen, including 240 00:22:26.640 --> 00:22:33.080 10 senators, that he appoint as his economic advisor to the conference, the radical inflationist 241 00:22:33.080 --> 00:22:37.740 and anti-gold priest, Father Charles E. Coughlin. 242 00:22:37.740 --> 00:22:43.240 The World Economic Conference, attended by delegates from 64 major nations, opened in 243 00:22:43.240 --> 00:22:45.660 London on June 12. 244 00:22:45.660 --> 00:22:50.740 The first crisis occurred over the French suggestion for a temporary, quote, currency 245 00:22:50.740 --> 00:22:56.980 truce, a de facto stabilization of exchange rates between the franc, dollar and pound 246 00:22:56.980 --> 00:22:59.500 for the duration of the conference. 247 00:22:59.500 --> 00:23:05.020 Surely eminently reasonable, the plan was also a clever device for an entering wedge 248 00:23:05.020 --> 00:23:10.740 toward a hopefully permanent stabilization of exchange rates on a full gold basis. 249 00:23:10.740 --> 00:23:15.260 The British were amenable, provided that the pound remained fairly cheap in relation to 250 00:23:15.260 --> 00:23:27.220 On June 16, Sprague and Harrison concluded an agreement with the British and French for 251 00:23:27.220 --> 00:23:32.980 temporary stabilization of the three currencies, setting the dollar sterling rate at about 252 00:23:32.980 --> 00:23:38.420 $4 per pound and pledging the United States not to engage in massive inflation of the 253 00:23:38.420 --> 00:23:41.740 currency for the duration of the agreement. 254 00:23:41.740 --> 00:23:46.700 The American representatives urged Roosevelt to accept the agreement, with Sprague warning 255 00:23:46.700 --> 00:23:53.660 that, quote, a failure now would be most disastrous, end quote, and Warburg declaring that without 256 00:23:53.660 --> 00:23:59.820 stabilization, quote, it would be practically impossible to assume a leading role in attempting 257 00:23:59.820 --> 00:24:04.860 to bring about a lasting economic peace, end quote. 258 00:24:04.860 --> 00:24:10.780 But Roosevelt quickly rejected the agreement on June 17th, giving two reasons. 259 00:24:10.780 --> 00:24:17.900 that the pound must be stabilized at no cheaper than $4.25 and that he could not accept any 260 00:24:17.900 --> 00:24:24.220 restraint on his freedom of action to inflate in order to raise domestic prices. 261 00:24:24.220 --> 00:24:30.740 Roosevelt ominously concluded that, quote, it is my personal view that far too much importance 262 00:24:30.740 --> 00:24:37.580 is being placed on existing and temporary fluctuations, end quote, unless the American 263 00:24:37.580 --> 00:24:43.080 American delegation take his reasoning as a stimulus to renegotiate the agreement, Roosevelt 264 00:24:43.080 --> 00:24:49.700 reminded Hull on June 20th, quote, Remember that far too much influence is attached to 265 00:24:49.700 --> 00:24:55.180 exchange stability by banker-influenced cabinets, end quote. 266 00:24:55.180 --> 00:24:59.980 Upon receiving the presidential veto, the British and French were indignant and George 267 00:24:59.980 --> 00:25:04.060 Harrison quit and returned home in disgust. 268 00:25:04.060 --> 00:25:08.500 But the American delegation went ahead and issued its official statement on temporary 269 00:25:08.500 --> 00:25:12.280 currency stabilization on June 22nd. 270 00:25:12.280 --> 00:25:18.200 It declared temporary stabilization impermissible, quote, because the American government feels 271 00:25:18.200 --> 00:25:25.120 that its efforts to raise prices are the most important contribution it can make, end quote. 272 00:25:25.120 --> 00:25:31.180 With temporary stabilization scuttled, the conference settled down to long-range discussions, 273 00:25:31.180 --> 00:25:36.780 The most important being centered in the Sub-Commission on, quote, immediate measures of financial 274 00:25:36.780 --> 00:25:42.640 reconstruction of the Monetary and Financial Commission of the Conference. 275 00:25:42.640 --> 00:25:49.740 The British delegation began by introducing a draft resolution, one, emphasizing the importance 276 00:25:49.740 --> 00:25:56.820 of, quote, cheap and plentiful credit in order to raise the world level of commodity prices, 277 00:25:56.820 --> 00:26:03.060 And two, stating that quote, the central banks of the principal countries should undertake 278 00:26:03.060 --> 00:26:08.380 to cooperate with a view to securing these conditions and should announce their intention 279 00:26:08.380 --> 00:26:15.580 of pursuing vigorously a policy of cheap and plentiful money by open market operations. 280 00:26:15.580 --> 00:26:17.180 End quote. 