The Great A&P and the Struggle for Small Business in America

by Marc Levinson

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  The November 1938 elections brought sweeping change to Congress. The economy had slumped back into recession in 1937, seriously denting Roosevelt’s popularity, and the president’s controversial plan to add administration-friendly justices to the U.S. Supreme Court turned many old allies against him. Roosevelt’s decision to back liberal insurgents against some Democrats who had opposed parts of the New Deal program exacerbated the split in his party. Although the Democrats retained majorities in both houses of Congress, eighty-one seats in the House of Representatives shifted into the Republican column. Of the seventy-five legislators who had co-sponsored the chain-store tax bill in February 1938, twenty-five did not return to Congress in 1939.5

  Patman’s tax bill was reintroduced in January as H.R. 1, but it faced opposition as never before. At year’s end, Ralph Sharbrough, head of A&P’s research department, told the American Statistical Association’s annual meeting that “proponents of chain store taxes have resorted to the use of half-truths and distorted reports and figures.” Two days later, John A. Hartford granted an interview in which he criticized “punitive” taxation. These public statements were part of Byoir’s master plan. So were new endorsements. Business Organization Inc. had sent out feelers to farm interests, reminding them that A&P had often staged large-scale promotions to help dispose of surplus produce. They responded promptly: two farm groups that often disagreed on political matters, the American Farm Bureau Federation and the National Grange, passed resolutions in November 1938 opposing “discriminatory and punitive taxes.” The National Drainage, Levee, and Irrigation Association, an existing organization, was transformed into a secret A&P front, receiving money in return for opposing the chain-store tax.6

  Real-estate groups joined the anti-tax campaign as well. Along with its monthly rent checks, A&P enclosed letters urging landlords to consider the effects of the chain-store tax on their businesses. Patman spoke before the National Association of Real Estate Boards in October 1938, arguing that the chain tax would benefit property owners, but—thanks to spadework by Byoir—the group adopted a resolution declaring that Patman’s bill would dislocate the real-estate market. Byoir also created a front group, Business Property Owners Inc., to oppose the bill. “So secret was the sponsorship by A&P of this group that bankers and employees in A&P field offices found it necessary to write to Headquarters to ascertain the views of the Company as to this organization,” government lawyers later claimed.7

  Byoir left no stone unturned. After A&P published its “Statement of Public Policy,” he collected the ensuing press commentary and mailed it off to newspaper publishers to drum up yet more commentary. His agency sent a weekly packet of news articles, including a financial column and photographs suitable for publication, to newspapers around the country. In January 1939, he put out a press release asserting that anti-chain agitation actually helped chain stores by reminding the public of chains’ low prices. In February, his contacts encouraged the West Virginia Horticultural Society to speak out against the bill. Byoir invited Roosevelt’s press secretary, Stephen Early, to join him for golf in Florida and asked him to bring along Pat Harrison, the Mississippi Democrat who chaired the Senate Finance Committee, whom Byoir did not know. Early could not come, but Harrison, whose committee would have jurisdiction over the chain-store tax bill should it pass the House, golfed with A&P’s political strategist in Palm Beach. And quite separate from Byoir’s efforts, 135 chain-store operators, not including A&P, financed a national advertising campaign against the Patman bill. Meanwhile, Postmaster General James A. Farley, long Roosevelt’s key adviser on matters of politics and patronage, was rumored to be considering a lucrative offer to become a lobbyist for a large chain-store operator; the firm in question is unknown.8

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  On March 29, 1939, in the midst of this intense maneuvering, Caruthers Ewing, A&P’s general counsel, received an unexpected telephone call. The caller was William Sirovich, a New York physician, playwright, and banker who was serving his sixth term as a U.S. representative from New York City. Sirovich, a longtime friend of Ewing’s and also of Franklin Roosevelt’s, told him of a recent conversation with Roosevelt. The president said his son Elliott wanted to borrow $200,000 in order to purchase a radio station. Roosevelt thought that Sirovich’s friend Ewing could probably approach the Hartford brothers about such a loan. “Why doesn’t he go to a bank?” Ewing asked. Elliott’s securities were not suitable collateral for a bank loan, Sirovich responded, but they were worth $750,000. Ewing immediately transmitted the request to the Hartfords.9

