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How Franklin Roosevelt Secretly Ended the Gold Standard
- jack9 14y ago> The recovery from the Great Depression began instantly with Roosevelt’s policy shift, in March 1933 Bad article implying cause and effect that isn't there.
- jackfoxy 14y agoUpvoted the OP in order to call attention to what I consider primarily a propaganda piece by the Bloomberg new service. There was nothing secret about the executive order http://en.wikipedia.org/wiki/Executive_Order_6102 http://en.wikipedia.org/wiki/Executive_Order_6102 , except possibly that even the Wikipedia article does not explain in what manner Congress granted the President (actually the Secretary of the Treasury) such extraordinary power to confiscate property. That FDR used the Brer Rabbit strategy to call attention to his ending the gold standard only shows he was a skilled politician. > The recovery from the Great Depression began instantly with Roosevelt’s policy shift... I think most objective measures do not show recovery from the Great Depression until the ramp-up of arms production prior to American entry in WWII.
- betterunix 14y ago"extraordinary power to confiscate property" Confiscate property? Gold coins were to be traded for $20.67 per ounce, not simply taken. No confiscation occurred; the nation simply ended the practice of using gold currency by taking it out of circulation.
- sageikosa 14y agoI believe the idea is the "trade" was forced. Choice on when and how to dispose of one's property is what having property is all about.
- dreamdu5t 14y agoForcing someone to sell you something isn't trade, it's theft. If I steal your TV, then give you $5, I still stole your TV. Confiscating people's property is the act of a despot.
- rayiner 14y agoCompensated compensation is explicitly sanctioned in the Constitution.
- bmmayer1 14y agoIt explicitly mentions just compensation. A sub-market price isn't just.
- rayiner 14y agoIt was traded in at the fixed conversion rate between gold and U.S. dollars.
- notdrunkatall 14y agoA rate which was fixed by the buyer, with no protestation allowed by the seller.
- bmmayer1 14y agoHear hear
- Cushman 14y agoWhat if it's not a TV, but a human being? Just pointing out there are some concepts more sacred than property.
- dreamdu5t 14y agoPlease explain how confiscating people's gold was necessary to save someone's life. How is the life of the person stealing worth more than the person he is stealing from?
- letney 14y agoFrom the Wikipedia article: "The price of gold from the Treasury for international transactions was thereafter raised to $35 an ounce ($587 in 2010 dollars) resulting in an immediate loss for everyone who had been forced to surrender their gold." That is theft, plain and simple.
- rayiner 14y agoIt would've been theft if the conversion rate was raised before the confiscation but people were paid out at a lower rate.
- rdl 14y agoKind of odd at Bloomberg, which used to be relatively impartial and accurate, has been becoming more and more partisan recently.
- protomyth 14y agoGiven its founder's actions as mayor, it would seem to fit with their current trend and this article. Looking for historical precedents from respected[1] historical figures is a time honored tradition. 1) please note, I did not say universally respected - for another example, look at your $20 bill and ask what some Americans think of the person pictured
- hudibras 14y agohttp://en.wikipedia.org/wiki/Opinion_piece http://en.wikipedia.org/wiki/Opinion_piece An opinion piece is an article, published in a newspaper or magazine, that mainly reflects the author's opinion about the subject. Opinion pieces are featured in many periodicals.
- rdl 14y agoEDIT: I saw it was "economic history"; I didn't realize "bloomberg view" was the opinion section, vs. just bloomberg; too many levels of nesting.
- rayiner 14y agoBloomberg is responding to market forces. In New York, most people read the WSJ for financial news, but ever since Murdock bought the paper it's been trending right. But Wall Street folks really don't lean right that strongly (e.g. Jamie Dimon and Lloyd Blankfein are both registered Democrats), especially the rank-and-file. That leaves a market opening for Bloomberg if they shift to the left. E.g. Bloomberg Businessweek ran a piece a couple of months ago on Wal-Mart that was extremely sympathetic to union interests. That kind of stuff really resonates with a lot of people you wouldn't think it would resonate with. Indeed, an article like this is entirely consistent with that angle. Without getting into the merits of the gold standard, it is hard to dispute that the banking sector has a greater status in a country with a "managed currency" than they do in a country on the gold standard. You're not going to find a lot of Wall Street types who yearn for a return to the gold standard...
- shn 14y agoSometimes secretly means that enough critical mass does not know about something, or it is not discussed in depth to reveal what it means. Forbidding of physical gold ownership could not be secret, could it? since they're calling everyone to bring their gold in. But its repercussion was not immediately obvious. Let's no forget it's 1933s, there's no twitter nor blogs. Leaving gold standard is one of the big controversies for any nation as it allows governments to inflate the supply of the money and deflate its value. Essentially that's what happened eventually. Inflation is a silent tax on the citizens.