281 00:26:17.180 --> 00:26:22.740 The British thus laid stress on coordinated inflation, but said nothing about the sticking 282 00:26:22.740 --> 00:26:26.500 point, exchange rate stabilization. 283 00:26:26.500 --> 00:26:33.140 The Dutch, the Czechoslovaks, the Japanese and the Swiss criticize the British advocacy 284 00:26:33.140 --> 00:26:37.180 of inflation and the Italian delegate warns that, quote, 285 00:26:37.180 --> 00:26:42.880 To put one's faith in immediate measures for augmenting the volume of money and credit 286 00:26:42.880 --> 00:26:47.860 might lead to a speculative boom followed by an even worse slump. 287 00:26:47.860 --> 00:26:53.460 A hasty and unregulated flood of credit would lead to destructive results. 288 00:26:53.460 --> 00:26:55.040 End quote. 289 00:26:55.040 --> 00:27:00.080 When the French delegate stressed that no genuine recovery could occur without a sense 290 00:27:00.080 --> 00:27:06.520 of economic and financial security, quote, Who would be prepared to lend with the fear 291 00:27:06.520 --> 00:27:11.380 of being repaid in depreciated currency always before his eyes? 292 00:27:11.380 --> 00:27:16.800 Who would find the capital for financing vast programs of economic recovery and abolition 293 00:27:16.800 --> 00:27:22.760 of unemployment, as long as there is a possibility that economic struggles would be transported 294 00:27:22.760 --> 00:27:25.060 to the Monetary Field. 295 00:27:25.060 --> 00:27:30.720 In a word, without stable currency there can be no lasting confidence, while the hoarding 296 00:27:30.720 --> 00:27:36.000 of capital continues there canivid no solution." 297 00:27:36.000 --> 00:27:40.880 The American delegation then submitted its own draft proposal, which was similar to the 298 00:27:40.880 --> 00:27:46.940 British, ignored currency stability, and advocated close cooperation between all governments 299 00:27:46.940 --> 00:27:53.100 Alliance and Central Banks for the carrying out of a policy of making credit abundantly 300 00:27:53.100 --> 00:28:00.160 and readily available to sound enterprise, especially by open market operations that 301 00:28:00.160 --> 00:28:02.420 expanded the money supply. 302 00:28:02.420 --> 00:28:07.900 Also, government expenditures and deficits should be synchronized between the different 303 00:28:07.900 --> 00:28:09.520 nations. 304 00:28:09.520 --> 00:28:14.460 The difference of views between the nations on inflation and prices, however, precluded 305 00:28:14.460 --> 00:28:44.160 In both the American and British proposals, however, even the eventual gold standard would 306 00:28:44.160 --> 00:28:49.260 would be considerably more inflationary than it had been in the 1920s. 307 00:28:49.260 --> 00:28:55.660 For all domestic gold circulation, whether coin or bullion would be abolished, and gold 308 00:28:55.660 --> 00:29:01.460 used only as a medium for settling international balances of payment. 309 00:29:01.460 --> 00:29:06.400 And all gold reserves ratios to currency would be lowered. 310 00:29:06.400 --> 00:29:11.320 As could have been predicted before the conference, there were three sets of views on gold and 311 00:29:11.320 --> 00:29:13.440 currency stabilization. 312 00:29:13.440 --> 00:29:20.260 The United States, backed only by Sweden, favored cheap money in order to raise domestic prices, 313 00:29:20.260 --> 00:29:26.000 with currency stabilization to be deferred until a sufficient price rise had occurred. 314 00:29:26.000 --> 00:29:31.320 Whatever international cooperation was envisaged would stress joint inflationary action to 315 00:29:31.320 --> 00:29:35.320 raise price levels in some coordinated manner. 316 00:29:35.320 --> 00:29:40.580 The United States, moreover, went further even than Sweden in calling for reflating 317 00:29:40.580 --> 00:29:51.060 The Gold Block attacked currency and price inflation, pointed to the early post-war experience 318 00:29:51.060 --> 00:29:57.980 of severe inflation and currency depreciation, and hence insisted on stabilization of exchanges 319 00:29:57.980 --> 00:30:01.100 and the avoidance of depreciation. 320 00:30:01.100 --> 00:30:06.460 In the confused middle were the British and the Sterling Block, who wanted price reflation 321 00:30:06.460 --> 00:30:12.020 and Cheap Credit, but also wanted eventual return to the gold standard and temporary 322 00:30:12.020 --> 00:30:15.540 stabilization of the key currencies. 323 00:30:15.540 --> 00:30:20.740 As the London Conference foundered on its severe disagreements, the gold block countries 324 00:30:20.740 --> 00:30:22.740 began to panic. 325 00:30:22.740 --> 00:30:27.580 For on the one hand, the dollar was failing in the exchange markets, thus making American 326 00:30:27.580 --> 00:30:30.660 goods and currency more competitive. 327 00:30:30.660 --> 00:30:35.780 And what is more, the general gloom at the conference gave international speculators 328 00:30:35.780 --> 00:30:41.700 The idea that in the near future many of these countries would themselves be forced to go 329 00:30:41.700 --> 00:30:43.540 off gold. 330 00:30:43.540 --> 00:30:49.220 In consequence, money began to flow out of these countries during June, and Holland and 331 00:30:49.220 --> 00:30:55.040 Switzerland lost more than 10% of their gold reserves during that month alone. 332 00:30:55.040 --> 00:31:02.120 In consequence, the gold countries launched a final attempt to draft a compromise resolution. 333 00:31:02.120 --> 00:31:05.960 The proposed resolution was a surprisingly mild one. 334 00:31:05.960 --> 00:31:12.220 It committed the signatory countries to re-establishing the gold standard and stable exchange rates, 335 00:31:12.220 --> 00:31:17.600 but it deliberately emphasized that the parity and date for each country to return to gold 336 00:31:17.600 --> 00:31:21.360 was strictly up to each individual country. 337 00:31:21.360 --> 00:31:26.680 The existing gold standard countries were pledged to remain on gold, which was not difficult 338 00:31:26.680 --> 00:31:29.200 since that was their fervent hope. 339 00:31:29.200 --> 00:31:34.600 The non-gold countries were to reaffirm their ultimate objective to return to gold, to try 340 00:31:34.600 --> 00:31:39.760 their best to limit exchange speculation in the meanwhile, and to cooperate with other 341 00:31:39.760 --> 00:31:43.120 central banks in these two endeavors. 342 00:31:43.120 --> 00:31:48.020 The innocuousness of the proposed declaration comes from the fact that it committed the 343 00:31:48.020 --> 00:31:53.720 United States to very little more than its own resolution of over a week earlier to return 344 00:31:53.720 --> 00:32:09.080 The Joint Declaration was agreed upon by Sprague and Warburg, by James M. Cox, head of the 345 00:32:09.080 --> 00:32:14.240 Monetary Commission of the Conference, and by Raymond Moly, who had taken charge of the 346 00:32:14.240 --> 00:32:18.680 delegation as a freewheeling White House advisor. 347 00:32:18.680 --> 00:32:23.640 Molley was Assistant Secretary of State and had been a monetary nationalist. 348 00:32:23.640 --> 00:32:29.880 Molley, however, sent the declaration to Roosevelt on June 30th, urging the president to accept 349 00:32:29.880 --> 00:32:37.280 it, especially since Roosevelt had been willing, a few weeks earlier, to stabilize at a $4.25 350 00:32:37.280 --> 00:32:42.820 pound while the depreciation of the dollar during June had now brought the market rate 351 00:32:42.820 --> 00:32:45.960 up to $4.40. 352 00:32:45.960 --> 00:32:51.600 Across the Atlantic, Undersecretary of the Treasury Dean G. Atchison, influential Wall 353 00:32:51.600 --> 00:32:58.400 Street financier Bernard M. Baruch and Louis W. Douglas also strongly endorsed the London 354 00:32:58.400 --> 00:33:00.400 Declaration. 355 00:33:00.400 --> 00:33:04.960 Not hearing immediately from the President, Moley frantically wired Roosevelt the next 356 00:33:04.960 --> 00:33:11.280 morning that, quote, success, even continuance of the conference depends upon United States 357 00:33:11.280 --> 00:33:14.440 agreement, end quote. 358 00:33:14.440 --> 00:33:20.040 Roosevelt cabled his rejection on July 1st, declaring that quote, a sufficient interval 359 00:33:20.040 --> 00:33:25.720 should be allowed the United States to permit a demonstration of the value of price lifting 360 00:33:25.720 --> 00:33:31.120 efforts which we have well in hand, end quote. 361 00:33:31.120 --> 00:33:36.280 Roosevelt's rejection of the innocuous agreement was in itself startling enough, but he felt 362 00:33:36.280 --> 00:33:42.240 that he had to add insult to injury, to slash away at the London conference so that no danger 363 00:33:42.240 --> 00:34:09.200 Roosevelt began by lambasting the idea of temporary currency stabilization, which he 364 00:34:09.200 --> 00:34:16.000 He termed a, quote, species fallacy, a, quote, artificial and temporary diversion. 365 00:34:16.000 --> 00:34:22.460 Instead, Roosevelt declared that the emphasis must be placed on, quote, the sound internal 366 00:34:22.460 --> 00:34:25.180 economic system of a nation. 