Gold Standard vs. Inflation

April 30, 1951

Congressman Howard Buffett of Nebraska, one of the ablest members of the House Banking and Currency Committee, sent out a questionnaire on inflation and the gold standard to the nation’s bank presidents and bank chairmen. He sent out 16,748 letters in all, and got back 666 replies. These replies came from banks representing more than 20 percent of the nation’s bank deposits and showed a remarkable consensus.

There were four questions in all. No. 1 was: “Do you believe that price and wage fixing will effectively prevent inflation?” Only 7 percent of those answering the question said Yes; 93 percent said No.

Question No. 2 was: “Have you been able to find satisfactory evidence that Congress can resist spending pressures without the historical restraint of a currency redeemable in gold on demand?” Only 7 percent said Yes; 93 percent said No.

Question No. 3 was: “Do you believe expansion of the money supply can be effectively restrained when long-term government bonds are rigged at the 2½ percent level?” Only 9 percent said Yes; 91 percent said No.

Question No. 4 was: “Would you support the Reed bill, HR 324, to promptly reestablish redemption in gold of our currency at $35 an ounce? I was the introducer of this bill in the 80th Congress. (Copy attached.)” Seventy-three percent of those replying said Yes; 9 percent said in effect Yes but not now; 7 percent were undecided, and 10 percent said No.

Individual replies to the Buffett questionnaire were interesting for their comment. But the most interesting and encouraging, to my mind, came from outside the banking field—from Allan B. Kline, president of the American Farm Bureau Federation. He wrote in part:

“Nothing but disaster can result if we allow the delusion that price and wage ceilings can stop inflation to prevent the adoption of policies which actually will control inflation by bringing about (1) strict economy in government expenditures, (2) a pay-as-we-go tax program, (3) effective credit controls, and (4) a sound management of the public debt. . . .

“Fixing prices and wages would unquestionably reduce production. . . .

“In the present situation . . . we must cut nondefense program expenditures throughout the Federal budget. As an indication of our willingness to do this in agriculture, we are recommending that the authorization for a 1952 agricultural conservation program be reduced from the budget recommendation of $285 million to $150 million. . . .

“We aggressively oppose the extension of price and wage controls beyond the present expiration date of June 30, 1951, since these controls are diverting attention from the things which must be done if we are to have an effective program for the control of inflation.”

My own answers to the Buffett questionnaire would include a clear-cut No to questions No. 1 and No. 3. To question No. 2 I would reply that a currency redeemable in gold on demand is a necessary restraint on Congressional spending pressures but not in itself a sufficient one. To question No. 4, I would agree in principle with the purpose of the Reed bill, which is to return to a gold standard, but I would have reservations about the “promptly” and about the rate of $35 an ounce. The gold standard cannot be considered in isolation. We can restore and maintain it only as an integral part of an entire system of economic freedom, unhampered markets, solvency, prudence, and good faith. Finally, the conversion level at which we return to a full gold standard must take account of the tremendous American and foreign inflation and the rise in world prices since 1934.

But what is centrally important is to recognize that a return to reasonable monetary stability, an end to inflation, a resumption of freedom of world trade, an escape from bureaucratic arbitrariness and caprice, will be possible in the long run only with a return to a full gold standard. And it is heartening to find that there are still men in Congress with the vision to see this and the courage to fight for it.