After living in Brazil as a child, where my family and I experienced wave after wave of hyperinflation (Part 1 of this series), we moved back to the U.S. and settled in Long Beach, New York.
My father found a nice home near the boardwalk, but still within walking distance of the train station so he could commute to work on the Long Island Railroad. The beach was nice in the summer, and I enjoyed swimming with the Polar Bear Club in the fall or biking to Far Rockaway in the winter. But the most exciting times were when Dad let me tag along to meetings with important people.
“Unlike Brazil,” he explained on a train to Washington one summer, “inflation isn’t a big problem in the United States, yet.” He lingered on the word “yet,” which seemed to echo repeatedly in the tchjk, tchjk, tchjk of the wheels bouncing over gaps in the track.
“But,” he warned, “we can already see the signs.”
“Big money printing like in Brazil?” I asked with surprise.
“God forbid, no! The big problem now is federal budget deficits. Maybe later, to finance the deficits, you could see big money printing. But fortunately, we’re not at that stage yet. That’s what we’ve got to stop. We’ve got to nip this in the bud. You and me. We’ll fight it together.”
It was 1959, and I wasn’t quite 13 years old. But I was old enough to contribute more than just curiosity. So I listened intently as he gave me the background in greater detail.
“You already know how the Brazilian cruzeiro is falling, and we’ve talked a lot about how it could be worthless someday. Well, fortunately, our history in the United States has been very different. After the Great Depression, the U.S. dollar was the one investment that not only survived, but actually thrived. Thanks to deflation, prices fell on virtually everything. So the dollar’s purchasing power surged. That was the saving grace of hard times. A strong dollar gave people something to work for. It was the essential foundation for recovery after the Depression.
“Then,” he continued, “the strength of the U.S. dollar domestically was reinforced with fixed exchange rates internationally. I’m talking about Bretton Woods, New Hampshire. That’s where over 700 delegates from 44 different countries got together after World War II and agreed to high fixed exchange rates for the dollar with all of the world’s most important currencies. But more recently, I’ve seen a few disturbing signs that could threaten the dollar. Corporate America starting to build up debts. Ditto for the federal government.”
“Yeah, debt is pretty bad,” I interjected.
“Not always,” he retorted with a smile. “Debt is OK as long as it’s in modest amounts or as long as you’ve got plenty of capital to back it up. But now, with President Eisenhower in his last year in office, the federal budget is going haywire. Estimates for the deficit are running close to $13 billion. That’s huge!”
A couple of hours later, we were ushered through the guard gate at the Treasury Department for a meeting with the Undersecretary, an old friend of my father’s. Our mission was to get him to convey to his boss, Treasury Secretary Robert Anderson, the deep concerns of Dad’s fiscally conservative clients about the growing deficit.
I watched as the man nodded politely for most of the meeting, but shook his head abruptly whenever the discussion turned to action statements. It was obvious that my father was searching for allies, and this man wasn’t one of them.
On the train back home, though, Dad remained determined. “We don’t need the Treasury Department,” he said. “We don’t need Congress or the Fed or even the president. All we need is the people, a popular revolution. If we can alert the people to the dangers, then the folks in Washington will listen. Our cause is right. The time is right. All we need is a focal point, something the public can sink its teeth into.”
A few months later, in the first days of January, we thought we got it. Dad turned on the radio, and out poured a monotone voice I had learned to recognize: Dwight D. Eisenhower’s, delivering the State of the Union Address. He complained about the excessive costs of military hardware. He insisted that “we must avoid extremes of waste and inflation which could reduce job opportunities, take us out of world markets, shrink the value of savings.” Then came the big surprise: Ike announced he would submit to Congress a balanced budget.
The next morning, we ran down to the newsstand to check the papers. We were looking for the headline “IKE PROPOSES BALANCED BUDGET.” But none of the papers had it on the front page. Not the Daily News, not the Tribune, not the Times, not even the Journal. The only mention was buried on the inside pages, and the highlight of the story went something like this: “The most conspicuous reaction to Eisenhower’s speech came in the form of an unrestrained yawn by the Senate Democratic leader, Lyndon B. Johnson.”
|Irving Weiss in Brazil, 1955|
My father was outraged. The only time in my life that I had seen him more upset was one day back in Brazil, when our Willys Jeep Wagon broke down on a dirt road in the forest, and he gave it a swift kick that seemed to hurt him a lot more than it hurt the car. But it was also clear that he had made up his mind to do something about it.
