Lords of Finance: 1929, the Great Depression, and the Bankers Who Broke the World by Liaquat Ahamed
Authors: Liaquat Ahamed
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controversial enough. Now the professor recommended that the government give the dollar another nudge downward by itself buying gold in the open market.
On October 22, Roosevelt told the country in another of his fireside chats, “Our dollar is altogether too greatly influenced by the accidents of international trade, by the internal policies of other nations and by political disturbances in other continents. Therefore the United States must take firmly in its own hands the control of the gold value of the dollar.” Whereas the first fireside chat had brought clarity to a complex issue, this one was a masterpiece of obfuscation. The following day the government started to buy gold.
Every one of the president’s economic advisers was opposed to the policy. Secretary Woodin had fallen fatally ill with cancer and Undersecretary Acheson was acting for him. Though the punctilious Acheson believed that the new policy was in fact against the law, he decided to sit on his objections temporarily in the hope of heading off even worse policies. Even so he was contemplating resigning when Roosevelt, falsely suspecting that he might be the source of newspaper leaks critical of the goldpurchases, fired him. In a surprise appointment, Henry Morgenthau, the man who had first brought George Warren to Washington, became acting secretary of the treasury. In the following weeks, Professor Sprague also resigned from the Treasury, no doubt disappointed at his former student’s failure to grasp the fundamentals of monetary economics.
Every morning at nine o’clock, Morgenthau; Jesse Jones, the head of the RFC; and George Warren would meet with the president over his breakfast of soft-boiled eggs, to determine the price of gold for that day. They began at $31.36 an ounce. The next morning this increased to $31.54, then $31.76 and $31.82. No one had a clue how they went about setting the price, although everyone presumed that some subtle analyses of the world bullion and foreign exchange markets went into their calculations. In fact, the choice of price was completely random. All they were trying to do was push the price a little higher than the day before. The exercise brought out the juvenile in Roosevelt. One day he picked an increase of 21 cents, and when asked why, replied that it was a lucky number, three times seven.
Everyone wanted to know more about the mysterious “crack-brained” economist 746 of whose theories Roosevelt had become so enamored. Much to the dismay of the publicity-shy Warren, his face appeared on the cover of
Time
magazine. Reporters finally managed to track down the elusive professor who had taken leave from Cornell; he was living at the Cosmos Club in Washington and worked from an office in the Commerce Building with an unlisted phone number. There were no files in the office—he carried all his research in his briefcase and slipped in and out of the White House through one of the side entrances. Anyone knocking at the door would be greeted with a cry, “Not in!”
As the bridge between the government and the markets, it was Harrison at the New York Fed who actually had to buy the gold. Here was a man trained to believe that nothing was more sacrosanct than the value of the currency, a protégé of one of the key architects of the postwar gold standard, being asked to weaken the dollar as an act of policy. It was, as one journalist put it, “like asking a sworn teetotaler 747 to swallow a bottle of gin.”
Harrison was by nature a diplomat. With Wall Street mocking thepresident for allowing currency policy to fall into the hands of an expert on chickenfeed, it required all his tact and diplomatic skills to act as the intermediary between the bankers and a White House that was breaking every monetary convention in the rule book. When Harrison first informed Norman of the new policy, the British central banker “hit the ceiling 748 .” “This is the most terrible thing 749 that has happened. The whole
On October 22, Roosevelt told the country in another of his fireside chats, “Our dollar is altogether too greatly influenced by the accidents of international trade, by the internal policies of other nations and by political disturbances in other continents. Therefore the United States must take firmly in its own hands the control of the gold value of the dollar.” Whereas the first fireside chat had brought clarity to a complex issue, this one was a masterpiece of obfuscation. The following day the government started to buy gold.
Every one of the president’s economic advisers was opposed to the policy. Secretary Woodin had fallen fatally ill with cancer and Undersecretary Acheson was acting for him. Though the punctilious Acheson believed that the new policy was in fact against the law, he decided to sit on his objections temporarily in the hope of heading off even worse policies. Even so he was contemplating resigning when Roosevelt, falsely suspecting that he might be the source of newspaper leaks critical of the goldpurchases, fired him. In a surprise appointment, Henry Morgenthau, the man who had first brought George Warren to Washington, became acting secretary of the treasury. In the following weeks, Professor Sprague also resigned from the Treasury, no doubt disappointed at his former student’s failure to grasp the fundamentals of monetary economics.
Every morning at nine o’clock, Morgenthau; Jesse Jones, the head of the RFC; and George Warren would meet with the president over his breakfast of soft-boiled eggs, to determine the price of gold for that day. They began at $31.36 an ounce. The next morning this increased to $31.54, then $31.76 and $31.82. No one had a clue how they went about setting the price, although everyone presumed that some subtle analyses of the world bullion and foreign exchange markets went into their calculations. In fact, the choice of price was completely random. All they were trying to do was push the price a little higher than the day before. The exercise brought out the juvenile in Roosevelt. One day he picked an increase of 21 cents, and when asked why, replied that it was a lucky number, three times seven.
Everyone wanted to know more about the mysterious “crack-brained” economist 746 of whose theories Roosevelt had become so enamored. Much to the dismay of the publicity-shy Warren, his face appeared on the cover of
Time
magazine. Reporters finally managed to track down the elusive professor who had taken leave from Cornell; he was living at the Cosmos Club in Washington and worked from an office in the Commerce Building with an unlisted phone number. There were no files in the office—he carried all his research in his briefcase and slipped in and out of the White House through one of the side entrances. Anyone knocking at the door would be greeted with a cry, “Not in!”
As the bridge between the government and the markets, it was Harrison at the New York Fed who actually had to buy the gold. Here was a man trained to believe that nothing was more sacrosanct than the value of the currency, a protégé of one of the key architects of the postwar gold standard, being asked to weaken the dollar as an act of policy. It was, as one journalist put it, “like asking a sworn teetotaler 747 to swallow a bottle of gin.”
Harrison was by nature a diplomat. With Wall Street mocking thepresident for allowing currency policy to fall into the hands of an expert on chickenfeed, it required all his tact and diplomatic skills to act as the intermediary between the bankers and a White House that was breaking every monetary convention in the rule book. When Harrison first informed Norman of the new policy, the British central banker “hit the ceiling 748 .” “This is the most terrible thing 749 that has happened. The whole
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