consequences of leaving the gold standard. BusinessWeek, in a positive
editorial on the suspension, asserted:
With one decisive gesture, [President Roosevelt] throws out of the win-
dow all the elaborate hocus-pocus of “defending the dollar.” He defies an
ancient superstition and takes his stand with the advocates of managed
money.... The job now is to manage our money effectively, wisely, with
self-restraint. It can be done.^6POSTDEVALUATION MONETARY POLICY
Ironically, while the right to redeem dollars for gold was denied U.S. cit-
izens, it was soon reinstated for foreign central banks at the devalued
rate of $35 per ounce. As part of the Bretton Woods agreement, which set
up the rules of international exchange rates after the close of World War
II, the U.S. government promised to exchange all dollars for gold held by
foreign central banks at the fixed rate of $35 per ounce as long as these
countries fixed their currency to the dollar.
In the postwar period, as inflation increased and the dollar bought
less and less, gold seemed more and more attractive to foreigners. U.S.
gold reserves began to dwindle, despite official claims that the United
States had no plans to change its gold exchange policy at the fixed price
of $35 per ounce. As late as 1965, President Johnson stated unequivocally
in the Economic Report of the President:
There can be no question of our capacity and determination to maintain
the gold value of the dollar at $35.00 per ounce. The full resources of the
Nation are pledged to that end.^7
But this was not so. As the gold reserves dwindled, Congress re-
moved the gold-backing requirement for U.S. currency in 1968. In next
year’s Economic Report of the President, President Johnson declared:
Myths about gold die slowly. But progress can be made—as we have
demonstrated. In 1968, the Congress ended the obsolete gold-backing re-
quirement for our currency.^8
Myths about gold? Obsolete gold-backing requirement? What a
turnabout! The government finally admitted that domestic monetary
policy would not be subject to the discipline of gold, and the guidingCHAPTER 11 Gold, Monetary Policy, and Inflation 193
(^6) “We Start,” BusinessWeek, April 26, 1933, p. 32.
(^7) Economic Report of the President, Washington, D.C.: Government Printing Office, 1965, p. 7.
(^8) Economic Report of the President, Washington, D.C.: Government Printing Office, 1969, p. 16.