This was intriguing . Warren ’ s views were unorthodox , but his data were compendious , and nobody really doubted his sincerity . If one followed his argument , all that was required to get US farm prices up was an increase in the US dollar price of gold .
The President knew Warren from his days as New York governor , when Warren advised him on agricultural matters . Roosevelt and his aides watched farm prices closely through the spring and summer and early fall of 1933 and noticed that they did seem to vary somewhat with the trading price of gold . Roosevelt conferenced with Warren , to the consternation of the few establishment bankers in the President ’ s inner circle . By mid-October things had come to such a pass that Roosevelt decided to give Warren ’ s ideas a try .
The public ’ s fascination with the new Roosevelt administration and its new ideas was such that Warren attained minorcelebrity status . He was not an official member of the Roosevelt administration , yet he appeared in a full portrait on the cover of Time magazine , his calculating pens prominently displayed in the front breast pocket of his suitcoat .
Professor Warren saw his calling as scientific in nature . He wrote in Prices that “ the ability to forecast results of a given force is one of the important tests to determine whether or not it is science .” He drove home the point by adding that the depression of the early 1930s “ is not an act of God for the purification of men ’ s souls .”
Roosevelt met with Warren to discuss Warren ’ s ideas . Little is known , however , of precisely what Warren advised . “ Since he has been in Washington ,” Time magazine wrote of the mysterious Warren , “ he has spoken no word to the Press , written no articles , refused to express his opinions even by letter .” The best account available is the diary of Henry Morgenthau , Roosevelt ’ s friend and neighbor and then governor of the Farm Credit Administration , but Morgenthau does not go into detail concerning the specific monetary advice offered to the President . Subsequent events have led some to conclude that Warren counseled that an increase in gold prices , no matter how it was brought about , would cause an increase in farm and commodity prices .
A close reading of Prices finds only partial support for this . Warren ’ s book does not suggest that an increase in gold prices — in and of itself — would increase
Henry Morgenthau , 1937 . Morgenthau ’ s diary reveals the best account of President Roosevelt ’ s 1933 meeting with George Warren , though he does not go into detail concerning the specific monetary advice offered to the President .
commodity prices . The passage mentioned earlier regarding raising the price of gold is lifted from the last section of the last chapter of Prices — a section entitled “ Short-Term Price Outlook ”— and is mentioned only after other options are discussed , one of which was legal devaluation of the currency in terms of gold .
Warren ’ s scientific analysis yielded one conclusion concerning which he was adamant : inflation is to be preferred to deflation , which he called an “ infinitely worse disease .” He wrote favorably in Prices of the inflationary policies adopted by France , Belgium and Italy in the early 1920s that allowed those countries to avoid the deflationary depression of 1921 that caused havoc in the United States , and of the way those countries revalued their currencies in the mid-1920s in terms of gold to account for those earlier inflationary policies . Warren even found something to like in Weimar Germany ’ s hyper-inflation of the early 1920s , writing that although the hyper-inflation that culminated in a trillion-to-one revaluation of the German mark in 1923 “ was extremely serious for the country … the serious effects of deflation were avoided .”
Library of Congress
Regardless of the specifics , Warren ’ s attitude was perfectly attuned to President Roosevelt ’ s goals , and Warren ’ s influence over policy responded accordingly . “ During the second half of 1933 ,” financial historian Sebastian Edwards concluded , “ George F . Warren was the most influential economist in the world .”
The Roosevelt administration commenced experimentation with what they took to be Warren ’ s scientific teachings . For six weeks during the late fall of 1933 — with the official gold exchange rate of the US dollar still fixed at $ 20.67 / troy ounce , but with the trading price north of $ 30 — Roosevelt and a group of his inner circle of advisors met each morning to determine how much to increase the gold price in commodity trading that day , using US government money to do so : 10 cents an ounce ? 20 cents ? Morgenthau recorded that the decision was made one day to increase the gold price by 21 cents per ounce . When asked why , the President replied airily that , “ It ’ s a lucky number , because it ’ s three times seven .”
The experiment was destined to fail : The US government could increase the gold price , but in doing so agricultural prices barely budged .
Chroniclers of those difficult and uncertain times have not been kind to Warren . One critic of Roosevelt ’ s New Deal policies summarized Warren ’ s views as suggesting that “ a historical relationship existed between the price of gold and the price of farm commodities — they rose and fell together .” The New Yorker magazine ’ s financial writer wrote in the 1960s that Warren was “ a monetary nut ” who postulated that , “ The price of commodities … went up and down automatically with the price of gold in terms of paper currency , and … adduced a bewildering array of historical statistics and charts going back beyond the California and Australia gold rushes of the middle 19th century to the Spanish Conquest , and even further . Therefore … all one had to do to control the price of commodities was to control the price of gold .”
The Roosevelt administration ’ s experiment , perhaps laudable in spirit , did not reflect a truly accurate reading of Prices . The early pages do present graphs showing that “ gold ” follows commodity prices very closely over hundreds of years of English history , but the “ gold ” in these graphs is not the gold price , but rather the prices of
22 FINANCIAL HISTORY | Fall 2021 | www . MoAF . org