Forgotten Man, The

by Amity Shlaes

  Mellon was a minority shareholder. But Jackson and Rice would show reporters a chart dramatizing Mellon’s influence at Aluminum Company of America—it looked stupendous. The attorneys argued that such a large company could not be good. Mellon’s lawyers countered forcefully, noting that the chief symptom of a damaging monopoly was high prices for the product. But the price of aluminum had come down nearly continuously since the company’s founding half a century ago.

  Tax prosecutions were also moving ahead. Though there was still a sense of vengeance, there was also still the practical need for the revenue. Mellon’s theory that higher rates sometimes narrowed revenue streams—that you could not charge over “what the traffic will bear”—was being borne out. The president told Congress that though Washington had raised its tax rates, the Treasury was still short $600 million. Roosevelt blamed not the arrangement but the wealthy themselves. Roosevelt, Morgenthau would tell Treasury officials, “wants to say flatly that our estimates and our methods of estimating are correct, but the citizens—that’s the word he used—found a trick way of finding loopholes.” Roosevelt insisted that these “loopholes be closed and that they be retroactive.” If revenues were wanting, Roosevelt didn’t mind investigating, prosecuting, or legislating his way to them. The concept of deficit budgets still sat easily with neither Morgenthau nor Roosevelt.

  Panicked for cash, Morgenthau now had his Treasury set about trying to create dozens of Mellons. Roswell Magill of the department audited individual returns in New York and found, according to Morgenthau’s diary, that citizens were using old tax breaks—legally, mostly. But Roosevelt was now set on erasing the old distinction between evasion and avoidance that the Treasury had danced around so long. Roosevelt also set out to prove that the intention of taxpayers who failed to complete complex returns correctly was malign: where there was ambiguity, taxpayers ought to be presumed guilty.

  This was especially disingenuous of the president, for Roosevelt himself would submit an ambiguous tax return for the year 1937. His income from the presidency that year would be $75,000, about Willkie’s level. But there were other issues that complicated the return. As he would write to Commissioner Guy Helvering, “I am wholly unable to figure out the amount of the tax for the following reason…” His own tax problem—one involving the timing of tax obligations—was something only experts could solve. “As this is a problem of higher mathematics,” wrote FDR, “may I ask that the Bureau let me know the balance due? The payment of $15,000 doubtless represents a good deal more than half of what the eventual tax will be.”

  Morgenthau prepared memoranda with the lists, and Roosevelt was eager when they met on May 17: “Henry, it has come time to attack, and you have got more material than anybody in Washington to attack.” Roosevelt was worried about the conservative Democrats, and he needed Morgenthau: “Now it’s up to you to fight.” Morgenthau was excited to laughter at Roosevelt’s energy.

  “Why are you laughing?” the president asked. “Because you are such a wonderful showman,” Morgenthau replied. “I don’t know what’s going to happen. I can’t guess what I have got that is so useful to you.” The men pulled together a list of businesses and individuals who had, as Roosevelt reportedly put it, “found means of avoiding their taxes both at home and abroad.” Herman Oliphant of the department had written up a tax evader—it was apparently clear in this case—who had failed to declare both dividends and profits, as well as bribed relations. Roosevelt was irate, pounding the desk. “Why don’t you call him a son of a bitch?” the president asked. He wanted the man behind bars, Morgenthau would later report in his diary.

  “I want to name names,” Roosevelt told Morgenthau. While he and Morgenthau decided for the moment to stop short of publicizing the list, Roosevelt read much of it to people around Washington, thereby ensuring news leaks. One influence on the president was Felix Frankfurter, who, along with his protégés, usually cited an old Oliver Wendell Holmes quote to justify tax increases: “I like taxes. They are the price I pay for civilization.”

  At 9:45 on May 19, while Roosevelt was still in bed, a messenger brought a letter to the White House: Willis Van Devanter was resigning. Taking advantage of the new law that allowed justices to retire on full salary, he would be leaving June 2, at the end of the term. As historian Marian McKenna reports, Van Devanter tried to calm them and defended his move, telling them of his neighbor on Connecticut Avenue that “Borah favors it.”

  Perhaps the news emboldened Roosevelt on the tax front. After an initial hesitation, he decided in the end that there was no substitute for giving out names. On June 24, 1937, tax commissioner Guy Helvering named sixty-seven “large wealthy tax payers, who by taking assets out of their personal boxes and transferring them to incorporated pocketbooks have avoided paying their full share of taxes.” Thomas Lamont, John Raskob, Pierre Du Pont, William Randolph Hearst—and Andrew Mellon, again—were all listed. The tax decisions of these men were, the Treasury acknowledged, “perfectly legal,” but still not conscientious. The publicity was followed by a law passed unanimously by both houses of Congress, limiting or eradicating tax-favored mechanisms, from breaks for trusts to breaks for personal holding companies and country estates.

  Many observers were upset anew at this effort at shaming the men. The idea that one could ignore the law seemed grossly unfair. What Roosevelt and Morgenthau—two wealthy men themselves—were doing was worse than moving the goalposts; they were formally moving the goalposts in a game already played. One of those to register his shock was J. P. Morgan, who was returning home from a trip to Britain on the Queen Mary. While he was still on board, reporters asked Morgan what he thought of Roosevelt’s tax plans. Apparently caught off guard, and perhaps not attuned to the mood of the second term, Morgan told reporters that there was nothing wrong with avoiding taxes. “Legal Tax Dodging Upheld by Morgan,” blared a headline, “Would Mend ‘Stupid’ Law.” Stepping onto dry land, Morgan had second thoughts. He issued a defensive statement: “My interview on shipboard with newspapermen last Monday took place before I had seen President Roosevelt’s message…. What I feel strongly is that, when a taxpayer has complied with all the terms of the law he should not be held up to obloquy for not having paid more than he owed.”

  Far more confident in his reaction was Alexander Forbes, the president’s cousin and a professor at Harvard Medical School. Forbes wrote to the Boston Herald that the “true patriot” would “claim every exemption the law allows and he may have more to spend on enduring contributions to the betterment of mankind.” This repetition of Mellon’s message, coming from a relative to boot, stung Roosevelt: “I do not hesitate to brand you one of the worst anarchists in the U.S.,” he wrote to Forbes. “And, incidentally, I use ‘anarchist’ in the pure Greek sense” (from the root, which means “without government”). When it came to Morgan, Roosevelt was also scornful, asking mockingly of Charles Burlingham of the New York Bar what he made of “Morgan’s exposition of Christianity when he landed the other day…ask yourself what Christ would say about the American Bench and Bar were he to return today.”

  The tax battle was not the only one going on in June. The unions were making advances—even in Willkie’s world. Commonwealth and Southern announced that Willkie and Lewis’s CIO had agreed to a raise for all operating employees at Consumers Power Company, a Commonwealth and Southern subsidiary. Consumers employed 6,600 workers, so it was an important challenge for Commonwealth and Southern. But one it could afford: operative revenues were up.

  But two things were becoming clear now. The first was that Roosevelt was having trouble in his court-packing fight. The legislation, he was finding, simply couldn’t be sold to the country, no matter what Stuart Chase wrote. And it was not popular in the Senate, either. Instead of welcoming the bill, the Senate Judiciary Committee rejected it. This despite Robinson’s Herculean effort, and even though seven of the ten members of the committee, a firm majority, were Democrats. The language of their rejection was unforg
ettable: the senators said that Roosevelt’s act “should be so emphatically rejected that its parallel will never again be presented to the free representatives of the free people of America.”

  Roosevelt rallied, hoping to jolly Congress along by inviting lawmakers to a weekend on Jefferson Island. The lawmakers enjoyed themselves, and some of the rage diminished. There was more debate, as the summer warmed. But the president’s legislative leader in the fight, Senator Joe Robinson, succumbed one night to a heart attack, and soon it was clear that Roosevelt had lost this fight. “The Court Bill was dead, dead as a salt mackerel shining beneath the pale moonlight. As dead as the ashes of Moses, the world’s first law giver,” commented the Jackson Daily News of Mississippi. Hiram Johnson of California put it even more clearly, crying out in the Senate chamber: “Glory be to God.”

  The second reality was that while Roosevelt was losing his court-packing battle, he was still winning his war against the Court. The recovery seemed to have slowed, but there was the record of the achievement of the spring, when the market moved close to 200. Cordell Hull, secretary of state, had persisted, and his trade agreements lifted burdens from many economies. There had been economic gain from that too, even if Hull didn’t have the Nobel. That year the Economist magazine would write, “In this tariff-ridden world the sight of any nation deliberately seeking to lower its tariffs is both rare and refreshing…. It is fully possible, for example, that Great Britain has already gained more from the concessions given by the United States in her treaties with other countries than could be obtained in a direct Anglo-American treaty.” The phrases amounted, almost, to an offer of forgiveness for the administration’s behavior at the 1933 London conference.

  Frankfurter had been right. Time was doing for Roosevelt what he could not convince Congress to do. With Van Devanter going, Roosevelt could name his first man to the court—Hugo Lafayette Black of Alabama, chosen later that summer. Very shortly it emerged that Black had belonged to the Ku Klux Klan. What, Roosevelt’s friends at Howard asked themselves, could the president mean by such an appointment? The Socialist Norman Thomas and the National Association for the Advancement of Colored People expressed concern. But Hugo Black got through. And now it was clear that within several years Roosevelt would be able to shift others, perhaps Stanley Reed and Robert Jackson, or Frankfurter, over to the Court as well. Roosevelt had assailed the justices for their tenure in office, their longevity. But he was prevailing over them because of his own longevity in office.

  When observers thought about it, they realized that the outcome of Roosevelt’s advance generally had been clear as far back as June. Then Roosevelt had finally acted on his old threat and put forward legislation to replicate the TVA. Senator Norris had introduced “the seven TVAs bill,” as it was shortly known. From the Atlantic to the West Coast, there would be seven little TVAs, including a Southwestern Authority, to cover the Colorado River, Hoover’s old territory. A nationwide chain of TVAs would be hard to undo once built. Willkie noted that the project would double the national debt, his biographer Joseph Barnes reports. Besides, steam power was more economical anyhow.

  There had been another June signal of FDR’s inexorability when 9,200 doctors attended an American Medical Association meeting in Atlantic City. The mood was a happy one: the physicians were looking at a new drug that seemed to conquer bacterial infections. It was called sulfanilamide. An expert from Pittsburgh, Ralph Robertson Mellon—no kin to Andrew—reported that this drug apparently could cure “certain types of pneumonia, typhoid, brain abscesses, scarlet fever and meningitis.” Other doctors reported similar wonders.

  But the doctors were distracted even from the miraculous sulfanilamide when a representative of the New York State Medical Society, Joseph Kopetzky, spoke. Kopetzky, an ear doctor, suggested a plan that would alter their very independence as professionals: the nationalization of health care. Under the plan, as reported by Time, “Every one of the 150,000 U.S. doctors must become an officer in the Federal Public Health Service.” The federal government would pay for whatever service citizens could not pay. There likely would be a new secretary of social welfare. The doctors debated long into the night as to how the American Medical Association might reply. They paid such attention because they heard that Roosevelt had already seen Kopetzky. The doctors might not know everything, but by now they understood that once Roosevelt made a project his, he would not give up—unless someone stopped him.

  12

  the man in the brooks brothers shirt

  January 1937

  Unemployment (January): 15.1 percent

  Dow Jones Industrial Average: 179

  ONE MORNING IN JANUARY 1937, about two weeks before Roosevelt was inaugurated, several reporters in New York showed up at an unusually large new office building overlooking New York’s East River. They had come downtown to meet a new figure: Rex Tugwell, Wall Street man.

  Tugwell had resigned his post as undersecretary of agriculture after the election, and this time Roosevelt had not blocked him. Tugwell guessed that the cost of having him around had simply become too high for the president. The greenbelts and projects like Casa Grande were impossibly controversial. “Franklin did not doubt my loyalty any more than he ever had, I am sure, but he had been half persuaded—and Eleanor even more than he—that I had totalitarian leanings,” Tugwell would later write.

  Tugwell’s Resettlement Administration, which had stood alone, was now slated to become a suboffice of the Agriculture Department. Living with that fact alone would have been hard to tolerate. Tugwell also had personal matters to deal with. He was thinking of leaving his wife and marrying his assistant from the RA, Grace Falke. He told himself that New York would be a better place to sort things out than Washington. He had an apartment at 460 Riverside Drive. It was time to go.

