Economics and The Public Welfare

Chapter 49

The London Economic Conference, 1933

The world economic conference convened in London on June 12. Simultaneously, discussions among the Bank of England, the Bank of France, and the Federal Reserve System were taking place, looking toward a temporary, tentative exchange stabilization agreement. Rumors that an exchange stabilization agreement had been or shortly would be arrived at appeared in the press and the speculative markets reacted adversely. On June 15 the dollar advanced sharply in the foreign exchange markets, and securities and some important commodity prices reacted. President Roosevelt speedily made it clear that he would not accept the tentative agreement. The conference came to a standstill pending the arrival of Professor Raymond Moley, whom the President sent to London as his special emissary, and who presumably knew the President’s views.

Agreement on Money After Moley Comes. After Professor Moley’s arrival in London immediate exchange stabilization was given up, but discussion continued in the conference, and finally a joint declaration on monetary policy was discussed and generally approved:

(A) The signatory governments were to agree that restoration of stability in the international monetary field as quickly as possible is in the interests of all concerned, and that gold should be reëstablished as the international measure of exchange value, each non-gold country to be free to determine the time and parity at which it could undertake to stabilize on a gold basis.

(B) Gold standard countries signing the declaration were to reassert their determination to maintain the free working of the gold standard at existing gold parities.

(C) Non-gold countries signing the declaration were to take note of the above and recognize its importance, their ultimate object being to restore the gold standard.

(D) Non-gold signatory countries were to undertake to limit exchange speculation so far as possible in coöperation with other signatory countries.

(E) Each signatory country was to agree to ask its central bank to cooperate with the central banks of the other signatory governments in limiting speculation in exchanges, and, when the time came, in reestablishing the general international gold standard.

(F) The declaration was declared open to signature by other governments.1

But Dynamited by Roosevelt. This declaration received the approval of the American delegation as well as Professor Moley. The text of the declaration was submitted to President Roosevelt for approval on June 30. A few days later came a great shock when the President addressed a message to the London Conference rejecting these propositions. The message contained the following passages:

“The world will not long be lulled by the specious fallacy of achieving a temporary and probably an artificial stability in foreign exchange on the part of a few large countries only.

“The sound internal economic system of a nation is a greater factor in its wellbeing than the price of its currency in changing terms of the currencies of other nations.

“It is for this reason that reduced cost of government, adequate government income, and ability to service government debts are so all-important to ultimate stability. So, too, old fetishes of so-called international bankers are being replaced by efforts to plan national currencies with the objective of giving to those currencies a continuing purchasing power which does not greatly vary in terms of the commodities and need of modern civilization. Let me be frank in saying that the United States seeks the kind of dollar which a generation hence will have the same purchasing and debt-paying power as the dollar value we hope to attain in the near future. That objective means more to the good of the other nations than a fixed ratio for a month or two in terms of the pound or franc.” 2

Writing about this episode many years later, Professor Raymond Moley said: “In 1933, an international conference was held in which all the great issues were undecided before the meeting began. When things started, delegates wandered around in a fog, trying to learn by remote control what Mr. Roosevelt was currently thinking. The whole conference fell to pieces.” 3

The London Conference came to a futile end. Practically its only accomplishment was a relatively innocuous agreement regarding silver. Senator Key Pittman of Nevada, the leader of the silver forces in the United States, was the one victor in the London Conference, and even his triumph did not go very far.

Hull After Failure of London Conference. Secretary Hull return from the Conference grim and silent, and had an interview with the President. Following this interview Professor Raymond Moley withdrew from the State Department. Hull’s position was one which only a very great and selfless man could have tolerated. His purposes were defeated. He could make no move toward lower tariffs in the near future. His tariff powers were denied him. Moreover, under NRA further restrictions on imports were provided for, and under the Agricultural Adjustment Act compensatory taxes on agricultural imports were provided for, to offset the processing taxes.4 All that Hull could do was to stay in Washington and keep the flag up. He chose to stay, and earned thereby the gratitude of the country. Hull outlived the NRA and his policies survived. Hull outlived the Presidential power to alter the gold content of the dollar. Hull got his tariff powers in 1934, and moved steadily, if slowly, toward reducing tariffs by reciprocal agreements, agreements which gave the benefit of any tariff reduction to all nations with which either signatory had “most favored nation” clauses in their commercial treaties. Hull fought bilateralism and economic isolation. And Hull saw an ever widening acceptance of the principle of economic coöperation under liberal trade policies, not only among informed students, but also in American legislation. It is to the credit of President Roosevelt that, beginning with 1934, he aided and supported Cordell Hull’s policies.

• 1This point will be discussed at length in Chap. 34.
• 2I have not been able to find that this article was ever published. However, the reader will find much of it in two books by Veblen: Imperial Germany and the Industrial Revolution, New York, 1915; and The Nature of Peace and the Terms of Its Perpetuation, New York, 1917.
• 3See my book The Effects of the War on Money, Credit and Banking in France and the United States, published by the Carnegie Endowment for International Peace, Oxford University Press, New York, 1919. For London, see the interesting articles by Mr. J. M. Keynes in the British Economic Journal in late 1914.
• 4O. M. W. Sprague: “Crisis of 1914 in the United States,” American Economic Review, September, 1915; H. G. S. Noble: “The New York Stock Exchange in the Crisis of 1914,” Garden City, N. Y., Country Life Press, 1915. These two papers are classics of permanent value.