The Relics of Intervention; C. Carson

THE RELICS OF INTERVENTION: 3. The New Deal Bent to Inflation Clarence B. Carson The New Deal GOVERNMENT INTERVENTION came into its own with the New Deal. Not that the New Dealers invented the notion or developed for the first time the practice of government inter vention in the economy. Both the idea and practice have been around for a very long time. Even collectivist ideas of intervention so as to control the economy for social ends had come into increasing prominence over a period of a half century before the New Deal. But the New Deal fos tered intervention in such variety and on so large a scale, and much of it so swiftly, that it seemed new and different. In a sense it was. There tofore, except during World War I, Dr. Carson has written and taught extensively, spe cializing in American intellectual history. He is the author of several books and a frequent contributor to The Freeman and other scholarly journals.

intervention hau been piecemeal, scattered, and occasional. With the New Deal, it became central, and much that was qone became a per manent part of our economic land scape. The most prominent of the New Deal programs w¢re supposed to deal with economic pr<i>blemsarising from the Great Depression. Most of them were put forward as remedies for depression-related conditions, many of them in an i emergency atmo sphere. In consequence, the notion took hold that tlhe programs were shaped pragmatically and eclecti cally for the OCCalsion. Actually, the depression main~y provided the oc casion in which the programs could be enacted. Most of them were not concei ved originally as depression remedies, and they certainly did not 367 368 THE FREEMAN June remedy the depression. The New Deal was not born of the depression; it was made possible by the depres sion. The three main sources of the New Deal were: Theodore Roosevelt's New Nationalism, the war mobilization activities during World War I, and the socialist idea of a planned econ omy which was in the ascendant in the 1920s.

New Deal in the Guise of Liberalism The influence of Progressivism on the New Deal came mostly from the earlier Roosevelt's New National ism. New Deal Democrats did not, of course, call themselves Progres sives. Although there had been Democrats who identified them selves as progressives, usually with a lower case' "p," the Progressive movement was primarily a dissident move among those who had been, or still were, Republicans. In any case, New Deal Democrats had co-opted the term "liberal" to describe their ideological bent. "Liberalism" came into currency in the nineteenth cen tury as a term to describe those who favored individual liberty , free trade, national independence, expansion of the suffrage, and so on. New Dealers appropriated the term, along with much else, to describe a pro-govern ment interventionist position that had only a residue here and there of traditional liberalism.

This did not deter the New Deal ers, however, from borrowing liber ally from the earlier Roosevelt's na tionalism. So far as Franklin D. Roosevelt himself was concerned, family ties may have accounted for some of the influence. One historian says that as a young man he "looked up to Uncle Ted, and the relation ship brought Franklin Roosevelt a continuous suggestion that politics was a permissible career for a patri cian' that a patrician's politics should be reform, and that reform meant broad federal powers wielded by ex ecutive leadership in the pattern of the New Nationalism."I However that may be, there are many indi cations of the New Nationalism in the New Deal. Richard Hofstadter noted that "There are many occasions in its history when the New Deal, espe cially in its demand for organiza tion, administration, and manage ment from a central focus, seems to stand squarely in the tradition of the New Nationalism .... "2 There was the nationalistic fervor emanating from the pronouncements during the first couple of years. The word itself cropped up in such legislation as the National Recovery Act and the Na tiona I Labor Relations Act. There were the numerous commissions and boards established, such as the Fed eral Power Commission, the Securi ties and Exchange Commission, and the National Labor Relations Board.

1982 THE RELICS OF INTERVENTION: THE NEW DEAL BENT TO INFLATION 369 Theodore Roosevelt had been an en thusiast of the commission idea. Above all, the New Deal had philosophical links to the New Na tionalism. Theodore Roosevelt had proclaimed the necessity for regu lating and controlling industry and labor so that their actions would be brought in line with the national in terest. The New Deal was animated by what was basically the same idea. When New Deal insiders, such as Rexford G. Tugwell, talked of repu diating progressivism what they had in mind was Wilson's New Freedom, with its opposition to trusts and cor porations. For example, Tugwell ex pressed the fear in 1932 that if "the Brandeis progressives," i.e., the fol lowers of Wilson, should gain the as cendant the Democratic platform would be filled with "platitudinous and general remarks about free en terprise."3 Of course, "the Brandeis progressives" did have· considerable influence on the New Deal, espe cially by way of Felix Frankfurter,4 but it was rarely in support of free enterprise, and it could hardly rank with that of the New Nationalism.

