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This was the critical problem. The brilliant  solution of it will doubtless make a classic chapter in the text­ books of  revolutionary technic.  In  a  highly  evolved money economy, such  as  this  one, the  shortest and surest road to economic power would be what?   It would be control of money, banking,  and  credit. The New Deal knew that  answer. It knew also the steps and how to take them, and above all, it knew its oppor­tunity.

It arrived  at the seat of government in the midst of that well known phenomenon called a banking crisis, such as comes at the end of every great depression. It is like the crisis of a fever. When the banks begin to fail, pulling one another  down, that  is the worst  that can happen. If the patient  does not die then  he will recover.  We were not going to die. The same thing had happened to us  before, once or twice in every twenty years, and always before the cure had brought itself to pass as it was bound to do again.

In his inaugural address,  March 4, 1933, the Presi­dent declared that the people had "asked for discipline and direction under leadership"; that he would seek to bring  speedy action "within my Constitutional au­thority"; and  that  he hoped the "normal balance  of executive and legislative authority" could be main­tained, and then said: "But in the event that Congress shall fail ... and in the event that the national emer­gency is still critical ... I shall ask Congress for the one remaining instrument to meet the crisis--broad executive power to make war  against the emergency, as great  as the power that  would be given to me if we were in fact invaded by a foreign foe."

It is true  that  people wanted action.  It is true  that they were in a mood to accept any pain-killer, and damn the normal balance of authority between the executive and legislative authority. That was an emotional state of mind  perfectly  suited  to a revolutionary   purpose, and the President took advantage of it to make the first startling exposition of New Deal philosophy. Note his assertion of the leadership principle over any other. Discipline under leadership. Note the threat to Con­gress-"in the event that Congress shall fail." But who was to say if the Congress had failed? The leader, of course. If in his judgment the Congress failed, then, with the people behind him, he would demand war powers to deal with an economic emergency.

The word emergency was then understood to mean what the dictionaries said it meant-namely, a sudden juncture  of events demanding  immediate  action. It was supposed to refer only to the panic and the banking crisis, both temporary.

But what it meant to the President,  as nobody then knew, was a very different thing.  Writing a year later, in his book, On Our Way, he said:  "Strictly speaking, the banking crisis lasted only one week. ... But the full meaning of that  word emergency related to far  more than banks; it covered the whole economic and there­ fore the whole social structure of the country.  It was an emergency that went to the roots of our agriculture, our commerce, our industry; it was an emergency that has existed for  a whole generation  in  its  underlying causes and for three-and-one-half years in its visible effects. It could be cured only by a complete reorganiza­tion and measured control of the economic structure....  It called for a long series of new laws, new adminis­trative agencies. It required separate measures affect­ing different subjects; but all of them component parts of a fairly  definite broad plan."

So, what the New Deal really intended to do, what it meant  to do within the Constitution if possible, with the collaboration of Congress if Congress did not fail, but with war powers if necessary, was to reorganize and control the "whole economic and therefore the whole social structure of the country." And therein lay the meaning-the only consistent meaning-of a series of acts touching money, banking and credit which, debated as monetary policy, made no sense whatever.

The  first step, three  days before the new Congress convened, was an executive decree suspending all activ­ities of banking throughout the country. Simply, every bank was shut up. The same decree forbade, under pain of fine and imprisonment, any dealing in foreign  ex­change or any transfer of credit from the United States to any  place abroad,  and  that  was to slam  the  door against the wicked rich who might  be tempted  to run out.

The  second step ·was an  act  of  Congress,  saying, "Acts of the President  and Secretary of the Treasury since  March  4, 1933,  are  hereby  confirmed  and  ap­proved."

That  made everything legal after  the fact: and  it was the first  use of Congress as a rubber stamp. The same act of Congress provided that no bank in the Federal Reserve System should resume business except subject to rules and regulations to be promulgated by the Secretary of the Treasury, gave the President absolute power over foreign exchange and authorized  the Federal government  to invest  public funds  in private bank stock, thereby  providing banks with new capital owned by the government.  And that  was the act that authorized the President to require people to surrender their gold. Congress did not write any of these acts. It received them  from  the White House  and  passed them.

