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Roosevelt's Monetary Policy Marshall University Marshall Digital Scholar Theses, Dissertations and Capstones 2005 Roosevelt’s Monetary Policy Steven Napier Follow this and additional works at: http://mds.marshall.edu/etd Part of the Political Economy Commons, Political History Commons, Political Science Commons, and the United States History Commons Recommended Citation Napier, Steven, "Roosevelt’s Monetary Policy" (2005). Theses, Dissertations and Capstones. Paper 746. This Thesis is brought to you for free and open access by Marshall Digital Scholar. It has been accepted for inclusion in Theses, Dissertations and Capstones by an authorized administrator of Marshall Digital Scholar. For more information, please contact [email protected]. Roosevelt’s Monetary Policy Thesis submitted to The Graduate College of Marshall University In partial fulfillment of the Requirements for the degree of Master of Arts Political Science by Steven Napier Committee Members Dr. Jean Edward Smith, Committee Chairperson Dr. Simon D. Perry Dr. Robert W. Behrman Marshall University Huntington, West Virginia Fall 2005 ii Abstract Roosevelt’s Monetary Policy Steven Napier This qualitative analysis of the monetary policies of Franklin D. Roosevelt and his administration covers his entire presidency. Through scholarly research based on arguments presented in major scholarly publications, great questions are raised as to the primary causes of the economic successes of the Roosevelt administration. Some of the most conservative and reputable scholars in history, while disagreeing with most of the measures taken by Roosevelt to regulate the economy, agree that the goals by the administration to raise the prices of basic commodities was generally achieved. The thesis demonstrates that almost all of FDR’s economic successes were the direct result of the gold and silver purchase programs sought by the United States and the restoration of America’s banking and financial institutions. The thesis also challenges the claim that World War II alone brought our nation out of the great depression and that America merely transferred the depression entirely to other nations. Although other nations faced difficulties maintaining either gold or silver monetary standards, once currency stabilization was reached, many countries financed war and recovered from economic hardship by selling gold and silver to the United States. Roosevelt’s monetary policies had tremendous implications and applications, both domestic and international, and continued to be a driving force behind a postwar economy in which the United States became the world’s largest creditor nation. iii Dedication This Thesis is dedicated to the late Dr. Clair W. Matz, Jr. iv Acknowledgements I wish to thank the Graduate College and the staff of the James E. Morrow and John Deaver Drinko Libraries and Dr. Bernard and Mrs. Lamina Queen for their generous donation for the Lamina Queen Thesis Research Award which made this possible. I would also like to thank the Charles E. Yeager and John Marshall scholarship programs and all the contributors and affiliates associated with higher education at Marshall University. My profound thanks to the John Deaver Drinko Academy. I acknowledge Dr. Cheryl Brown and Dr. Simon D. Perry for serving as my Academic Advisors. I thank my wife Rukmani Shanmugham Napier, my father-in-law Dr. Cawniambakkam Totadri Shanmugham, my brother and sister-in law Gary and Tanya Napier, graduate student Steve Payne for proofreading and editing. I am especially grateful to my mother and father, Gail and Gary Napier and my brother Brent Napier for their support. Thanks to the members of my Thesis Committee at Marshall University: Dr. Simon D. Perry, Dr. Robert W. Behrman, and the late Dr. Clair W. Matz. Finally, I extend my greatest appreciation to Dr. Jean Edward Smith, my thesis advisor and mentor, without his help this Thesis would not have been possible. Professor Smith has earned his way to an elite class of intellectuals of our time. I hope I have lived up to the expectations of all of those who have worked with me. v Roosevelt’s Monetary Policy By Steven Napier Table Of Contents CHAPTER PAGE INTRODUCTION………………………………...............................................................1 ONE: BANKING AND FINANCE- Banking Crisis Of 1933/ Unsound Banking Practices During The Hoover Administration/ Banking Legislation Of 1933- 1935/ Federal Reserve System/ RFC/ FDIC/ Restoration Of America’s Banks/ Effects On The American Economy/ Conclusion………….……….…2-30 TWO: REGULATION OF GOLD AND SILVER- Depletion Of Gold Stocks Under Hoover/ Early Roosevelt Gold Regulation Efforts/ Gold Reserve Act Of 1934/ Silver Purchase Act Of 1934/ Conclusion……………….