The Wilson Influence From a different angle, though, the Wilsonian influence may have been greater than that of the New Na tionalism. That is, if the mobiliza tion of the economy during World War I be attributed to Woodrow Wilson, his influence was large indeed on the New Deal. Twentieth century liberals have been espe cially enamoreq of the war motif or war metaphor for their various in terventionist and distributionist un dertakings. Th~ most famous case was that of President Johnson's "War on Poverty," bllt even when they have not stated the matter so bluntly, it seems to haveibeen lurking around as a kind of ar~hetype for political activity. What impressed them, no doubt, was the:collective character of war, the use df government power to coordinate anJd mobilize the econ omy, and the .apparent productive successes of the efforts. Government mobilization during World War I was the primary source of this idea for the New Deal g~neration.

The Wilson Administration did not rush headlong into an all out mobi lization once war had been declared. However, before the war was over much of economic activity had been brought under the control and direc tion of the government. The broad est of the organizations which un dertook this was the War Industries Board under the direction of Ber nard Baruch. It$ authority was ex ceedingly largeqver manufacturing. As one history points out: The elastic powers conferred on Bar uch as chairman of the War Industries Board made him ,a dictator over large areas of the war economy. His authority to establish priodties on all materials except agricultural commodities gave him 370 THE FREEMAN June life-and-death power over business. If a manufacturer refused to convert from the production of horseshoes to trench shov els, Baruch couJd cut off his supplies of iron and shut down his assembly lines.

He could even commandeer the plant for the government and operate it. In coop eration with the price-fixing committee, he could exercise further leverage by set ting the prices of raw materials at whole sale. 5 In addition, there was a War La bor Board to settle industrial dis putes, a Food Commissioner, Her bert Hoover, with extensive control over food, feed, fertilizer, and fuel, a United States Shipping Board, a Railroads War Board, a War Trade Board, and so on. Moreover, the gov ernment took over and ran the rail roads for a time. Franklin D. Roosevelt was in the midst of this massive effort at con trolling the economy, for he was As sistant Secretary of the Navy during the war. General Hugh Johnson, first head of the National Recovery Ad ministration (N.R.A.) in the New Deal was even more closely involved in the effort: he served as Army Ii aison officer to the War Industries Board. The experience was certainly not wasted on him. "The War Indus tries Board had given him the con viction that it was possible for gov ernment to direct the national economy."6 His reaction immedi ately after the war was, "If coopera tion can do so much, maybe there is something wrong with the old competitive system:" He was in favor, then, of "self-government in indus try under government supervi sion."7 Indeed, people who had experi ence in the war mobilization were much in demand in the early days of the New Deal. As one account has it, "Only the veterans of the war mo bilization had much experience with the kind of massive undertaking Roosevelt had inaugurated. 'One cannot go into the Cosmos Club without meeting half a dozen per sons whom he knew during the war,' wrote one New Dealer."8 The War Image In his First Inaugural Address, Roosevelt evoked the war image re peatedly in his appeal to the Amer ican people. He declared that "we must move as a trained and loyal army willing to sacrifice for the good of a common discipline , because without such discipline no progress is made, no leadership can become effective." He threatened that if Congress did not act on the mea sures he would recommend, "I shall ask the Congress for the one re maining instrument to meet the cri sis-broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact in vaded by a foreign foe."9 No commander ever exhorted his troops with greater fervor than did 1982 THE RELICS OF INTERVENTION: THE NEW DEAL BENt TO INFLATION 371 "We must move as a trained and loyal army willing to sacrifice for the good of a common disci pline ... "

-Franklin D. Roosevelt, March, 1933 General Hugh Johnson the people to adopt his banner, the blue eagle em blazoned on the N.R.A. sticker, which bore the legend, "We Do Our Part." In an appeal to women he pro claimed that "this time, it is the women who must carry the whole fight of President Roosevelt's war against depression, perhaps the most dangerous war of all. It is women .. ~ who will . . . go over the top to as great a victory as the Argonne."lo While much more evidence could be cited as proof that New Dealers found in war, and especially in World War I, a major set of images and ideas for their programs, perhaps the case has been sufficiently made. Since the idea of a planned econ omy as a source of the New Deal will be discussed in detail elsewhere, it can be dealt with summarily here. It may suffice to point out that many American intellectuals in the 1920s were greatly attracted by the idea.