The third step was a decree by the President  requir­ing  all  persons and corporations whatever to divest themselves of gold and hand it over to the government. The  law authorizing him to do that had fixed the penalty of non-compliance at a fine equal to twice the value  of  the  gold. The  executive  decree  added  the penalty of imprisonment.

In view of further intentions not yet disclosed it was imperative  for the government to get possession of all the gold. With a lot of gold in private hands its control of money, banking, and credit could have been seriously challenged.  All that  the government  asked for at first was possession of the gold, as if it were a trust. For their gold as they gave it up people received paper money, but this paper money was still gold standard money-that is to say, it had always been exchangeable for gold dollar for dollar, and people supposed that it would be so again, when the crisis passed. Not a word had yet been said about devaluing the dollar or repudi­ating the gold standard. The idea held out was that as people surrendered their gold they were supporting the nation's credit.

This  decree  calling  in  the  gold  was  put  forth on April 5. There was then an awkward  interlude.  The Treasury was empty. It had  to sell some bonds.  If people knew what was going to happen  they might hesitate to buy new Treasury bonds. Knowing that  it was going to devalue the dollar, knowing that it was going to repudiate  the gold redemption clause in its bonds, even while it was writing the law of repudiation, the government nevertheless  issued and sold to the people bonds engraved as usual, that is, with the promise of the United States Government to pay the interest and redeem the principal "in United States gold coin of the present standard of value."

The  fourth step was the so-called Inflation Amend­ment attached to the Emergency Farm Relief Act. This law made sure that the Treasury need not be caught that way again. It forcibly opened the tills of the Federal Reserve Bank System to three billions of Treasury notes, authorized three billions of fiat money to be issued in the President's discretion, and gave the President  power in his own discretion  to devalue the dollar by one-half.

The fifth step was the act of repudiation. By reso­lution June  5, 1933, the Congress repudiated  the gold redemption clause in all government obligations, saying they should be payable when due in any kind of money the government might see fit to provide; and, going further, it  declared  that   the  same  traditional  re­demption clause in all private  contracts,  such, for ex­ ample, as railroad  and other corporation bonds, was contrary to public policy and therefore  invalid.

The sixth step was a new banking act giving the Federal government power to say how private banks should lend their money, on what kinds of collateral and in what proportions, and the arbitrary power to cut them off from credit with Federal Reserve Banks. This arbitrary power to cut them off from credit was a strangle hold, and it was gained by changing  one little word in the country's organic banking law. From the beginning until then the law was that a Federal Reserve Bank "shall" lend to a private bank on suitable security. This word was changed to "may." Thus a right became a privilege and a privilege that could be suspended at will.

The seventh step-and it was the one most oblique -was to produce what may be described as monetary pandemonium. This continued for six months. To understand it will require some effort of attention.

When by the Inflation Amendment the dollar was cut loose from gold it did not immediately fall. That was because, in spite of everything, it was the best piece of money in the whole world. Well then, when the dollar did not fall headlong of its own weight the government began to club it down, and the club it used to beat it with was gold.  In the President's words the procedure was like this: "I am authorizing the Recon­struction Finance Corporation to buy newly mined gold in the United  States at prices to be determined from time to time after consultation with the Secretary of the Treasury and the President. Whenever necessary to the end in view we shall also buy or sell gold in the world market. My aim in taking this step is to establish and maintain  continuous control.  This is a policy and not an expedient."

Each  morning  thereafter the  Treasury  announced the price the government  would pay for gold in paper dollars, one day 30 paper dollars for one ounce of gold, the next day 32 dollars, two days later  34 dollars, and so on; and not only the newly mined gold in this country  but  anybody's  gold anywhere in the world.

