The room clerk at the Willard Hotel looked up. Frowning down on him was a giant of a man clad in a sheepskin coat, faded polka-dot shirt, blue denim overalls, high laced boots, and a tired tan hat. The man asked for a room. The clerk coughed politely and said they were full up. The old mari turned away. “I been saving a year for this trip,” he said, “and I did kinda want to stay where ‘H. A. W.’* put up.” Washington soon found out why Frank Edward Gimlett, 75, oldtime prospector from Salida, Colo., was in town. Said he: “I came here to find out what we are going to use for money.” If necessary, he vowed, he would visit every member of Congress to discover why he was getting greenbacks instead of gold coin for the metal he mined. Opening a leather pouch, he pulled out a pair of women’s garters with gold buckles set with $5 gold pieces.
“For a lady friend who married the other fellow,” he explained. “There’s two gold coins that F. D. R. isn’t going to get.” Money, a mysterious thing to most folks, has no secrets from Prospector Gimlett. Said he:
“The Government is trying to make a mystery out of money to confuse the people. They have things in such a mess now that only a wizard can solve it. They must be crazy. Prospectors dig gold out of the ground, sell it to the Treasury, and they turn around and bury it in another hole in Kentucky and hire soldiers to guard it. … A man should be able to take his ore down to the mint, get the Government to strike off the coins for him and keep the metal that rightfully belongs to him. There would be little or no paper money . . . and we would get rid of them germ-carrying dollar bills. There are 1,014 germs on every dollar bill. Silver and gold are allergic to germs.”
One day later Prospector Gimlett had all the backing a man could ask for. Federal Reserve Board Chairman Marriner S. Eccles recommended to Congress and the Administration a succinct and vigorous plan for revising U. S. fiscal and monetary policies. The plan carried the unanimous support of the board’s members. It set a precedent. Never before in its 26-year history had the board come out openly and firmly for specific fiscal legislation.
Without beating around the bush, the board asked Congress to take back the power to devalue the dollar that it had given to Franklin Roosevelt, to scrap the Administration’s authority (never used) to issue $3,000,000,000 worth of new currency backed by nothing but Government credit, to repeal the Treasury’s right to issue $1.29 worth of silver coins for each ounce of foreign silver it buys (current price: 35¢ an ounce). The board argued that these three measures, adopted during Depression I to combat deflation, are no longer needed. What is needed, thanks to the huge U. S. gold hoard and the booming defense program, is protection against inflation. Repeal of these three powers would remove three dangerous inflationary threats.
The board also suggested another brake to arrest inflation’s arrival: give the board power to double the amount of reserve funds which member banks have to keep on deposit at Federal Reserve banks, and extend that requirement to non-members as well. The tremendous growth of banks’ excess reserves (now about $7,000,000,000) has worried the board. With those reserves, the banks could make enough loans to produce a dangerous inflation, and the board would be powerless to prevent it.
To clamp the lid down tighter on excess U. S. reserves, the board recommended that the Treasury find a way to “insulate” the foreign gold it buys. In 1936-38 the Treasury “insulated” its foreign gold purchases by borrowing money to pay for the gold. The two transactions canceled each other, created no new money. At present the Treasury pays for the gold by issuing its own gold certificates and depositing them in the Federal Reserve banks, where they swell the commercial banks’ reserves.
For good measure, the board suggested a method of financing defenses. Method: sell Government bonds direct to the public rather than to banks. The public would then draw money from the banks to buy the bonds, thus help to reduce the top-heavy reserves. The board also hinted that, as rearmament boosted the national income, it would be a fine idea to pay for defense by taxing more instead of by issuing more bonds. That device should cause the budget to balance itself when the U. S. economy is finally running full tilt.
The policy behind these measures looked like a complete reversal of Mr. Eccles’ and Administration’s fiscal policy. But circumstances had also changed. And the Reserve Board chairman had always held the theory that the Government should spend its way out of depressions, adopt a pay-as-you-go policy when the national income warranted it.
Whether Chairman Eccles would have his way was another matter. Before making his suggestions public he had discussed them with Treasury Secretary Morgenthau, with Lauchlin Currie, the President’s economic adviser. No sounds of violent disagreement were audible. Although the President has never shown much eagerness to give up any of his emergency powers, his preoccupation with aid to Britain might put him in a trading mood. Unless Congress chose to play politics with the measures, Mr. Eccles stood a good chance of getting some of them, at least.
* Horace Austin Warner (“Silver Dollar”) Tabor, prospector who struck it rich with Leadville, Colorado’s Little Pittsburgh Mine (silver), built Denver a pretentious opera house, filled out an unexpired term as U. S. Senator, died destitute after the 1893 crash broke him.
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