1930's Gold Standard Memos & Letters: Newman Portal and National Archives 0

[GoldFinger1969]

This is directed at Roger and anybody else who looks at raw primary sources...do you think that either the Newman Portal or the National Archives still have unseen (or maybe unseen in decades) documents, letters, musings, telegrams, etc....on how government officials saw the Gold Standard after 1929, and especially 1932 onward as we headed into an election year and then FDR actually taking us off ?

I'm wondering if any of that stuff could be NEW as opposed to having already been picked clean since it's a pretty important part of our history.

Actually ordering that gold be turned in was a pretty radical step....also, the effect on other countries staying or going off their gold standards....international trade was drying up, they had to realize it wouldn't be good for that....did they run this by the Treasury and/or Federal Reserve.....if the whole reason was to replenish the gold at the Fed and up the money supply, why not just sever the link directly and have the Fed print high-powered money reserves ?

I bought a copy of the AMERICAN DEFAULT book by Princeton Press so I'm sure it has many useful footnotes and sources, and I'm also re-reading chapters in RWB's SAINTS book and some other stuff on that period. 

It really is fascinating....lot of stuff behind-the-scenes, that's what I'm trying to find.

Edited February 25, 2023 by GoldFinger1969

[VKurtB]

As country after country went OFF their gold standard, their economies nearly instantly started to recover measurably. I believe it’s not merely a correlation; I see it as THE proximate cause. Am I saying hard money CAUSES economic depressions? Why yes, yes I am. 

Edited February 26, 2023 by VKurtB

[GoldFinger1969]

On 2/25/2023 at 9:01 PM, VKurtB said:

As country after country went OFF their gold standard, their economies nearly instantly started to recover measurably. I believe it’s not merely a correlation; I see it as THE proximate cause. Am I saying hard money CAUSES economic depressions? Why yes, yes I am. 

Regardless, that's not my reason for seeing if there aren't interesting unseen letters, documents, correspondences, etc....of the kind Roger likes to start threads with.  OTOH, it's possible all the relevant ones were disclosed years/decades ago and were cited in previous books from Friedman/Schwart's A MONETARY HISTORY to others more narrowly focused on the gold standard.  Roger's showed us some really fascinating stuff, I'm just wondering if there's some more "color" on the back-and-forths. 

For instance, I was reading on a website that Dean Acheson, later a State Department biggie, was actually in the Treasury in 1933-34 and wanted nothing to do with ending the gold standard.  FDR actually used the weak gold position of the Fed against Hoover.  Interesting stuff.

[GoldFinger1969]

On 2/25/2023 at 9:01 PM, VKurtB said:

As country after country went OFF their gold standard, their economies nearly instantly started to recover measurably. I believe it’s not merely a correlation; I see it as THE proximate cause. Am I saying hard money CAUSES economic depressions? Why yes, yes I am. 

I wouldn't necessarily disagree.  Internal adjustments of prices, wages, and inflation are harder to re-set than exchange rates and other external adjustment mechanisms.

[VKurtB]

On 2/26/2023 at 8:38 AM, GoldFinger1969 said:

I wouldn't necessarily disagree.  Internal adjustments of prices, wages, and inflation are harder to re-set than exchange rates and other external adjustment mechanisms.

The single biggest obstacle to classical Smithian economics is the practical difficulty of lowering wages. Without that ability, which has been effectively eliminated, all that remains as a tool is to cause inflation, something which we have seen this regime create with magnificent unprecedented efficiency. 

Edited February 26, 2023 by VKurtB

[GoldFinger1969]

On 2/26/2023 at 1:44 PM, VKurtB said:

The single biggest obstacle to classical Smithian economics is the practical difficulty of lowering wages. Without that ability, which has been effectively eliminated, all that remains as a tool is to cause inflation, something which we have seen this regime create with magnificent unprecedented efficiency. 

I'm looking for debating memos from the 1930's, not with you, not that I don't enjoy the back-and-forth. 

[VKurtB]

On 2/26/2023 at 2:21 PM, GoldFinger1969 said:

I'm looking for debating memos from the 1930's, not with you, not that I don't enjoy the back-and-forth. 

I’d frankly be surprised if there was any domestic dissent expressed in writing. 

[GoldFinger1969]

On 2/26/2023 at 4:20 PM, VKurtB said:

I’d frankly be surprised if there was any domestic dissent expressed in writing. 

Dissent, concerns, opposition from conservatives from FDR's own party, opposition from the GOP, etc.  I believe most of the gold cases that reached the SCOTUS were 5-4 decisions.

