February 24, 2007

The New Deal -- a look at FDR's Legacy

Interesting look at Franklin Delano Roosevelt and his lasting legacy re: the Gold Standard and the US Dollar. From The View From 1776:
How FDR Destroyed the Dollar
Until 1933, the U. S. dollar was the among the strongest and most stable currencies in the world. With the stroke of a pen, President Franklin Roosevelt torpedoed it. We are still plagued with the resulting inflation.

All governments lust for taxpayersí money. The ability to direct the expenditure of large sums of money confers great power upon political leaders. But the spending requirements that President Franklin Roosevelt had in mind upon taking office in 1933 were of extraordinary dimensions. Inflating the currency, in socialist theory, was a way to create more money for that end.

In the 1920s, after the disillusionment of World War I, socialism enjoyed great vogue in the United States. Social Gospel ministers extolled it, intellectuals lauded it, and popular magazines ran many favorable articles about it. In that period, the general public had no awareness of the horrors then being effected in the name of socialism in the USSR, and Hitlerís National Socialism was still in the future.

It was against that background that Franklin Roosevelt campaigned for the presidency in 1932 with the promise to give state-planning a try. Described in that way, it seemed to be no more than a proposal to coordinate government spending more effectively.

FDRís ideas, however, went much further than that, as demonstrated by the barrage of government take-over programs enacted immediately after his inauguration. His ďbrain trusters,Ē socialistic Ivy League professors, were proposing to nationalize the private banks and agriculture, and to regulate industrial production, prices, and wages on the model of Mussoliniís Fascist state-corporatism.
And a bit more:
In April, 1933, the President issued an executive order that abrogated gold payment clauses in government and private contracts and made it illegal for private citizens to keep their gold coins or to own gold for any purpose other than industrial applications. He completed the destruction of the dollar by arbitrarily reducing the dollarís gold content.

Before FDRís executive orders, Federal Reserve currency could be exchanged at the Federal Reserve banks for gold at a price of $20.67 per ounce. President Roosevelt ordered that the dollar be devalued almost 41% by raising the price per ounce of gold to $35.00. At the $20.67 gold ratio, one dollar would buy 0.048 ounces of gold. At the $35 ratio, one dollar would buy only 0.0286 ounces of gold.

The inflation set in motion by FDRís actions has continued without cease. The London gold price was $664.95 on February 16, 2007, a de facto 96.9% devaluation of the dollar vs the price before President Roosevelt began the devaluation process. The Consumer Price Index is now approximately 905% higher than in 1932.

Before FDRís inauguration, gold coins minted by the Treasury were in common use, Federal Reserve paper currency was exchangeable for gold, and U. S. Treasury debt gave holders the option to take payment in currency or gold, at a fixed rate. Moreover, most corporate debt similarly provided for payment in currency or gold. This gave the dollar a fixed value and made it one of the worldís strongest currencies, ďas good as gold.Ē

In effect, President Roosevelt confiscated 40% of assets in the hands of individuals, corporations, and banks, without offering any compensation to them.
Interesting to see the very foundations of the problems we are suffering from today. Communism never caught on to any great extent although its practitioners certainly tried. Socialism on the other hand is with us in more insidious ways than we like to think... Top-down control does not work at any level, be it a small business or a large corporation, a school or a medical facility. Who in their right minds would think that it should work for government? Posted by DaveH at February 24, 2007 9:06 PM


Is there any country that still uses the gold standard for their currency? Is inflation under control there?

Posted by: Mike at February 25, 2007 7:09 AM
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