  Still, the overnight transformation from New Deal bureaucrat to New York executive at 120 Wall was bold even for Tugwell. After all, the projects he had started were still functioning, and his staffers were still dressed in the khakis of fieldwork. In May Dorothea Lange would travel to the area around Casa Grande and photograph the long-limbed, destitute children of migrants—evidence of the need for resettlement projects like his model farm. Yet here was Tugwell, dressed in blue serge, standing before reporters at a nineteenth-floor office. The reporters learned that Tugwell would be a vice president at American Molasses Company, a sugar concern. The company belonged to New Deal friends: the Taussig family. Charlie Taussig was an old New Dealer, and Adolf Berle sat on the American Molasses board. The visitors saw that Tugwell had twenty roses on his new desk, a gift from the board of American Molasses.

  Tugwell reminded the reporters that this was not his first experience in the private sector. He had worked for his father’s canning business, the same one that he had fined as an agriculture department official three years earlier. He clearly feared he might be caught flat-footed on the facts about the company—“But don’t ask me about cotton. I’m a molasses man,” he had joked earlier with reporters. One reporter now asked him what he thought about getting a Social Security number. After all, the Social Security program payroll taxes were beginning and the numbers were a novelty for the country. Here Tugwell did blunder: “I’m out of that class,” he replied, confused. Taussig corrected the slip—Tugwell would be a salaried employee and get a number. He would get a number and would pay into the new program like all the rest.

  Taussig also explained Tugwell’s move to the press: “In these changing times every business needs the service of men trained in economics, with a broad objective social viewpoint.” The Times reporter gave the impression that Tugwell didn’t mind leaving government; after all, it reported him as saying, “many of the things he had planned are being carried out.” The headline the next day read, “Tugwell Bit Hazy about His New Job.”

  Tugwell was not the only New York intellectual feeling “hazy” and reexamining his old convictions. The news from abroad dominated the headlines: Stalin was execut
ing one old hero of the Soviet Union after another in secret or semisecret proceedings. The whole idea of being on the Left was changing. Legitimately frightened by Hitler, some found themselves moving close to Soviet Russia despite themselves. A new divide was emerging among the intellectuals.

  Some still supported Stalin. In March 1937 Corliss Lamont, the son of Thomas W., wrote a plea for liberal unity stating that “we believe that the Soviet Union needs the support of liberals at this moment, when the forces of fascism, led by Hitler, threaten to engulf Europe.” Paul Douglas’s ex-wife, Dorothy Douglas, signed it, as did the writer Lillian Hellman; Robert Lynd, the author of Middletown; and Louis Fischer, who had been in Moscow during the 1927 visit.

  But others were anxious. Stuart Chase still wrote admiringly about the Soviet experiment from time to time. But he was shifting his attention to a new topic: words and their meanings. “We have circled all around ‘capital,’ and ‘capitalism,’” he wrote, “but made little progress in defining them.” That June, Harvey Chase, his father, would write to Roosevelt about Stuart’s forthcoming book, which would be titled The Tyranny of Words. Chase Sr. briefed the president: “No longer a socialist, communist, or collectivist, he has become a semanticist.”

  And some of the old Left were simply appalled. Suzanne La Follette, a member of the clan of liberal reformers, now pointed to Russia as the very opposite of her definition of liberalism. She penned an angry public letter to the Nation, which had not taken a clear stand against the trials: “I shall not be surprised if within ten years the Nation’s left-handed endorsement of Stalin’s liquidations of the October Revolution is something that its editors would prefer to forget.” Paul Douglas was likewise shocked. The next year Douglas would happen to be reading an item in the New York Times about a Trotskyite leader whom the Russian secret police had executed, and recognized the name with a start: Betty Glan. It was the Russian woman who had come up to him on his 1927 tour. Murdering one’s corevolutionists seemed the very opposite of the liberalism the American Left saw as part of the spirit of revolution. What was the point of revolution, anywhere, if it led to this? Even if the New Deal had been proceeding perfectly, the Soviet Union would have caused them to question their old precepts.