Volcker (52 page)

34
. “Address to the 75th Annual Convention of the American Bankers Association,” November 2, 1949, reprinted in Lawrence Ritter, ed.,
Selected Papers of Allan Sproul
, Federal Reserve Bank of New York, December 1980, p. 217.

35
. Memorandum to Volcker from Roosa dated February 13, 1962 (Paul Volcker, Undersecretary for Monetary Affairs, National Archives II, College Park, MD, Record Group 56, Box 11, Folder 179, Gold Cover Committee).

36
. See Timothy Naftali,
John F. Kennedy
, p. 492, for Dillon explaining to President Kennedy why the gold cover legislation is controversial.

37
.
New York Times
, February 5, 1965, p. 12.

38
. Ibid.

39
. Paul Volcker and Toyoo Gyohten,
Changing Fortunes: The World's Money and the Threat to American Leadership
(New York: Times Books, 1992), p. 42, and
New York Times
, January 7, 1965.

40
.
New York Times
, March 2, 1965, p. 45.

41
. France completed its withdrawal from NATO on March 14, 1967. See
New York Times
, March 15, 1967, p. 1.

42
.
Repealing Certain Legislation Relating to Reserves Against Deposits in Federal Reserve Banks: Hearings Before the House Committee on Banking and Currency
, 89th Congress, 1st Sess., February 1, 1965, Washington, DC.

43
. For the exact numbers on free gold, see the Federal Reserve Report,
Wall Street Journal
, January 8, 1965, p. 10. Official claims of foreign central banks on the United States totaled $15.4 billion at the end of 1964 (see International Monetary Fund, Annual Report, 1970, p. 18).

44
.
New York Times
, January 7, 1965, p. 30.

45
.
New York Times
, March 5, 1965, p. 45.

46
. PIPAV.

47
. Ibid.

48
. Interview with Jimmy Volcker.

49
. PIPAV.

50
. Ibid.

51
. According to the Member Bank Reserve Report of the Federal Reserve System, dated January 10, 1968 (
Wall Street Journal
, January 12, 1968, p. 19), the
gold stock equaled 27.1 percent of Federal Reserve notes outstanding on January 3, 1968, implying that of the $11.98 billion in gold, only $1 billion was available to cover foreign obligations.

52
. International Monetary Fund, Annual Report, 1969, p. 18.

53
. See Geoffrey Bell,
The Eurodollar Market and the International Financial System
(Hoboken, NJ: John Wiley, 1973), p. 20. Eurodollars were not all held by foreigners, so the $25 billion overstates the total claims by non–U.S. residents. However, the
Wall Street Journal
, January 4, 1968, p. 1, reports “an estimated $30.5 billion greenbacks that foreigners hold” could also have been turned in for gold.

54
.
Wall Street Journal
, January 4, 1968, p. 1.

55
.
New York Times
, January 18, 1968, p. 1.

56
.
New York Times
, February 2, 1968, p. 47.

57
. On March 20, 1968, the Federal Reserve reported the gold stock at $10.87 billion (
Wall Street Journal
, March 22, 1968, p. 23), compared with $11.88 billion on February 28, 1968 (
Wall Street Journal
, March 1, 1968, p. 25). During the first quarter of 1968 the U.S. gold stock declined by $1.3 billion, surpassing the total decline for 1967 (see International Monetary Fund Annual Report, 1968, p. 89). The U.S. gold stock during 1967 declined from $13.2 billion at the end of 1966 to $12.0 billion at the end of 1967 (Council of Economic Advisers, Economic Report of the President, 1970, Washington, DC, p. 282).

58
.
Washington Post
, March 14, 1968, p. A1. As an aside, here are the physical characteristics of a ton of gold. A gold bar weighs 27 pounds and measures slightly smaller than a building brick: 1½ inches high,
inches long, and 3½ inches wide (
New York Times
, March 2, 1965, p. 45). A ton of gold, therefore, consists of seventy-four bars, which could fit comfortably on an office bookshelf (but would probably cause the bookshelf to collapse).

59
.
New York Times
, March 9, 1968, p. 1.

60
.
New York Times
, March 5, 1968, p. 51 continued.

61
. For all quotes in this and the next two paragraphs, see
The Congressional Record
, vol. 114, pt. 5, 90th Congress, 2nd Sess., March 6, 1968–March 15, 1968, pp. 6596–98.

62
.
Washington Post
, March 15, 1968, p. A1.

63
.
New York Times
, January 18, 1968, p. 1.

64
.
New York Times
, March 15, 1968, p. 1.

65
.
New York Times
, March 17, 1968, p. E3.

66
. The continuing members were Belgium, Italy, the Netherlands, Switzerland, the United Kingdom, the United States, and West Germany. France had withdrawn in mid-1967 (
New York Times
, March 31, 1968, p. SM32).

67
.
New York Times
, March 18, 1968, p. 70. The managing director of the International Monetary Fund and the general manager of the Bank for
International Settlements, along with the seven central bankers, attended the meeting.

68
.
New York Times
, March 16, 1968, p. 39.

69
. Ibid.

70
. See Friedman's testimony in
Gold Cover: Hearings Before the Committee on Banking and Currency
, U.S. Senate, 90th Congress, 2nd Sess., February 1, 1968, p. 153.

71
.
New York Times
, January 18, 1968, p. 1 continued.

