America's Money Machine

PART III / DEBACLE OF AN IDEA
ties continued without banking facilities for months longer, and many
banks never reopened.
Meantime, the debates on other, not quite so urgent, legislation to
resolve the crisis disclosed the strong inflationary mood of the country.
The principal problem, of course, was prices, which had plunged downward,
to the disaster of those who owned money-though not so steeply
nor so far as during the price debacle of 1920.* In the Senate, Burton K.
Wheeler advocated, and nearly obtained, passage of a bill restoring free
coinage of silver at the ratio of 16 to 1, and in the debate on emergency
farm' legislation, Senator Elmer Thomas of Oklahoma introduced as an
amendment an omnibus inflation authority. Roosevelt opposed the
amendment, but following a spirited White House conference with the
sponsor and with SenatorJames F. Byrnes, and to the dismay of his advisers,
he agreed to accept the amendment ifthe amount oft.he greenback
issue were limited, and the other authorities were discretionary rather
than mandatory.4 Probably a factor in Roosevelt's mind was the almost
unlimited discretionary power over the money syst.em which it gave him.
The significance of the Thomas amendment is that it formally took the
U. S. off the gold standard. It gave the President authority to reduce the
statutory gold and silver content of the dollar by as much as 50 per cent,
to accept at 50 cents an ounce up to 400 million ounces of silver in
discharge offoreign government debts owing the U. S., and to issue silver
certificates to the extent of such silver received. Since the silver was
monetized at $1.29 per ounce (unless the silver dollar should also be
devaluated as permitted by the Act) this meant multiplying by more than
two and a half times the purchasing power ofsilver acquired. It also gave
to the Executive authority practically to direct the Federal Reserve banks
to purchase up to $3 billion of government securities, under penalty of
direct issue of$3 billion Treasury circulating notes ("greenbacks") under
the Civil War Act of 1862. The Thomas amendment met unexpected
opposition from conservatives, among them Carter Glass, who had been
offered the post ofSecretary ofthe Treasury; but the Roosevelt influence,
combined with the crisis mood, was decisive.
Despite the apprehensions of Roosevelt's advisers-Lewis Douglas,
the budget director, thought the Thomas amendment marked "the end
*The BLS index ofwholesale prices, all commodities, (1926= 100) dropped from 95.3 in
1929 to 64.8 in 1932, compared with a drop from 154.4 in 1920 to 97.6 in 1921. (Historical
Statistics ofthe U. S.)