He contacted Dean Alfange, a former candidate for governor, to get his assistance in organizing a nonprofit. The name: The Sound Dollar Committee. The mission: To lobby for a balanced budget and fight against inflation.
They decided to name former-President Herbert Hoover as Republican co-chairman and to name presidential adviser Bernard Baruch as Democratic co-chairman. Earlier, Dad had worked with Baruch closely enough to know that he’d be very sympathetic to the cause. But he had never met Hoover and wasn’t sure Hoover would accept. As it turned out, the opposite happened. Hoover was eager to join. But Baruch, despite his sympathies, was skeptical. Toward the end of February, Dad decided to make a final attempt to win his support. So while I strained to listen, he gave Baruch a call.
|Bernard M. Baruch|
“It’s the wrong time,” Baruch said. “We really can’t do anything until we see the whites of their eyes.”
“But we’re already doing it,” my father replied. “We’ve already started the campaign. We’re running a full-page ad in The Wall Street Journal. We sent you a copy of the proof. Did you get it?”
“Yes, sure, sure. I saw it,” said Baruch unenthusiastically.” It’s all good, but I’ve tried time and time again to give them that same advice, to keep the budget balanced, to protect the dollar. Truman wouldn’t listen. Eisenhower wouldn’t listen. Now, as he’s on his way out, he’s changed his mind, maybe. Even if your campaign succeeds, I question whether they’ll follow through. But go ahead and see what you can do. You have my blessing.”
The Committee went ahead without him, and to maintain the political balance, they felt they’d better back off from Hoover as well. “No problem. We’ll get others, with names that are also pretty strong,” they said.
There were several, and back then, I knew them strictly by their first names — Dean, Leonard, Leslie, and others. The Sound Dollar Committee’s offices were at 500 Fifth Avenue, a short cab ride from Penn Central Station and an easy trip for me on days off from school. Dean was like an uncle, always welcoming me with open arms. The others seemed to like me too, sometimes treating me like a kid, sometimes emulating Dad and acting as a mentor.
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Years later, after Dad had passed away, I learned more about them. It was February 2004. I had recently bought the twin towers of Pratt & Whitney’s Administrative Office Building in Jupiter, Florida. And since we had a lot more space, I’d asked for cardboard boxes containing Dad’s memoirs to be delivered from our warehouse. For ten long days, the boxes sat in the empty office next to mine, beckoning to me through glass walls. I told everyone, myself included, that I was too busy to dig through them. It wasn’t until late on a Friday afternoon, when my staff had gone home and the office was quiet, that I became aware of the true cause of my procrastination.
The sun was down but Florida’s red sunset still flooded the room, much of it reflected from the lake below, where our “mascot,” a well-fed alligator, made her home. I picked one box to open at random, and a surge of grief rolled up my chest. I suddenly realized it was the first time I’d looked through any of Dad’s papers since he died. I had yet to fully accept his absence.
In the box, personal letters were mixed with public statements — some loose, some in folders or envelopes, some neatly joined with rusted paper clips. Many dated back to those days in the late 1950s, and from each, I could hear voices speaking.
One letter to Dad, yellowed by four and a half decades, was from Bernard Baruch, dated April 6, 1959, several weeks after our Sound Dollar Committee was founded. Baruch’s boldfaced, Madison Avenue letterhead competed with his Kingstree, South Carolina address typed lightly in the upper right corner. The word “Private” was handwritten across the top.
“Inflation,” he wrote, “flows from the selfish struggle for special advantage among pressure groups. Each seeks tax cuts or price increases or wage raises for itself, while urging the others to make the sacrifice, and with little regard for the national interest. Ever since the end of World War I, I have tried to show what the results would be — giving all of my time and resources to this. But alas, my efforts have not succeeded. I hope that you and those associated with you will be more successful because it is just and should win.”
The box also contained four sheets of the original Sound Dollar Committee stationery. The names of 17 members, printed in dark blue ink, lined up neatly along the left margin. Some of the names I recognized; some I did not. But my research revealed that each man on the list had his own urgent message for any leader or investor in the future who might have to confront federal deficits, money printing, or inflation.
One of those messages came from Leonard Spacek, who had worked closely under Arthur E. Andersen, the founder of the accounting firm that would become the largest and most prestigious in the world.
After Andersen’s death, Spacek took the helm as the second managing partner in the firm’s history, emerging as a fiercely outspoken champion of shareholders’ rights. He advocated strengthening audit procedures. He fought for standardizing accounting rules so that financial statements could be fairly compared. And in 1958, one year before joining the Sound Dollar Committee, he declared that “the man on the street … has the right to assume that he can accept as accurate the fundamental end results shown by the financial statements in annual reports.”
