Inflation of the Currency

March 15, 1933

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:

ISSUE TRACKER for Related Reports
U.S. Dollar and Inflation
Jul. 19, 2019  The Future of Cash
Oct. 2008  The Troubled Dollar
Feb. 13, 1998  Deflation Fears
Mar. 13, 1987  Dollar Diplomacy
Oct. 14, 1983  Strong Dollar's Return
Jul. 11, 1980  Coping with Inflation
May 16, 1980  Measuring Inflation
Dec. 07, 1979  Federal Reserve's Inflation Fight
Jun. 09, 1978  Dollar Problems Abroad
Sep. 20, 1974  Inflation and Job Security
Feb. 26, 1969  Money Supply in Inflation
Feb. 14, 1968  Gold Policies and Production
Dec. 15, 1965  Anti-Inflation Policies in America and Britain
Mar. 15, 1965  World Monetary Reform
Dec. 02, 1964  Silver and the Coin Shortage
Oct. 17, 1962  Gold Stock and the Balance of Payments
Dec. 15, 1960  Gold and the Dollar
Oct. 10, 1956  Old-Age Annuities in Time of Inflation
Jan. 17, 1951  Credit Control in Inflation
Aug. 10, 1949  Dollar Shortage
Oct. 04, 1943  Stabilization of Exchanges
Jan. 21, 1941  Safeguards Against Monetary Inflation
Mar. 25, 1940  United States Gold in International Relations
Dec. 14, 1937  Four Years of the Silver Program
Oct. 04, 1934  Inflation in Europe and the United States
Jan. 30, 1934  Dollar Depreciation and Devaluation
Sep. 05, 1933  Stabilization of the Dollar
May 29, 1933  Invalidation of the Gold Clause
Mar. 15, 1933  Inflation of the Currency
Oct. 25, 1924  Bank Rate and Credit Control Federal Reserve Policies and the Defaltion Issue
Economic Crises