367 00:34:25.180 --> 00:34:32.160 In particular, quote, old fetishes of so-called international bankers are being replaced by 368 00:34:32.160 --> 00:34:37.720 efforts to plan national currencies, with the objective of giving to those currencies 369 00:34:37.720 --> 00:35:06.140 In short, the President was now totally committed to the Nationalist-Fisher Committee for the 370 00:35:06.140 --> 00:35:29.940 The World Economic Conference limped along aimlessly for a few more weeks, but the Roosevelt 371 00:35:29.940 --> 00:35:35.100 Roosevelt bombshell message effectively killed the conference and the hope for a restored 372 00:35:35.100 --> 00:35:39.940 international monetary order was dead for a fateful decade. 373 00:35:39.940 --> 00:35:46.780 From here on in the 1930s, monetary nationalism, currency blocks and commercial and financial 374 00:35:46.780 --> 00:35:50.300 warfare would be the order of the day. 375 00:35:50.300 --> 00:35:54.660 The French were bitter and the English stricken at the Roosevelt message. 376 00:35:54.660 --> 00:36:00.660 The chagrined James P. Warburg promptly resigned as financial advisor to the delegation, and 377 00:36:00.660 --> 00:36:05.500 this was to be the beginning of the exit of this highly placed economic advisor from the 378 00:36:05.500 --> 00:36:07.900 Roosevelt administration. 379 00:36:07.900 --> 00:36:13.040 A similar fate was in store for Oliver Sprague and Dean Acheson. 380 00:36:13.040 --> 00:36:18.620 As for Raymond Moly, who had been repudiated by the president's action, he tried to restore 381 00:36:18.620 --> 00:36:24.540 himself in Roosevelt's graces by a fawning and obviously insincere telegram, only to 382 00:36:24.540 --> 00:36:29.260 to be ousted from office shortly after his return to the States. 383 00:36:29.260 --> 00:36:34.900 Playing an ambivalent role in the entire affair, Bernard Baruch, who was privately in favor 384 00:36:34.900 --> 00:36:39.860 of the old gold standard, praised Roosevelt fulsomely for his message. 385 00:36:39.860 --> 00:36:45.220 Quote, until each nation puts its house in order by the same Herculean efforts that you 386 00:36:45.220 --> 00:36:51.140 are performing, Baruch wrote the president, quote, there can be no common denominators 387 00:36:51.140 --> 00:37:09.300 Expressions of enthusiastic support for the President's decision came, as might be expected, 388 00:37:09.300 --> 00:37:15.260 from Irving Fisher and George F. Warren, who urge Roosevelt to avoid any possible agreement 389 00:37:15.260 --> 00:37:21.780 that might limit, quote, our freedom to change the dollar any day, end quote. 390 00:37:21.780 --> 00:37:26.980 James A. Farley has recorded in his memoirs that Roosevelt was prompted to send his angry 391 00:37:26.980 --> 00:37:33.300 message by coming to suspect a plot to influence Molley in favor of stabilization by Thomas 392 00:37:33.300 --> 00:37:38.860 W. Lamont, partner of J.P. Morgan & Company, working through Molley's conference aide 393 00:37:38.860 --> 00:37:44.860 and White House advisor, Herbert Bayard Swope, who was close to the Morgans and also a long-time 394 00:37:44.860 --> 00:37:54.060 This might well account for Roosevelt's bitter reference to the so-called international bankers. 395 00:37:54.060 --> 00:38:00.660 The situation is curious, however, since Swope was firmly on the anti-stabilizationist side 396 00:38:00.660 --> 00:38:05.540 and Roosevelt's London message was greeted enthusiastically by Russell Leffingwell of 397 00:38:05.540 --> 00:38:11.580 Morgan's, who apparently took little notice of its attack on international bankers. 398 00:38:11.580 --> 00:38:16.660 Leffingwell wrote to the President, quote, You were very right not to enter into any 399 00:38:16.660 --> 00:38:21.820 temporary or permanent arrangements to peg the dollar in relation to sterling or any 400 00:38:21.820 --> 00:38:24.940 other currency, end quote. 401 00:38:24.940 --> 00:38:30.060 From the date of the torpedoing of the London Economic Conference, monetary nationalism 402 00:38:30.060 --> 00:38:33.560 prevailed for the remainder of the 1930s. 403 00:38:33.560 --> 00:38:40.380 The United States finally fixed the dollar at $35 an ounce in January 1934, amounting 404 00:38:40.380 --> 00:38:46.020 into a two-thirds increase in the gold price of the dollar from its original moorings less 405 00:38:46.020 --> 00:38:51.540 than a year before and to a 40% devaluation of the dollar. 406 00:38:51.540 --> 00:38:56.820 The gold nations continued on gold for two more years, but the greatly devalued dollar 407 00:38:56.820 --> 00:39:01.980 now began to attract a flood of gold from the gold countries and France was finally 408 00:39:01.980 --> 00:39:05.960 forced off gold in the fall of 1936. 