This approach may not have seemed very radical years later, but at the time, it was. And with it, Spacek made history. He’d be horrified if he’d lived to see how his successors led his own great firm down the path of accounting hocus-pocus. He’d be mortified by their role in the demise of Andersen’s big clients like Enron or Global Crossing. And he would have had no mercy for those who allowed Andersen to become the first accounting firm in history ever to be convicted of fraud. As SEC Chairman Arthur Levitt said of Spacek in his eulogy, “There aren’t any Leonard Spacek’s in the industry anymore.”
Also on the prominent member list of our Sound Dollar Committee were two retired generals. Why did they join? Dad once told me that it was because they saw the connection between fiscal prudence and national security; between financial safety and physical safety. Both goals, they believed, were threatened by the same human weaknesses — lack of discipline and outright greed. Neither, they insisted, could be achieved without the other for very long.
|Leslie R. Groves|
General Leslie R. Groves was one of them, and he played an entirely different role in America’s history from any of the other members of our committee. Groves was a major force in the construction of the Pentagon. And he was the de-facto leader of a secret weapons project based in the New York District of the Army Corps of Engineers — the Manhattan Project, where the first atomic bomb was made. As one reviewer of his biography explained,
“To the uninformed, Groves’ contribution to the production of the atomic bomb was as scoutmaster for a collection of scientific mad monk geniuses in the desert of New Mexico. In fact … Groves was more of an absentee landlord at Los Alamos. The real action was going on elsewhere, primarily in massive industrial complexes at Hanford, Washington, and Oak Ridge, Tennessee. In some respects the building of these two industrial facilities was as impressive as the making of the bomb. That Groves was able to build, not one, but two, mammoth atomic factories in roughly eighteen months is staggering.”
Groves advocated no sharing of nuclear technology with allies. Even within the U.S. government, he zealously embargoed information from most agencies and departments, including the White House itself. In that sense, he was the world’s first and foremost proponent of nuclear nonproliferation. If he could see the nuclear terror threat we face today or hear the recent rumblings of nuclear war, he’d jump out of his grave in protest.
Dean Alfange was the legal counsel to the Sound Dollar Committee, and his name was the last to appear on its stationery. Unlike any other politician in American history, he held nominations and appointments from virtually every party — the Democratic Party, the Republican Party, the American Labor Party and the Liberal Party of New York, which he helped found. That was the party under which he ran for governor of New York and also the one which helped him hone his libertarian views, memorialized in his poem, An American Creed:
I do not choose to be a common man.
It is my right to be uncommon if I can.
I seek opportunity, not security.
I do not wish to be a kept citizen,
Humbled and dulled by having the
State look after me.
I want to take the calculated risk;
To dream and to build,
To fail and to succeed.
I refuse to barter incentive for a dole;
I prefer the challenges of life
To the guaranteed existence;
The thrill of fulfillment
To the stale calm of utopia.
I will not trade freedom for beneficence
Nor my dignity for a handout.
I will never cower before any master
Nor bend to any threat.
It is my heritage to stand erect,
Proud and unafraid;
To think and act for myself,
To enjoy the benefit of my creations
And to face the world boldly and say:
This, with God’s help, I have done.
All this is what it means
To be an American.
I set Dean’s poem aside and returned to Dad’s boxes. At the bottom was a large brown tear sheet of newsprint that almost crumbled to my touch, the Sound Dollar Committee’s first full-page advertisement that ran in The Wall Street Journal.
“Inflation is a narcotic,” were the first words in the body of the ad. “It soothes and exhilarates while doing its deadly work. Already it has reduced our dollar to half of its purchasing power. It is the killer rampant in our midst, threatening to destroy us as it has other countries whose rulers thought they could have a little bit of controlled spending and inflation; a little cheapening of their money.
“THEN IT WAS TOO LATE! Deficit spending [and inflation] are the twin poisons which are undermining your future. Some people say we need deficit spending by our government for prosperity and growth. But they forget that the means can destroy the end.”
|Sen. Lyndon Johnson|
Along the margins of the page, Dad then quoted other friends, supporters and leaders.
Lyndon B. Johnson, who was still a U.S. Senator: “We all know that the end of such a spending spree would be fiscal insolvency.”
