by von
I AM NOT posting on the blogkerfuffle involving Pejman, Calpundit, Pejman (again), and the price of gold in 1933. Well, not directly. OK, fine, I take that back: I am going to post on it. I side with Pejman, but concede that El Pundit has a point with "Dude: That was 74 years ago." Maybe it's time to let go.
But that's not really the point of my post. Help me out with the following from Kevin Drum's entry:
What's more, there was even a reason for it ["it" being controlling the price of gold by the "lucky number" method]. Roosevelt scholars should feel free to jump in and correct me if I get this wrong, but my recollection is that FDR wanted to raise the price of gold as a way of inducing inflation — a policy that, correct or not in hindsight, was certainly defensible given the farm crisis he was dealing with at the time — but that he wanted the price to rise gradually and erratically so that speculators couldn't take advantage of predictable movements.
.... Hence, FDR's habit of determining the price of gold by whim.
I find FDR's policy puzzling, but I find Drum's explanation for it even moreso. Granted, there's an important "IIRC" caveat in all this, but does it make sense that one discourages speculation by increasing the price of gold "erratically" so that speculators "couldn't take advantage of predictable movements"? The sine qua non of speculation is unpredictability. If you know that the price of gold is $100 today, 101 tomorrow and 102 the day after that, what's to speculate about? You know what the price of gold is going to be tomorrow and the day after that. On the other hand, if the price of gold jumps from 100 today to 101 tomorrow and 106 the day after that, there would be an incentive to speculate, no? Because if you guessed the amount of the movement right -- and others guessed wrong -- you could make a killing. You could buy 101 gold the night before, and reap an unexpected windfall when it actually lept to 106.
I'm not suggesting that there wasn't a good reason to randomly increase the price of gold. "Discouraging speculation," however, doesn't seem to be it.
Help me out here.
I think you are thinking about this too much.
People "speculate" based on information that leads them to assume that their 'speculations" will work out in their favor. (as opposed to pure guesswork). If the price of gold went up predictably people would speculate like crazy because they would be confident of a good return. Even if the odds of a good return are very, very good, the word "speculate" is still used to describe the process.
Posted by: wonkiewonkie | July 11, 2007 at 02:27 PM
How are you going to buy 101 gold at 102 if the price of gold is fixed by presidential whimsy?
Posted by: Ugh | July 11, 2007 at 02:30 PM
I'm with wonkiewonkie (is that the same person as wonkie?): I thought, when I read Kevin's post, that the point was to discourage people from buying and selling based on the idea that they could predict, at least roughly, what gold was going to do, by raising its price in an unpredictable manner. So raising it in a way that made no sense except f you thought: I want to raise the price of gold in a way that makes no sense, to defeat people who might try to figure out why it's rising, makes sense.
Posted by: hilzoy | July 11, 2007 at 02:33 PM
i'm going to agree with von. you don't "speculate" on something that monotonically increases; you buy as much as you can as fast as you can, and then sit on it till you've made all the money there is to make.
but if the price jumps around up and down, randomly (or at least as one person's imagination can be), speculation is possible, but very difficult.
but Drum never said anything about the price decreasing due to FDR's whim. and i don't know enough about the history here to know if it did or not.
Posted by: cleek | July 11, 2007 at 02:34 PM
Ugh makes a good point, because, presumably, you couldn't buy 101 gold at 102 at 5 p.m. on Friday. Revised accordingly.
Posted by: von | July 11, 2007 at 02:42 PM
I think "speculators" is being used generically to mean "traders" in this instance. I agree with you that it's a little imprecise.
Posted by: Steve | July 11, 2007 at 02:48 PM
Actually, FDR's choice of $35/oz for the official "fixed" price of gold wasn't, IIRC, just pulled out a hat. The historical price of gold had, for (I think) about the prior 150 years been around $20/oz or so - check out the relative sizes and weight of the popular gold coins - and when Roosevelt ended convertibility in 1933, the idea was to fix the new price at a high enough level (c. 60-70% over "market") to mitigate the effects of the changes.
PS: Exactly what those changes were strain my recall of pre-Keynesian economics beyond beyond: other than missing the cool gold coinage we used to produce. I know that the $35/oz "fix" eventually proved unworkable due to inflation and market factors: but I will have leave that to others to clarify.