- trevelyan 14y agoDespite what you may have been told by others or simply be assuming because of your political convictions, there was no significant inflation in the United States in the 1930s. The decade was in fact characterized by overall deflation, with prices lower at the end of the decade than they were at the start. Abandoning the gold standard was a crucial and positive factor in stopping deflation during a time when it was wreaking wholesale and unprecedented destruction on the American and global economy. The move was entirely necessary, and did not lead to inflation as you can hopefully see from the actual historical data: http://www.usinflationcalculator.com/inflation/historical-inflation-rates/ http://www.usinflationcalculator.com/inflation/historical-in... The federal budget did turn expansionary (until 1937 when Roosevelt slowed spending in the face of evidence suggesting a mild recovery was underway), but the overall increase in federal spending under the New Deal was offset by shrinking state budgets and a series of bank failures across the interior which shrank the money supply. Look at the E. Cary Brown essay "Fiscal Policy in the Thirties" for the aggregate budget stats across the entire United States. Or just look at the inflation stats -- are they consistent with a story of unfettered government spending?
- shn 14y agoI am not sure I understand you correctly. Abandoning gold standard is one thing, abusing money after abandoning gold standard is another. When governments need money they can create it out of thin air, and leaving a standard that you can not control gives you this ability. Check the following web site. http://www.paulvaneeden.com/What.is.money http://www.paulvaneeden.com/What.is.money The link you provided (http://www.usinflationcalculator.com/ http://www.usinflationcalculator.com/) calculated me the following: an item worth $20 in 1933 would cost $469.02 in 2013 and cumulative rate of inflation is 2245.1%. How is that not an inflation?
- trevelyan 14y agoBarry Eichengreen's excellent book "Golden Fetters" actually demonstrates very convincingly using cross-national time series analysis that economic recovery across the world began on average around six months after countries left the gold standard. This is now the mainstream understanding of the Great Depression in economic history. His sample size is something like 30-35 countries, and shows clearly that countries which stayed on the gold standard longer suffered more deflation and higher unemployment than their counterparts who abandoned it early. So Bloomberg is in fact correct on this point. And it may also be worth noting that the observed changes are about as instantaneous as you get in economic policy, given that even today changes to the Fed rate are assumed to hit the economy with a six-month lag.
- dreamdu5t 14y agoHis paper shows that countries who held onto the gold standard longer were more likely to adopt protectionist policies. It wasn't abandoning the gold standard that allowed for recovery, but the protectionist policies that went with it.
- trevelyan 14y agoIt is a really thick book not a paper. And while it doesn't hypothesize about protectionism as far as I remember, if you really want to argue that the gold standard forced countries to embrace destructive trade policies in a statistically-significant way, you are not doing its advocates any favors. Realistically, Eichengreen's argument is considered so solid these days that even fringe nutjobs with an anti-FDR or anti-Keynes agenda don't tackle it straight on. Instead, the typical plan is to insinuate that fiscal stimulus doesn't work because the US did not achieve full recovery before WWII. Of course, anyone who has taken even an undergraduate course in US economic history should know that fiscal contractions on the state-level throughout the mid-1930s basically offset expansionary fiscal policy on the federal level (the seminal paper is E. Cary Brown's "Fiscal Policy in the Thirties" [1956]). This is why no-one in mainstream economics believes fiscal policy was truly expansionary in the US during the 1930s. That said, if you're asking why this is relevant that is a good point, since the important thing about leaving the gold standard is not that it led to immediate INFLATION so much as that it stopped DEFLATION and began the slow process of recovery. And this is the observation made by the piece and it is absolutely correct: once the United States left the gold standard the country's near double-digit annual deflation stopped and its process of recovery - however slow and faltering - began.
- jackfoxy 14y agoWhoops...overlooked that this was an opinion piece (tries to extract foot from mouth)
- protomyth 14y ago"The recovery from the Great Depression began instantly with Roosevelt’s policy shift, in March 1933" uhm... no.... more like 1946 - if the recovery had happened before WWII then we wouldn't have had to ration and do all the massaging to get the economy up to war production.
- mpyne 14y agoUh, the economy was producing for war in many areas by 1938. Those Naval battleships at Pearl Harbor didn't simply build themselves, the Army didn't create millions of rifles out of thin air in 1941, etc. Rationing was required because the government was directing available resources to war production, not because the economy was shit. People could afford food just fine throughout much of WWII, if only the shops had been allowed to sell it to them.