The planned economy was what most caught their eyes in what was going on in both the Soviet Union and Fascist Italy. It was that aspect of World War I mobilization, too, that was most appealing to them. As an historian of theN ew Deal has said, "The New Dealers shared John Dewey's conviction that organized social intelligence could shape soci ety," and economic planning was at the forefront of their thinking at the time they came to power. 11 What did thel New Nationalism, World War I ~obilization, and a planned economy have to do with remedying the depression ? Nothing much, so far as I can see. Indeed, if I may turn the point around and state a conclusion in [advance of the evi dence for it, the~ ideas when imple mented had much to do with pro longing the depression. But at this place in the discussion, what I want to emphasize is that much of the vast governmental control and regula tory mechanism! brought into being by the New De~l is a relic, not of depression remedies, but of enthu siasms for kind~ of government ac tivity born and bred in the decades before the depression.

That is not to say that a great deal of mental energy, argument, and or atory was not pUl into trying to make these notions aq.d programs appear relevant to the! depression. It cer tainly was. Moreover, as a result of the effort most of the programs did have a thrust in ~he direction that it was claimed would bring the coun try out of the depression. To be spe ~ific, the thrust qf the New Deal was to raise prices, and that was what 372 THE FREEMAN June the seers believed needed to be done. Thus, whether the New Deal was authorizing commissions, in the mode of the New Nationalism, set ting up agencies patterned after those used during World War I, or at tempting to plan the direction of the development of the economy, they were all pointed toward raising prices and increasing what was called "purchasing power." The HooverYears Roosevelt was not the first Presi dent who sought to end the depres sion by maintaining or raising prices.

Herbert Hoover, who preceded him, had followed a similar course, though less dramatically. Hoover met with business leaders when the depres sion got underway and urged them not to lower wages. He approved the Smoot-Hawley Tariff, which had as its object the raising of American prices by keeping foreign products out. He undertook an extensive pub lic works program, which was sup posed to provide jobs so that workers would be less likely to lower wages by competing for jobs. The Agricul tural Marketing Act, passed during Hoover's Administration, provided for making loans so that farmers could withhold crops from the mar ket to keep prices Up.12 Roosevelt was undeterred by the fail ure of the Hoover programs to achieve their object. So far as they considered them in that light at all, the New Dealers thought the Hoo ver effort was too timid and much too piecemeal. In any case, they were much more convinced of the healing powers of monetary inflation than Hoover had been. Before indicating the course that they pursued, how ever, some generalizations about what Roosevelt accomplished and some analysis of the causes of the Great Depression are in order.

It has often been alleged that Roo sevelt saved American capitalism from its worst debacle. 13 If he did, I suspect it was accidental, but the generalization is too broad, too sub ject to semantic debates about the meaning of "capitalism," to be of much use one way or the other. It is reasonably clear, however, that the New Deal rescued numerous banks, saved fractional reserve banking, preserved the Federal Reserve sys tem and credit expansion based in considerable part on monetizing debt, and fixed an inflationary bias on the American government and economy from which they still suffer. ProlongedCreditExpansion The basic cause of the Great Depression was a prolonged credit expansion accomplished by monetiz ing debt. The immediate cause was a credit contraction. This set off the stock market crash which was ac companied and followed by a liquid ity crisis that sent a prolonged se ries of shocks through the world of 1982 THE RELICS OF INTERVENTION: THE NEW DEAL BENT TO INFLATION 373 "We are seriously concerned with the problem of creating buying power, which in turn, will have the effect of opening fac tories and stimulating business generally."

-Harold Ickes, March, 1933 finance, reaching eventually to al most every credit organization in the United States. One way of describ ing what had happened was that a severe deflation, or series of defla tions, had occurred. Another way of looking at it is to say the credit, in vestment, and spending declined precipitately. From late 1929 through early 1933 a vast adjustment in prices was taking place to compen sate for the deflation. However, gov ernment action in general and the Federal Reserve in particular tried to prevent the economic adjustment from taking place. Indeed, this effort continued throughout the 1930s, prolonging the depression. The New Dealers held generally that the problem was a shortage of purchasing power, or, at the least, a shortage in the hands of those who would spend it. In a speech at Ogle thorpe University in 1932, Roose velt said that there was "an insuffi cient distribution of buying power .... "14 After attending a cabinet meeting on March 31, 1933, Harold Ickes, S¢cretary of the Inte rior, recorded this conclusion: "We are seriously concerned with the problem of creajting buying power, which in turn, will have the effect of opening factories and stimulating businesses generally. "15 In the most obvious sense, tHere was clearly some sort of shortage of purchasing power by those who had great difficulty in providing for th~ir most direct wants.

That is, there was food, clothing, shoes, and other goods available in stores. Huge crops were produced on farms, much of ,which could hardly be sold. Factories that had the ca pacity to produce a great variety of goods stood idle, or were operated only occasionally. Yet, many people had to resort to ~haritable aid to get the wherewithal! to live. Surely, they lacked the purchasing power to buy the goods. Indeed, it may well be that an en demic shortage ~f purchasing power had plagued the American economy throughout th~ 1920s. I think so. Moreover, the shortage of purchas ing power is c~osely connected to what I have asserted was the root cause of the depression, i.e., a pro longed credit ,expansion accom plished by mon~tizing debt. But be fore explaining! that, let me make clear that I do not mean by shortage of purchasing ~ower a shortage of money. That is an illusion, an illu sion to which New Dealers were 374 THE FREEMAN June given and to which the Keynesians succumbed.

Money Defined Money, per se, is not purchasing power. Money is a medium of ex change. It is, then, a medium through which purchasing power is exer cised. To confuse money with pur chasing power is akin to confusing postmen with those who have writ ten the letters delivered to one's mailbox. A person who believes that way might have what he considered to be a letter shortage. In which case, he might reckon that the way to get more mail would be to have more deliveries or more postmen. If this were done, however, it would not in crease the amount of the mail. The postman is, in this sense, a medium through which mail is sent, as money is a medium for purchasing power. What is purchasing power, then? It is goods (or services, if the distinc tion be made). Ultimately, all ex changes are of goods for goods, as J. B. Say pointed out a good while ago. In a money economy, of course, goods are ordinarily intermediately ex changed for money, and money is then exchanged for other goods. The fact that money can be exchanged for goods gives rise to the illusion that money is purchasing power. But it is not; it is only an instrument through which the purchasing power is conveyed. A shortage of purchas ing power, then, is a shortage of goods, either to consume or to ex change for other goods.

Actually, the phenomenon which I wish to describe has no commonly accepted name. Rather, it has a name in international trade, but not in do mestic trade. In international trade, it is a trade imbalance. For example, a country which imports more goods than it exports is said to have an unfavorable balance of trade. In general, such a condition could only exist over any extended period of time because of two. things. Either the difference would have to be made up in some acceptable currency, gold, for example, or credit would have to be extended from the exporting countries to cover the difference. The imbalance can be described as a shortage of purchasing power in the country with an unfavorable bal ance of trade. And, in international trade, the reason for the imbalance is ultimately discernible as a short age of saleable goods. Monetary Intervention In the domestic market, however, an imbalance of trade is neither eas ily recognizable as such nor measur able in such terms. Certainly, it is not recognizable as a shortage of goods with which to trade, nor, in the sense in which I would use the phrase, a shortage of purchasing power. It is not a normal market phenomenon at all. It occurs only as a result of a large scale intervention 1982 THE RELICS OF INTERVENTION: THE NEW DEAL BENT TO INFLATION 375 in the market. Specifically, it occurs as a result of a credit expansion fueled by a massive monetizing of debt. The imbalance comes about in this way. Transactions take place in which goods are advanced, on the one hand, but for which no goods either have been produced or exist, on the other. The transaction is made to appear complete by the promise of the buyer to pay in the future. In economic terms, the transaction will only be actually completed-a bal ance restored-when compensating goods are produced in the future.

"It was a vital necessity to re store purchasingpower.... " -Franklin D. Roosevelt, July, 1933 This sounds for· all the world like any transaction based on credit. So far as the individuals or organiza tions involved in the transaction may be aware of it there is no difference. There is a great difference, however, between monetized debt credit and credit based on saving. Savings are accumulations from past production; someone defers his own spending in order to enable another to spend, for a price, of course. Monetized debt credit, by contrast, is based on noth ing other than a promise. It is wholly futuristic. Monetized debt credit expansion introduces a whole set of temporary imbalances in the economy. There is a trade imbalanCj:ebecause the goods to be traded for Qther goods have not yet been produc~d. There is a price imbalance bec~use prices are no longer in proportion to the money supply. There is a shortfall of real purchasing power, although the easy credit may give I rise to the illusion that there is an ~xcess of purchasing power. In the wake of the credit ex pansion there will be an imbalance of production, for many producers will be induced t,o increase their pro duction, and even their facilities for production, for there are many will ing buyers with the money, it seems, to pay for their wares.

Painful Adjustments The imbalances resulting from any single monetarY expansion, how ever large, will· be only temporary. The market tert-ds always toward balance, and if people are free to op erate the market, balance will be re stored. Prices will rise to compen sate for the increase in the money supply. People .will generally pay their debts out of production, if they can, and the tra<lleimbalance will be restored. HoweVier,at this stage the shortage of pu~hasing which was there at the ou~set will become ob vious. Much of :production must go into retiring debts. Moreover, even when the debts are retired, there may need to be a further interval for sav ings to be made before many new 376 THE FREEMAN June purchases can be made. Many plants may lie idle, and there will be a depression. The adjustments that must be made to restore the balance are often difficult and unpleasant. Let me emphasize that the villain of this piece is the credit expansion.

The late Ludwig von Mises stated the case forthrightly and succinctly in these words: The wavelike movement affecting the economic system, the recurrence of peri ods of boom which are followed by peri ods of depression, is the unavoidable out come ... of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the cri sis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system in volved. 16 Although a currency catastrophe is undoubtedly the ultimate out come of a persistently prolonged credit expansion, that was not what appeared to loom ahead in the early 1930s. What immediately threat ened was the collapse of the institu tions that had been the instruments of the credit expansion, namely, the banks. There had been a whole se ries of credit expansions in the 1920s.

A means for monetizing the debt had been established before World War I with the Federal Reserve system. One economist has estimated that the money supply in the United States was increased from $45.3 billion in 1921 to $73.26 billion in June of 1929.17 Buying on credit became a way of life for many people in the 1920s. "By the latter part of the dec ade ... there were some six billions of 'easy payment' paper outstand ing."l8 Optimism rose to new heights in the last years of the decade. Peo ple were betting on the future as never before, as billions of the easy money were poured into the stock market. "We had a bad banking situa tion. . .. It was the Govern ment's job to straighten out the situation and do it as quickly as possible. And the job is being performed. . .. We have pro vided the machinery to restore our financial system." -Franklin D. Roosevelt March, 1933 The Federal Reserve banks began to try to cool the fervor in 1928, when they began to raise the rediscount rates. They tried to zero in on the stock market bull. On February 2, 1929, the Board declared: "The Fed -eral Reserve Act does not, in the opinion of the Federal Reserve Board, contemplate the use of the resources of the Federal Reserve Banks for the creation or extension of speculative credit."l9 Apparently, this and other credit tightening policies finally bore 1982 THE RELICS OF INTERVENTION: THE NEW DEAL BENT TO INFLATION 377 fruit. At any rate, the stock market crashed in October, and a drastic de flation ensued. Men were thrusting for liquidity, for the means to meet their debts and obligation. The pres sure on banks was great and tended not to decrease with the passage of time. In 1929, 659 banks failed; in 1930, 1,352; in 1931, 2,294, and in 1932, 1,456.20 Banking Holiday When a bank failed, most of the deposits tended to vanish into thin air, as it were, thus reducing the money supply further. But the most frightening aspect of this was yet to come. As Roosevelt's inauguration approached, the banking crisis wor sened. On February 14, 1933, the governor of Michigan declared an extended banking holiday. On Feb ruary 24, the governor of Maryland declared a three-day banking holi day. "On March 1, the governors of Kentucky and Tennessee pro claimed bank holidays; that night the governors of California, Louisiana, Alabama, and Oklahoma pursued the same course. By March 4, the day of Roosevelt's inauguration, thirty eight states had closed their banks, and banks operated on a restricted basis in the rest. Shortly before dawn, Governor Herbert Lehman of New York and Governor Henry Horner of Illinois suspended the banks in the two great states that dominated the financial life of the nation."21 Most President Roosevelt proclaimed a national banking holiday and called a specif:llsession of Con gress ... to d~al with the bank ing emergency.

