The Thomas Amendment and monetary policy

'This is Bad Economics ... But it is Excellent Preaching' by Thoma

The Thomas Amendment

Attached as Title III to the Act, the Thomas Amendment became the "third horse" in the New Deal's farm relief bill. Drafted by Senator Elmer Thomas of Oklahoma, the amendment blended populist easy-money views with the theories of the new economics. Thomas wanted a stabilized “honest dollar”; one that would be fair to debtor and creditor. 

The Amendment said that whenever the President desired currency expansion, he must first authorize the Federal Open Market Committee of the Federal Reserve to purchase up to $300 billion of federal obligations. Should open market operations prove insufficient the President had several options. He could have the U.S. Treasury issue up to $3 billion in greenbacks, reduce the gold content of the dollar by as much as 50 percent, or accept 100 million dollars in silver at a price not to exceed fifty cents per ounce in payment of World War I debts owed by European nations. 

The Thomas Amendment was used sparingly. The treasury received limited amounts of silver in payment for war debts from World War I. Armed with the Amendment, Roosevelt ratified the Pittman London Silver Amendment on December 21, 1933, ordering the United States mints to buy the entire domestic production of newly mined silver at 64.5¢ per ounce. Roosevelt’s most dramatic use of the Thomas amendment came on January 31, 1934, when he decreased the gold content of the dollar to 40.94 percent. However, wholesale prices still continued to climb. Possibly the most significant expansion brought on by the Thomas Amendment may have been the growth of governmental power over monetary policy. 

The impact of this amendment was to reduce the amount of silver that was being held by private citizens (presumably as a hedge against inflation or collapse of the financial system) and increase the amount of circulating currency.