Posted by: Jay C | July 11, 2007 at 02:51 PM
The linked Bizarro World diary is priceless, if only for the comment suggesting that FDR intentionally prolonged the Great Depression in order to create more Democratic voters. That's about as rational an accusation as saying that Bush planned 9/11.
Posted by: Steve | July 11, 2007 at 02:59 PM
Actually, I think FDR *did* lower the price of gold occasionally. And keep in mind that the "lucky number" thing was just a joke on one occasion. Basically, FDR just wanted a random process.
Also, keep in mind that it was a short term policy. He did this for few months until the price of gold reached $35/ounce and then fixed it there.
Lots of people didn't like this capricious policy, but nonetheless, it wasn't idiotic and it wasn't based on astrology or anything like that. It was actually perfectly sensible, regardless of whether we agree or disagree with it in hindsight.
Posted by: Kevin Drum | July 11, 2007 at 03:22 PM
OT- so there's a guy selling Afghan (or Persian or something) rugs on G Street NW right now between 17th and 18th street NW in DC (i.e., ~1 1/2 blocks from the white house). One of the rugs has the twin towers with planes headed toward them and mentions of the Taliban and something about America on it.
Thoughts on possible courses of action? Alert the Secret Service? Nothing? Purchase the rug?
Posted by: Ugh | July 11, 2007 at 03:30 PM
I don't think I believe this story to begin with. It comes, AFAIK, from Amity Shlaes' dubious book on FDR. Are there other sources? I can't find any with a quick look. My understanding has been that the move from $20.67 to $35.00 per ounce was accomplished at one fell swoop, at the same time (1933) the gold clause was invalidated by Congress.
However, to answer the question, I think "speculation" is probably a poor choice of words here.
As I understand the story the price was fixed each day, not set by market forces. So a known steady increase in prices enables profit-making not by speculation but just by buying at today's fixed price and selling at tomorrow's.
Who would sell it to you? Well, the government, because that's the way it fixes a price. Thus the randomness prevents you from taking advantage of the government's willingness to sell at one price and buy at a guaranteed higher price the next day. That would be more properly called arbitrage.
Of course the problem with this idea is that if you know the ultimate goal ($35) is higher than today's price you can hold and wait, albeit with some costs attached. That's why this is implausible to me until I get some more confirmation.
von is correct that the essence of speculation is risk. In a pure economic sense the speculator is just like an insurer, assuming risk in exchange for an expected profit.
Posted by: Bernard Yomtov | July 11, 2007 at 03:40 PM
Purchase the rug?
purchase and give it to this guy.
Posted by: cleek | July 11, 2007 at 03:49 PM
More research confirms that the price was in fact raised gradually and erratically from $20.67 to a target of $35. It's still not clear (to me) whether there were any decreases. It also seems that the government only bought gold, and did not sell it, so the arbitrage I described wouldn't work.
Color me confused.
Posted by: Bernard Yomtov | July 11, 2007 at 04:15 PM
my reasoning is that Pejman Yousefzadeh is a fool, who thinks he's extraordinarily smart, while Kevin Drum strikes as an eminently reasonable, if occasionaly somewhat boring guy - so if I had to bet the house on this, I'd go with Mr. Drum
Posted by: novakant | July 11, 2007 at 04:48 PM
And keep in mind that the "lucky number" thing was just a joke on one occasion.
In Bizarro World, of course, this becomes FDR "using the quack science of numerology" to set the price of gold.
Posted by: Steve | July 11, 2007 at 04:52 PM
Ugh, maybe he's hoping to quickly sell it to some ironic hipster before he gets beaten up? Did you get a photo?
Posted by: KCinDC | July 11, 2007 at 05:02 PM
No photo, though I thought about going back down there with my phone and taking one. Maybe tomorrow if he's still there and that rug is on top of the pile. The guy seemed oblivious today though.
I'm sure someone with more interest than me in either (a) informing one of the many dozen uniformed secret service agents in the area about him* or (b) giving him a piece of their mind, will walk by eventually.
*or maybe someone has and the response was been "ain't no law against selling rugs with offensive images."
Posted by: Ugh | July 11, 2007 at 05:13 PM
Did it include US and Afghan flags connected by a dove?