409 00:39:05.960 --> 00:39:13.540 With the other major gold countries, Switzerland, Belgium and Holland, following shortly thereafter. 410 00:39:13.540 --> 00:39:18.740 While the dollar was technically fixed in terms of gold, there was no further gold coin 411 00:39:18.740 --> 00:39:22.620 or bullion redemption within the US. 412 00:39:22.620 --> 00:39:28.100 Gold was used only as a method of clearing balances of payments, with only fitful redemption 413 00:39:28.100 --> 00:39:30.340 to foreign countries. 414 00:39:30.340 --> 00:39:38.100 The only significant act of international collaboration after 1934 came in the fall of 1936, at about 415 00:39:38.100 --> 00:39:41.980 the time France was forced to leave the gold standard. 416 00:39:41.980 --> 00:39:48.460 Partly to assist the French, the United States, Great Britain and France entered into a tripartite 417 00:39:48.460 --> 00:39:54.260 agreement with France, beginning on September 25, 1936. 418 00:39:54.260 --> 00:39:59.580 The French agreed to throw in the exchange rate sponge and devalued the franc by between 419 00:39:59.580 --> 00:40:02.180 One-fourth and one-third. 420 00:40:02.180 --> 00:40:07.940 At this new par, the three governments agreed not to stabilize their currencies, but to 421 00:40:07.940 --> 00:40:13.780 iron out day-to-day fluctuations in them, to engage in mutual stabilization of each 422 00:40:13.780 --> 00:40:18.760 other's currencies only within each 24-hour period. 423 00:40:18.760 --> 00:40:24.620 This was scarcely stabilization, but it did constitute a moderating of fluctuations, as 424 00:40:24.620 --> 00:40:30.380 As well as politico-monetary collaboration, which began with the three Western countries 425 00:40:30.380 --> 00:40:37.180 and soon expanded to include other former gold nations, Belgium, Holland and Switzerland. 426 00:40:37.180 --> 00:40:41.740 This collaboration continued until the outbreak of World War II. 427 00:40:41.740 --> 00:40:46.420 At least one incident marred the harmony of the tripartite agreement. 428 00:40:46.420 --> 00:40:52.220 In the fall of 1938, while the United States and Britain were hearing out a trade agreement, 429 00:40:52.220 --> 00:40:57.220 The British began pushing the pound below $4.80. 430 00:40:57.220 --> 00:41:02.140 At the threat of this cheapening of the pound, U.S. Treasury officials warned Secretary of 431 00:41:02.140 --> 00:41:07.900 the Treasury Henry Morgenthau Jr. that if, quote, Sterling drops substantially below 432 00:41:07.900 --> 00:41:15.260 $4.80, our foreign and domestic business will be adversely affected, end quote. 433 00:41:15.260 --> 00:41:20.540 In consequence, Morgenthau successfully insisted that the trade agreement with Britain must 434 00:41:20.540 --> 00:41:25.620 must include a clause that the agreement would terminate if Britain should allow the pound 435 00:41:25.620 --> 00:41:29.700 to fall below $4.80. 436 00:41:29.700 --> 00:41:35.140 Here we may only touch on a fascinating historical problem which has been discussed by revisionist 437 00:41:35.140 --> 00:41:37.820 historians of the 1930s. 438 00:41:37.820 --> 00:41:43.020 To what extent was the American drive for war against Germany the result of anger and 439 00:41:43.020 --> 00:41:49.820 conflict over the fact that, in the 1930s' world of economic and monetary nationalism, 440 00:41:49.820 --> 00:41:55.460 The Germans, under the guidance of Dr. Holmar Schacht, went their way successfully on their 441 00:41:55.460 --> 00:42:01.500 own, totally outside of Anglo-American control or of the confinements of what remained of 442 00:42:01.500 --> 00:42:04.640 the cherished American open door? 443 00:42:04.640 --> 00:42:09.900 A brief treatment of this question will serve as a prelude to examining the aim of the war-born 444 00:42:09.900 --> 00:42:16.280 quote, second New Deal, of reconstructing a new international monetary order, an order 445 00:42:16.280 --> 00:42:28.000 German economic nationalism in the 1930s was, first of all, conditioned by the horrifying 446 00:42:28.000 --> 00:42:33.840 experience that Germany had with runaway inflation and currency depreciation during the early 447 00:42:33.840 --> 00:42:40.000 1920s, culminating in the monetary collapse of 1923. 448 00:42:40.000 --> 00:42:46.060 Though caught with an overvalued par as each European country went off the gold standard, 449 00:42:46.060 --> 00:42:51.240 No German government could have politically succeeded in engaging once again in the dreaded 450 00:42:51.240 --> 00:42:54.020 act of devaluation. 451 00:42:54.020 --> 00:43:00.260 No longer on gold, and unable to devalue the mark, Germany was obliged to engage in strict 452 00:43:00.260 --> 00:43:02.620 exchange control. 453 00:43:02.620 --> 00:43:08.340 In this economic climate, Dr. Schacht was particularly successful in making bilateral 454 00:43:08.340 --> 00:43:13.940 trade agreements with individual countries, agreements which amounted to direct quote 455 00:43:13.940 --> 00:43:20.020 Barter Arrangements that angered the United States and other Western countries in totally 456 00:43:20.020 --> 00:43:25.980 bypassing gold and other international banking or financial arrangements. 457 00:43:25.980 --> 00:43:31.880 In the anti-German propaganda of the 1930s, the German barter deals were agreements in 458 00:43:31.880 --> 00:43:37.700 which Germany somehow invariably emerged as coercive victor and exploiter of the other 459 00:43:37.700 --> 00:43:43.740 country involved, even though they were mutually agreed upon and therefore presumably mutually 460 00:43:43.740 --> 00:43:54.720 Beneficial Exchanges Part of the essence of the barter arrangements 461 00:43:54.720 --> 00:43:57.420 has been neglected by historians. 462 00:43:57.420 --> 00:44:03.780 The deliberate overvaluation of the exchange rates of both currencies involved in the deals. 463 00:44:03.780 --> 00:44:09.520 The German mark, as we have seen, was deliberately overvalued as the alternative to the specter 464 00:44:09.520 --> 00:44:12.140 of currency depreciation. 465 00:44:12.140 --> 00:44:15.820 The situation of the other currencies was a bit more complex. 466 00:44:15.820 --> 00:44:21.900 Thus, in the border agreements between Germany and the various Balkan countries, especially 467 00:44:21.900 --> 00:44:28.640 Romania, Hungary, Bulgaria and Yugoslavia, in which the Balkans exchanged agricultural 468 00:44:28.640 --> 00:44:34.900 products for German manufactured goods, the Balkan currencies were also fixed at an artificially 469 00:44:34.900 --> 00:44:41.420 overvalued rate vis-à-vis gold and the currencies of Britain and the other Western countries. 470 00:44:41.420 --> 00:44:47.060 This meant that Germany agreed to pay higher than world market rates for Balkan agricultural 471 00:44:47.060 --> 00:44:53.260 products while the latter paid higher rates for German manufactured products. 472 00:44:53.260 --> 00:44:58.540 For the Balkan countries, the point of all this was to force Balkan consumers of manufactured 473 00:44:58.540 --> 00:45:03.420 goods to subsidize their own peasants and agriculturalists. 474 00:45:03.420 --> 00:45:08.740 The external consequence was that Germany was able to freeze out Britain and other Western 475 00:45:08.740 --> 00:45:34.300 In the 1930s, Britain and the West were deprived of raw materials and markets for their manufacturers 476 00:45:34.300 --> 00:45:40.240 by the astute policies of Hallmar Schacht and the mutually agreeable Barter Agreements between 477 00:45:40.240 --> 00:45:46.360 Germany and the Balkan and other, including Latin American, countries. 478 00:45:46.360 --> 00:45:51.720 May not Western anger at successful German competition through bilateral agreements and 479 00:45:51.720 --> 00:45:57.100 Western desire to liquidate such competition have been important factors in the Western 480 00:45:57.100 --> 00:46:00.040 drive for war against Germany? 481 00:46:00.040 --> 00:46:05.600 Lloyd Gardner has demonstrated the early hostility of the United States toward German economic 482 00:46:05.600 --> 00:46:11.800 controls and barter arrangements, its attempts to pressure Germany to shift to a multilateral 483 00:46:11.800 --> 00:46:18.340 quote, open door system for American products and the repeated American rebuffs to German 484 00:46:18.340 --> 00:46:23.040 proposals for bilateral exchanges between the two countries. 485 00:46:23.040 --> 00:46:29.980 As early as June 26th, 1933, the influential American Consul General at Berlin, George 486 00:46:29.980 --> 00:46:36.720 Messersmith, was warning that such continued policies would make, quote, Germany a danger 487 00:46:36.720 --> 00:46:40.980 to world peace for years to come, end quote. 488 00:46:40.980 --> 00:46:46.260 In pursuing this aggressive policy, President Roosevelt overrode Agricultural Adjustment 489 00:46:46.260 --> 00:46:52.560 Administration Chief George Peek, who favored accepting bilateral deals with Germany and, 490 00:46:52.560 --> 00:46:59.360 Perhaps not coincidentally, was to be an ardent, quote, isolationist in the late 1930s. 491 00:46:59.360 --> 00:47:05.100 Instead, Roosevelt followed the policy of the leading interventionist and spokesman 492 00:47:05.100 --> 00:47:12.040 for a quote, open door to American products, Secretary of State Cordell Hull, as well as 493 00:47:12.040 --> 00:47:18.360 his assistant secretary, Francis B. Sayre, son-in-law of Woodrow Wilson. 