- protomyth 14y agoThe rationing and price controls wouldn't have been needed if we hadn't been in such a hole at the start of the war. We did produce, but our national production in 1947 was actually 17% higher than in 1941. That is a pretty sad considering the amount of government war spending.
- dreamdu5t 14y agoThe Roosevelt administration also sued farmers who attempted to grow food to feed themselves, in his insane attempts to control market prices. Filburn was ordered to destroy his crops and pay a fine, even though he was producing the excess wheat for his own use and had no intention of selling it. http://en.wikipedia.org/wiki/Wickard_v_Filburn http://en.wikipedia.org/wiki/Wickard_v_Filburn
- hudibras 14y agoThe Roosevelt administration sued farmers who attempted to grow food in violation of a law passed by Congress to regulate interstate commerce, in this case to stabilize crop prices. The Supreme Court ruled unanimously in Wickard v. Filburn that this was constitutional.
- uvdiv 14y agoThe interesting part is how they found "interstate commerce" in chicken feed which wasn't actually sold and didn't actually leave the state (didn't leave the farm even): The Court decided that Filburn's wheat growing activities reduced the amount of wheat he would buy for chicken feed on the open market, and because wheat was traded nationally, Filburn's production of more wheat than he was allotted was affecting interstate commerce. Thus, Filburn's production could be regulated by the federal government. By this reasoning, even free open-source software is interstate commerce, if it has a commercial competitor. Imagine a federal law restricting FOSS, as part of an economic stimulus for the software industry. (edit: My FOSS analogy is actually too weak! You wouldn't need to distribute anything. It'd be enough to write your own code, for your personal use, if this prevents you from purchasing some commercial product).
- ctdonath 14y agoThis in turn led to the Raich case where the Supreme Court ruled the government could prohibit state-permitted personal private activity on the grounds that it affected interstate commerce by reducing demand for a federally illegal product.
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- jtc331 14y agoThis is one of the barest forms of propaganda you'll read in a while.
- drucken 14y agoThe article fails to mention that though the US came off the (fixed) gold standard, convertability of the US$ to gold was retained as part of the Bretton-Woods system all the way through WWII, through the post-war "Golden Age of Capitalism" period uptil 15 August 1971 when Nixon unilaterally turned the US dollar into a fiat currency.
- richcollins 14y agoThis way, he could bring commodity prices back up and maintain them at a level that would ensure producers a higher standard of living A high standard of living is precluded by high commodity prices.
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- hga 14y agoCase in point: during the Depression the Agriculture Department estimated that 25% of the population was malnourished, something the military confirmed to their satisfaction during the draft, which later was an input into the Federal school lunch program.
- mark_l_watson 14y agoThat was an OK article but I think the best current reference on the gold standard is "Currency Wars: The Making of the Next Global Crisis" by James Richards. He doesn't so much try to predict the future. Instead he provides a historical perspective and gives the reader the tools to understand events as they happen.
- bitcartel 14y agoThe article omits an important fact: The public's gold was exchanged at $20.67 per troy ounce, but months later, the official price of gold was raised to $35.00 per troy ounce. Essentially, the public were not properly compensated for turning in their gold. "In 1934, the government price of gold was increased to $35 per ounce, effectively increasing the gold on the Federal Reserve's balance sheets by 69 percent. This increase in assets allowed the Federal Reserve to further inflate the money supply."[1] [1] http://www.history.com/this-day-in-history/fdr-takes-united-states-off-gold-standard http://www.history.com/this-day-in-history/fdr-takes-united-... EDIT: The article also fails to mention that "violation of the order was punishable by fine up to $10,000 or up to ten years in prison, or both." http://en.wikipedia.org/wiki/Executive_Order_6102 http://en.wikipedia.org/wiki/Executive_Order_6102
- shardling 14y ago> Essentially, the public were not properly compensated for turning in their gold. I known pretty much nothing about economics or the history here, but I don't see how this follows. The value of the dollar (in terms of what it would buy aside from gold) didn't suddenly shift. Are you saying that the shift in the worth of gold would have happened even if the government hadn't moved off the gold standard? If so, how is it that the government "set" it? And if not, then how did folk lose anything?
- davidw 14y agoGold buggery articles are like one of the four horsemen of the web site apocalypse. It's one of those quasi-religious subjects that only creates flames.
- vijayboyapati 14y ago"The recovery from the Great Depression began instantly with Roosevelt’s policy shift, in March 1933. He had changed expectations, and begun an administration that would use money as a tool to bring widespread prosperity -- rather than serve as a tool of moneyed interests." This is pure economic propaganda. Anyone with a whit of knowledge of the period knows that the depression lasted through the entire 30s, with unemployment remaining very high for the whole decade (it was 19% in 1938)