On Feb. 13, 1933 President Hoover exhorted the nation to stay on the gold standard. Is anything he said relevant today? How about his observations about the manipulation of fiat currencies for political purposes:
“In all the welter of discussion over these problems we find some who are maintaining that the world has outgrown the use of gold as a basis of currency and exchange. We can all agree that gold as a commodity of universal exchange has not worked perfectly in the face of this great economic eruption. But we have to remember that it is a commodity the face value of which is enshrined in human instincts for over 10,000 years. The time may come when the world can safely abandon its use altogether for these purposes, but it has not yet reached that point. It may be that by theoretically managed currencies some form of stability may be found a score or two years hence, but we have no time to wait. They are subject to great human fallibilities. Sooner or later political pressure of specific groups and interests will direct their use.”
Full text of the speech:
The Depression Papers of Herbert Hoover
Address to the Republican Club, February 13, 1933
It is a pleasure for me to address you upon the day when this club and our countrymen of all faiths throughout the land are paying tribute to the memory of Abraham Lincoln. We tonight also pay tribute to him as founder of the Republican Party and the inspirer of its ideals. He, more than any other man, created the living, virile organization which has given responsible interpretation to those ideals to our people in each succeeding generation. The party has brought these ideals to realization in government and development of a great nation. An organization that can show more than 15,000,000 adherents after 70 years—an irreducible minimum in the reaction from the worst depression the world has ever seen—is indeed testimony to the virility of the principles which Lincoln enunciated.
Those principles, the fiber and the determination of the party, assure that it will be recalled to power by the American people. One of the sure guaranties that this will be so was the extraordinary support of the youth of the country in the last campaign. There has never been a time in the history of the party when it received such a large adherence of young men and young women, when they exerted themselves with such capable organization, devotion, and effort as they did in that campaign. It is to them that the party must look. It is in their idealism, their energy, and there vitality that the Republican Party can take assured hope for the future.
The people determined the election. Those of us who believe in the most basic principle insisted upon by Abraham Lincoln—the transcendent importance of popular government—have no complaint. We accept and, as Americans, will continue wholeheartedly to do our part in promoting the well-being of the country. Our party can truly feel that we have held the faith; that we shall do so in the future is our solemn responsibility.
It has ever been the party of constructive action. The Republican Party will support the new administration in every measure which will promote the public welfare. It must and will be vigilant in opposing those which are harmful.
My purpose is not to speak upon divided issues on this occasion, rather it is to discuss matters concerning which there should be no partisanship.
Further steps toward economic recovery is the urgent problem before the entire world. Ceaseless effort must be directed to restoration of confidence, the vanquishing of fear and apprehension, and thus the release of the recuperative spirit of the world.
It is, therefore, my purpose to discuss some of the broad measures which confront us in reaching futher to the roots of this tragic disturbance, particularly in the field of foreign relations. While we have many concerns in the domestic field we must realize that so long as we engage in the export and import of goods and in financial activities abroad our price levels and credit system, our employment, and above all our fears will be greatly affected by foreign influences. During the past two years the crash of one foreign nation after another under direct and indirect war inheritances has dominated our while economic life. The time has now come when nations must accept, in self interest no less than in altruism, the obligations to cooperate in achieving world stability so mankind may again resume the march of progress. Daily it becomes the more certain that the next great constructive step in remedy of the illimitable human suffering from this depression lies in the international field. It is in that field where the tide of prices can be most surely and quickly turned and the tragic despair of unemployment, agriculture and business transformed to hope and confidence.
