Inflation of the Currency

Report Outline
Emergency Currency Provisions of New Banking Act
Historical Strength of Cheap-Money Sentiment
The Quantity Theory of Money
Inflationary Proposals in Congress
Gresham's Law: Cheap Money Drives Out Good
The World Monetary and Economic Conference

Emergency Currency Provisions of New Banking Act

President roosevelt found it necessary in his broadcast address of Sunday, March 12, to assure the country that the new currency to be issued under the emergency banking act “is not fiat currency”; that “it is sound currency because it is backed by actual, good assets.” The emergency banking act of March 9, 1933, authorized the issuance of the new currency, to be known as “Federal Reserve bank notes,” upon the security of direct obligations of the United States in an amount equal to their face value, and upon the security of notes, drafts, bills of exchange and bankers' acceptances, up to 90 per cent of their “estimated value.” No maximum limitation was placed upon the amount of such currency to be issued. The act provided for termination of the issue of the new currency on the security noted above when the President declared by proclamation that the emergency which called it forth had passed.

The Bureau of Engraving and Printing disclosed on March 14 that the first order for the new Federal Reserve bank notes amounted to 186,288,000 pieces, with an approximate face value of $2,000,000,000. James Harvey Rogers, professor of economics at Yale, said the new currency issues were in no sense dangerous or inflationary in character and Garfield V. Cox, professor of finance at the University of Chicago, said there was nothing “directly inflationary” in the emergency banking legislation.

Demand for Currency Inflation Before Banking Crisis

Former President Hoover and Former Secretary of the Treasury Mills had devoted their last public addresses while in office chiefly to opposing the various plans of currency inflation which were rapidly gaining headway in the Middle West. President Roosevelt, in his inaugural address had declared that “there must be provision for an adequate but sound currency.” This declaration, when read in connection with memorials submitted to the last Congress by the legislatures of Western and Southwestern states and the demands of farmers' organizations, was taken to mean that the new President favored some form of “controlled inflation.” The Nebraska resolution, adopted January 27, 1933, read in part as follows: