Forgotten Man, The

by Amity Shlaes

  “Must we,” Roosevelt himself asked the people as he announced the NRA on June 16, “go on in many groping, disorganized, separate units to defeat or shall we move as one great team to victory?” General Johnson and FDR picked an old progressive to be the NRA’s general counsel: Donald Richberg, who had hired young Lilienthal in Chicago and who with Douglas had battled Insull over those tram lines.

  Roosevelt and the brain trusters also created a twin for the NRA: the Agricultural Adjustment Administration, to sort out farming. Henry Morgenthau Jr. had been Roosevelt’s conservation commissioner in New York State and had been “crestfallen” about not getting a cabinet post, his son later recalled—he had watched his father get the news while visiting him at boarding school. But he still had plenty to do helping out farms. At the Agriculture Department, Henry A. Wallace advocated a weaker dollar and price supports for farmers. Tugwell would serve as well, though Columbia’s president, Nicholas Murray Butler, had been flatteringly reluctant to let him go, telling Tugwell he might come back after a year’s leave or so. He would be Wallace’s assistant secretary and work on developing his own notions of planned capitalism. Americans had already retreated to the land in some respects with the onset of the Depression: Roosevelt was now blessing that move and assuring the country that he would seek to make it financially sustainable.

  Wall Streeters thought nearly any Roosevelt policy would be better than the uncertainty of the winter, and flocked around. One new adviser was James Warburg of the banking dynasty, who rode to the rescue, believing that Roosevelt needed help since “no president ever took over a nastier, stickier, more complicated mess.” Of their first meeting Warburg wrote: “I vividly remember my first impression of FDR’s massive shoulders surmounted by his remarkably fine head, his gay smile with which he greeted his guests, and the somewhat incongruous, old-fashioned pince nez eyeglasses that seemed to sit a little uncertainly on his nose.” Irving Fisher, the Yale professor, had a similarly transporting experience. He had made a career of getting close to presidents; over the course of his life he had met with Teddy Roosevelt, Taft, Wilson, Harding, and Hoover. It was not hard for a charmer like Roosevelt to win Fisher over, and he did. Leaving a meeting with the president that year, Fisher would write, “It was the most satisfactory talk I ever had with a President and the most important…. They were all very nice to me but I never felt I got as good a reception of my message before.” In April, thinking Roosevelt would go along with his plans for inflating, Fisher euphorically wrote his wife: “I am now one of the happiest men in the world…. I feel that this week marks the culmination of my life work.” The intoxication of being with Roosevelt changed yet another life.

  Another adviser was Alfred Lee Loomis of Bonbright, who had hired Willkie and sat on his board. Lew Douglas, likewise a conservative, became Roosevelt’s budget director. A final conservative was William Woodin, who filled the spot of treasury secretary: in the first scary week of the bank holiday, Woodin cajoled not only Coughlin, but many banks into staying open when he believed they should. As for the undergraduates of Vassar, Mary McCarthy would note, they were thrilled: their trustee, their own neighbor by the Hudson River, was now in the White House.

  The next stage, governing, came quickly, with the largest item on the agenda being farm prices. In the spring of 1933 agricultural prices stood at 40 percent of their 1926 level; farmers threatened a general strike. Henry Wallace and others told Roosevelt that this must mean there was too much supply and too little demand. They suggested correcting supply. If farmers sold less, their prices would go up. The AAA’s official purpose was to be to “relieve the national emergency by increasing purchasing power”—especially the power of farmers. Unlike many offices in the New Deal, the AAA did hire a number of true leftists, including people who later turned out to be Communists, or spies, such as Alger Hiss. The politics of the individual staff members were not especially evident—Tugwell would later write that if Hiss was a Communist, he was “so far underground that even his close associates did not know it.” The AAA was itself radical, both in the scope of the legislation and the authority it gave officials. The man named to lead the AAA was George Peek of Moline, Illinois. Peek declared that the AAA was not about helping farmers; rather, it would enable them “to do something for themselves that they have been prevented from doing.”

  The act established that farmers deserved the level of price they had received prior to World War I, labeled the fair price. The AAA began paying farmers to produce less. The government also encouraged farmers to sell less by offering them favorable loans in exchange for restraint. To fund all these changes, the AAA taxed middlemen—distributors—an idea that made particular sense to Tugwell. To him middlemen were the profiteers in a system; if a retail price for food was simply too high, then it was the middlemen who, through their cut, were pushing up retail prices. An old folk song line seemed truer than ever: “the middleman’s the one who gets it all.”

  Other big changes were also coming for farmers. Agriculture business required a license, and anyone who operated without one could be fined $1,000 a day. In the new system, commodity buyers might work together in ways that had heretofore been illegal. If in the first year the recalibration did not work, then the AAA would recalibrate until farming and farm prices found their balance.

  At the Agriculture Department, Wallace had his concept for a mechanism to align supply and demand properly: a perpetual mechanism known as the “ever normal granary plan.” When there were surpluses, farmers would receive commodity loans to keep those surpluses off the market and store them. In times of dramatic surpluses, the government would impose production controls. When shortage came, the routine would reverse. The whole idea had an appeal, like the story of Joseph in the Bible teaching prudence to Pharaoh.

  Tugwell, now Wallace’s assistant secretary, was pursing another policy project—limiting overfarming by retiring excess acres. The plows of the 1920s had loosened the fields of the plains and caused floods, including the great flood of the Mississippi. He would replant the country. He focused on conservation and argued that in any case “our trend is from cultivated crops to meadows, lawns and pastures.” He wanted to end the slums in the cities, make parks of them, and relocate entire communities to new suburban centers.

  Some doubted whether Tugwell would get his plans through. Only months into his job, he was already quarreling over the scope of the AAA with Peek. Tugwell irritated Peek, who told people that he thought some of his colleagues’ plans and dreams too ambitious: the name of his department was the Department of Agriculture, not the “Department of Everything.”

  Still, Peek saw that Tugwell was close to the Roosevelts. He drove out of Washington when he could to visit Louis Howe, Roosevelt’s oldest adviser, at his small country house. He traveled out to Quantico to join Roosevelt on his yacht, the Sequoia. He sat at Eleanor’s dinner table. Eleanor’s support was especially crucial, as he would later write in a memoir of the period: “No one who ever saw Eleanor Roosevelt sit down facing her husband, holding his eyes firmly and saying to him ‘Franklin, I think you should…Franklin, surely you will not…’ will ever forget the experience…. It would be impossible to say how often and to what extent government processes have been turned in a new direction because of her determination.” Eleanor liked many of Tugwell’s ideas—and that fact, he knew, would help him enormously.

  Agriculture was only the first part of Roosevelt’s experiment, and the most controlled part. There was also the gold standard, which literally made dollars expensive—and, at that point, scarce. Wall Streeters deemed the gold standard in need of adjustment. Loomis wrote a memorandum advising a more flexible version of the gold standard. If the United States devalued the dollar, raising the price it would pay for gold from its old $20.33 level to a new fixed level, that too would raise prices at home. Devaluation would also raise those farm prices, so crucial politically. Observers guessed that Roosevelt would do one of two things. He would stand by th
e old gold rules, or—more dramatic but still possible—devalue decisively and establish a new monetary order.

  At first, Roosevelt gave signals that this guess was correct. He sent to Congress legislation titled “A Bill to Maintain the Credit of the United States Government,” one which Loomis supported. Living up to its conservative name, the bill cut government salaries by $100 million, then a significant amount. It also cut both government pensions and veterans’ compensation payments—a bold position, less than a year since Hoover’s stinginess toward the Bonus Army had hurt him in the campaign. Congress and the vice president saw salaries cut 15 percent. What people noted most however was the extra power the new law gave the executive branch when it came to payments. “President to Prescribe Degrees of Disability,” read a newspaper summary of Section 3 of the law, which laid out new rules that curtailed payment. The line seemed telling given Roosevelt’s own health challenges. “Claims Once Disallowed Not to Be Reopened,” read another header. Yet a third headline seemed especially striking: “Administrator’s Ruling Declared Final.” It all seemed responsible—the Associated Press noted that the average age in FDR’s cabinet was older than that in Hoover’s by one and a half years. Representative John McDuffie of Alabama pushed the legislation through the House within two hours.