William M. Martin, Jr., then chairman of the Federal Reserve: “No greater tragedy, short of war, could befall the free world than to have our country surrender to the easy delusion that a little inflation, year after year, is either inevitable or tolerable. For that way lies ultimate economic chaos.”
|Sen. J.W. Fulbright|
Senator J.W. Fulbright: “Excessive inflation in the long run destroys the will to work and the will to save, which are the foundations of our economic system. Inflation is a deadly enemy of a free capitalistic system.”
For a few long moments, I sat silently in the dusk, my eyes scanning the lake for some sign of our friendly mascot; my mind, returning to Long Beach in 1959.
Back then, it was also February, and it was also dusk. Dad had just come home from work, proudly displaying a proof of the ad, scheduled to run in the Journal the next morning. He said he wasn’t sure if it would get any traction because inflation at the time was still very low.
|Robert R. McCormick|
As it turned out, it was a powerful launch with a very powerful message, and it merely set off the first sparks. The Committee ran a similar ad in the Chicago Tribune. And the next day, Chicago Tribune owner Robert R. McCormick called to say: “I believe in what you fellows are doing. I’d like to run a two-page spread of my own at my own expense. Is that OK?”
“Are you kidding?” Dad replied. “Of course it’s OK!”
The Los Angeles Times and the New York Daily News followed suit. Soon, scores of newspapers and magazines joined the Sound Dollar Committee in its nationwide campaign to fight inflation, balance the budget, protect the dollar. Congressmen would walk into their offices on a Monday morning and be struck immediately with the clutter of mailbags. One asked his staff, “What the hell is this? Where did all this mail come from?”
“They’re protests, sir,” came the response.
“Protests against what?”
“They’re coupons protesting inflation — cut out from the newspapers. They’re running big ads against inflation.”
It was an avalanche! According to a survey by the Chicago Tribune on Capitol Hill, the total estimated response was 12 million postcards, coupons, letters, and telegrams.
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By mid-March, the public’s attitude had switched from apathy to intense interest. According to Business Week, “Just about anywhere you go these days, the talk will turn to inflation. The subject comes up with friends at cocktails, in brokers’ boardrooms, and among businessmen who feel a responsibility to avoid price increases.” All of a sudden, Washington “is a city full of inflation fighters. … Leaders in Congress began the session talking like big spenders; now they are talking about cutting Eisenhower’s budget.”
Senator William Proxmire, who had been in favor of the deficit spending, changed his mind and voted for the balanced budget. One congressman after another shifted his vote to support Eisenhower. The budget was balanced. And we were ecstatic.
As it turned out, however, it was the last balanced budget in the country’s history. Yes, in later years, the federal budget was sometimes said to have been “balanced,” but only with smoke-and-mirrors accounting that effectively moved red ink off the government’s books to separate government agencies. The only truly balanced federal budget of that era was in Fiscal Year 1960, thanks, in no small measure, to the Sound Dollar Committee.
My father lamented this failure for the rest of his life. “Looking back,” he said, “I was right in my debate with Bernard Baruch. We did not have to wait to be effective. But in a more enduring sense, Baruch was right. After Eisenhower left office, the country was led in the opposite direction from the one we had hoped for.”
A year later, Dad went back to Washington to deliver the same message to Fed Chairman William Martin, hoping he could come to our rescue. He was supportive in every way. But he also confided that there was little he could do except to stall a bit to slow things down.
|William M. Martin|
His words were not encouraging. “Kennedy is putting tremendous pressure on me,” he confessed. “The president wants me to cut the discount rate, or lower bank reserve requirements, or both. He’s pushing ahead with pro-growth policies on all fronts. That would not be a bad thing, provided we could take it slow and easy, but the White House wants to move forward a lot faster. And they’re not alone. The Democrats in Congress and a lot of the banks are also on my tail.”
The Fed Chairman seemed to believe we were witnessing the early stages of a new era of growth, but not the moderate, sustainable growth that he would prefer. Instead, it looked like it could be the kind of growth that’s powered by a lot of debt, eventually leads to massive money printing, creates speculative bubbles, and ends very badly.
Chairman Martin was right, just like Bernard Baruch had been right. The country was flying off in a new direction. That direction would be good for a while, but it would ultimately threaten our financial system as we knew it. Someday, it might even undermine our democracy.
The lesson for investors is clear: Be careful what you wish for. If it requires a lot of debt and “just a little more inflation,” it will not end well.
Yes, you can certainly profit handsomely while it lasts. You’ll get economic growth. You’ll get more corporate earnings and rising stock prices. But you’ll also need to know how much cash to keep in reserve, when to start taking your profits off the table, and when to run for safety before the next bust. Count on us to alert you.
Good luck and God bless!