  George Hartford was unwilling to lend money to anyone. John, however, was attuned to the political implications, and he told Ewing it was unfair for Elliott to be handicapped by being the president’s son. With the intermediation of G. Hall Roosevelt, the brother of Elliott’s mother, Eleanor, Elliott Roosevelt was invited to John Hartford’s apartment at the Plaza Hotel. Hartford asked whether his father knew of the loan and said he would not make it without the president’s approval. “Let’s get dad on the telephone,” Elliott responded, and placed a call to Franklin Roosevelt in Warm Springs, Georgia. After some preliminary conversation Elliott handed the receiver to Hartford, who had never met Franklin Roosevelt. “I said, ‘Hello, Mr. President,’ and I heard a familiar voice, a voice I had heard over the radio many times, said, ‘Hello, John,’” Hartford recalled later. “I then told him that Elliott was in my apartment and asked him what did he think about this $200,000 loan Elliott wanted to make in connection with the radio business and the President said that he was entirely familiar with it, that it looked good and gave assurance to me that it was a sound business proposition and a fine thing.” No one said anything about A&P, John continued, but “after the President was so enthusiastic about it I felt that I was on the spot and I had to make a decision right then and there and I did not want to do anything to incur the enmity of the President.” He agreed to the loan, which was secured by two thousand shares of stock in the radio venture, Texas State Network Inc.10

  The entire episode would have remained a closely guarded secret had Elliott been reliable about paying his debts. He was not. At the end of 1941, with Elliott serving as a brigadier general in the Army and the radio stations struggling, Franklin Roosevelt asked Jesse Jones, head of the Reconstruction Finance Corporation, a huge government financing agency, to meet with Elliott’s creditors. Jones called Ewing to say “the Roosevelt family” wished to settle Elliott’s debt. He discussed the matter with John Hartford on December 31, 1941. Hartford, according to Jones, said the money was insignificant to him, as 90 percent of his income went for taxes, and added that he did not want Elliott’s notes in his estate. They met again in March, when Hartford agreed to Jones’s offer to settle the debt for two cents on the dollar. A few days later, Jones handed Caruthers Ewing a $4,000 check; Ewing thereupon took a scissors and cut up the notes to excise John Hartford’s name. Hartford claimed a $196,000 income tax deduction for his loss on Elliott Roosevelt’s debt. The deduction was upheld by a federal tax examiner.11

  Elliott Roosevelt’s loan from John A. Hartford came to light only in June 1945, after Franklin Roosevelt’s death. The House Ways and Means Committee looked into the matter that summer, collecting affidavits and testimony from Hartford and other creditors as well as Ewing and Elliott Roosevelt. It turned up no evidence supporting gossip that Elliott had used his station to support chain retailing, nor to back up Wright Patman’s claim that Hartford wanted to use Elliott’s twenty-five-station radio network to push for repeal of the chain-store tax in Texas. The Democratic majority found that Hartford was probably entitled to his $196,000 tax deduction. The Republican minority objected, futilely, that if the loan represented a loss to John Hartford, then it must represent a gain to Elliott Roosevelt and should be taxed. The question of whether the loan was, in the words of The Washington Post, “a highly satisfactory investment in White House good will” has never been clarified.12

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  By February 1939, the press was speculating that Patman’s tax bill would not even come up for a vote. The North Carolina congressman Robert Doughton, the chairman of the Ways and Means Committee, declined to schedule a hearing. Roosevelt remained studiously disinterested, declining an invitation from the National Association of Retail Grocers to endorse its “trade independent” campaign. When he spoke on May 22 to the American Retail Federation, the group Patman had investigated in 1935, he said not a word about chain stores or the tax bill, despite Patman’s pleas; Patman thought Roosevelt’s friendliness to the group might be related to the fact that his son John worked for the federation’s president, Louis E. Kirstein, vice president of Filene’s department store in Boston. Two days later, Roosevelt quashed a Patman-supported bill to let manufacturers fix retail prices in the District of Columbia.13

  As the economy revived, the steam was going out of the anti-chain campaign. A Fortune magazine survey in February 1939 found 47.9 percent of respondents opposing further regulation of chain stores and only 6.3 percent wanting to put chains out of business. “Independents aren’t howling for chain scalps the way they once did,” Business Week reported. Legislative defeats of state anti-chain measures, favorable court decisions, and moves to repeal existing state and local chain-store taxes were publicized as evidence that the tide had turned. Yet opposition to chain retailing was by no means dead. More chain-tax bills were introduced in state legislatures in 1939 than in any year since 1935. New state taxes were enacted in Montana and North Carolina, and new municipal taxes in Georgia, North and South Carolina, and Virginia. Most important of all, on September 22 the U.S. Court of Appeals upheld the Federal Trade Commission’s finding that A&P had violated the Robinson-Patman Act by demanding discounts and brokerage fees from its suppliers. By refusing to purchase from suppliers that would not give it discounts, the unanimous court said, A&P “injured competition.”14