Posted by: KCinDC | July 11, 2007 at 05:27 PM
Presumably that would be the reaction from DC police, especially since attempted burglary is not a crime and (in the comments) throwing a bottle at a car is A-OK as long as it does no damage. The Secret Service might be a different matter.
Posted by: KCinDC | July 11, 2007 at 05:32 PM
Hmmm...it might have, but not that I recall (I didn't stop to take a really good look at). That would certainly explain why it was out there for all to see and he wasn't too concerned about it. Though I thought it said something about the Taliban.
Posted by: Ugh | July 11, 2007 at 05:34 PM
I have an idea: let's rig the price of stocks, too, to prevent this awful stock speculation we see from time to time. Goodbye, dot-com bubble!
Ditto houses.
Posted by: Slartibartfast | July 11, 2007 at 06:44 PM
Slart,
just because the mule needs a 2x4 to the head once or twice, doesn't mean it needs it all the time.
Posted by: liberal japonicus | July 11, 2007 at 06:47 PM
Was FDR rigging prices? I thought it was just "here is the price at which the gov't will buy and sell gold", no?
I'll admit total ignorance on the subject other than what I've read here today.
On the rug topic, I've decided that the guy must have been selling one of the rugs KCinDC links to above.
Posted by: Ugh | July 11, 2007 at 07:59 PM
Was FDR rigging prices?
No. I still don't have a full grasp of what this was all about, but basically the price was moving from $20.67/oz to $35.00/oz as a result of government purchases. No sales.
But I think this was a consequence of congressional action, not just a decision by FDR. Still looking for more info. The Internet is useless because any sort of Google related to FDR or gold prices turns up a million cranks. Have to rely on (shudder) books.
Posted by: Bernard Yomtov | July 11, 2007 at 08:52 PM
Oh, ick. Books. If God had wanted us to read books, he wouldn't have given us the intertubes.
Posted by: Slartibartfast | July 11, 2007 at 08:56 PM
Ugh: as noted above, my ignorance of gold-standard economics is probably nearly as vast as yours; but I think that gold, and the market therefor, was considered a special species of "commodity": due to its unique status as THE international backup reserve for most countries' money. A status which, IIRC, lasted (for the US, anyway) until President Nixon finally ditched the last vestige of metallism in 1971. "Price-rigging" for gold was considered, in the Olden Days considered part of monetary policy, not a market affair.
Posted by: Jay C | July 11, 2007 at 08:57 PM
just a general question...
does FDR count as a new (non-racist, non-Jim Crow) Democrat, or is he an old-school Dem who modern Dems like because he won the war ?
Posted by: cleek | July 11, 2007 at 09:04 PM
cleek: I think FDR would be classified as "old-school non-racist, non-Jim-Crow Democrat" - yes, there were some.
Posted by: Jay C | July 11, 2007 at 09:13 PM
Jay, thanks.
i know, i really should read some more history.
Posted by: cleek | July 11, 2007 at 09:22 PM
He gets a pass for the Japanese internment? Just askin.
Posted by: Ugh | July 11, 2007 at 09:25 PM
cleek, that's a very wierd question.
I don't think anyone "likes" FDR as a non-racist, non-Jim Crow Democrat. I'm not at all sure he was either of those things, though Eleanor was. FDR gets his reverence for his economic policies - for recognizing they were needed, for being a "traitor to his class." And also for his steely optimism, his fireside chats and exhortation that we had "nothing to fear but fear itself."
His wartime policies are a very mixed bag. On the one hand, there's the internment. On the other, there's the Lend Lease program, which enabled Britain to keep fighting in Europe. On the one hand, there's the Ship of the Damned, and the refusal to bomb the concentration camps (because the Nazis would then have known the Allies had busted the Enigma code, and the Allies wanted the Nazis to keep using it). On the other, he put the Grand Alliance together that defeated the Axis, and created the Manhattan Project that created the nuclear bombs that ended the war with Japan.
Posted by: CaseyL | July 11, 2007 at 09:28 PM
Jay is right -- gold was considered an instrument of monetary policy, and was controlled before and after FDR. All FDR did was change the price, not introduce a pegged price to begin with.
