The Elusive Demon: Speculation
As a nation our businessmen, bankers, and public officials have gained enormously during the past four years in understanding of the basic factors which create healthy prosperity as distinguished from overexpansion, as well as in understanding of their responsibility in the matter.
Herbert Hoover, January 1, 19251
Little did Herbert Hoover realize when he uttered these words that within less than a year he would be greatly concerned about what he considered to be the questionable policies implemented by some of the very people he praised. By November 1925 Hoover was clearly disenchanted with several bankers and public officials involved in fiscal policy formulation and whom he held responsible for the orgy of speculation then underway. He was concerned especially with the policies of the Federal Reserve Board which, he thought, were not directed, as they should have been, at stemming the tide of speculation. Hoover believed in the Federal Reserve System and its potential to provide responsible fiscal governance, but he was clearly disappointed by its failure to respond to what he considered to be a potential crisis of epic proportions.
This chapter examines the impact of England's return to the gold standard on Federal Reserve policy. Central to the discussion will be the developing controversy over the rediscount rate, especially the arguments concerning its effectiveness as a tool in controlling speculation and inflation. Benjamin Strong, who had earlier advocated employing the rediscount rate in order to curb speculation and inflation, began, instead, to question the effectiveness of the practice. Increasingly, his efforts were directed at supporting England's return to gold, and____________________