Economic Outlook

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Roosevelt became President on March 4, 1933 with almost every bank in America closed. He kept them shut down until March 13, when the public, calmed by F.D.R.'s promises, poured both cash and gold back into them. But on March 9, Congress had given Roosevelt the power to do just about whatever he pleased regarding money and banking, and—on April 5—he made it illegal to own or hold any form of monetary gold ... coins, bullion, or certificates. (Industrial users were not affected.) So a banking crisis, brought on by past inflation, was—ironically—made the excuse to abandon the gold standard.

The remaining gold-standard nations—France, Belgium, Switzerland, Holland, and Italy—called the London Conference of June 1933 to persuade Great Britain and the U.S. that "gold should be reestablished as the international measure of exchange value", and that the ultimate objective of non-gold countries should be to restore the gold standard. Roosevelt rejected the proposal. He said, "The United States seeks the kind of dollar which a generation hence will have the same purchasing and debt-paying power as the dollar value we hope to maintain in the near future." Seven months later, the dollar was devalued by 40.9% ... and we of "a genera tion hence" know what has happened to the chasing power of our currency since then. All the countries remaining in the gold bloc stopped redeeming their paper for gold, and international economic peace was shattered by economic nationalism, competitive deval uation, high tariffs, and exchange controls. Moreover, this poisoned atmosphere played its part in causing World War II.

THE BRETTON WOODSAGREEMENT With the coming of war, nations achieved far-reaching controls over internal and foreign money exchange. And war's end found gov ernment officials wishing they could retain those controls, which allowed them to inflate and run budget deficits as they pleased, while still having access to easy credit, stable foreign exchange rates, and an absence of interna tional "flight capital". This was the idea behind the international monetary conference in mid- 1944 at Bretton Woods, New Hampshire, which set up a monetary order that would break down a short quarter of a century later. The system was supposed to restore the currency stabili ty formerly provided by the gold standard, A but—in reality—was based on international trust that the United States would not print more dollars than it had in gold reserves. While the dollar would be convertible to gold at $35 an ounce, it would be so only to foreigners, and—after 1962—only to foreign governments. All other currencies were defined in terms of the dollar, which itself was defined as 1/35 of an ounce of gold ... and America was given the power to have the dollar treated as if it were gold. The rules also called for stable currency values. No currency was allowed to either rise or fall more than 1%. The Swiss franc, for example, was then fixed at 22.9¢. It could go no lower than 22.7¢ and no higher than 23.1¢. If the franc threatened to break these limits, the Swiss central bank was obliged to enter the exchange market and either buy or sell francs to hold its currency within the narrow margin.

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