stock exchange$ and futures mar kets were also closed. American fi nance might not be out, but it was certainly down. President Roosevelt proclaimed a national banking holiday and called a special session of Congress, in tending primari~y to deal with the banking emerg~ncy. (The regular, "lame duck," session had already met for the year and adjourned.) Whether Roosevelt would ,be an inflationist or not was somewhat confused from the outset. It may be that the confusion arose from his: fail ure to connect government fiscal policy with mon etary expansion:. Or, he may have deliberately cho$en to treat them as if they were quite separate. As a candidate, he had promised econ omy in government, the cutting of expenses, and a ijalanced budget. His Budget Director was certainly of that persuasion, and i from time to time economy moves were got underway. What is not in doubt is that over all the monetarists around him won out generally. From the moment he came to office, too, he began to clear the ground for i~creasing the money supply and to take the steps for credit 378 THE FREEMAN June expansion. There is no doubt, either, that, above all, he wanted to raise prices and that he accepted a course of action which identified money with purchasing power. As soon as Con gress assembled on March 9,1933 in special session, the House of Repre sentatives was presented with an emergency banking bill by the Ad ministration. The bill gave the color of law to actions already taken by the President, such as the bank clos ing and the halting of gold transac tions. More, it gave him extensive authority over gold, provided penal ties for hoarding, authorized the is suance of new Federal Reserve notes, and provided for the reopening of those banks adjudged to be suffi ciently liquid to do so.

On the same day that the bill was introduced, "With a unanimous shout, the House passed the bill, sight unseen, after only thirty-eight minutes of debate."22 By early evening, the Senate had passed the bill by a vote of 73-7, and the Pres ident had set his seal upon it well before bedtime. Not even declara tions of war have usually been acted on so swiftly, or in such an atmo sphere of dire emergency. Calling All Gold Roosevelt moved swiftly in the en suing days and weeks to remove vir tually all restraints on credit and monetary expansion. In April, he is sued an executive order that all gold was to be turned in to Federal Re serve banks by May 1. On April 20, he ordered an end to the export of gold (usually referred to as going off the gold standard). On June 5, by Joint Resolution Congress repu diated all private or government clauses in contracts requiring pay ment of gold. Congress declared that such clauses were "inconsistent with declared policy of the Congress to maintain at all times the equal power of every dollar· ... in the markets and in the payment of debts."23 Meanwhile, the government be gan its move to bail out, shore up, control, expand, and eventually cre ate new credit expanding institu tions. A Federal Securities Act was passed May 27, 1933, requiring full disclosure on securities offered to the public and the registration of most of them. The Securities and Ex change Commission was set up the next year to enforce these and re lated regulations. During the spe cial session in 1933, the Federal De posit Insurance Corporation was set up to insure bank deposits. The act was intended to reassure depositors, and it did much to rescue fractional reserve banking.

The Reconstruction Finance Cor poration, which had got under way during the Hoover Administration, was used much more vigorously un der Roosevelt. Jesse Jones, a Texas banker, used it to fuel credit expan sion through existing banks. "In1982 THE RELICS OF INTERVENTION: THE NEW DEAL BENT TO INFLATION 379 stead of lending money to banks, and thereby increasing their debt, as had been done in the Hoover regime, Jones sought to enlarge their capi tal. By buying bank preferred stock, he bolstered the capital structure of banks, created a base for credit ex pansion, and made it possible for the deposit insurance system to func tion."24 Inflationary Measures The government moved quickly, too, to stop the widespread mortgage foreclosures and to rescue the banks and credit institutions from the bur den of carrying them. A Home Own ers Loan Corporation was created to refinance home mortgages and make other types of homeowner loans. By the time it went out of business it had made loans on over a million mortgages. A Farm Credit Admin istration enabled farmers to refi nance farm mortgages. The Com modity Credit Corporation was a new agency to make loans on crops. Other new credit expanding institutions eventually set up were the Federal Housing Administration in 1934 and the Farm Security Administration in 1937. The main thrust of these var ious organizations was either to ex pand credit or to make it possible for banks to do so.

In 1935, the Federal Reserve sys tem was revamped. The authority of the Federal Reserve Board over Federal Reserve Banks was increased, giving it greater control over rediscount rates~ and expanded the kinds of instruments that could be rediscounted. The last remaining bar to flooding the country with Federal Reserve notes had already been so lowered that it was hardly a factor in the 1930s. The gold reserve re quirement for b~cking the notes had been made into' more of an invita tion to money creation than an im mediate restraint on it. In 1934, the' price of gold was pegged at $35 per ounce. This was far above its price when there was a market in the Uinited States as well as above the world market price. Thus, existing supplies could serve as reserves against much greater note issues, and supplies of gold were greatly increased as much of the gold in the world flowed into the United States. Since t4e gold reserve re quirement was only a fraction of the dollar amount of notes to be issued, the Federal Reserve Board could now inflate, if not at' will, at least boun tifully.