Goldsborough Bill

A Bill

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. . . .

It is hereby declared to be the policy of the United States that the average purchasing power of the dollar as ascertained by the Department of Labor in the wholesale commodity markets for the period covering the years 1921 and 1929 inclusive shall be restored and maintained by the control of the volume of credit and currency.

The Federal Reserve Board, the Federal Reserve Banks and the Secretary of the Treasury are hereby charged with the duty of making effective this policy.

Passage of this 97-word bill by the House of Representatives last week caused intense financial excitement abroad. In Paris the dollar slumped below the gold point (25.3562 francs). The Federal Reserve Bank in New York kept telephoning the Bank of France to buy dollars. The guilder, the Swiss franc and the belga soared to year-high values against the dollar.

The German press shouted a warning across the sea: AMERICA FACING DANGEROUS CURRENCY EXPERIMENTS. Berlin bankers said they "couldn't believe it."

Vienna newspapers headlined: INFLATION IN THE U. S.! WHAT IS HAPPENING TO THE DOLLAR? Prague, where the crown is tied to the dollar, was wildly excited.

In London the bill was called a "comic opera measure" and editors tush-tushed popular fears about the dollar. Nevertheless Ambassador Mellon found it expedient to make a little speech reassuring Britain on U. S. finance.

Dollars were sold heavily in Warsaw.

From New York Europe withdrew a total of $35,000,000 in gold during the week. Almost the only place where the measure failed to stir popular excitement and financial fears was in the U. S. itself.

Why the U. S. took the bill, grossly inflationary on its face, so calmly was because it directed the Federal Reserve System to do precisely what it was already quietly doing to expand credit. Four weeks ago the Reserve started buying Federal securities in the open market at the rate of $100,000,000 worth per week. It stacked the cash proceeds in its front windows for bank borrowers to come and get. Last week the Reserve's holdings of U. S. securities--$1,287,000,000--were almost double those of the same week last year.

The House bill was not only an endorsement of the Reserve's credit-pumping policy but an order for it to continue as a matter of law. The Reserve was given no specific instructions on how to proceed but was left free to work on the theory that credit controls the value of money and the value of money in turn controls prices. By increasing credit the value of the dollar would decline and by comparison commodity prices would appear to rise. And higher commodity prices were what a majority of the House wanted to see before election day. The Reserve was expected to put the dollar back to its 1926 value which in turn would up commodity prices to the same level.

Author of the House's measure was Thomas Alan Goldsborough, a Maryland Democrat from the rural Eastern shore. A lawyer by profession, his legislative hobby is banking. Placid and friendly at home, he is an energetic, fist-clenching, table-thumping speaker in Congress.

What alarmed Europe in the Goldsborough bill was potential currency inflation to the tune of billions of dollars. But even its critics in Washington agreed that there was no serious danger of that result, that the measure was meant only for credit inflation. The Federal Reserve Board, it was pointed out, is composed of sane, level-headed men who would no more think of leading the U. S. off the gold standard by issuing fiat money than they would of assassinating Secretary Mills.

Despite its apparent harmlessness President Hoover picked out the Goldsborough Bill as one of the House's sins against the Budget and U. S. credit (see p. 15). He objected to it because of its effect abroad. He also thought it saddled the Federal Reserve with a permanent policy impossible of execution. Governor Eugene Meyer of the Federal Reserve Board summed up the Administration's opposition three weeks ago when he declared: "I would not want to be peremptorily ordered to run 100 yards in ten seconds flat."

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