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H. Stone

The Glass-Steagall Bill –
A Measure to Aid the Bankers

(February 1932)

From The Militant, Vol. V No. 8 (Whole No. 104), 20 February 1932, p. 1.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

American capitalism, twisting and squirming under the lash of economic law, is making strenuous efforts the present time to bring about a revival. Plan after plan is being thrown at the country, only to go down in defeat, leaving barely a ripple on the declining crisis curves. But a few short days after the creation of the Reconstruction Finance Corporation and the administration at Washington announced the new, bi-partisan, anti-depression measure, the now much heralded Glass-Steagall Bill.

The capitalist class of this country, failing to see any indication of a coming revival, even now, two and a half years after the stock market crash, are attempting to, through a series of well timed and big scale maneuvers to restore this “confidence” that has supplanted all their economic theory. It is only in an actual analysis of the proposed steps that their valuelessness as measures for revival can be exposed. Particularly is this true of the present Glass-Steagall bill.

“Big Free Gold Gain”, “Credit Expansion”, “Increased Currency”, we read in the newspaper headlines. What are the actual facts? Is there a stringency of credit at the present time? What might this “big free gold” lead to? These are the questions to be answered.

Any economist will admit that were there a demand for credit at the present time and the banks were unable to satisfy this demand, any steps taken to relieve the credit strain would be steps for revival. But is this condition prevalent today? By a mere glance at the low interest rates of the past year one would be forced to give only one answer. Industry desiring funds for investment have no difficulty finding lenders. There is no credit crisis – except on the side of the borrowers.

Now, to examine the actual measure. Under the existing laws, member banks of the Federal Reserve system are permitted to rediscount (borrow on) certain commercial short term loans from the Federal Reserve Bank. This so-called self liquidating paper consists of loans secured by actual commercial and industrial goods to be realized upon soon. Thus should industry demand more credit, the various member banks can apply to the Federal Reserve system with these eligible notes as security for loans in the form of increased currency, which money is then loaned to industry. The cry is now raised of the exhaustion of the total of eligible paper. Item number one of the new measure would make eligible for rediscount less secure paper than at present. This is hailed as the powerful tonic to aid “our” sickened industry. Will it do this?

Any analysis of the facts shows the futility of the measure in this regard.

The capitalists assume that the mere increasing of the total available currency outstanding or the credit available, will insure that industry will use or desire this, money. Through a false interpretation of concomitant variations of the past they are attempting to rouse the body of industry by wagging the tail of credit This would be possible only were there a shrinkage of available credit today. But today, the figures of the Federal Reserve itself show that there has been presented for rediscount of commercial paper only $400,000,000 by the banks of the country. They still have eligible for rediscount in their vaults a total of about 3 billion dollars of commercial paper, in addition to 5 billion dollars of United States Government Bonds. Furthermore, it has been pointed out that only 91 banks of the total 7,800 in the system have exhausted their eligible paper. Any expansion of credit that industry desired could have been taken care of by the present system. The problem they have to solve is that of creating the desire for credit, not the supply. But then, there is nothing like a bombastic gesture.

The second feature of the present bill, that connected with “free gold” can be hailed as a great step forward only by those who still believe that Hoover is to inaugurate the era of engineering prosperity. Under the present law all Federal Reserve Notes must have a backing of forty per cent in gold, the other sixty percent to be made up of gold or commercial paper backing, government bonds being definitely excluded. This provision of course was inserted to prevent the backing up of the paper currency by bonds; which are also paper. Thus a shortage of commercial paper requires the use of gold above the 40 percent limit, leaving less free gold to take care of large scale withdrawals by foreign countries. This shortage exists now as can be seen from the following figures.

Federal Reserve

Notes issued




Eligible paper held



Gold required



Under the present provisions only the “self liquidating” paper could be used as backing for the sixty percent feature (aside from gold and gold notes). The present measure would permit to be used in addition to the above also (1) the less secure paper of the present ineligible class (2) government bonds. This, of course, increases the amount of free gold of the country. But how can anyone hail as epoch-making, a bill that does nothing but make legal that which is actually taking place. With the sprinkling of the “Holy Water” they merely make legal that which they are unable to prevent.

On the other hand, the bill is saturated with a sort of concentrated nitroglycerine. An ever-mounting pyramid of U.S. government bonds, increasing paper currency, in addition to a growing budget deficit, all to be supported by the shrinking gold reserve. The new bill increases the free gold, but what does it put in its place? Nothing but paper values that may collapse at the first gust of wind. It is not for nothing that the more objective of the American economists do not assert with all positiveness that America will not go off the gold standard. The danger becomes more imminent daily.

Congress is busy with these ballyhoo measures hoping to bring to a stop the declining production indices. Their rallying center is the one of psychology. Failing in this, they are preparing the ground for a collapse worse than that of the past three years. The failure of the ballyhoo campaign will bring with it more misery for the working class. The Communists must prepare now to take advantage of this movement for the overthrow of the entire capitalist system. The opportunity presents itself in exposing the sham of this type of maneuvers of the government, and counterpose to them the concrete proposals of the Communist movement – and first of all the slogan of long term credits to the Soviet Union. The Soviet Union needs these credits; the capitalists of this country have the necessary funds. Such a move will aid the Soviet Republic as well as the unemployed workers of this country who will benefit by Soviet orders forthcoming to American industry on the basis of long term credits. Now the opportunity presents itself for the Communists to bring this slogan forward at every workers’ gathering, in the factories, in the unions, and among the unemployed.

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