1939: A Program for Monetary Reform

From Bill Still’s blog, here is a program for reform that was proposed during the last depression. Funny, it is exactly what is needed during this one!

1939: A Program for Monetary Reform

In the summer of 2010 I heard rumors of a consensus document that had circulated among the top professors of economics of the Great Depression era that touted monetary reform as the only solution to the nation’s economic problems. The only problem was that no one ever seen it.

Finally someone sent it to me and it is truly extraordinary! Called “A Program for Monetary Reform,” it is dated July 1939. Its lead author was Paul H. Douglas, an esteemed professor of economics at the University of Chicago who later in his career became a U.S. Senator and was described by Dr. Martin Luther King, Jr. as “the greatest of all the Senators.”

Other professors of economics who were authors of the paper were:

Irving Fisher – Yale University
Frank D. Graham – Princeton University
Earl J. Hamilton – Duke University
Willford I. King – New York University
Charles R. Whittlesey – Princeton University

The document states that it had been approved of without reservations by 235 economists from 157 universities and colleges. Additionally, forty more economists had approved it with some reservations and 43 had expressed disapproval. I’m not sure how many professors of economics there were in the United States in 1939, but I’m willing to bet this was most of them.

It opens with a ominous warning to the world as it was then, and as we are rapidly heading towards today.

“The great task confronting us today is that of making our American system, which we call “democracy” work. No one can doubt that it is threatened. However, the danger lies less in the propaganda of autocratic Governments from abroad than in the existence, here in America, of ten millions of unemployed workers, sharecroppers living barely at subsistence level, and hundreds of thousands of idle machines. On such a soul fascist and communist propaganda can thrive. With full employment such propaganda would be futile.”

The document then lays out the basic problem with the current system – as it was in 1939 and still remains today.

“If the purpose of money and credit were to discourage the exchange of goods and services, to destroy periodically the wealth produced, to frustrate and trip those who work and save, our present monetary system would seem a most effective instrument to that end.

“Practically every period of economic hope and promise has been a mere inflationary boom, characterized by an expansion of the means of payment, and has been followed by a depression, characterized by a detrimental contraction of the means of payment [the money supply]. In boom times, the expansion of [money] accelerates the pace by raising prices, and rising prices conjuring up new money, the inflation proceeds in an upward spiral till a collapse occurs, after which the contraction of our supply of money and credit, with falling prices and losses in place of profits, produces a downward spiral generating bankruptcy, unemployment, and all of the other evils of depression.

“The monetary reforms here proposed are intended primarily to prevent these ups and downs in the volume of our means of payment with their harmful influences on business.”

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