To say categorically that the NRA was a failure is, of course, to dodge the question of what would have happened during 1933 and 1934 if it had not been created. Certainly it diminished child labor and some of the worst sweating of workers. When most business was losing money there was at least a plausible excuse for stabilizing prices to enable companies to regain their feet. Yet as a scheme for distributing purchasing power the NRA proved uncertain at best. And surely it was anomalous that after the hullabaloo and the flag-waving and the patriotic speeches were over, and the Blue Eagle labels had been distributed, and General Johnson had stormed about the country as the herald of a new industrial order, and governmental board after board had been appointed to coordinate what refused to be coordinated,—that after all this, the NRA gradually stood revealed as a governmental arm which protected groups of business men in organizing to maintain themselves against new competition and against the reduction of prices to the consumer: as an agency which accelerated and only partially controlled that process of concentration which the government in earlier reform periods had so earnestly opposed!
While the Administration was trying to stimulate business, it was also trying to reform finance.
That it should be doing so appeared to many observers paradoxical and perverse. Wasn’t reform always deflationary? If the people at Washington wanted men to do business, why pester and frighten them with investigations, regulations, and prohibitions? The principal reason, of course, was that the people at Washington knew that reform was long overdue (indeed, it is interesting to note that some of the changes brought about in 1933 and 1934 had been recommended by the Pujo committee twenty years earlier!); that if it were not undertaken at once it would probably not be undertaken at all, the public memory being short; and that without it, any recovery would probably be unsound and short-lived. (Another wild boom, more speculation, more debt-formation, more exaggerated prosperty for the rich, another break; and once again contraction, stubborn maintenance of prices to save the debt-structure, unemployment, misery.) There could be no enduring prosperity unless the structure of financial privilege which had come to grief in 1929 was altered.
And they knew also that from the point of view of the business world, it never is “the right time” to undertake reform. The voices which were raised in protest now were echoes of those voices which had charged Theodore Roosevelt with bringing on the Panic of 1907, which had assailed Wilson as an enemy of prosperity, had cried out in alarm at the establishment of the Federal Reserve System, and had inveighed against the Reserve authorities in 1928 and 1929 for their ineffectual attempts to halt the great stock-market boom.
(That there were also other motives behind the reform campaign than that which I have just given goes almost without saying. While, for example, one man might want to regulate the Stock Exchange because after witnessing the speculative debauch of the summer of 1933 he felt that the economic processes of the country should not be subject to such violent distortions, another man might want to regulate it because he wanted to be able to speculate on more nearly equal terms with the Cuttens and the Brushes, or because he thought Wall Street men were wicked and ought to be punished, or because he knew that a “vote against Wall Street” would be good politics on the prairie.)
The reforms which went into effect included the following:
1. To prevent bankers from serving two masters, it was provided in the Glass-Steagall Act of 1933 that national banks and banks with Federal Reserve privileges must not have security affiliates. (This change was so inevitable that some of the biggest banks had already anticipated it; even before the banking crisis was over, the National City and the Chase National had hurriedly decided to divorce their affiliates.)
2. With the same purpose in view, investment bankers were forbidden to act also as commercial bankers, or to serve on the directorates of commercial banks—a provision which required the House of Morgan and other big private banks which had previously exercised both the function of distributing securities and the function of accepting deposits to decide which one they wished to exercise and to give up the other.
3. To protect the investor from misrepresentation, the Securities Act of 1933 required those who issued securities to register them with a government commission and to disclose complete information about them; and also provided that any promoter, banker, or corporation executive who misrepresented the facts about an issue of securities might be held liable for losses sustained by purchasers of it.
4. To put the spotlight of publicity on the activities of insiders, the National Securities and Exchange Act of 1934 required every corporation whose stock was to be listed on any exchange to make public the stockholdings and salaries of directors, officers, and large stockholders, as well as any bonus, profit-sharing, or option arrangements or other material contracts which these men might have made with the company; and to report from month to month any change in these relationships.
5. To enable manipulation of the stock market to be checked and undue speculation to be prevented, the National Securities and Exchange Act also put the stock exchanges under government supervision, empowered the Federal Reserve Board to limit speculative margins, and empowered the Securities and Exchange Commission to make rules of various sorts intended to stop pool operations.
In an effort to reduce the financial superstructures of the public utilities to a rational basis, legislation was being considered in the spring of 1935 to put holding companies in the public utility field under Federal regulation, and to empower the government to insist upon the break-up of any holding-company system which did not seem defensible—by reason of the close geographical grouping of its properties—as an operating unit.