Thus day by day the President and the Secretary of the Treasury determined the value of gold priced in American paper dollars, or the value of American paper dollars priced in gold, which was the same thing; and how they did it or by what rule, if any, nobody ever knew.

The spectacle of a great, solvent government paying a fictitious price for gold it did not want and did not need and doing it on purpose  to debase the  value of its own paper currency  was one to astonish  the world.

What did it mean? Regarded as monetary policy it made no meaning whatever. But again, if you will regard it from the point of view of revolutionary tech­nic, it has meaning enough.

One effect was that  private  borrowing and lending, except from day to day, practically  ceased.  With  the value of the dollar being posted daily at the Treasury like a lottery number, who would lend money for  six months or a year, with no way of even guessing what a dollar would be worth when it came to be paid back?

"No  man outside of a lunatic  asylum,"  said  Senator Glass, "will loan his money today on a farm mortgage." But the New Deal had a train of Federal lending agencies ready to start. The locomotive was the Recon­struction Finance Corporation. The signal for the train to start was a blast  of propaganda  denouncing Wall Street, the banks and all private owners of capital for their unwillingness to lend. So the government, in their place, became the great provider of credit  and capital for all purposes. It loaned public funds to farmers and home owners to enable them to pay off their mortgages; it loaned also to banks, railroads, business, industry, new enterprise, even to foreign bor­rowers. Thereby private debt was converted into public debt in a very large and popular way. It was popular because the government, having none of the problems of a bank or a private lender, with no fetish of solvency to restrain it, with nothing  really to lose even though the money should never come back, was a benevolent lender.  It loaned public money to private borrowers on terms and at rates of interest  with which no bank nor any  private lender could compete; and the effect was to create a kind of fictitious, self-serving necessity. The government could say to the people, and did say to them : "Look. It is as we said. The money changers, hating the New Deal, are trying to make a credit famine. But your government will beat them."

In a Fireside Chat, October 22, 1933, the President said: "I have publicly asked that foreclosures on farms and chattels and on homes be delayed until every mort­gagor in the country  shall  have had full  opportunity to take advantage of Federal credit. I make the further request,  which many  of  you know has  already been made through the great Federal credit organizations, that if there is any family in the United States about to lose its home or about to lose its chattels, that family should  telegraph  at  once either to the Farm Credit Administration or to the Home Owners Loan Corpora­tion in Washington requesting their help.  Two other great agencies are in full swing. The Reconstruction Finance Corporation continues to lend large sums to industry and finance, with the definite objective of making easy the extending of credit  to industry, com­merce and finance."

The other great lending agency to which he referred was  the  one that dispensed Federal credit  to  states, cities, towns, and worthy private organizations for works of public and social benefit. In the same Fireside Chat he urged them to come on with  their  projects.

"Washington," he said, "has the money and is waiting for the proper projects to which to allot it."

Then began to be heard the saying that  Washington had become the country's  Wall Street,  which was liter­ally true.  Anyone wanting credit for any purpose went no longer to Wall Street but to Washington. The trans­fer of the financial capital of the nation to Washington, the President  said, would be remembered, as "one of the two important happenings of my Administration." What  was the source of the money? Partly it was imaginary money, from inflation. Largely it was the taxpayer's money. If the government lost it the tax­ payer would have to find it again. And some of it, as the sequel revealed, was going to be confiscated money. By this time the New Deal had got control of the public purse. The Congress had surrendered control of it by two acts of self-abnegation. One was the Inflation Amendment and  the  other was  an  appropriation of $3,300,000,000 put into the hands of the President  to do with what he liked as the architect  of recovery.

All through the commotion of these unnatural events one end  was held steadily in view, and that was a modern version  of the act for which kings had been hated and sometimes hanged, namely to clip the coin of the realm and take the profit into the king's revenue.

