DOLLAR COLLECTIBLE | 1928 Series, Woodin Signature

L to R: Asst Sec James Douglas, Treasury Sec Will
Woodin, and Bureau of Engraving Dir Alvin Hall.
 From The Highland Recorder, Monterey, Virginia,
March 31, 1933. 

January 28, 2018 – When Treasury Secretary Will Woodin took office on March 5, 1933, the banking system of the United States was frozen.

This March 5 will be the 85th anniversary of the collapse of the banking system.

Some states were issuing scrip because so many panicked customers were taking cash out of the banks that their tills and safes were empty, and their reserves had often dwindled to below the insolvency mark.

Henry Morgenthau, who was then working with financially distressed farmers (commodity prices had fallen disastrously)  suggested that the new Treasury Secretary should issue federal scrip, using a 1907 precedent. In 1907, the Treasury had created temporary federal dollars (“scrip”) to pay off panicked depositors.  [“Moves to Reopen All Farm Markets,” The New York Times, March 8, 1933, 2.]

Woodin's friend and colleague Raymond Moley, leader of FDR's  Brain Trust, wrote (in his book After Seven Years) that Woodin figured out while he was playing the guitar for relaxation, that greenbacks were federal scrip, if they weren't gold or silver certificates. 

So there was no need to call a new issue "scrip". There just had to be a lot of greenbacks printed, fast. Starting with the Woodin, currency was called "Federal Reserve Note" rather than a certificate for something else. Currency was issued in 1933 against sound bank assets. (Arthur Krock, “Washington Sifts Ideas: Woodin Paves Way for a New Currency…,” The New York Times, March 8, 1933, 1.) A “sound” asset was one not “classified" by a bank examiner. Banks were required to write off some or all classified loans. George J. Benston and John Tepper Marlin, “Bank Examiners' Evaluation of Credit,” Journal of Money, Credit and Banking, 6:1 (Feb. 1974). Schlesinger, “The Coming…,” 7.  

John T. Flynn, The Roosevelt Myth (The Devin-Adair Company, 1948). Schlesinger, Flynn, and Smith (FDR, 332) agree that Woodin served FDR well in this arena, both by listening to the outgoing Hoover staff and by focusing on the central issues.

Will Woodin personally supervised the printing of greenbacks to make sure that banks were not short of cash and currency. Rather than delay even a day by starting a new 1933 series with a  new plate, he issued a 1928 Series with his signature on it, even though the bills were printed in 1933. The 1928 Series has a red Treasury seal.

1928 Series dollar bill, signed by Woods and Woodin (as were all of the 1928 Series 

dollar bills with the red seal). From the author's coin and currency collection.

These 1928 dollar bills are the last notes to have been issued with a red Treasury seal. A circulated 1928 Series is sold for an estimated average of $75, depending on condition. An uncirculated note is sold for $200-$500 (so says AntiqueMoney.com). One with a serial number that begins with a star instead of a letter is called a Star Note and is sold for about $2,000 circulated and $15,000 or more uncirculated.

An example of the 1928 Series Star Notes. These are rare, offered for
$15,000 and up if uncirculated.

Woodin worked round the clock making sure the new currency was printed right. Then on March 20 he had Universal Newsreels cameras rolling to show the trucks leaving the Bureau of Engraving and Printing for the big-city banks. The newsreel film clip was shown in cinemas before the featured movie. .

FDR declared a Bank Holiday for the four days March 6-9, 1933. The Emergency Banking Bill was passed through both Houses of Congress in a few hours in a special session called for March 9. It was  immediately signed into law by FDR. The Bank Holiday was extended until Monday, March 13. One-third of the banks opened right away. The others had to be examined for solvency. But panic disappeared. Someone was in charge. 

The next day, March 6, FDR introduced the Economy Act, which cut veterans' pensions to balance the budget and was unpopular among Democrats. This was not a Keynesian action, unlike most of FDR's other moves in 1933, but it passed both Houses of Congress, with the support of many Republicans. It passed the Senate on March 20 only because it was immediately followed by a popular bill that partly ended Prohibition. Roosevelt like to make deals.

The 73rd Congress stayed in session for its first year until June 18, 1933. Three major pieces of legislation were passed in June – the Securities Act on June 5, the Glass-Steagall Banking Act on June 12, and NIRA (which established the brilliant Public Works Administration and the less successful National Recovery Administration) on June 16. The PWA was not as successful as it should have been, because Harold Ickes was put in charge and he hated to spend money. When NIRA was declared unconstitutional, the PWA was reorganized as the Civil Works Administration under Harry Hopkins. The CWA was a roaring success because Hopkins knew that the key was to get the money out to create new jobs. (Jean Edward Smith, FDR, Random House, 2007, 343-345.)

Treasury Secretary Steve Mnuchin, poses in 2017 with a sheet of
new $1 notes bearing his signature; his wife is at his side. The photo is clearer
than in Woodin's case, but the public purpose of the photo is less clear.

FDR | June 5, 1933 — FDR & Woodin Nullify Gold Contracts

Instant Relic, Gold-Backed Currency.

June 5, 2017 — On this day in 1933, the United States took the third of several steps in going off the gold standard.

Under the gold standard, contracts guaranteed payment in a certain quality of gold.  Certain greenbacks were designated as "gold certificates" that could be exchanged for gold (others were call "silver certificates," allowing an expansion of the reserves backing currency to include silver).

Going off the gold standard allowed for the expansion of the money supply, which had been previously restricted by the requirement that currency be backed by gold reserves.  Christina Romer at the NBER concluded in 1991 that the main reason that the United States eventually recovered from the Depression is that the money supply was expanded by gold inflows in the 1930s and this stimulated investment.

