|(The Nation, 3/15/33)
NOW that we have been forced temporarily to close the nation's banks and suspend gold payments, there is no longer any reason for discussing anything less than radical and thoroughgoing reforms in our banking and currency system. The Nation recommends these immediate steps
1. The devaluation of the dollar. The President's bank proclamation suspending gold payments for a few days has taken us at least technically off the gold basis. It is impossible to see how unrestricted conversion of currency into gold can` again he permitted. The President should continue the temporary suspension` of gold payments, and arrange to have the forthcoming World Economic Conference called at the earliest possible moment.' At that conference the United States should urge a uniform devaluation of world currencies by approximately 50 per cent. The only variations permitted should be those necessary to establish either a single international unit or to make one unit an even multiple, of the other. The United States should announce in advance, however, that if it cannot secure world cooperation and uniform reduction, it will act alone to devaluate the dollar by 50 per cent and resume gold bullion conversion on that basis within one year.
2. Congress should pass immediately a constitutional amendment abolishing State banks and compelling all banks to operate under national charters. Our banking system must be transferred from forty-nine controls to one control.
3. If these steps are taken, the immediate currency situation can doubtless be successfully met by the issuance of clearing-house certificates. Wherever the problem is one of mere liquidity, these certificates can be acceptable at 100 cents on the dollar. Wherever banks are not merely illiquid but in-solvent, their certificates should be honored only to the extent of 80, 60, or 40 per cent, as the clearing-house committees working in collaboration with bank examiners may decide.
4. There should be no attempt whatever on the part of the government to guarantee bank deposits. Such an attempt would be perilous to the government's finances even under the most favorable circumstances. With a large number of banks insolvent, and with no real control by the federal government over the individual loans of national banks and no control whatever over the policies of State banks, any attempt to guarantee deposits would be disastrous.
5. There should be an end to bank holidays and bank moratoriums: Other measures will have to be -taken later, but these represent a minimum program for immediate action.
The Nation a year ago, in the issues of March 30 and April 6, 1932, published two articles by Henry Hazlitt recommending the devaluation of the dollar. Two considerations have hitherto stood in the way of a persistent advocacy of that course. The first was the remote hope that the crisis would be mitigated by less drastic measures-an adjustment of the war debts, for example, and a reduction of world tariff barriers, particularly our own.
|The second was the certainty that serious discussion of devaluation by Congress, while gold was still being freely paid out by the Reserve banks, would precipitate a gold raid that would in itself throw-us off the gold basis and perhaps leave us with insufficient gold even to maintain a devaluated dollar. But nothing has been done to mitigate the crisis, the inevitable collapse of confidence has followed, and as the temporary suspension of gold payments has already occurred, devaluation can be discussed without fear of a further gold drain:
If gold payments continue to be suspended or drastically restricted, as seems altogether probable, opinion will divide broadly into two schools of thought. One school will hold that we trust inflexibly maintain or return to gold payments at the old parity of the dollar. The other school will rejoice that we are free of our gold shackles and will be content to drift along on a paper basis, fondly imagining that the value of this paper can be "managed" by the Federal Reserve Board by controlling its quantity, and that its quantity will be controllable.
The recommendations of both schools of thought must be rejected. We have maintained the dollar at the old gold parity only at the cost of bringing down our banking structure. Adequate and uniform debt, interest, rent, and wage adjustments to the violent and unparalleled drop in wholesale prices since 1928 have not been and cannot be made. The attempt to make them has merely brought about further disorganization and deflation. Adjustment can be obtained only by doubling the price level, bringing it approximately to that prevailing in 1928; and there is only one dependable way to do this-to cut the measuring rod, the dollar of 25.8 grains of gold, in half.
On the other hand, we cannot have stability and relative certainty, we cannot control inflation, we cannot have as much depreciation in the currency as we want and no more, we cannot have external stability for currencies and a free flow of world trade, unless we continue to make currency redeemable in some standard internationally acceptable; and gold continues to be by far the most satisfactory--or least unsatisfactory-standard for this purpose. If we could secure international agreement for a uniform devaluation, 'then no country would be repudiating any part of its obligations to another, and we could help to secure the prompt return of Great Britain and her financial satellite countries to a gold basis on which world trade could be resumed. The internal problem of American contracts payable in gold could be met by placing a tax on gold payments, deductible at the source, somewhat higher than the percentage of devaluation.
The need to have all our banks under one national control has always' been apparent. Continuance of the present system is now shown' to be intolerable. Under it banks are subject to forty-nine different laws, while State and federal governments are both powerless to establish adequate regulations for fear that recalcitrant banks will shift from' federal to State charters or vice versa. It should no longer be possible, moreover, for any panicky or ill-advised governor to take an action affecting the banks of his own State that will lead to a spread of panic throughout the country. State legislatures will recognize this now if ever.