The eighth step was the act of confiscation. At the President's request the Congress, on January 30, 1934, passed a law vesting in the Federal government abso­lute title to all that gold which people had been obliged to exchange for gold standard paper dollars  the year before, thinking as they did that it was for the duration of the emergency only and that  they were supporting the nation's credit. They believed the statement issued at the time by the Secretary of the Treasury, saying: "Those surrendering the gold of course receive an equivalent amount of other forms of currency and those other  forms  of currency  may  be used for  obtaining gold  in  an equivalent amount when authorized for proper purposes." Having by such means got physical possession of the gold, it was a very simple matter for the government to confiscate it.  All that  it had to do was to have Congress pass a law vesting title in the government.

The ninth and last step was to devalue the dollar. In his message to Congress asking for the law that con­fiscated the gold the President said: "I do not believe it desirable in the public interest that  an exact value be now fixed."  Nevertheless, on January 31, 1934,  the day  after   the act  of confiscation was  passed, he did fix the exact value of the dollar at  59 per cent of its former  gold content.  The difference,  which  was  41 cents in every dollar of gold that had been confiscated, was counted as government profit and took the form of a free  fund  of two billions in the Treasury, called a stabilization fund, with which the President could do almost anything he liked. Actually it was used to take control of the foreign exchange market out of the hands of international finance.

Control of money, banking, and credit had passed to Washington. Thus problem number two was solved.

The reason for giving so much attention to it is that it was the New Deal's most brilliant feat; and certainly not the least remarkable fact about it was the skill with which criticism  was  played into  making its  fight  on false and baited ground.  Each step as it occurred was defended, and therefore  attacked, on ground of mone­tary policy, whereas  the  ultimate  meaning  was  not there at all.

Consider first the logical sequence of the nine steps; consider secondly that  if  national  recovery had  been the end in view many alternative steps were possible, whereas from the point of view of revolutionary technic these nine were the imperative steps and the order in which they were taken was the necessary order.  Then ask if it could have happened that  way by chance.

Not even a  New Dealer any longer maintains that the  four  steps directly  involving  gold,  namely,  the seizure of it, the repudiation of the government's  gold contracts,  then the confiscation of the gold, and lastly the devaluation  of the dollar, were necessary merely as measures toward  national  recovery. In the history of the case there is no more dramatic bit of testimony than that of Senator Glass, formerly Secretary of the Treasury, who in April, 1933, rose from a sick bed and appeared  in the Senate  to speak against the Inflation Amendment.  He said:

"I wrote  with  my own hand  that  provision of the national   Democratic  platform   which  declared  for  a sound currency  to be maintained  at  all hazards.... With nearly 40 per cent of the entire gold supply of the world, why are we going off the gold standard?  With all the earmarked  gold, with all the securities  of ours they hold, foreign governments could withdraw in total less than  $700,000,000 of our gold, which would leave us an ample fund of gold, in the extremest  case, to maintain gold payments both at home and abroad.... To me the suggestion  that  we may devalue  the  gold dollar 59 per cent means national  repudiation. To me it  means dishonor.   In  my conception of it,  it  is im­moral. ... There was never any  necessity for  a gold embargo.  There is no necessity for  making statutory criminals  of citizens  of  the  United States  who may please to take their property in the shape of gold or currency  out  of the  banks  and  use it for  their  own purposes as they may please. We have gone beyond the cruel  extremities of the  French,  and  they  made it  a capital crime, punishable at the guillotine, for any tradesman or individual citizens of the realm to dis­criminate in favor of gold and against their printing press currency.  We have gone beyond that.   We have said that  no man may have his gold, under  penalty of ten years in the penitentiary or $10,000 fine."

And when the "gold cases" went to the United States Supreme Court--the  unreconstructed court--the  judg­ment was one that  will be forever  a blot on a certain page of American history.  The Court said  that  what the government had done was immoral but not illegal. How could that be? Because the American government, like any other government, has the sovereign power to commit an immoral act.  Until then the American gov­ernment  was the only great  government  in the world that  had never repudiated  the word engraved  upon its bond.