Honor & Gold

The honor of the U. S. Government was dragged through the dust last week and its good name trampled on the London streets. Even at home President Roosevelt was flayed as a breaker of contracts who had sullied his nation's integrity before the world.

Cause of the uproar and indignation was comparatively trivial. On May 2 matured a $239,197,000 issue of 2% Treasury certificates, "payable in U. S. gold coin of the present standard of value'' But President Roosevelt had forbidden all payments in gold on all obligations, public or private. U. S. certificate-holders got paper dollars still nominally worth 100-c- while foreigners were asked to take paper dollars worth only 84-c- in their currency. The President's embargo likewise prevented gold exports to meet the June 15 Liberty Loan interest payments abroad, despite the "gold clause" in these bonds.

John & Sam. Pluming himself on superior financial morality, John Bull fairly screamed his abuse at Uncle Sam. "A calculated breach of contract!" shrilled the Financial Times which added: "The word default has an ugly sound but it is used deliberately with respect to the action taken by the U. S." Bumbled the Tory Morning Post: "It would be difficult to find a parallel for so unblushing and callous a breach of contract. ... It is almost unthinkable that Washington would repudiate the letter and spirit of the gold contracts in these bonds." Mocked the Financial News: "Iowa and the farmers at large are in the legislative saddle and Roosevelt can but paddle along holding on to the tail." British editors broadly hinted that if the U. S. could default on its gold bonds, Britain could, with equal impunity, default on its gold War debt. Internal & External. President Roosevelt was not sufficiently disturbed by these attacks on U. S. honor to make public retort. Most U. S. citizens were still thoroughly satisfied with their Government's financial virtue. The President's position was about as follows: All U. S. Government securities payable in gold are internal loans, not external obligations sold in a foreign country and payable in that country's gold currency. If gold were paid abroad, U. S. bondholders would smuggle their securities out to London or Paris and make collections there at a premium. Foreigners buying such securities do so on the same footing as U. S. citizens: there is no good reason to discriminate in their favor when domestic gold payments are suspended. Britain did continue to pay gold dollars on its War loan floated in the U. S. but only because it was an external obligation payable in a foreign currency. U. S. citizens who bought United Kingdom pound sterling bonds before September, 1931 have been getting depreciated currency payments along with His Majesty's subjects since Britain went off gold. In December 1931. Banker Thomas William Lament, appearing before a Senate committee, made this observation: "One has to draw a very sharp distinction between the external obligations of any government, payable in the currencies on the markets where those obligations are issued and their own internal obligations. On their internal obligations they have a right to tax the people until the issue is out of existence, almost." Heartless Contracts. Here & there in the U. S.. stern voices were raised to the effect that the Government ought to maintain international good faith by paying foreign holders of its bonds the equivalent of gold in paper dollars. But when May payments on billions & billions of dollars worth of public and private debt fell due at home last week, there was no real complaint against the nationwide default on the "gold clause" which followed, no serious suggestion that U. S. debtors pay their domestic creditors a paper dollar premium in lieu of gold. Bondholders took their coupons to their banks and got 100-c- on the dollar--in currency. Those who asked for gold were told they could not have it. The only foreign debtors who last week made a gesture of maintaining gold payments in New York were the French municipalities of Lyons, Bordeaux and Marseilles; on demand they gave $35 in U. S. currency for their $30 gold dollar bond coupons. Fifty-three Italian corporations which had borrowed $235.000,000 in U. S. gold dollars announced last week that they were suspending gold interest payments. Their use of paper dollars would save them $500,000 per year in interest. A year ago the "gold clause" in domestic obligations, originated after the Civil War as a protection against "greenbackery," seemed legally impregnable, the very heart of the contract. Almost overnight President Roosevelt had swept it into the discard--and economic life went on about the same. Lawyers talked of taking a test case to the Supreme Court but admitted that their chief obstacle lay in proving that a bondholder had been actually damaged by being paid in paper money instead of in gold coin. Hoarders. Up last week also was the time limit set by President Roosevelt for hoarders to return to the Government all their gold holdings above $100 under pain of $10,000 fine and ten years imprisonment. Since March 6 nearly a billion dollars in gold had flowed back to the Treasury but some $700,000,000 was still in hiding. Some of this had fled abroad; some of it had been lost: much of it was in the hands of well-to-do citizens from whom direst threats of prosecution could not blast it loose. Their position had able supporters. Senator Glass did not think the Government had the legal authority to force a citizen to give up his lawfully acquired property. Senator Borah had openly declared: "If I had $5,000 in gold I would defy the Government to come and get it." One person who took Senator Borah's advice last week was Colorado's Charles S. Thomas, 83, onetime (1899-1901) Governor, onetime (1913-21) Senator. To the U. S. District Attorney at Denver, this fiery old Democrat wrote: "I am the owner and possessor of $120 in gold which I have acquired in order to qualify myself for the penitentiary. . . . Being entitled to its retention, I shall not surrender it to the authorities, preferring to use my few remaining years in testing the extent to which the executive power can go. ... I am at your service." In Washington, Attorney General Cummings, looking for a test case to prosecute, waved Hoarder Thomas' challenge aside. Said "General" Cummings: "He'll have to raise his ante. Twenty dollars is not much risk."

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