Some of these reform measures were so drawn that they involved bankers and brokers and corporation officials in a vast amount of paper work, red tape, confusion, and delay; for example, the Securities Act of 1933 required the filing of so much detailed information that an application for registration of an issue of securities might require the preparation—at heavy expense—of a mountainous stack of documents. And to some extent the reform measures might be described as laborious attempts to lock the barn after the horse was stolen (if not, indeed, to burn the barn down). History, alas, is a one-way street; you cannot legislate things back into the shape they held before the abuses at which you are aiming were invented, and if you attempt to do so, your legislation will sometimes have unforeseen results. But certainly the abuses at which these reform measures were aimed had done grave harm and the reforms themselves in their general outlines were logical.
Indeed, in some respects they were singularly moderate. For example, up to the spring of 1935, the new legislation failed to bring every bank in the country into a single system, and thus failed to rectify an ancient and glaring defect. It did not outlaw holding-company banking, and thus left at least one way open to the service of two masters. It put no limitation upon pyramiding, except in so far as the 1935 legislation might curb it in the public-utility field. It did not touch the personal holding company, and thus left a door wide open to those who would evade tax laws and other statutes. And there was no attempt to require large corporations doing an interstate business to submit to Federal incorporation; they still remained free to incorporate under the laws of whatever state might make things easiest for the promoters—and some of the states still made things very easy indeed. (Indeed, the government added to the irony of the situation by forming its own New Deal corporations in Wilmington!)
As to the New Deal program as a whole, two things remain to be said. In the first place, Roosevelt’s point of view was clearly quite different from Hoover’s. To say that Hoover thought of business in terms of corporations and profits, and Roosevelt thought of it in terms of people, is perhaps not quite accurate. But I think it is fair to say that Hoover thought first of the owners and managers: if they prospered, he felt, their prosperity would filter down to the less fortunate. Roosevelt thought first of the less fortunate: if the
y prospered, he felt, their prosperity would seep up to the owners—even if the owners meanwhile had to be subjected to a little restraint. The Roosevelt legislation, to be sure, was far from consistent in this respect; nevertheless the change of emphasis was significant.
In the second place, the Roosevelt program involved a deliberate recognition of the end of laissez-faire. For the first time in American history, the government definitely assumed responsibility for the functioning of the American economy. The measures which Roosevelt put into effect were not by any means revolutionary; this assumption was.
3
Franklin Roosevelt had been in the White House only a little more than four months when two things happened simultaneously. First, the New Deal program which we have been reviewing began clearly to pass from the stage of feverish preparation to that of execution: it was on July 20, 1933, that the President issued the NRA’s “blanket code,” which was intended to bring about immediate raising of wages and shortening of hours in all industries and businesses throughout the country, pending the adoption of the various special codes. (At this time only one of the special codes had been put into effect.) And, second, the wild speculative boom broke with a resounding crash.
The coincidence was striking. On the very day when Roosevelt announced the terms of the blanket code drawn up by the NRA, the price of wheat was falling, the alcohol stocks in Wall Street were collapsing, and the prices of many other stocks were being abruptly cut in half. (One stock, American Commercial Alcohol, took one of the longest and fastest roller-coaster rides in speculative history, dropping in the space of only four days from a price of 89⅞ to 29⅛!) There could hardly have been a more effective—and disconcerting—advertisement of the difference between joyful promise and sober performance.
There followed a considerable setback in trade; and then—as the New Deal program gradually was converted from dream into reality—there began a long period of virtual economic stalemate.
Month after month, season after season, the business indices moved up and down within moderate limits, never falling so low as in the terrible days of mid-1932 and early 1933, but on the other hand never rising as high as during the early summer of 1933. Busily the Administration developed and expanded and revised its recovery program—and yet the stalemate continued. Bankers and business men alternately cried havoc and predicted a new boom—and yet neither havoc nor boom eventuated.
Not that this long period was uneventful. On the contrary: it was lively with alarums and excursions. First there was the vociferous campaign to put NRA codes into effect in innumerable industries and trades, ranging all the way from the huge steel and automobile and textile industries to such pillars of the American economy as the dog food industry, the vegetable ivory button manufacturing industry, and the shoulder-pad manufacturing industry; all through the autumn of 1933 and the following winter, the voice of General Johnson was loud in the land. Then there was the Treasury’s brief gold-buying experiment—a bewildering adventure which formally came to an end on the last day of January, 1934, when Roosevelt stabilized the dollar (temporarily at least) at 59.08 cents in terms of gold. There was the long procession of bankers to Washington to face the Senate Committee on Banking and Currency and its courteous but indefatigable counsel, Ferdinand Pecora; already the members of the House of Morgan had come before the Committee—in a series of sessions curiously reminiscent of the Pujo inquiry, twenty-one years earlier—and in the autumn of 1933 it was Wiggin’s turn and the turn of the Detroit bankers. There was a long series of bitter strikes, rising to a brief climax in the angry general strike at San Francisco in the summer of 1934. All through that same summer there was a devastating drought in the wheat belt, followed by the most destructive dust storms ever known on the plains. There were intermittent war scares in Europe, preventing international economic barriers from being lowered and disturbing the American equilibrium. In the spring of 1935 there was the exciting campaign for the payment of a cash bonus by the printing of greenbacks—a campaign stopped by Roosevelt’s magnificent veto message. And only a few days later there came the Supreme Court’s decision that the NRA codes were unconstitutional—a staggering decision that brought the second phase of the New Deal to a confusing end.
