Evening star., 1937-05-02
Administration Suffers
Attack of Gold Jitters
BY OWEN L. SCOTT.

ooAN WAeAAAA Col oA4Ot "a 4Al xLOOSCNClI
or Henry Morgenthau, jr. On display is
one of the worst cases of gold filters in
recent financial history.
A reason for that display is not hard
to find. Stock and commodity markets
jump up and down at the mere hint
that something is doing in gold Gold
is back of the hot money" worry that
has both the White House and the Treas
ury stumped. Even some budget troubles
and Government credit troubles tie in
directly with the countrys gold policy.
1t all dates back to one more 1888 ex-
pertinent that now is Towering. Presi-
dent Roosevelt then was looking for
some magic to break the forces of defla-
ton. When Henry Morgenthau brought
around his old college professor. George
F. Warren with plan for juggling the
number Of dollars in an ounce Of gold,
Mr. Roosevelt was easily sold.
Gold has been getting in the official
hair ever since. Right now, in addition.
it is causing an acute pain in the oficial
neck.
The simple fact is that the people OF
this country are called upon to give up
good dollars to be used to buy immense
amounts of gold that then are buried
underground at Fort Knox, KY. Every
time anybody in the world offers an
ounce of gold Henry Morgenthau hands
over thirty-f1ve American dollars. After
that he scurries around to hide the metal
in subterranean vaults.
More than 1000 tons already are on
hand and still the gold keeps rolling in.
The whole world is engaged in dump
ing its gold into the lap of Uncle Sam
at what 1t regards as very fancy price.
Then, with the dollars exchanged for
gold, the world is buying American stocks
and bonds, American machinery, Amer
lean commodities and American real
estate. Thus foreigners are acquiring an
important degree of ownership in this
country's enterprises in exchange for a
metal that has become q drug on the
market. This ownership now is set at
about IA per cent in the companies listed
on the New York Stock Exchange.
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But that isn't all. AS the gold flowed
in for nearly two years after January,
1884, it found its way into bank deposits
and added to the base for a potential
inflationary boom, the threat of which
has had the Federal Reserve Board in q
state OF agitation. More than 81 900 OO0,-
600 worth came in last year, adding
acutely to those worries. Then deci-
sion was reached to check this situation
by using tax revenue, or borrowed money,
to "sterilize" the gold. In less than six
months the Treasury has had to find
more than 100000 to use in keeping
this gold out of the money stream. Mr..
Morgenthau has been forced to find
those dollars at a time when Govern
ment credit is under bit of strain.
He still is being forced to find dollars
for that purpose, further complicating
an already complicated problem of Fed
eral finance.
Even that isn't all
So attractive is the American price
that mining operations are speeded up
the world over TO produce gold that then
can be exchanged for American dollars
at the rate of thirty-five to the ounce
Production has almost doubled since
1929 1t amounted last year to $780,
900 000-almost all of which found its
way into this country. That production
still is rising
Right now the gold supply OF the
United States, available for backing up
about $6,000 900 900 in currency, actually
is approaching $l2,OOO,0oO 0OO All of
the other major nations of the world
combined have barely more than half
as much gold. France has $1,000 900, 900
worth, Great Britain $4,000 100000 Hol-
land S400 900 900, Japan and Italy under
$500 900 900 each, Germany only ST.
900, 900 worth
Yet it all looked so simple back in
1888 when Professor Warren moved into
Washington with his charts and his slide
rule
At the time things were not going so
we'll Farm prices had fallen. The N.
r. A. boom had collapsed. Def1ation
appeared to be getting under way again
when Mr.. Roosevelt was introduced to
| the Warren theory that, by raising or
| lowering the price paid for gold, the
| Treasury could cause rise or fall in
the price of other commodities, since
gold, presumably, was the yardstick for
many other values.
This looked like just the thing Presi-
| dent Roosevelt had been looking for. So
Professor Warren was provided with a
| hideaWay in the Commerce Building and
key to the back door OF the White
| House.
In October, 1933 to buy gold at an
ascending scale of prices. Before the
| start of the experiment the Government
| paid $2067 for new gold. Professor
| Warren advised the Treasury to start
| buying at S29.80 an ounce. Thereafter
the price was raised week by week until,
| IN January, 1884, President Roosevelt
| called halt and ordered stabilzation
| at $35 to the ounce There it has
| stayed since.
BY clipping gold out OF the dollar
the President pulled more than So
| 000,000,000 out of thin air Two billion
| Of that amount now makes up the Ma
| tion's currency stabilization fund. Also,
| when the operation was over the coun-
try's gold supply stood at $6,829 900 900.
| which seemed tidy sum. In addition.
! although commodity prices did not rise
| in the way anticipated, the decline did
| halt and rise started that has continued
with few interruptions since.
x
But the trouble is that the experiment
| didn't end there. Its effects have been
cumulative since and only recently have
given cause for acute official headaches.
| For nearly three years after clipping
gold out of the dollar, President Roose-
velt was pleased to enjoy the inf1ationary
results. He quickly lost interest in the
Warren theory, but the prescription for
recovery offered by John Maynard
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