Economic degeneration is always a series of vicious cycles of cause and effect. Whatever the causes may be, we must grasp these cycles at some segment and deal with them. Perhaps it would add clarity to the position I wish to make later if I should shortly follow through the cycle of economic failure which has at least in part taken place in countries abroad. Many countries in addition to the other pressures of the depression were overburdened with debt and obligations from the World War or from excessive borrowing from abroad for rehabilitation or expansion. Many created or added to their difficultues through unblananced budgets due to vast social programs or armament, finally reaching the point where collapse in governmental credit was inevitable. Foreigners in fear withdrew their deposits in such countries. Citizens in fright exported their capital. The result was a large movement of gold from such a country followed by the immediate undermining of confidence in its currency and its credit system. Runs on its banks ensued. Restrictions were imposed upon exchange to stop the flight of capital. Barriers were erected against the imports of commodities in endeavor to reduce the spending of her citizens for foreign goods and in an effort to establish equilibrium in exchange and retention of their gold reserves. Failure in such efforts resulted in abandonment of the gold standard. Currency depreciation, stagnation of their industries, increase in their unemployment and further shrinkage in the consumption of world goods, again and again affecting all other nations. Depreciated currencies gave some nations the hope to manufacture goods more cheaply than their neighbors and thus to rehabilitate their financial position by invasion of the markets of other nations. Those nations in turn have sought to protect themselves by erecting barriers, until today as the result of such financial breakdown we are in the presence of an incipient outbreak of economic war in the world with the weapons of depreciated currencies, artificial barriers to trade by quotas, reciprocal trade agreements, discriminations, nationalistic campaigns to consume home-made goods, and a score of tactics each of which can be justified for the moment, but each of which adds to world confusion and dangers.
Out of the storm center of Europe this devastation has spread until, if we survey the world situation at the present moment, we find some 44 countries which have placed restrictions upon the movement of gold and exchange or are otherwise definitely off the gold standard. In practically all of them these actions have within the past twelve months been accompanied by new restrictions upon imports in an endeavor to hold or attract gold or to give some stability to currencies.
These depreciations of currency and regulations of exchange and restrictions of imports originated as defense measures by nations to meet their domestic financial difficulties. But a new phase is now developing among these nations that is the rapid degeneration into economic war which treatens to engulf the world. The imperative call to the world today is to prevent this war.
Ever since the storm began in Europe the United States has held stanchly to the gold standard. In the present setting of depreciated currencies and in light of the differences of costs of production our tariffs are below those of most countries; we have held free from quotas, preferences, discriminations among nations. We have thereby maintained one Gibraltar of stability in the world and contributed to check the movement to chaos.
We are ourselves now confronted with an unnatural movement of goods from the lowered costs and standards of countries of depreciated currencies, which daily increase our unemployment and our difficulties. we are confronted with discriminatory actions and barriers stifling our agricultural and other markets. We will be ourselves forced to defensive action to protect ourselves unless this mad race is stopped. We must not be the major victim of it all.
In all this competition of degeneration, these beginnings of economic war between scores of nations, we see a gradual shrinkage in demand for international commodities throughout the world, and continuing fall in prices in terms of gold. From falling prices and unemployment we have at once the inability of debtors to meet obligations to their creditors, the dispossession of people from their farms and homes and businesses.
If the world is to secure economic peace, if it is to turn in the tide of degeneration, if it is to restore the functioning of the production and distribution systems of the world, it must start somewhere to break these vicious fiscal and financial circles. I am convinced that the first point of attack is to secure assured greater stability in the currencies of the important commercial nations. Without such stability the continued results of uncertainty, the destruction of confidence by currency fluctuations, exchange controls, and artificial import restrictions cannot be overcome but will continue to increase. With effective stability of currencies these dangers can be at once relaxed. I am not unaware that currency instability is both a cause and an effect in the vicious cycle—but we must start somewhere.
This brings me to a phase which has gradually developed during the past months, and that is the reactions and relation of gold itself upon this situation. For, independent of other causes of degeneration, I am convinced that the circumstances which surround this commodity are contributing to drive nations to these interferences with free commerce and to other destructive artificialites.
Outside minor use in the arts there are two dominant uses of gold. First, the important commercial nations have builded their domestic currency and credit systems upon a foundation of convertibility into gold. Second, gold is the most acceptable of all commodities in international payments. Even the nations that have abandoned the gold standard must still depend upon gold for this purpose. It is true that nations must in the long run balance their international trade by goods, services, or investments, but in the intermediate ebb and flow, balances must still be settled by the use of gold.
In all the welter of discussion over these problems we find some who are maintaining that the world has outgrown the use of gold as a basis of currency and exchange. We can all agree that gold as a commodity of universal exchange has not worked perfectly in the face of this great economic eruption. But we have to remember that it is a commodity the face value of which is enshrined in human instincts for over 10,000 years. The time may come when the world can safely abandon its use altogether for these purposes, but it has not yet reached that point. It may be that by theoretically managed currencies some form of stability may be found a score or two years hence, but we have no time to wait. They are subject to great human fallibilities. Sooner or later political pressure of specific grouops and interests will direct their use. But in any event it would take many years’ demonstration to convince men that non-gold currency would certainly a year hence be worth what he paid for it today.