All through this period there was a torrent of news from Washington of the government’s new programs—the Civil Works program, the home renovation program, the silver-buying program, the social security program, and dozens of others; new alphabetical agencies, new administrative commissions and coordinating committees and boards of review appeared in bewildering succession, and authority was shifted and re-shifted among them until the Roosevelt economic offensive became as difficult to chart as the Insull utility empire. Busily the Presidential quarterback called new plays; now the team appeared to gain a little ground, now to be thrown for a short loss—but still the goal line was very far away.
Before me is a graph showing the rise and fall, month by month, of the Annalist’s Index of Business Activity—a fairly accurate measure of the rate at which business is moving at any given time. On the graph the long collapse of 1929–32 is represented by a line running jaggedly downhill from a high point of 116.7 in the middle of 1929 to a low point of 59.7 in the middle of 1932. The line runs up a few points, then drops again, still farther, to 58.4. That still lower point indicates the paralysis of business caused by the banking collapse of March, 1933. Roosevelt comes into office, the banks are re-opened, the New Deal is formulated, and the line leaps upward from 58.4 almost perpendicularly to 89.3—the high point of July, 1933. But notice what happens now. In the autumn of 1933 it sags from 89.3 all the way to 68.4, losing more than half of the gain made during Roosevelt’s first four months in the White House. In the winter and spring of 1934 it climbs slowly back to 80.2; in the summer of 1934 it slides down to 66.5; in the autumn of 1934 and the early months of 1935 it inches up again to 83.3; then it begins to decline once more.
Was this a jagged progress upward or a jagged progress downward? The answer which one gave to this question depended partly upon the moment at which one looked at the graph and partly upon one’s preconceptions. But surely the significant thing about the period between the late summer of 1933 and the spring of 1935 was the stubborn duration of stalemate. The economic machine did not slide into the ditch, it did not roar away to prosperity; it limped along uncertainly at half-speed.
4
That public opinion should remain static during such a prolonged period of suspended economic animation was manifestly impossible. Enthusiasm for the New Deal waned. Millions of Americans, unable to understand the economic situation and almost unaware of it except as some small part of it disturbed their daily lives, lapsed into indifference again; it is hard to remain excited about a semi-permanent emergency. And the New Deal also lost support through defections both to the Left and to the Right.
The defections to the Left are properly outside the scope of this book; yet they must at least be mentioned, for they were considerable and significant.
The Communist Party was still too small, too dogmatic in creed, and too devoted to the terminology (as well as the philosophy) of European radicalism to be a vital political influence; but the communist idea had gained strength. In many of the strikes of 1934, communist leaders forced the hands of the A. F. of L. leaders; and it was characteristic of the times, too, that among many of the younger urban intellectuals, Marx and Moscow now commanded the sort of homage that Proust and the Left Bank had commanded a decade earlier.
To most of the intellectuals of the Left, the irresistible meaning of what had been happening for five years was that capitalism was in its death-throes. The New Deal was merely a superficial and wrongheaded attempt to shore up a vicious and doomed system. When the New Deal failed—as fail it must, since it insisted upon trying to “organize scarcity” instead of “organizing abundance”—the alternatives would be fascist revolution and communist revolution, for “the overwhelming fact of our epoch” was “the ir
reconcilable conflict between capital and labor.” The only tolerable conclusion of this conflict would be the final victory of the proletariat. Liberals who wished to mediate between these two opposing forces were simply tender-minded sentimentalists (if not fascists in lambs’ clothing). The prospect of revolution was not cheerful, but one must face it realistically. Capitalism must go, said the intellectuals of the Left, and the sooner the better.
What gave this doctrine its very considerable strength as an influence in American thought was the striking extent to which its diagnosis of the situation was borne out by many of the facts of the economic breakdown. Its weakness lay in the treatment it proposed. So steeped were the American people in the tradition of the acquisitive life that a good many bayonets would probably be required to induce them to give up private profit entirely; and so steeped were they—despite their occasional outbursts of violence and bitterness—in the tradition of democratic friendliness, of neighborly tolerance, that to most of them the idea that class hatred was necessary and right was bound to be deeply repugnant. In 1935 there seemed to be little likelihood that the Marxians would win any such immediate popular support as would the siren-singers of easy palliatives.
Lords of Creation Page 42
