Thomas Amendment

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The Thomas Amendment, named for its sponsor, Oklahoma Democrat Elmer Thomas, was signed into law by President Franklin Delano Roosevelt on May 12, 1933, and included as a compromise amendment to the Farm Bill of 1933 (the Agricultural Adjustment Act). The amendment joined monetary inflation to complement the less familiar policy of crop reduction under the Agricultural Adjustment Act.

The omnibus amendment included all of the principal features of other inflation proposals was the brainchild of Senator Thomas, leader of the inflationary bloc in Congress. By exploiting monetary inflation, long touted as a economic remedy since the days of nineteenth-century Populism, Thomas could mobilize a clear majority by bringing inflationists (politicians who zealously sought to stimulate an economic boom by devaluing the dollar) into a powerful coalition with natural allies in the farm belt and political allies in the mining industry (namely, silver) of the West. The silver bloc would use their leverage as an "entering wedge," a tactic that eventually led to the Silver Purchase Act of 1934.

In its final form the Thomas Amendment (also called the Inflation Act) gave the president unprecedented discretionary power over monetary policy. It permitted the president to authorize the Federal Reserve to unleash the full power of capitalism on the Treasury by placing U.S. securities on the open market and allowing Federal Reserve banks to hold up to $3 billion in U.S. Treasury bills and other government bonds acquired directly from the Treasury. The president could even authorize the secretary of the Treasury to put up to $3 billion into circulation to retire government bonds. Roosevelt never used his power to increase the amount of money in circulation, nor did he ever exploit the power to sell government securities directly to Federal Reserve banks. One provision allowed the president to alter the gold value of the dollar by not more than 50 percent, thereby decreasing debt by devaluing the dollar. Roosevelt eventually used this measure to fix the value of gold at $35—$15 below the value permitted by the legislation. Other provisions empowered the president to remonetize silver, to reestablish bimetallism (the practice of using gold and silver jointly as a monetary standard), and to accept a maximum of $200 million in silver from foreign governments in payment of debts.

There has been considerable debate whether Thomas's original construction included mandatory inflationary measures that were "thoroughly amended" to permissive inflationary measures by the White House. As one specialist has shown, neither Thomas's version nor the White House version contained any language calling for mandatory inflation. It was, however, mandatory for the president to accept the inflation rider or risk congressional passage of radical monetary policy that sidestepped White House involvement altogether. The president had no choice but to surrender to pressure politics. Responding to the mounting inflationary trend, he persuaded Thomas to introduce a version of the bill in which the legislative body delegated authority over monetary policy to the executive branch, giving Roosevelt the "broad executive power," for which he had asked Congress, in his inaugural address, to combat the national crisis.



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Gregory Baggett