It is noticeable that most of the nations off the gold standard are even today seeking to increase their gold reserves. In the view of many economists these measures and the restrictions which have been placed on the movement of gold or exchange by two score of nations have created the same practical effect as if there were a scarcity of gold in the world. That while there has in the last few years been a very large increase in the quantity of visible gold in the possession of institutions and governments, the effect of all these regulatory actions by governments attempting to protect their gold reserves from runs and flights of capital and their attempts to increase their supply has been to divide the gold of the world into two score of pockets and in many of them to freeze it from full freedom of action. In other words, this view holds that we are today not dealing with a shortage of the commodity; we are dealing with its being partly immobilized in its functioning.
To add to the confusion, another phenomenon of the gold situation has increased disturbance and wrought havoc. That is the effect of waves of fear and apprehension. We have a parallel in nations to an unreasoning panic run on a bank. The fears and apprehensions directed in turn to the stability of first one nation and then another have caused the withdrawal of foreign balances from a particular nation, followed by flights of capital, through purchases of exchange by its own citizens seeking refuge and security for their property. These movements are followed by large flows of gold to meet exchange demands, thus undermining the domestic currency and credit system of the victim nation and leading to an unnatural piling up of gold in some nation temporarily considered safe. These movements, themselves in large degree unwarranted, have forced some nations off the gold standard that could otherwise have maintained their position. We ourselves a year ago suffered from the effects of such a movement. Thus a mass of the gold dashing hither and yon from one nation to another, seeking maximum safety, has acted like a cannon loose on the deck of the world in a storm.
In the meantime the currencies of the world are fluctuating spasmodically. Countries off the gold standard are in reality suffering from their managed paper currencies by reason of the fact that men are unable to make contracts for the future with security, and that insecurity itself again dries up enterprise, business, employment, consumption of goods, and further causes reductions of prices. Other nations to hold their own are attempting to compete in destruction.
Broadly, the solution lies in the reestablishment of confidence. That confidence cannot be reestablished by the abandonment of gold as a standard in the world. So far as the human race has yet developed and established its methods and systems of stable exchange, that solution can only be found now and found quickly through the reestablishment of gold standards among important nations. The huge gold reserves of the world can be made to function in relation to currencies, standards of value, and exchange. And I say with emphasis that I am not proposing this as a favor to the United States. It is the need of the whole world. The United States is so situated that it can protect itself better than almost any country on earth.
Nor is it necessary from an international point of view that those nations who have been forced off the gold standard shall be again be restored to former gold values. It will suffice if it only is fixed. From this source are the principal hopes for restoring world confidence and reversing the growing barriers to the movement of goods, and making possible the security in trade which will again revive a demand for such goods. To do this it is necessary to have strong and courageous action on the part of the leading commercial nations If some sort of international financial action is necessary to enable central banks to cooperate for the purpose of stabilizing currencies, nations should have no hesitation in joining in such an operation under proper safeguards. If some part of the debt payments to us could be set aside for temporary use for this purpose, we should not hesitate to do so. At the same time the world should endeavor to find a place for silver, at least in enlarged subsidiary coinage.
If the major nations will enter the road leading to the early reestablishment of the gold standard, then and then only can the abnormal barriers to trade, the quotas, preferences, discriminatory agreements, and tariffs which exceed the differences in costs of production between nations be removed, uniform trade privileges among all nations be reestablished and the threat of economic war averted. A reasonable period of comparative stability in the world’s currencies would repay the cost of such effort a hundred times over in the increase of consumption, the increase of empoyment, the lessening of the difficulties of debtors throughout the land, with the avoidance of millions of tragedies. The world would quickly see a renewed movement of goods and would have an immediate rise in prices everywhere thereby bringing immediate relief to the whole economic system.
I do not underestimate the difficulties nor the vast financial problems which lie behind the restoration of stability and economic peace. Bold action alone can succeed. The alternative to such constructive action is a condition too grave to be contemplated in passive acceptance.