Dean Acheson had concerns and FDR himself had attacked Hoover in '32 for weakening the economy and bringing the country to the brink of having to leave the gold standard.  It'd be interesting to see if any of his advisors said he'd look stupid for doing what he accused Hoover of bringins us to the brink of just a few months earlier.

It might have already been covered in some books, I'll scan and report back. 

Edited February 27, 2023 by GoldFinger1969

[RWB]

In any archival facility it is inevitable that papers get misfiled. I once found some BEP documents in a US Mint folder - no connection to mint or coins at all.) Thus, we can't presume that we have all of anything.

As for official Treasury opinions on gold, there are some Treasury documents (incl. Treasurer, Sec of Treasury, FRB, Compt Currency). They are scattered and very poorly described. Even the best NARA expert on Treasury documents is often baffled about where to start looking.

Gold as a money standard did not function well in industrial economies -- it was too inflexible and difficult to adapt to economic change. By 1933 speculators had a choke hold on the last  major economy based on yellow stones. The only way out was a drastic increase in gold price by devaluation, or decoupling from pretty colored rocks.

The new book, Saudi Gold and other Tales from the Mint due from the printer in a couple of weeks, has an opening chapter that demystifies and demythifies the "gold standard." I expect it will highly irritate a segment of collectors.

[GoldFinger1969]

On 2/26/2023 at 7:43 PM, RWB said:

The new book, Saudi Gold and other Tales from the Mint due from the printer in a couple of weeks, has an opening chapter that demystifies and demythifies the "gold standard." I expect it will highly irritate a segment of collectors.

Another reason to read it, thanks !  Pro or con, I love factual debates. 

[GoldFinger1969]

AMERICAN DEFAULT:  Interesting as I just got to the arguments in front of SCOTUS in the book.  The markets and the financial press were really afraid that a negative decision (re-instating the Gold Clauses for bonds) could lead to a huge drop and extreme volatility in the financial markets.

Most discussions about FDRs policies on gold focus on the events of 1933 and the confiscation of gold, the revaluation upwards, etc.  Those were afterthoughts at the time...it was the $100 billion in gold clauses in early-1935 that were the main focus for the financial markets.

Every $100 of face value of bonds could suddenly be forced to be paid off at $169.  HUGE implications.

[RWB]

The courts uniformly ruled that gold at the time the contract was executed was a legal tender, and thus the contract was payable in legal tender. The only adverse rulings were in a very few instances where payment was made in a commodity such as bricks, Portland cement, gold bars and there was no specific dollar value associated. (I.e., "payment  to be made in 10,000 tons of Portland cement..." or "one thousand dozen Grad A large chicken hen eggs...")

[Zebo]

On 4/28/2023 at 4:06 PM, GoldFinger1969 said:

AMERICAN DEFAULT:  Interesting as I just got to the arguments in front of SCOTUS in the book.  The markets and the financial press were really afraid that a negative decision (re-instating the Gold Clauses for bonds) could lead to a huge drop and extreme volatility in the financial markets.

Most discussions about FDRs policies on gold focus on the events of 1933 and the confiscation of gold, the revaluation upwards, etc.  Those were afterthoughts at the time...it was the $100 billion in gold clauses in early-1935 that were the main focus for the financial markets.

Every $100 of face value of bonds could suddenly be forced to be paid off at $169.  HUGE implications.

Looks like an interesting read. Might just have to pick up a copy.

[Zebo]

On 2/25/2023 at 9:01 PM, VKurtB said:

As country after country went OFF their gold standard, their economies nearly instantly started to recover measurably. I believe it’s not merely a correlation; I see it as THE proximate cause. Am I saying hard money CAUSES economic depressions? Why yes, yes I am. 

Government Policy and public behavior also played a large part. 
 

[GoldFinger1969]

On 4/29/2023 at 7:32 AM, Zebo said:

Looks like an interesting read. Might just have to pick up a copy.

It really is -- I'm actually surprised it's not longer (but then again, I have only made it through about 10% of my STALIN:  WAITINGF FOR HITLER 1929-1941 book which is about 1,200 pages ).

Alot of interesting correspondences, never-used speeches, thoughts, etc....are in the various individuals personal libraries for FDR, Morgenthau, etc.  You get to see what they were saying, thinking, and considering.  Not sure some of that stuff was ever made public...and if it was...probably for some of the non-FDR commentaries it got overlooked over the decades since nobody really paid attention to these guys bios or tell-all books in the 1940's and 1950's or whenever.

Edited April 29, 2023 by GoldFinger1969

[GoldFinger1969]

On 4/28/2023 at 4:29 PM, RWB said:

The courts uniformly ruled that gold at the time the contract was executed was a legal tender, and thus the contract was payable in legal tender. The only adverse rulings were in a very few instances where payment was made in a commodity such as bricks, Portland cement, gold bars and there was no specific dollar value associated. (I.e., "payment  to be made in 10,000 tons of Portland cement..." or "one thousand dozen Grad A large chicken hen eggs...")

The government was allowed to not have to pay the revalued face value equivalent in gold (i.e., $169 face value for $100 in bonds).  Even where the court said the government acted illegally....they said no economic harm had come to the bondholder so the government wasn't liable for damages.

They really thought they could lose the cases (they wanted a decision on Lincoln's Birthday, when the markets were closed).  The solicitor general did a lousy job arguing the cases.  They really weren't prepared.  As I noted above, they were preparing contingency plans in the Congress and speeches assuming partial or complete losses in the 4 Gold Clause cases before SCOTUS.  8 different combinations from 100% victory to 100% defeat to a combindation involving the 4 lawsuits.

Edited April 29, 2023 by GoldFinger1969

[RWB]

Contracts were in legal tender US dollars. The form of those dollars was immaterial. There was never any "revaluing" of bonds or contracts. It would work exactly the same way if gold metal decreased in dollar value to, say $19/T oz.

[GoldFinger1969]

On 4/29/2023 at 1:05 PM, RWB said:

Contracts were in legal tender US dollars. The form of those dollars was immaterial. There was never any "revaluing" of bonds or contracts. It would work exactly the same way if gold metal decreased in dollar value to, say $19/T oz.

Well, the bond holders made very good rationale that their clauses were put there for a reason.  Railroads NEVER would have been able to borrow for 30 years or longer unless the lender had the gold protection.

But lenders have short memories (NYC 1975, Detroit 2013) even though you can then say that an inflation premium was probably incorporated in all future bond sales.

 

Edited April 29, 2023 by GoldFinger1969

[RWB]

The gold clauses were carryovers from similar specie clauses in ground rents, leases and other contracts that specified payment in a certain type of money. Courts gradually came away from strict enforcement as the US developed a solid dollar-based economy rather than strict specie-base. Much of this change occurred after the Civil War.

[GoldFinger1969]

Another interesting fact I didn't know about.....the Exchange Stabilization Fund that the Treasury controls was initially funded by the Gold Act of 1934 with the $2 billion windfall that the government made when it revalued upward gold to $35/ounce from $20.67.

The ESF has been used over the decades to stabilize the dollar, bail out Mexico, stabilize the stock/bond markets, etc.

I've known about the ESF for decades but never knew it originated in 1934. 

Edited April 29, 2023 by GoldFinger1969

[VKurtB]

On 4/29/2023 at 9:16 AM, Zebo said:

Government Policy and public behavior also played a large part. 
 

Public behavior is, in its essence, macroeconomics. Government Policy is partisan politics by another name. Rational people act according to the incentives presented to them by the partisan politicians in office at any given moment.

Edited April 29, 2023 by VKurtB

[Henri Charriere]

On 2/26/2023 at 3:21 PM, GoldFinger1969 said:

I'm looking for debating memos from the 1930's, not with you, not that I don't enjoy the back-and-forth. 

If you're not looking for dueling memos from this frequent flier you're literally missing out on the classic essence of the man: the gentleman who, in response to a little good-natured ribbing from me, stated candidly:  "I would rather be right than nice." Not even Q.A. could hold a candle to this seasoned member, try as he might. 

[GoldFinger1969]

It does appear that there's good stuff in the libraries of these public officials and their official papers, assuming they've been preserved (for most of the higher-ups, they appear to have been done so).

[RWB]

A difficulty with NARA ( and many others) is that their lowest level of indexing is several notches above a level that would tell us what is in any folder or file box. Additionally, Mint, Treasury and GSA staff were not numismatically trained, and they often invented arbitrary titles for folders, boxes, entry groups and other collections. Lastly, we have to recognize that the US Mint & Treasury did not organize or label correspondence, reports or anything else with later public access in mind.

If you  look in the Saudi Gold book just released, nothing that was uncovered in research was intended for public access. It is only our open, Democratic form of government that permits such access to internal documents.

[GoldFinger1969]

There are some good articles in PDF format for those who want more discussion on The Gold Clauses.  The first was by Henry Hart in the Harvard Law Review, only 3 months after the cases were decided in 1935.  Kenneth Dam wrote a good review in 1982.  Other "Gold Clause" legal treatises are floating around.    

I'd start with the book, though. 

Edited May 2, 2023 by GoldFinger1969

[RWB]

A very large proportion are merely repackaged bologna with layers of bias overlaying moldy pig brains.

[Zebo]

On 2/25/2023 at 10:57 AM, GoldFinger1969 said:

I bought a copy of the AMERICAN DEFAULT book by Princeton Press so I'm sure it has many useful footnotes and sources, and I'm also re-reading chapters in RWB's SAINTS book and some other stuff on that period. 

 I picked up American Default and it is quite interesting. The author slid in a comment or two about the players that didn’t need to be stated, but some views are rampant these days - especially in academia. Other than that I am finding it very compelling. Reading it in tandem with Roger’s Saudi Gold and other tales from the mint is with worth while. Enjoying both books. 

[GoldFinger1969]

On 5/9/2023 at 3:46 PM, Zebo said:

 I picked up American Default and it is quite interesting. The author slid in a comment or two about the players that didn’t need to be stated, but some views are rampant these days - especially in academia. Other than that I am finding it very compelling. Reading it in tandem with Roger’s Saudi Gold and other tales from the mint is with worth while. Enjoying both books. 

I think the footnotes in AD are where I got the lead for Kenneth Dam's analysis.  It's the easiest read and most direct in getting to the key issues (probably because he was following the 1982 Gold Commission at the time).  Hart's Harvard Law Review is interesting, but is VERY tedious and he meanders all over the place.  Mostly useful because it was only 3 months after the decision and it's Harvard (home of Oliver Wendell Douglass, the famous pig lawyer  ).

 

 

[GoldFinger1969]

AMERICAN DEFAULT facts, tidbits, & FDR gold nuggets:

• There is an expanded timeline of gold during the early FDR years in the beginning of the book (I have posted my own shorter March-June 1933 timeline dealing with the 1933 Saints)
• There were 4 Gold Clause Cases, though the U.S. government was a party to only 3 of them.  The Bankers Trust case was consolidated with the Norman/Railroad decision.
• A week after the Emergency Banking Act (EBA) of March 1933, $800 MM in Treasuries were sold with gold clauses.
• Gold holdings were down $188 MM 3 weeks after the EBA.  $1 BB hoarded in gold, gold coin, and gold certificates as of March 13th, 1933.
• March 3rd….Federal Reserve Bank of NY loses $250 MM in gold and $150 MM in currency in 1 day.  $250 MM short of currency liability reserves (40% backing)  for gold certificates.
• $120 BB in gold clause debt according to NY Times in May 1933 editorial.  $22 BB feds, $100 BB private sector
• FDR's 2nd Fireside Chat was disingenuous...said only 3-4% of gold was available for all promises made involving gold....but it's the DOLLAR AMOUNT in gold that was critical.
• Irving Trust held the mortgages for Hazelwood etc. al in the SCOTUS case that was consolidated with Norman vs. Baltimore Railroad.
• After the London Monetary and Economic Conference (LMEC), FDR and his team no longer were passive on gold or exchange rates…they were forcing the issue, unlike before where they reacted to bank holidays, meetings set by Hoover like LMEC, etc.
• Jan-Dec 1934…stock of monetary gold went from $3.9 to $8.1 BB.  $2.5 BB from revaluation to $35/oz.
• Following GRA of 1934, $750 MM flowed in Feb 1934.  $363 MM from London & Paris.  $262 MM in March....$155 MM in April.
• ESF from GRA of Jan 20th, 1934…..$2 BB initial funding
• FDR & Co. “picked” the price at which they’d buy gold daily for a while.  21 cents = 3 x 7 (lucky number) and other nonsensical targets.
• Gold clauses HELD in international treaty obligations like payment for Panama Canal lease.
• Gold Clause prohibition in future contracts was an easier sell than abrogating past contracts.
• Gold bonds did NOT rise in price relative to those without the clause after the June 5th, 1933 Congressional Resolution so no “taking” according to supporters of abrogation.  But very few data points is counter-point.  If not worth anything – why insert it ?
• Validity of national debt not in question (refusal to pay on all debt).  So that clause of Constitution not relevant.
• BIG fears once the case was argued by SCOTUS.  Fears of major volatility/declines in the stock market and/or bond market.  Hoped for a decision on Lincoln’s Birthday when market was closed.
• ESF started in 1934 with $2 billion from revaluation upward in gold price.
• Four Horsemen stated that the U.S. govt had made exchanging gold impossible so the government couldn’t use that as an excuse to invalidate the gold clauses.  Like hiding assets and then claiming bankruptcy.
• Henry Hart, Harvard Law Review:  “The earliest, and not the least pointed, commentary upon the majority opinion in the Liberty Bond gold clause case1 was made by the Associated Press, when it announced that the government had “lost”. That first plain misreading of the opinion, and the more discriminating bewilderment of succeeding dispatches, called attention to what is perhaps the single most significant aspect of the decision. For what was confusing to the reporter at the first reading is even more so to the commentator at the hundredth. Few more baffling pronouncements, it is fair to say, have ever issued from the United States Supreme Court.”
• The gold clauses in private bond contracts interfered with the ability of the Government to conduct monetary and dollar policies.  These got KO’d, whereas the U.S. Government bonds did NOT.  But that abrogation didn’t lead to damages, the Court said.
• After declaring the U.S. off the gold standard on April 19, 1933…the U.S. government sold $500 MM in bonds with a 2.75% coupon…WITH a gold clause !!
• The gold clauses in U.S. bonds were mandated by a 1917 law passed by Congress which only exempted short-term Treasury bills.
• The gold flow into the U.S. accelerated as fear of Nazi Germany spread in Europe in the 1930’s. By 1939 U.S. gold holdings had increased to $17.6 billion from $7.4 billion in February 1934 (Dam)
• Eugene Meyer, governor of the Federal Reserve Board from September 1930 until his resignation in May 1933, wrote that Roosevelt’s letter seemed like a eulogy.” “The plain and unvarnished fact is that the Federal Reserve System of today is not the one established 20 years ago, any more than it is the system which existed a year back. The present organization has been shorn of its power to formulate an independent credit policy and it can no longer regulate the flow of funds into and out of this country, as it did when the United States was on the gold standard. The gold reserve act of 1934 not only took from the system all of its gold, but in doing so definitely deprived it of future control over gold movements, although of course that power had been lost as a result of the gold embargo and subsequent monetary manipulations. With the passage of this act, therefore, the central banking system of this country formally surrendered one of the chief privileges and duties which it had exercised prior to suspension of gold payments. … The Administration has assumed responsibility for defining our monetary policies” (Washington Post  February 17, 1934, 8)
• The Federal  Reserve Act required reserves of 35% in "gold  or lawful money" against Federal Reserve deposits and of 40% in gold against Federal Reserve notes. This requirement was reduced to a uniform 25% in gold certificates in 1945, when the System was approaching the minimums set in 1913.  In 1965 the requirement was abolished entirely for deposits.
• U.S. gold holdings had fallen from $22.8 billion in 1950 to $17.8 billion in 1960 and continued to slide to $14.1 billion in 1965 and $11.1 billion in 1970.
• Pressure to repeal the 1933 Joint Resolution increased. In 1977 that further step was taken, but the repeal was made applicable only to "obligations issued on or after the date of enactment of this section.  The courts therefore rejected attempts by holders of old gold clause obligations to obtain gold or gold value at a time when gold was selling for hundreds of dollars an ounce.
• The 1982 Gold Commission Report also recommended that sales of the coins be exempt from capital gains and sales taxes. The Commission opposed "issue of Treasury gold-backed notes or bonds."  Such an obligation would be equivalent to a bond containing a gold clause.  The case for such an issue would be twofold: the interest cost would presumably be lower than for conventional borrowings because the principal would be indexed to gold, and the issue would be a step toward a greater role for gold. It is interesting that France issued gold securities ("Giscard bonds") in 1973, which because of the rise in the price of gold were then quoted at a considerable multiple of the original issue price.

 

[GoldFinger1969]

Just a reminder.....you get lots of good information, commentary, and narratives when you use the Heritage Archives and look at the MOST EXPENSIVE coins sold for a particular type.  These coins have the biggest write-ups in the HA archives.  I did this for each year and mint for the Saint-Gaudens series....except for some of the commons, you got multiple paragraphs and sometimes pages of information on coins.  

Did it recently with the 1861 Liberty Head Paquet Reverse and it had 15 pages when I cut-and-pasted it into Word for saving as PDF.  As I recall, tons of information on the MCMVII UHR 1907 Saint, most of it appearing in RWB's book but for those of you who don't have the book (or can't get it)....or his RoAC series....lots of really good information and commentary from various sources.  If if most of it is something you've seen from other books or sources, you will probably find some useful tidbits or nuggets.

Those of you with more obscure coins might find this useful. 

Edited May 20, 2023 by GoldFinger1969