494 00:47:18.360 --> 00:47:25.080 By 1935, American officials were calling Germany a, quote, aggressor because of its successful 495 00:47:25.080 --> 00:47:32.080 bilateral trade competition and Japan was similarly castigated for much the same reasons. 496 00:47:32.080 --> 00:47:38.400 By late 1938, J. Pierpont Moffat, head of the Western European Division of the State 497 00:47:38.400 --> 00:47:44.400 Department was complaining that German control of Central and Eastern Europe would mean, 498 00:47:44.400 --> 00:47:58.440 And, more specifically, in May 1940, Assistant Secretary of State Breckenridge Long warned 499 00:47:58.440 --> 00:48:14.340 that a German-dominated Europe would mean that, and shortly before American entry into 500 00:48:14.340 --> 00:48:31.460 With German control of the buyers of Europe and her practice of governmental control of 501 00:48:31.460 --> 00:48:37.740 all trade, it would be well within her power, as well as the pattern she has thus far displayed, 502 00:48:37.740 --> 00:48:44.820 to shut off our trade with Europe, with South America and with the Far East." 503 00:48:44.820 --> 00:48:50.220 Not only were Hull and the United States ardent in pressing an anti-German policy against 504 00:48:50.220 --> 00:48:56.380 its bilateral trade system, but sometimes Secretary Hull had to whip even Britain into 505 00:48:56.380 --> 00:48:57.380 line. 506 00:48:57.380 --> 00:49:04.440 Thus, in early 1936, Cordell Hull warned the British ambassador that the, quote, clearing 507 00:49:04.440 --> 00:49:10.160 Banking arrangements reached by Britain with Argentina, Germany, Italy and other countries 508 00:49:10.160 --> 00:49:15.400 were handicapping the efforts of this government to carry forward its broad program with the 509 00:49:15.400 --> 00:49:20.320 favored nation policy underlying it. 510 00:49:20.320 --> 00:49:27.680 The tendency of these British arrangements was to drive straight toward bilateral trading, 511 00:49:27.680 --> 00:49:31.720 and they were therefore milestones on the road to war. 512 00:49:31.720 --> 00:49:36.920 One of the United States government's biggest economic worries was the growing competition 513 00:49:36.920 --> 00:49:41.600 of Germany and its bilateral trade in Latin America. 514 00:49:41.600 --> 00:49:48.500 As early as 1935, Cordell Hull had concluded that Germany was quote, straining every tendon 515 00:49:48.500 --> 00:49:54.620 to undermine United States trading relations with Latin America, end quote. 516 00:49:54.620 --> 00:49:59.280 A great deal of political pressure was used to combat German competition. 517 00:49:59.280 --> 00:50:05.360 Thus, in the mid-1930s, the American Chamber of Commerce in Brazil repeatedly pressed the 518 00:50:05.360 --> 00:50:10.600 State Department to scuttle the Germany-Brazil barter deal, which the chamber termed the 519 00:50:10.600 --> 00:50:15.920 quote, greatest single obstacle to free trade in South America. 520 00:50:15.920 --> 00:50:21.360 Brazil was finally induced to cancel its agreement with Germany in exchange for a $60 million 521 00:50:21.360 --> 00:50:24.160 loan from the U.S. 522 00:50:24.160 --> 00:50:29.440 America's exporters, grouped in the National Foreign Trade Council, issued resolutions 523 00:50:29.440 --> 00:50:35.200 against German trade methods and pressured the government for stronger action. 524 00:50:35.200 --> 00:50:41.680 And in late 1938, President Roosevelt asked Professor James Harvey Rogers, an economist 525 00:50:41.680 --> 00:50:47.640 and disciple of Irving Fisher, to make a currency study of all of South America in order to 526 00:50:47.640 --> 00:50:55.000 to Minimize German and Italian Influence on this Side of the Atlantic. 527 00:50:55.000 --> 00:51:01.160 It is no wonder that German diplomats in Brazil, Chile and Uruguay reported home that the United 528 00:51:01.160 --> 00:51:09.640 States was exerting very strong pressure against Germany commercially, which included economic, 529 00:51:09.640 --> 00:51:14.960 commercial and political opposition designed to drive Germany out of the Brazilian and 530 00:51:14.960 --> 00:51:17.720 and other South American markets. 