  Wall Street’s confidence strengthened. Roosevelt might be a less expensive president than Herbert Hoover. Whatever else the new executive did in 1933, the market reckoned now in its collective way, he really was reducing uncertainty of the lengthy interregnum as hoped. The fact that his senior advisers included Wall Street wise men was good news. Especially important was the inclusion of James Warburg. The elder Warburg, after all, had been important at the time of the founding of the Federal Reserve. Over the course of the spring, investors applauded by buying stocks, and the Dow began the first steps in what would later be known as the Roosevelt Rally. Industrial production climbed as well.

  But even the conservatives understood that Roosevelt might take more dramatic action; the pressure from the West was great. Silver was more plentiful than gold. Many, especially from the West, were arguing for a currency backed by silver as well as gold. Bryan had died, but never had the Cross of Gold seemed more punishing or his arguments against it more compelling. After the inauguration it became clear that inflation of some sort enjoyed majority support in Congress, no matter what Roosevelt did. The old financial hands in the administration despaired. The news from Europe threw them off balance. Hitler was only growing stronger in Germany, a country whose central bankers they knew and whose economy they had once expected would recover. Treasury Secretary William Woodin was an accomplished songwriter. When the financial team grew tired, he would play the violin. Late in the nights of 1933 Woodin composed a tune he titled “Lullaby in Silver.” The point, as he told a colleague, was “to get this silver talk off my mind before I go to bed.”

  Caught in a jam, Roosevelt decided to waffle. His advisers pondered the scrip in circulation and whether to put it on a par with true dollars. There were ways to loosen the gold standard without officially going off it, and he tried them first. He asked the treasury secretary to call in all the gold in the country, forcing citizens to sell their gold to the Treasury for dollars. There must be no hoarding and no exporting. Citizens must hand in their gold and take dollars in exchange. This was a weakening of the gold standard, which guaranteed one could always buy and sell gold from the government at the set price. And many gold holders had more to lose than those who had placed the image of Roosevelt on their scrip. But Woodin and other spokesmen made it clear to the press that this was not “going off the gold standard.” Roosevelt called the change “temporary,” and loyal Will Woodin told the press outright that it was “ridiculous and misleading to say that we have gone off the gold standard.”

  Next Roosevelt set to work invalidating gold clauses in contracts. Since the previous century, gold clauses had been written into both government bond and private contracts between individual businessmen. The clauses committed signatories to paying not merely in dollars but in gold dollars. The boilerplate phrase was that the obligation would be “payable in principal and interest in United States gold coin of the present standard of value.” The phrase “the present standard” referred, or so many believed, to the moment at which the contract had been signed. The line also referred to gold, not paper, just as it said. This was a way of ensuring that, even if a government did inflate, an individual must still honor his original contract. Gold clause bonds had historically sold at a premium, which functioned as a kind of meter of people’s expectation of inflation. In order to fund World War I, for instance, Washington had resorted to gold clause bonds, backing Liberty Bonds sold to the public with gold.

  Now, in the spring of 1933, upon the orders of Roosevelt, the Treasury was making clear that it would cease to honor its own gold clauses. This also threw into jeopardy gold clauses in private contracts between individuals. The notion would be tested in the Supreme Court later; meanwhile, bond and contract holders had to accept the de facto devaluation of their assets. The deflation had hurt borrowers, and now this inflationary act was a primitive revenge. To end the gold clause was an act of social redistribution, a $200 billion transfer of wealth from creditor to debtor, a victory for the populists. Announcing the legislation before it passed, Senator Elmer Thomas of Oklahoma said, “No issue in 6,000 years save the World War begins to compare with the possibilities embraced in the power conferred by this amendment.” The rich had the money, and “because they have it the masses of the people of this Republic are on the verge of starvation—17,000 on charity, in the bread line.” Now the debtor would, through devaluation, see his debt reduced.

