ARE WE GETTING TOO MUCH GOLD? SECY. MORGENTHAU DISCUSSES THE MONEY QUESTION
Are We Getting Too Much Gold? Secy. Morgenthau Discusses The Money Question [AN ADDRESS By HENRY MORGENTHAU JR., SECRETARY OF THE TREASURY] ONE thing you will hardly need to be told about our...
...I think most Americans agree with me...
...The very items which compete with our domestic products would deluge Our home markets...
...We have had experience with that system-extensive experience—In the decade that ended with the economic collapse of 1929...
...Instead ot taking gold we could have granted credit...
...The continued acceptance of the gold that comes here is the only sound course of action open to us...
...These are the development* upon which we must concentrate...
...Secondly, there would result an immediate flood of imports of cheapened foreign goods, which would deal an even more serious blow to labor, Industry and agriculture in America...
...It is to be prepared for such contingencies that the powers with respect to told operations have been kept flexible...
...So you see this simple remedy Is, In effect, a proposal that would completely disrupt our foreign exchanges and our trade and greatly Increase unemployment In this country...
...Of course, should basic conditions aiier, snouia we be confronted with new and unforeseen economic and political developments, the government will necessarily take such action as will best protect American Interests...
...But under those circumstances life would be so different that the possible loss in the value of gold would, I am sure, be the least of our troubles...
...For the excess of goods we shipped and for the dollar credits we granted we have taken gold In the last six yeara instead of promissory notes...
...it has become in the last few years more and more an International currency...
...And the fact that some countries find it possible to conduct their international trade without fold does not mean that they prefer to do so any more than people reading by candlelight do so because they prefer candles to electricity...
...Thirdly, Americans who have investments abroad would find that they had suffered substantial dollar losses overnight Jiivl as forelgneis with Investments here would find that they had windfall gains overnight...
...Its value is unquestioned here at home and it is not questioned anywhere else in the world...
...All these substitutes are admittedly worse alternatives...
...Meat and dairy products, textiles and hundreds of other articles would at once be subjected to greatly intensified competition from abroad...
...During the last six years we have acquired about 10 billion dollars worth of gold from abroad...
...With the return of peace and of normal economic and political relationships, the present barriers to the free flow of goods, capital, and services will be gradually lowered, and gold will inevitably play its indispensable role In making that result possible...
...all countries accumulate it as soon as they can afford to do so...
...Morgenthau Discusses The Money Question [AN ADDRESS By HENRY MORGENTHAU JR., SECRETARY OF THE TREASURY] ONE thing you will hardly need to be told about our monetary system...
...And finally our tourists will spend hundreds of millions more in foreign countries...
...THERE are some sincere people who have been disturbed by stories that this country had a monetary policy that threatens to cause loss to the nation...
...Every foreign country wishes it had more of It...
...It has made possible the utilization of labor, capital, machinery and resources that would otherwise have been idle...
...The cessation of gold purchases would have the following three immediate effects of great importance to us: Firstly, the sale of American products in foreign markets would be made much more difficult...
...Our investors will once again invest their fund...
...Shall we, as some have suggested, discriminate against certain countries in our purchases of gold...
...And, moreover, we have at the same time acquired the safest physical asset in the world...
...All that we have to do is to issue an appropriate treasury order...
...Why has so much gold come to the United States...
...Such a policy would not even have the virtue of effectiveness...
...GOLD moves from country to country not as a commodity but as a means of payment, the one final medium through which international settlements are made...
...abroad—not because of the scarcity of opportunity at home but because of greatly enhanced opportunities for sound and profitable Investments in other lands...
...its utility as international money survives changes in economic systems...
...It has the charm of simplicity...
...That way is to do everything in our power to contribute to the return of peace to the world and to encourage reconstruction and the restoration of normal trade...
...Finally...
...I prefer the gold to pieces of foreign paper...
...no foreign country likes to lose any of It...
...It is a solid rock of strength and stability amid all the moneUry confusion created by aggression and war...
...One of the most striking developments of these recent years has been the universal confidence In the American dollar as one of the very few certain things In a highly uncertain world...
...We would lose heavily in the very markets we will badly need when the war in over...
...There 1* only one sound way in which we can work to reduce the inflow of gold and to promote the return of at least a part of the wealth it represents to useful service In the lands from which it came...
...You may tell them that the greatest and richest country of the world has the best and soundest monetary system and that there is no reason to fear that it will not remain sound...
...Besides, the value of gold is proportionate to its unqualified use and acceptance as an international medium of exchange...
...Exominatlon of each of these suggestions has revealed, as in the examples I have mentioned, that In the effort to remedy fancied evils they would bring on real disaster...
...Take, for example, the proposal so frequently made to us that we stop buying gold...
...The active cooperation of practically the entire world would be required to prevent any one country's gold from entering the world's markets and reaching the United States...
...All countries would like to have more gold, and the countries which have the least are, you will find, countries which are striving most to add tc their gold holdings...
...They are methods of conducting trade and finance which will only be adopted when a country does not possess adequate gold holdings...
...Governments resort wholly to these substitute methods for keeping a country's balance on payments in equilibrium only during times of great and prolonged stress and Instability, and only when for one reason or another they have been unable to prevent the loss of most of their gold holdings...
...Thirdly, foreigners have made large investments in American industries because they regard American business as a safe and profitable investment...
...We have expanded our exports and encouraged our domestic industry...
...But let me tell you what I think would happen...