72
. See Robert P. Bremner,
Chairman of the Fed: William McChesney Martin Jr. and the Creation of the Modern American Financial System
(New Haven, CT: Yale University Press, 2004), pp. 73–81, for a detailed description of Martin's role in the accord.

73
. PIPAV.

74
. Volcker and Gyohten,
Changing Fortunes
, p. 45.

75
. The London gold market reopened on April 1, 1968. Beginning with that session, two prices were recorded for each day, the morning fixing and the afternoon fixing. The price of thirty-eight dollars is the morning fixing on April l. On March 15, 1968, when Queen Elizabeth closed the London market, the much smaller Paris market remained open. According to the
New York Times
(March 16, 1968, p. 1 continued), “There was more frantic buying with the price of gold driven up to almost $45 an ounce.” The “almost $45” price in Paris occurred prior to the beginning of the “two-tier market” established by the communiqué from the Gold Pool that weekend.

76
. A twenty-dollar double eagle sold for fifty-five dollars before March 15 and for seventy dollars on March 18 (
Wall Street Journal
, March 18, 1968, p. 6).

77
. According to the International Monetary Fund, Annual Report, Washington, DC, 1969, p. 121, “The crisis of March 1968 … arose largely because of widespread expectation of a change in the official price of gold.” The free-market price of gold reflects supply and demand from all sources. Aside from speculators, the main source of supply is newly mined gold, primarily from South Africa. The main source of demand is the jewelry industry. Table 37 in the International Monetary Fund, Annual Report, 1970, p. 125, shows that these two components are much less volatile over time than “hoarding,” a residual category that includes speculation. Thus speculative demand dominates the price movement of free-market gold. As a practical matter, thirty-five dollars per ounce served as a floor because central bankers were buyers at that level to replace inventory lost to speculators. (The March communiqué did not preclude central bank buying in the free market.)

78
.
New York Times
, March 18, 1968, p. 1 continued.

1
. PIPAV.

2
. Recall from chapter 1 the quote from George Washington: “I earnestly recommend to you to be circumspect in your choice of officers … Do not suffer your good nature, when application is made, to say yes when you ought to say no; remember that it is a public not a private cause that is to be injured or benefited by your choice.”

3
. See “Nixon Terms Adlai Unfit for Presidency,”
Washington Post
, September 7, 1952, p. M6.

4
. Quote DB—Interactive Database of Famous Quotations.

5
.
New York Times
, October 21, 1956, p. 193.

6
. The letter is dated January 29, 1969, Federal Reserve Bank of New York Archives, Box 0108476.

7
. The letter is dated January 28, 1969 (Paul Volcker, Undersecretary for Monetary Affairs, National Archives II, College Park, MD, Record Group 56, Box 2, Folder 113).

8
. The memorandum (Paul Volcker, Undersecretary for Monetary Affairs, National Archives II, College Park, MD, Record Group 56, Box 13, Folder 184), dated January 21, 1969, is addressed to the secretary of the treasury, secretary of state, chairman of the Council of Economic Advisers, and chairman of the Federal Reserve Board. Volcker recalls that Treasury Secretary David Kennedy gave him the memorandum.

9
. PIPAV.

10
.
New York Times
, July 24, 1962, p. 12.

11
. Paul Volcker and Toyoo Gyohten,
Changing Fortunes: The World's Money and the Threat to American Leadership
(New York: Times Books, 1992), p. 61.

12
. Ibid., p. 36.

13
. Memorandum from Volcker to Kennedy (Paul Volcker, Undersecretary for Monetary Affairs, National Archives II, College Park, MD, Record Group 56, Box 13, Folder 184), dated January 23, 1969.

14
. President Johnson had established the study group chaired by Frederick Deming, who was the undersecretary of the treasury for monetary affairs in his administration. The group was then known as the Deming Group. Kissinger's memo confirmed that the study group would continue in the new administration. See Robert Solomon,
The International Monetary System, 1945–1981
(New York: Harper & Row, 1982), p. 82.

15
.
Irish Times
, February 13, 1969, p. 14.

16.
A version of this story appears in Volcker and Gyohten,
Changing Fortunes
, p. 68.

17
. Milton Friedman and Robert Roosa,
The Balance of Payments: Free Versus Fixed Exchange Rates
(Washington, DC: American Enterprise Institute, 1967).

18
. Ibid., p. 16.

19
. Ibid., p. 38.

20
.
Washington Post
, February 14, 1969, p. C5.

21
. Ibid.

22
. See Memorandum to the Secretary [David Kennedy], copy to Paul Volcker, from Undersecretary Charls Walker, February 13, 1969, Federal Reserve Bank of New York Archives, Box 108473.

23
. Volcker's teachers supported floating rates as well. See Friedrich A. Lutz, “The Case for Flexible Exchange Rates,”
Banca Nazionale del Lavoro Quarterly Review
7, no. 31 (December 1954); Frank Graham and Charles R. Whittlesey, “Fluctuating Exchange Rates, Foreign Trade, the Price Level,”
American Economic Review
24 (1934): 410–16.

24
. Lawrence Ritter,
The Glory of Their Times: The Story of the Early Days of Baseball Told by the Men Who Played It
(New York: Macmillan, 1966); and
Money
, coauthored with William Silber (New York: Basic Books, 1970).

25
. PIPAV.

26
. Ibid.