  Even those in Roosevelt’s entourage who disapproved went along, in the hope that all these moves were genuinely temporary, one-time events, and that if and when Roosevelt officially went off gold, he would quickly replace the old rule with a new one—exchanging one promise to deliver gold for dollars at a certain rate for another promise to deliver gold or silver for dollars at another, different rate. The operation would be like resetting a dislocated shoulder—painful but quick, and followed by the euphoria of relief.

  Yet the cries from the West did not abate. And Roosevelt felt he must do more. One April evening that spring—shortly before guests from Britain were expected—he met with members of his cabinet. Secretary of State Cordell Hull was there, along with Treasury Secretary Woodin, Herbert Feis (a holdover from the Hoover administration), budget director Lew Douglas, Ray Moley, now at the State Department under Hull, Jimmy Warburg, and others.

  “Congratulate me,” Roosevelt suddenly said to them. He had gone off the gold standard. There was a political plan—by supporting the Thomas Amendment in Congress, which allowed him to set the price of gold, he would signal to farmers his strong backing for higher prices. But there was no economic plan for what to do now. The men in the room reacted so strongly as to make themselves seem ludicrous: “They began,” as Moley recalled in amusement, “to scold Mr. Roosevelt as though he were a perverse and particularly backward schoolboy.” First of all, they reacted simply at the shock of what he had done—the country had not been off the gold standard in peacetime since before the turn of the century. But far more unusual was the way the president had done it. Why was there no new price of gold? This move was different from simple devaluation. Instead of reducing uncertainty, the president was increasing it.

  Roosevelt was merry, which gave him the advantage. He even teased his guests about their devotion to the gold standard. Even the gold standard had worked, after all, only when men said it must work. Cordell Hull, Moley later recalled, looked as if he had been stabbed in the back when FDR removed a ten-dollar bill from his pocket, examined it, and said “Ha!”—the bill was from a Tennessee bank—“in your state, Cordell. How do I know it’s any good? Only the fact that I think it is makes it so.”

  The country seemed to like Roosevelt’s attitude. Someone had to deal
with the money problem, and he had been brave enough to do it. The papers were reporting that Roosevelt had already, in one way or another, put more than a million people back to work. The Dow was now heading toward the 90s, up from its tiny base. Legislators and southern agricultural commissioners were already busy quantifying the amount of acreage to retire—10 million acres of cotton fields, for example. Farmers began receiving their payments. Peek would be able to announce that checks to a million farmers to pay $110 million on their contracts to take more than 4 million bales of hay out of production had already been sent. To many, this seemed odd, outrageous even. The $110 million that went to farmers more than offset the $100 million in savings the government had gained by cutting its employees’ salaries. In a year of hunger—the year that the pair had starved in the cabin on the New York lake—food production was cutting back, and additional food was being withheld.

  Still, Peek was calling this “the most amazing period in the history of American agriculture.” Of course, the political solution of buying off the farmers in this way was a short-term one. Come spring, the farmers would still be there, and they would want payments again. But this did not seem like an unattractive change, at least politically: it gave the politicians an annual chance to rescue their farmer constituents.

  Roosevelt, for his part, was still busy with the money question, and with an international economic conference to take place in June. In a style that his advisers were already beginning to recognize as typical, he sent emissaries with differing missions to the conference. One was Hull, a great free trader, who imagined that the conference would be an opportunity for the United States and other nations to talk about mutual tariff reduction, undoing some of the damage of Smoot-Hawley. That in turn could open the way to recovery. Roosevelt was also sending his old professor Oliver Sprague, now an adviser, to the Bank of England. Another emissary was James Warburg, who was to work on a new monetary agreement, the sort that would unite countries so that they would be less likely to put up tariff barriers in the future. The best possibility, or so traditionalists among his advisers believed, was that together with Britain, which had earlier gone off gold, Roosevelt’s representatives might put together a new international gold standard after resetting the dollar—at, of course, a new, fixed level.