Posted by: hilzoy | July 11, 2007 at 09:41 PM
cleek, that's a very wierd question.
hmmm. here's i got to thinking about it:
quite often, in these endless circles of blog discussions, someone will say "hey, you Dems were the guys who fought against civil rights! Lincoln freed the salves, a Republican! etc." and the reply is always something about how the parties kindof switched sides on that issue in the 60's with the Civil Rights Act. but FDR, obviously, was around long before that. so, if someone was to then say "OK, if that really happened in the 60's [usual nonsense about 'the plantation', etc], that means FDR was one of those old-school Dems! aha!"
not trying to be cryptic of profound (as if). just wond'rin' aloud.
Posted by: cleek | July 11, 2007 at 09:47 PM
s/cryptic of profound /cryptic or profound /
Posted by: cleek | July 11, 2007 at 09:47 PM
cleek, I don't know a lot about the period, but Stephen Skowronek, in The Politics Presidents Make, writes of "Roosevelt's campaign to purge his conservative opponents from the Democratic party in the 1938 primaries". That he made such an attempt suggests something; that after failing he abandoned any further attempt, suggests something else.
Posted by: Jim Parish | July 11, 2007 at 09:56 PM
In any case, the shift in the Democratic party on civil rights began no later than 1948, with Harry Truman's civil rights program and the Dixiecrat walkout.
Posted by: Jim Parish | July 11, 2007 at 10:02 PM
I thought the price had already been pegged. Weren't we on the gold standard prior to FDR? Didn't FDR ban private ownership of gold?
Posted by: Slartibartfast | July 11, 2007 at 10:02 PM
Yes, but the poor poultices; they were out of luck.
Posted by: Slartibartfast | July 11, 2007 at 10:04 PM
mmm. salves. they're the balm.
Posted by: cleek | July 11, 2007 at 10:10 PM
OT: John McCains Florida co-chair is a prostitute?
Posted by: hilzoy | July 11, 2007 at 10:25 PM
I thought the price had already been pegged. Weren't we on the gold standard prior to FDR? Didn't FDR ban private ownership of gold?
1. Yes. Roosevelt changed the peg from $20.67 to $35.00.
2. Yes. Roosevelt took us off the gold standard.
3. Yes.
Posted by: Bernard Yomtov | July 11, 2007 at 10:31 PM
von wrote: "You could buy 101 gold the night before, and reap an unexpected windfall when it actually lept to 106."
Yeah, but that at least would keep things liquid. There's less incentive to buy and hold, and hold, and hold, and hold as the price inexorably inches up, meanwhile the amount of gold on the market drops because everybody's buying and holding as the price goes up up up.
The 'speculation' here is more the longer-term kind practiced by people who stockpile large quantities over an extended period, not quick gambling-style speculation.
The point isn't to prevent anyone from making a lot of money, but to keep the gold supply from disappearing into private accounts of speculators waiting for a big payday down the road.
Posted by: Jon H | July 11, 2007 at 11:31 PM
the refusal to bomb the concentration camps (because the Nazis would then have known the Allies had busted the Enigma code, and the Allies wanted the Nazis to keep using it)
This is nonsense. Sorry. The Allies didn't learn about the camps from Ultra. Some of them were common knowledge - Dachau, for example, predated the war. The rest were reported by refugees and Polish resistance.
In any case, Ultra wouldn't have revealed very much about the camps. It all depended, remember, on radio intercepts. So it was great for finding out about things that have to use radio: ships and U-boats at sea, obviously, and also army corps and division headquarters that have to move around a lot. But things like office buildings and SS barracks and concentration camps are fixed, and so they use landlines, which you can't listen into.
The Allied refusal to bomb the camps - or rather the railway lines leading to them - was because they didn't know the full truth, and also because they believed the best thing to do for the camp inmates was to win the war quickly. Also, a) they were already bombing chokepoints like railway marshalling yards, etc, and b) a railway line is very difficult to hit with unguided high-altitude bombs, and comparatively easy to repair if hit.
There's a similar myth about Churchill permitting the bombing of Coventry because defending Coventry would have blown Ultra. Also nonsense.
I actually have a similar rug to the one described by Ugh. A relative obtained it close to the Afghan/Pakistani border.
Posted by: ajay | July 12, 2007 at 06:29 AM
There is also the claim that all the trains used for the KZ transports were not available for the war effort and that that was seen as favorable.
Land lines were tapped too. The first true electronic computer (COLOSSUS) was built to break the code of the Lorenz teletype cypher.