Origin of the Problems.  In some ways policies of both the Federal Reserve and the Treasury were at the heart of the cause of the Great Depression. For one thing, the Treasury Secretary was also the ex officio Chairman of the Federal Reserve Board in Washington. The person who best understood how the Fed's actions were affecting the financial markets was Benjamin Strong, President of the Federal Reserve Bank of New York. The Fed began raising its the target short-term interest rate, the Federal Funds rate, in the spring of 1928 because it felt the stock market had become frothy and inflation was taking its toll. It kept increasing interest rates, even though the economy turned down in August 1929. The Fed’s action helped generate the stock market crash in October 1929.

After the Crash of 1929, speculators began trading their dollars for gold, creating a serious drain on reserves in late 1931. Dollar-holders lost confidence in the dollar, which had two consequences

• Banks ran out of gold to exchange for gold certificates and their cash reserves dwindled. Then they ran out of cash completely as depositors lined up to withdraw all their deposits.
• The Treasury worried about their loss of gold reserves as overseas claims for gold to settle accounts.

To preserve the value of the dollar and stop the outflow of gold, the Fed raised interest rates again. But that further restricted the availability of money for businesses. More bank closures followed and the Fed still did not try to calm the markets by increasing liquidity.

Investors withdrew their deposits from banks and banks failed, creating panic. (The scene is well recreated at the small town level in It's a Wonderful Life (Frank Capra, 1946). The Fed did not respond to the panic by lending money to the banks. More people withdrew their deposits and took their cash home. The money supply fell 30 percent. When FDR was inaugurated many states had declared a bank holiday and their banks were closed until further notice.

1.  No Bank Payouts of Gold. Part of the problem was that the United States had been on a gold standard since 1879, except for an embargo on gold exports during World War I. When FDR was inaugurated on March 4, 1933, he and his Treasury Secretary, Will Woodin declared a national bank holiday. Woodin personally supervised round-the-clock printing of $2 billion in greenbacks by the Bureau of Engraving and Printing, filming of the presses at work late at night and the dispatch of vans filled with currency for banks, and distribution of the film clips to cinemas around the country to be screened along with the latest movie offerings. Advisers had previously suggested issuing "government scrip" and Woodin scratched his head, noting the ban on banks' redeeming gold certificates in gold coin, and advised FDR: "What are greenbacks if not government scrip?"

From the first day of his presidency, FDR embargoed payment in gold.

At the same time as the bank panic spread within the United States, reaching its apex just as FDR was sworn in, foreign creditors were cashing in their claims on the U.S. Treasury and demanding gold, as was their right under the gold standard regime. Gold was flowing out of the United States at an alarming rate. So along with the bank holiday, FDR and Woodin prohibited banks from paying out gold or exporting it. This was a suspension of gold payments similar to what occurred in the Great War (World War I).

2.  Ban on Private Holding of Gold. On April 5, 1933, Roosevelt ordered all gold coins and gold certificates in denominations of more than $100 turned in for other money. Everyone had to turn in all gold coin, gold bullion and gold certificates they owned to the Federal Reserve by May 1 for the set price of $20.67 per ounce. By May 10, the government had taken in $300 million of gold coin and $470 million of gold certificates.

Will Woodin, a world-class coin collector, co-author of the definitive book on American pattern coins (i.e., unique American coins that were samples of a new design), obtained a valuable specific exemption from the new law for coin collectors. They were allowed to keep their collectible coins.

3. Nullification of Contracts Defined in Gold. Different from WWI, on June 5, 1933, Congress made the exit from the gold standard permanent, and in the absence of a war. It enacted a joint Senate-House resolution nullifying the right of creditors to demand payment in gold. This applied to both public and private contracts.

The impact of this was possibly clear to Wall Street experts right away, and would become clear the following year, when the government price of gold was increased to $35 per ounce. This effectively increasing the gold on the Federal Reserve’s balance sheets by 69 percent, and reduced the value of all contracts defined in gold. This increase in assets allowed the Federal Reserve to further expand the money supply, but it reduced the wealth of contract-holders by 69 percent.

The theory behind this action was not yet developed, as it would be three years before John Maynard Keynes would publish his General Theory. But FDR either learned from the Bank of England, which has already gone off the gold standard in 1931 in response to the Crash of 1929, or he understood instinctively that greenbacks had more credibility if the issuer had a lot of gold reserves, and this allowed the Treasury to print more greenbacks and the Federal Reserve to put them into circulation, expanding the most basic definition of the money supply.

Treasury Secretary Will Woodin, being a life-long Presbyterian and Republican, disagreed with FDR on this move. He felt bound to honor contractual commitments to pay back in gold. He had campaigned on the hard-money platform in 1998 when he ran for Congress in his home district around Berwick, Pennsylvania. However, his loyalty to FDR made him swallow his doubts and support FDR in his action.

But it was FDR-Keynes theory, already implemented by the Bank of England, that expanding the money supply and making credit easier would spur investment and economic growth. The Great Depression created an unemployment rate of 25 percent, and Britain's going off the gold standard two years before justified an equivalent action in the United States, an action that Herbert Hoover could not take because of his own commitment to hard money.

Aftermath. The American economy turned around as soon as FDR came into power. The Depression formally ended in the quarter he was inaugurated, although it would be years before the economy recovered to the pace it was running at in the steaming 1920s.

The U.S. Treasury held the $35 per ounce price until August 15, 1971, when President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value, thus completely abandoning the gold standard. Since there was no longer any need to back the dollar currency with gold, President Gerald Ford in 1974 signed legislation that permitted Americans again to own gold bullion as an investment independent of jewelry, dental or industrial uses.

Related Posts: Are Fed Models Out of Sync? . Mnuchin Testimony, May 18, 2017 . Glass-Steagall . FDR's First Fireside Chat