….....31-56 THREE: INTERNATIONAL IMPLICATIONS AND APPLICATIONS- U.S. Pressure On The World’s Gold And Silver Reserves/ European Abandonment Of The Gold Standard/ Abolishment Of The Silver Standard In China, India, Australia, Spain, And Latin America……………..57-81 FOUR: MONETARY POLICY AND THE COURTS- Problems With Non- Monetary New Deal Legislation/ Victory For Roosevelt’s Monetary Legislation/ Attributing Roosevelt’s Economic Successes To Monetary Policies Upheld By The U.S. Supreme Court………………..….82-111 FIVE: MONETARY POLICIES DURING WORLD WAR II AND ITS AFTERMATH World War II Inflation/ Gold And Silver During The War/ Economic Impact Of Long-Term Roosevelt Monetary Policy/ The State Of Affairs At The End Of The Reign Of Roosevelt With The American Economy, Banking And Financial Institutions………………………………....................................112-137 CONCLUSION………………………………........................................................138-140 NOTES……………………………….....................................................................141-157 BIBLIOGRAPHY .…………………………….....................................................158-178 Introduction Franklin D. Roosevelt’s monetary policies rank as the single greatest achievement of his presidency and are only rivaled by his successes in World War II. Not since the original monetary statutes of 1792 have such far reaching measures been enacted with respect to currency and banking as during FDR’s first term. Never before had such all- extensive powers been conferred on the executive. FDR’s presidency, therefore, is distinctive in terms of the regulation and powers granted to his administration. Roosevelt’s power to issue currency greatly exceeded the powers voted by Congress during the Civil War. Roosevelt was given the authority to artificially establish bimetallism (gold and silver) at any exchange ratio he might find necessary and to reduce by as much as fifty percent the weight of the gold dollar, which had been only slightly altered since the establishment of the Republic. Monetary legislation and executive orders issued during Roosevelt’s presidency had tremendous implications and applications both domestically and internationally. FDR envisioned and recognized a mechanical relationship between the price of gold and silver, the quantity of currency, bank deposits, prices of goods and services, and business activity. Roosevelt brought the nation out of the Great Depression, restored America’s banking and financial institutions, raised the value of the U.S. dollar, and strengthened America’s economy for decades to come. As a result of Franklin D. Roosevelt’s monetary policy, the United States went from running a deficit during the depression to becoming the world’s largest creditor nation after World War II. Roosevelt’s monetary policies lay at the root of his economic success, which shall be the central theme and focus of this research.1 2 CHAPTER ONE: BANKING AND FINANCE The New Deal brought about vast changes in increased regulation of banking and finance. As a result, a new era of banking and financial history emerged. The Hoover Administration considered monetary policy of little importance in affecting the course of economic affairs and the former president’s policies were hesitant and passive. Roosevelt profoundly modified the American financial structure and the nation’s monetary standard. The developments were a direct reflection of the previous years. The apparent failure of Hoover’s subtle change in monetary policy to stem the Great Depression led to the dramatic regulation of America’s financial institutions, banking, and money, which tremendously affected the course of economic events for years to come. Roosevelt, faced with a national banking crisis at the time of his inauguration, initiated changes in the Federal Reserve System, was involved in the establishment of the Federal Deposit Insurance Corporation, proposed a change in the structure and powers of the Reconstruction Finance Corporation, and brought about closer regulation of banks and other financial institutions.2 BANKING CRISIS OF 1933 President Roosevelt was inaugurated on March 4, 1933, in the middle of the worst banking crisis in American history. Banks had been forced to close because of a tremendous proliferation of bank runs on currency and deposits. The problems associated with the 1929 stock market crash and the ensuing depression is attributed to a variety of factors. In retrospect it is not possible to point to any single factor that precipitated the crisis, because successive instances of banking and financial difficulties continued to 3 recur from that time until March of 1933. Between the end of December, 1929, until February, 1933, approximately five thousand banks, or more than one bank in every five, declared banking holidays, amounting to $3.5 billion of bank deposit shortfalls.3
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