London Economic Conference

The London Economic Conference was a meeting of representatives of 66 nations from June 12 to July 27, 1933, at the Geological Museum in London. Its purpose was to win agreement on measures to fight global depression, revive international trade, and stabilize currency exchange rates.

The Conference was "torpedoed" by U.S. President Roosevelt in early July, when Roosevelt denounced currency stabilization.

Background

When the Great Depression devastated the world economy in the years 1929-1932, it was generally assumed that the United States would serve as a hegemon, providing leadership for a program to bring about recovery. President Herbert Hoover in 1931 called for a conference to decide how to reduce tariffs and also revive prices (i.e. reverse the deflation associated with the Depression). The agenda for the Conference was drafted by representatives of six major nations who met in Geneva in 1932. The agenda asserted that intergovernmental debts should be settled as they represented a major obstacle in the road to recovery.

The Europeans believed that “the settlement should relieve the world” of the crushing debt burdens.[1] But most of these debts were owed to the U.S., and Americans were reluctant to write them off. Senator Borah held that “the troubles of the world were really due to the War, and to the persistence of Europe in keeping great armaments, and to the mismanagement of money”; therefore, he was not willing to postpone, reduce, or cancel the payment of debts “and have Europe go ahead with a programme which has practically sunk the world into its present economic condition.”[2]

Other events indicated that the U.S. would not support the Conference agenda as outlined. Roosevelt declared during his inaugural speech that “I shall spare no effort to restore world trade by international economic readjustment, but the emergency at home cannot wait on that accomplishment.” This was a clear signal to those in the Conference that Roosevelt would carry out his program to revive the American economy regardless of or even in opposition to international plans to revive the world economy.[3]

Roosevelt took the U.S. off the gold standard in April.[4] In May, the Thomas Amendment to the Agricultural Adjustment Act “required the President to pursue a policy of inflation through the issue of paper money.”[5]

Roosevelt's Rejection

When the Conference opened on June 12, 1933, all attention rested on the tripartite currency discussions happening outside the Conference. The big issue was the exchange rate of the dollar against foreign currencies such as the British pound and French franc. Many in the U.S. favored devaluation of the dollar to improve the U.S. trade position; France and Britain wanted to stabilize the dollar rate; i.e. fix it at a relatively high value.

U.S. Secretary of State Cordell Hull led the American delegation to the Conference. The President ordered Hull not to enter into any discussions regarding currency stabilization. However, by the time the Conference gathered, President Roosevelt had changed his mind, supporting currency manipulation to raise prices, and had American banking experts O.M.W. Sprague and James Paul Warburg conduct currency stabilization talks with their British and French counterparts.[6] By June 15, Sprague, Warburg, Montagu Norman of the Bank of England, and Clement Moret of the Bank of France had drafted a plan for temporary stabilization.

Word of this plan leaked out. The reaction in the U.S. was negative: the dollar rose against foreign currencies, threatening U.S. exports, and stock and commodity markets were depressed.

Although Roosevelt was considering shifting his policy to a new median dollar-pound rate, he eventually decided not to enter into any commitment, even a tentative one.

On June 17, fearing the British and the French would seek to control their own exchange rates, Roosevelt rejected the agreement, in spite of his negotiators’ pleas that the plan was only a temporary device full of escape clauses.[7]

On June 30, Roosevelt went further: in an interview with four reporters, he openly criticized stabilization. Then on July 3, he issued a message to the Conference condemning its efforts at stabilization when "broader problems" existed, and asserting that the exchange rate of a nation's currency was less important than other economic values.[8][9]

Roosevelt’s rejection of the agreement gathered an overwhelmingly negative response from the British, the French, and internationalists in the United States. British Prime Minister Ramsay Macdonald feared “Roosevelt’s actions would destroy the Conference” and Georges Bonnet, rapporteur of the French Monetary Commission, is said to have “exploded.”

Critics see nationalism as a key factor in Roosevelt’s decision.[10] But John Maynard Keynes hailed FDR's decision as "magnificently right", and Irving Fisher wrote FDR that his message "makes me the happiest of men."[11]

The Hugenberg Controversy

Another area of dispute was created by the head of the German delegation, the Economics Minister Dr. Alfred Hugenberg, who put forth a programme of German colonial expansion in both Africa and Eastern Europe as the best way of ending the Great Depression, which created a major storm at the conference.[12] For being indiscreet enough to advance the claim to Germany's Lebensraum (living space) at a time when Germany was still more or less disarmed, Hugenberg was sacked from the German cabinet by Adolf Hitler.[13]

Footnotes

  1. ↑ League of Nations, Draft Annotated Agenda, Official Number: C.48.M.18 (Conference M.E.1) II (Geneva: League of nations, 1933) 7-9; Foreign Relations of the United States, 1933 I (Washington: Government Printing Office, 1950) 453, 462-6.
  2. ↑ The World Economic Conference, Herbert Samuel, International Affairs (Royal Institute of International Affairs 1931-1939), Vol. 12, No. 4. (Jul., 1933) 445.
  3. ↑ Roosevelt: America's Strategist, M. A. Fitzsimons, The Review of Politics, Vol. 7, No. 3. (Jul., 1945), 283.
  4. ↑ H. W. Brands, Traitor to His Class: The Privileged Life and Radical Presidency of Franklin Delano Roosevelt (2008) pp 327-8
  5. ↑ Roosevelt’s 1933 Monetary Experiment, Elmus Wicker, The Journal of American History, Vol. 57, No. 4. (Mar., 1971) 867.
  6. ↑ The Ordeal of Cordell Hull, Julius W. Pratt, The Review of Politics, Vol. 28, No. 1. (Jan., 1966) 83.
  7. ↑ Jeannette P. Nichols, "Roosevelt's Monetary Diplomacy in 1933," American Historical Review, (1951) 56#2 pp. 295-317 in JSTOR
  8. ↑ Kennedy, David; Bailey, Thomas Andrew (1994). The American Pageant: a History of the Republic. Lexington, Mass: D.C. Heath. ISBN 0-669-33892-3.
  9. ↑ "Foreign News: London Economic Conference". Time. June 19, 1933.
  10. ↑ The London Monetary and Economic Conference of 1933: A Public Goods Analysis, Rodney J. Morrison, The American Journal of Economics and Sociology, Vol. 52, No. 3. (Jul., 1993), pp. 312, 314.
  11. ↑ Barber, William J. (2006). Designs within Disorder: Franklin D. Roosevelt, the Economists, and the Shaping of American Economic Policy, 1933-1945. Cambridge University Press. pp. 34–35. ISBN 0521034310.
  12. ↑ Hildebrand, Klaus The Foreign Policy of the Third Reich London: Batsford 1973 pages 31-32.
  13. ↑ Hildebrand, Klaus The Foreign Policy of the Third Reich London: Batsford 1973 pages 31-32.

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