I. WORLD MONETARY & ECONOMIC CONFERENCE

Representatives of sixty-six of the officially recognized sixty-seven nations of the world descended upon London in mid-June 1933 to gather in the Hall of Fossils of the city’s new Geological Museum. “Statesmen of every color,” Time magazine enthused, “babbling every language and brimming with every economic creed… sat down like schoolboys behind green metal desks for the World Monetary & Economic Conference, [the] most crucial gathering since Versailles.”

Time’s hyperbolic assessment of the conference’s importance reflected the hopes of its organizers, foremost among them British Prime Minister Ramsay MacDonald, the former Labour prime minister who was now the leader of a national government dominated by Conservatives. The king himself, George V, welcomed the delegates and proceeded to boggle the translators and charm non-Anglophone delegates by switching easily between French and English in his address. MacDonald delivered a grim keynote: “The world is being driven on a state of things… in which the life revolts against hardships and the gains of the past are swept away for forces of despair.… [A] purely national economic policy in this modern world is one which by impoverishing other nations, impoverishes itself at the expense of others.… Nationalism in economics is the deathknell of… prosperity.”¹ The conference organizers had set an absurdly ambitious agenda—to reach agreements on lowering trade barriers, commencing disarmament, resolving issues of war debts and reparations, returning major trading countries to the gold standard, and adopting a common view on issues of reflation and deflation. None of them was achieved. Disarmament was an impossible dream. The American Congress would not budge on war debts and reparations. Great Britain was committed to unwanted trade protections. Wise men were badly split on issues of deflation and reflation, while France was determined to force the rest of the world through a deflationary gauntlet to the old gold parities.

Conference planning had started long before the election, and MacDonald had carefully coordinated his plans with then-President Hoover, an enthusiast of conferences. Roosevelt was skeptical, dutifully praising the objectives without endorsing any specific policies. As it happened, the sheer fact of the conference and its intense early media coverage forced Roosevelt to clarify his attitudes toward gold and inflation, which he then almost casually proceeded to impose on the rest of the world. Roosevelt was not an economic naïf. He was born amid great wealth. As a young boy, he had been schooled in France and Germany, and was fluent in both languages. Leading money men were regular guests at Roosevelt family gatherings. At Harvard, while he was no scholar, he had taken several economics courses, taught by luminaries like Oliver M. W. Sprague, adviser to both the Federal Reserve and the Bank of England, and author of the late-1933 ten-part New York Times disquisition purporting to map the path to recovery. While Roosevelt respected leading bankers, academics, and businessmen, he was not overawed by them.²

Roosevelt’s first actions drew the approval of the money men. Huge swaths of the country’s banks were shuttered on the day he took office. He called an emergency session of Congress for March 9, asking for a national banking holiday in order to ascertain the solvency of America’s banks, along with a conservative reform program—much of it from Hoover’s Treasury—to allow the Reconstruction Finance Corporation (RFC) to invest in the preferred shares of sound banks in order to strengthen their capital. Most of the country’s banks reopened the following Monday. There were some panicky moments when reports filtered into the White House that long lines were forming outside most banks, followed by whooshes of relief when it turned out that the lines of people were coming to redeposit their funds.

Still, among the day’s policy aficionados Roosevelt was viewed as a politically gifted lightweight. During the campaign, Walter Lippmann wrote that Roosevelt “is a pleasant man who, without any important qualifications for the office, would very much like to be President.” That impression was fostered in part by his congenital agreeableness—he smiled encouragingly through encounters with friend and foe alike—but also because of his skittering, intuitive way of thinking. Henry Stimson, a later secretary of war, once said that following the President’s train of thought was “very much like chasing a vagrant beam of sunshine around an empty room.” That is not a bad description of one of Roosevelt’s most portentous early policy decisions—to take the country off the gold standard.³