Financial History 139 (Fall 2021) - Page 23

the decade . This became a slow-motion problem in parts of farm-belt America as the 1920s roared on in urban areas , and some farmers and their rural bankers found themselves sliding into financial difficulty .
Then the bottom fell out . The slow decline became a rout in the early 1930s . Prices collapsed by another 50 +%. Corn had declined slowly from $ 2 / bushel in 1920 to $ 1.20 in 1929 , then fell precipitously to as low as 25 cents in 1933 . Wholesale wheat went from $ 2.40 / bushel in 1920 to $ 1 by the end of the decade , then dropped to 50 cents by 1932-1933 . Farmers in 1932 – 1933 faced prices so low they simply could not cover their costs .
President Roosevelt knew the economy could not recover without an increase in crop prices . It was unclear how to bring about an increase , but the new President approached the problem with a willingness to “ try something .”
Crop prices in the United States in 1933 were denominated in US dollars that were in turn exchangeable for gold at a fixed rate of $ 20.67 per troy ounce . The economy and prices had their ups and downs under this “ gold-based system ,” but long-term price inflation was almost unknown . One US dollar bought roughly the same basket of goods in 1933 that it could purchase when the US Treasury began operations in 1790 . Throughout that time — with the exception of a period during and just after the Civil War — the dollar ’ s value was officially pegged at roughly 1 / 20 of an ounce of gold .
This equivalency between the dollar and gold was seen by some as the problem at the root of those low farm prices . The thinking went that if the dollar continued to be defined by this fixed amount of gold and therefore remained highly valued , crop prices denominated in these highly valued , gold-backed dollars would remain stuck at low levels .
Most people of Roosevelt ’ s age , however , did not question this equivalency . The $ 20.67 per troy ounce had been in place their entire lives , and for many it was almost a law of nature . Roosevelt ’ s concern with farm prices was central for him , however . In an April 1933 press conference concerning monetary matters , he announced that , “ The whole problem before us is to raise commodity prices .” Roosevelt was determined to “ try something ,” and he was at least open to such ideas involving re-valuing gold .
Portrait of the Warren family , with George Warren in the front row center , 1905 .
The newly empaneled Congress had passed the Emergency Banking Act on March 9 , 1933 , giving Roosevelt broad monetary powers . He used this new power to declare it illegal for American citizens to hold gold coins or bullion or gold certificates , or to export gold abroad . All such gold was to be returned to the government at the statutory rate of $ 20.67 per troy ounce . The reasons behind the order were vague — the financially sophisticated probably guessed some form of inflation was in the works , and some even began investing in gold mining companies — but most Americans dutifully complied .
The worldwide economic slump was a central subject at the International Monetary and Economic Conference held in London in the early summer of 1933 . The US dollar had gyrated wildly on foreign exchange markets during the spring with the uncertainty concerning the new Roosevelt administration ’ s monetary policy — the ban on gold exports had caused a sharp dollar decline — and many of the conferees sought a way to stabilize exchange rates . They had different and somewhat irreconcilable ideas , however . France , for example , was committed to a gold-backed currency , while Great Britain had recently abandoned the gold standard .
President Roosevelt was kept apprised of events , but he did not help the search for consensus . Shortly after the conference began , he cabled from a military cruiser that exchange rate stabilization was “ a purely artificial and temporary expedient … [ a ] specious fallacy .” The President ’ s cable went over like a lead balloon , killing any hopes for a stabilization plan to emerge .
Exchange rate stabilization was perhaps simply an insufficiently pointed cure for what Roosevelt saw as America ’ s real problem : low farm prices . The President was casting about for ideas as to how to increase crop prices and was perhaps impatient with efforts that were not aimed at doing just that .
Enter George F . Warren , agricultural economist at Cornell University and coauthor ( along with statistician Frank Pearson ) of a new book with the right title at the right time . Prices appeared late in 1931 , and in its pages Professor Warren released a flurry of somewhat disjointed charts and graphs attempting to explain farm and other commodity prices through the ages . Of interest to some in President Roosevelt ’ s inner circle was Warren ’ s conclusion that , “ Unless the price of gold is raised , the process of bankruptcy and deflation has been only temporarily arrested .”
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