...It is doubtful that Americans would want (o repeat that experience...
...This Is a matter tnat is troubling some people...
...Foreigners have sent their funds here for safekeeping because of the peace, stability, and security which this country enjoys...
...There have been many glib suggestions for changing that policy...
...THERE Is yet another alternative which has always been open to us...
...But nothing has yet appeared which would warrant any change in our gold policy...
...As long as there are Independent nations, and as long as there Is international trade In goods and services, so long will It be necessary to settle international balances...
...That their attainment will also solve the world's gold problem Is only a by-product, but an important one...
...I, for one, have no fears that such boasts can be made good...
...An outstanding example is the Tripartite accord which we initiated in September, 1836...
...They do so because they know-that an adequate supply of gold promotes economic strength and furthers financial stability...
...it Is for these reasons that gold has come and Is continuing to come to the United State...
...Gold does not lose Its value because some countries are forced to resort to clearing arrangements, barter, Import controls, and other substitutes...
...Its acceptability is universal...
...It has enabled us to increase employment and recovery...
...If you meet such people I hope you will reassure them...
...Our gold policy is carefully adjusted to the re-alltlea of a complex world situation...
...We can feel entirely comlortable in the possession of a supply of gold with which we can meet, future demands on our monetary system without any shock to our economy...
...One word more—the exchange we made and are making in return for gold is a good bargain for us...
...ISHOULD like to turn to the question of the continued usefulness nf the gold we have and the gold we are going to get...
...Americans have been withdrawing (heir funds from abroad and liquidating their foreign investments in large sums because they prefer the dollar to any other currency...
...Shall we follow their advice and cut the price for gold...
...Balances between countries would be settled as balances between our states are now settled—that is, by transfers of deposits...
...This also would cause a serious decrease in our trade and afbig increase in unemployment...
...These Hie the developments which will automatically and gradually direct the flow of gold away from the United States...
...Obviously this would be Impossible even in normal times, let alone at a time such a* this...
...It Is for these reasons that we have had so large a favorable balance of payments...
...rTHO be sure, il the political picture of the world JL should undergo a drastic change in the future, so that instead of SO or 60 independent nations there should exist only one or two groups dominated by ruthless powers, then international trade and finance may assume the character of domestic trade...
...Some of our citizen* who admit the strength of the dollar and the world's confidence in our currency now suggest that confidence In our dollar has resulted in this country receiving too much gold...
...that is, that the American dollar is the soundest unit of currency In the world...
...We have tried through many means to facilitate stability <a the currencies of the world...
...A moderate cut would be Ineffective, and a cut in price sufficiently large to have a significant effect on the gold Inflow would introduce the same conditions as would follow prohibition of gold imports...
...Unfortunately, the progress we were making In the field of international finance and trade has been Interrupted by the cataclysm in Europe...
...A chain of forces would be set In motion which would disrupt our trade, seriously discourage what remains of world commerce and remove from world finance the strongest element of stability...
...We must concentrate on the promotion of further recovery here and peace and security abroad not In order to correct the gold situation, but because prosjierlty, peace and security are in themsolves the supreme ends of governmental policy...
...Certain governments may boast of the day when independent democracies will disappear...
...Gold is the international medium of exchange par excellence...
...The treasury is constantly observing, analyzing and studying the course of events in their relation to monetary problems in which this country la Interested...
...Our great export surplus will drop—not because we shall sell less abroad but because we shall buy more...
...It is the refined instrument of international exchange of goods and services, as well as an essential ingredient in the more complex International financial transactions — an instrument that has functioned without challenge for hundreds of years...
...There would cease to be independent monetary systems, as there would cease to be independent foreign policies...
...To limit Its acceptance would mean to reduce its usefulness...
...There are, it is true, other courses of action theoretically possible, but they would all have disastrous consequences...
...It is more than a domestic currency...
...Under such circumstances it might well be that gold would no longer be needed...
...The phrase "good as gold" atlll has real meaning In the world...
...With the restoration of enduring peace and economic stability abroad the gold problem will solve itself...
...In the first place, we have exported many billions of dollars' worth of goods and services In excess of the amounts we have imported...
...People throughout the world who are driven by disaster and fear to hoard currency prefer to hoard the currency of the United States, when they can get it...
...Dollars abroad would instantly become very scarce and more costly, and the foreigner would find U much more expensive to buy American goods...
...This would not apply so much to war materials, which foreign countries want so urgently, but It would hit hard our export of hundreds of agricultural and industrial commodities not vital to the conduct of the war...
...Foreign capital will be gradually repatriated—not because we drive it out but because it is attracted home by the reemergence of security abroad...
...Americans could again have accumulated huge unsettled claims abroad...
...I am as confident that gold will continue to be used as the medium of international payments as I am that the majority of nations will succeed in maintaining their independence...
...It Is used and needed just as much by the freest democracies as by the most rigid dictatorships—as much by capitalist economies as by socialist economies...
...Secondly, large amounts of foreign funds have come to this country to be placed and kept on deposit with our banks...
...The British pound, the Canadian dollar, the French franc, would at once sharply depreciate...
...We can be prepared also to play the part we ought to play in the reconstruction of the world that must follow the senseless destruction ot war...
...And so with the other naive proposals which some well-meaning citizens suggest a* a remedy for our accumulating gold stocks...
...In all, six of the leading democracies of the world have subscribed to the principles of that accord...
...Let me reassure you once and for all...
Vol. 10 • May 1940 • No. 21
