A Financial Shutdown and Fast-Track Legislation

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On Sunday, March 5, one day after his inauguration, President Franklin D. Roosevelt issued a presidential proclamation closing all U.S. banks from March 6 to March 9. He was trying to prevent an escalating financial panic. The conditions for the proclamation included:

"Whereas there have been heavy and unwarranted withdrawals of gold and currency from our banking institutions for the purpose of hoarding; and Whereas continuous and increasingly extensive speculative activity abroad in foreign exchange has resulted in severe drains on the Nation's stocks of gold; and Whereas those conditions have created a national emergency."

Ornate language barely concealed an economic earthquake. Depositors had mobbed banks in many states and fears of mass bankruptcies were spreading. The president's maneuver gave Congress and federal officials several precious days to draft legislation.

The Economist observed that though radically different, Roosevelt and Germany's Adolf Hitler had both just come into power facing similar challenges: "The hard core of the problem that confronts them is economic."

"But whereas Herr Hitler, having promised the millennium, will presumably be accorded a little time to make his promise good, the task which confronts Mr. Roosevelt of reviving the now wholly suspended economic activity of America is immediate and brooks not a week's delay."

Commentator Will Rogers weighed in on March 6:

"Say this Roosevelt is a fast worker. Even on Sunday when all a President is supposed to do is put on a silk hat and have his picture taken coming out of Church, why this President closed all the banks and called Congress in extra session, and that's not all he is going to call 'em either if they don't get something done."

During the shutdown, bizarre transactions occurred nationwide. Department stores invited customers to charge restaurant meals to their credit accounts. When a convicted speakeasy operator in New York "slapped a $500 Federal Reserve note on the clerk's desk to pay his $100 fine," he had to wait until the court had collected "$400 in other fines to make change."

Congress got right to work, passing the Emergency Banking Act in one day on March 9. Reportedly, only one copy of the bill was available on the floor, and most legislators voted on it without reading it. The act legalized the "holiday" and set out preliminary criteria for reopening the banks.

Roosevelt extended the shutdown until March 13, and then took to the airwaves for the first of his "fireside chats," outlining how the U.S. banking system worked and aiming to reassure the public that there was "nothing complex or radical" in the actions the government took in response to the crisis.

"Our President took such a dry subject as banking, (and when I say 'dry' I mean dry, for if it had been liquid he wouldn't have had to speak on it at all)," Will Rogers wrote the next day. "Well he made everybody understand it, even the bankers."

When the strongest banks reopened, thousands lined up to redeposit funds they had withdrawn in fear. Roosevelt had helped restore the country's financial confidence.

Sagely, exiled Russian revolutionary Leon Trotsky predicted that "the United States will soon emerge from the crisis more the master of world capital than ever."

(Philip Scranton is a Board of Governors professor of the history of industry and technology at Rutgers University, Camden, and the editor-in-chief of Enterprise and Society. He writes "This Week in the Great Depression" for the Echoes blog. The opinions expressed are his own.)

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To contact the author on this story:
Philip Scranton at scranton@camden.rutgers.edu