Posted by: Hartmut | July 12, 2007 at 09:10 AM
does FDR count as a new (non-racist, non-Jim Crow) Democrat, or is he an old-school Dem who modern Dems like because he won the war ?
Neither--he's a transitional figure. His adminstration took some baby steps in support of civil rights, but Democratic Party's embrace of the modern civil rights movement didn't really start until '48 or so. Roosevelt's key contribution to the civil rights movement was probably the struggle with the Nazis, which did a lot to discredit racism as a respectable position.
Posted by: rea | July 12, 2007 at 09:59 AM
"Roosevelt's key contribution to the civil rights movement was probably the struggle with the Nazis, which did a lot to discredit racism as a respectable position."
I'm pretty sure this is a more the 1970s+ Hollywood lookback at WWII than it has much to do with actual WWII practice. We didn't fight Hitler because he was racist. If anything, you can easily find racist propaganda suggesting that one of the bad things about Hitler is that he was allied with the Japanese.
Posted by: Sebastian Holsclaw | July 13, 2007 at 12:09 PM
Wikipedia says we were on the gold standard well into the 1970s, so: either Wikipedia is wrong (which is not unthinkable), or Roosevelt continued to wield extraordinary economic power after his death.
Posted by: Slartibartfast | July 13, 2007 at 12:21 PM
Slarti, before Rooseveldt anybody could take a dollar bill to the Treasury and ask for his gold, and get a golden coin in return. The gold coin didn't have a dollar's worth of gold in it, but it had some gold.
Even after Rooseveldt, up until -- Johnson? Nixon? -- anybody could take a dollar bill that was labeled a "silver certificate" to the Treasury and get a silver dollar for it. You didn't have to go to the Treasury, any bank would trade paper Silver Certificates for silver dollars.
Until the 1970's the USA would still trade dollars for gold for *foreigners*, and specifically for *foreign governments*. If we had a trade imbalance, we'd pay the difference in gold. If we had a trade surplus we were willing to be paid in gold. But Rooseveldt made it illegal for americans to hoard gold or gold coins. At least that's what my grandmother told me, and she was there.
In the '70's our trade imbalance got out of hand and we were about to lose all our gold, and they decided not to pay our international obligations in gold any more. Also, inflation made the silver coins worth more as silver than as coins, so they withdrew silver coins and replaced them with base-metal coins. Copper pennies were worth more as copper than as pennies so they made pennies that were mostly zinc.
It was vietnam that did it. Johnson tried to run a "War on Poverty" and vietnam at the same time, and he couldn't do both. Nixon gave up the war on poverty and settled for just vietnam, and it was still too expensive. Rather more bombs than WWII, and the fuel for the planes, and a whole lot of men who could have been working, drafted instead. Also the 1973 war for israel cost us a lot of military supplies that had to be replaced, plus $20 billion or so to pay israel to return the sinai, plus the oil shocks from that war. But for the USA it was mostly vietnam. Before vietnam we had liberals who thought we had a rich country that could do great things if we chose to spend some of our wealth for good. After vietnam those people were mostly gone. We still had a rich country but it wasn't getting richer nearly as fast and if you wanted the government so spend more money it had to take that money away from somebody.
Posted by: J Thomas | July 14, 2007 at 04:21 AM
The Allied refusal to bomb the camps - or rather the railway lines leading to them - was because they didn't know the full truth...
That is -- and understand that everything here is IIRC -- true only in the sense that they didn't understand the enormity of the Holocaust, not that they were unaware of the death camps. There were both photographs and eyewitness reports c. 1942, after Auschwitz had begun operation, that made their way to Allied Command. I remember seeing copies of both the documents and photos (of the trains that were running into Auschwitz) that were presented to Churchill at the Musee de la Paix in Caen. In some sense, it wasn't that they didn't know, it was that they chose not to understand.
Posted by: Anarch | July 14, 2007 at 07:43 AM
Italics be gone!
Posted by: Anarch | July 14, 2007 at 07:44 AM
J Thomas, I think I made myself clear upthread that I knew Roosevelt had banned private ownership of gold. That didn't have anything at all to do with the dollar being or not being pegged to gold, as far as I can see.
If you see it differently, please 'splain.
Posted by: Slartibartfast | July 15, 2007 at 08:58 PM