How FDR Destroyed the Dollar
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Posted: 02/21/07
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How FDR Destroyed the Dollar
By Thomas E. Brewton
Until 1933, the U. S. dollar was the among the strongest and most
stable currencies in the world. With the stroke of a pen, President
Franklin Roosevelt torpedoed it. We are still plagued with the
resulting inflation.
All governments lust for taxpayers' money. The ability to direct the
expenditure of large sums of money confers great political power upon
political leaders. But the spending requirements that President
Franklin Roosevelt had in mind upon taking office in 1933 were of
extraordinary dimensions. Inflating the currency, in socialist
theory, was a way to create more money for that end.
In the 1920s, after the disillusionment of World War I, socialism
enjoyed great vogue in the United States. Social Gospel ministers
extolled it, intellectuals lauded it, and popular magazines ran many
favorable articles about it. In that period, the general public had
no awareness of the horrors then being effected in the name of
socialism in the USSR, and Hitler's National Socialism was still in
the future.
It was against that background that Franklin Roosevelt campaigned for
the presidency in 1932 with the promise to give state-planning a
try. Described in that way, it seemed to be no more than a proposal
to coordinate government spending more effectively.
FDR's ideas, however, went much further than that, as demonstrated by
the barrage of government take-over programs enacted immediately
after his inauguration. His "brain trusters," socialistic Ivy League
professors, were proposing to nationalize the private banks and
agriculture, and to regulate industrial production, prices, and wages
on the model of Mussolini's Fascist state-corporatism.
The tenor of the times was flippantly described in "The New Dealers,"
an admiring book written in 1934, the second year of the New Deal.
The author wrote:
"To-day, as the New Deal moves slowly towards the nationalization of
the banking system through the social control of credit policies,
there is lamentation in the tents of ... the Wall Street group... For
the monetary controversies of the first year of the Roosevelt
Administration can be understood only an the assumption that there is
a profound struggle between the Government and the bankers for the
control of the American credit system....."
The President knew that financing the imposition of socialism and
collectivization of power in Washington would require a huge
expansion of Federal spending power. Along with that, his "brain
trusters" proposed to inflate prices with the theoretical intention
of giving farmers and workers more spending power. Inflation, they
assumed, would enable easier debt repayment, force higher wages, and
reduce unemployment. In practice the results were quite disappointing.
Throughout the history of the world, the one universal measure of
value has been gold. In times of war and economic weakness, people
owning gold have always been able to buy what they needed in exchange
for gold. Paper currencies, like the present-day U.S. dollar, have
no intrinsic value. Their worth changes daily with inflation and
foreign exchange dealers' transactions.
OPEC, for example, came into existence in large measure because oil-
producing countries were being paid fixed prices in dollars, but the
exchange value of the dollar was declining rapidly. OPEC pushed oil
prices from around $5 to more than $90 per barrel, adjusted for
today's inflation, in the 1970s.
To the consternation of everyone outside the New Deal government
cohort, President Roosevelt almost immediately abandoned the gold
standard in order deliberately to produce overnight inflation.
In April, 1933, the President issued an executive order that
abrogated gold payment clauses in government and private contracts
and made it illegal for private citizens to keep their gold coins or
to own gold for any purpose other than industrial applications. He
completed the destruction of the dollar by arbitrarily reducing the
dollar's gold content.
Before FDR's executive orders, Federal Reserve currency could be
exchanged at the Federal Reserve banks for gold at a price of $20.67
per ounce. President Roosevelt ordered that the dollar be devalued
almost 41% by raising the price per ounce of gold to $35.00. At the
$20.67 gold ratio, one dollar would buy 0.048 ounces of gold. At the
$35 ratio, one dollar would buy only 0.0286 ounces of gold.
The inflation set in motion by FDR's actions has continued without
cease. The London gold price was $664.95 on February 16, 2007, a de
facto 96.9% devaluation of the dollar vs the price before President
Roosevelt began the devaluation process. The Consumer Price Index is
now approximately 905% higher than in 1932.
Before FDR's inauguration, gold coins minted by the Treasury were in
common use, Federal Reserve paper currency was exchangeable for gold,
and U. S. Treasury debt gave holders the option to take payment in
currency or gold, at a fixed rate. Moreover, most corporate debt
similarly provided for payment in currency or gold. This gave the
dollar a fixed value and made it one of the world's strongest
currencies, "as good as gold."
In effect, President Roosevelt confiscated 40% of assets in the hands
of individuals, corporations, and banks, without offering any
compensation to them.
Needless to say, the President's action was profoundly unsettling to
private individuals, corporations, and to the international banking
community, particularly to central banks which held dollars as part
of their currency reserves.
Senator Carter Glass was one of the most financially knowledgeable
and most highly respected figures in Washington (and a Democrat). He
had sponsored the legislation that created the Federal Reserve in
1913 and later served as Secretary of the Treasury. Outraged at the
President's actions in 1933, he said, "It's dishonor, sir. This
great government, strong in gold, is breaking its promises to pay
gold to widows and orphans to whom it has sold government bonds with
a pledge to pay gold coin of the present standard of value. It is
breaking its promise to redeem its paper money in gold coin of the
present standard of value. It's dishonor, sir."
Oklahoma's Senator Thomas P. Gore put it more bluntly: "Why, that's
just plain stealing, isn't it, Mr. President?" At the next election,
FDR financed a rival candidate in the Democratic primary and defeated
Senator Gore.
To make FDR's perfidy even clearer, he had pledged to support the
Democratic Party's 1932 presidential campaign platform, which
explicitly promised to uphold the existing gold standard for
maintenance of a sound currency.
Thomas E. Brewton is a staff writer for the New Media Alliance, Inc.
The New Media Alliance is a non-profit (501c3) national coalition of
writers, journalists and grass-roots media outlets.
His weblog is THE VIEW FROM 1776
http://www.thomasbrewton.com/
Email comments to viewfrom1776@thomasbrewton.com
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