531 00:51:17.720 --> 00:51:23.520 In the spring of 1935, the German ambassador to Washington, desperately anxious to bring 532 00:51:23.520 --> 00:51:29.200 an end to American political and economic warfare, asked the United States what Germany 533 00:51:29.200 --> 00:51:32.680 could do to end American hostilities. 534 00:51:32.680 --> 00:51:38.240 The American answer, which amounted to a demand for unconditional economic surrender, was 535 00:51:38.240 --> 00:51:43.480 that Germany abandon its economic policy in favor of America. 536 00:51:43.480 --> 00:51:50.680 The American reply, quote, really meant, noted Pierpont Moffatt, quote, a fundamental acceptance 537 00:51:50.680 --> 00:51:57.280 by Germany of our trade philosophy and a thoroughgoing partnership with us along the road of equality 538 00:51:57.280 --> 00:52:02.340 of treatments and the reduction of trade barriers, end quote. 539 00:52:02.340 --> 00:52:07.160 The United States further indicated that it was interested that Germany accept not so 540 00:52:07.160 --> 00:52:13.440 much the principle of the most favored national clause in all international trade, but specifically 541 00:52:13.440 --> 00:52:16.580 Especially for American Exports 542 00:52:16.580 --> 00:52:23.020 When war broke out in September 1939, Bernard Baruch's reaction was to tell President Roosevelt 543 00:52:23.020 --> 00:52:29.940 that, quote, If we keep our prices down, there is no reason why we shouldn't get the customers 544 00:52:29.940 --> 00:52:34.840 of the belligerent nations that they have had to drop because of the war. 545 00:52:34.840 --> 00:52:41.420 And in that event, Baruch exalted, quote, Germany's barter system will be destroyed, 546 00:52:41.420 --> 00:52:48.780 But particularly significant is the retrospective comment made by Secretary Hull, 547 00:52:48.780 --> 00:52:54.800 War did not break out between the United States and any country with which we had been able 548 00:52:54.800 --> 00:52:57.240 to negotiate a trade agreement. 549 00:52:57.240 --> 00:53:03.420 It is also a fact that, with very few exceptions, the countries with which we signed trade agreements 550 00:53:03.420 --> 00:53:06.960 joined together in resisting the Axis. 551 00:53:06.960 --> 00:53:12.700 The political line-up follows the economic line-up." 552 00:53:12.700 --> 00:53:17.380 Considering that Secretary Hull was a leading maker of American foreign policy throughout 553 00:53:17.380 --> 00:53:23.300 the 1930s and through World War II, it is certainly a possibility that his remarks should 554 00:53:23.300 --> 00:53:30.960 be taken not as a quaint testimony to Hull's Idée fixe on reciprocal trade, but as a positive 555 00:53:30.960 --> 00:53:35.960 causal statement of the thrust of American foreign policy. 556 00:53:35.960 --> 00:53:41.240 Set in that light, Hull's remark becomes a significant admission rather than a flight 557 00:53:41.240 --> 00:53:43.600 of speculative fancy. 558 00:53:43.600 --> 00:53:47.920 Reinforcing this interpretation would be a similar reading of the testimony before the 559 00:53:47.920 --> 00:53:54.720 House of Representatives in 1945 of top Treasury aide Harry Dexter White defending the Bretton 560 00:53:54.720 --> 00:53:56.480 Woods Agreement. 561 00:53:56.480 --> 00:54:02.840 White declared, quote, I think it, a Bretton Woods system, would very definitely have made 562 00:54:02.840 --> 00:54:08.440 a considerable contribution to checking the war and possibly might have prevented it. 563 00:54:08.440 --> 00:54:13.520 A great many of the devices which Germany and Japan utilized would have been illegal 564 00:54:13.520 --> 00:54:20.040 in the international sphere had these countries been participating members." 565 00:54:20.040 --> 00:54:25.760 Is White saying that the Allies deliberately made war upon the Axis because of these bilateral 566 00:54:25.760 --> 00:54:31.600 exchange control and other competitive devices, which a Bretton Woods, or for that matter 567 00:54:31.600 --> 00:54:35.920 under a 1920s system would have precluded? 568 00:54:35.920 --> 00:54:41.260 We may take as our final testimony to the possible economic causes of World War II the 569 00:54:41.260 --> 00:54:48.280 assertion by the influential times of London well after the start of the war. 570 00:54:48.280 --> 00:54:53.240 One of the fundamental causes of this war has been the unrelaxing efforts of Germany 571 00:54:53.240 --> 00:54:59.480 since 1918 to secure wide enough foreign markets to straighten her finances. 572 00:54:59.480 --> 00:55:04.600 At the very time when all her competitors were forced by their own debts to adopt exactly 573 00:55:04.600 --> 00:55:10.600 the same course, continuous friction was inevitable.