  Patman pressed his case, reaching an agreement with Doughton and Sam Rayburn on June 7 that the Ways and Means Committee would hold hearings on the chain-tax bill early in 1940. Five weeks later, on July 16, a group called the Independent Business and Professional Men, comprising delegates from around the country, met in Washington to urge action against the chains. Fewer than a hundred delegates showed up for the Sunday cruise down the Potomac River to Fort Washington, and even fewer were at the Willard Hotel on Monday to endorse the Patman tax bill. “It was poorly organized and poorly handled all the way through,” recorded a spy who attended. Although speakers called for building a $2.5 million war chest to fight for the chain-store tax, delegates pledged only $4,500. The main organizer of the fiasco was the author and lecturer Charles Daughters, who had started the Freedom of Opportunity Foundation to sell his 1937 book, Wells of Discontent, as well as to fight chain stores. Seeing that his putative supporters among the Independent Business and Professional Men failed to provide funding, Daughters came up with an even more unlikely approach, proposing to hire an associate of Byoir’s to raise money for the cause Byoir was opposing.15

  Keeping the anti-chain movement going fell to Patman himself. He likely had a hand in dumping the inept Daughters, for on September 15 he circulated a letter, on his official letterhead, stating that the Freedom of Opportunity Foundation was being run by the former Minnesota governor Theodore Christianson and that “Mr. Charles G. Daughters is no longer connected with this movement so far as I am concerned.” A few weeks later, he urged George Schulte, editor of the anti-chain organ Interstate Merchant, to attack the U.S. Department of Agriculture for being too cozy with the food chains. But in the changed political climate, longtime friends of independent merchants, such as the Kansas senator Arthur Capper, shied away from Patman’s tax bill. Patman was so worried that Doughton would renege on the promised Ways and Means Committee hearing that in November he asked Roosevelt to intervene, antagonizing both Roosevelt and Doughton in the process.16

  In an increasingly desperate search for congressional votes, Patman revised his bill in January 1940. The tax rates on chains were cut in half. Companies operating fifty or fewer stores within a hundred miles of a single city were exempted altogether. The provision multiplying the per-store tax by the number of states in which a chain operated was suspended for seven years—but only if the chain agreed not to open new stores or relocate old ones. Patman presented this as a milder, less onerous bill, but it would still have cost A&P, which had around nine thousand stores at the start of 1940, nearly $200 million a year, eleven times annual profits. As one critic jibed, “Cutting the tax rate in half had about the same practical effect as reducing the prison sentence of a convict from 998 years to 499 years.” No votes were swayed.17

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  The long-awaited hearings on the chain-store tax bill were an anticlimax. After Patman threatened to force his bill to the House floor with a discharge petition—the same technique he had used to win a vote on the veterans’ bonus bill—Doughton created a seven-member subcommittee to hold hearings. He pointedly included no legislators from the South or the West, the regions where anti-chain sentiment ran strongest.

  One after another, representatives of the groups so carefully cultivated by Carl Byoir came to Capitol Hill to testify against a bill that, a few years earlier, many of them would have endorsed. State labor federations in places with strong anti-chain movements, such as Texas and Louisiana, now opposed the federal chain-store tax. So did the International Typographical Union, whose members did A&P’s printing. “Mass production methods are here to stay as long as consumers demand them,” said Patrick Gorman of the Amalgamated Meat Cutters’ union, adding that sixty-three hundred of the ninety-four hundred A&P butchers now belonged to his union. Matthew Speedie of the Retail Clerks association praised chain stores while criticizing “unsanitary and uninviting” mom-and-pop stores, which “constitute a menace to the retail industry, because they divert a certain part of the trade from other merchants and operate without profit.” Edward O’Neal of the American Farm Bureau testified that the chain-store tax would force up food prices and thereby limit consumption, reducing farmers’ potential sales. The National Council of Farmer Cooperatives opposed the scheme, and so, at the other end of the political spectrum, did the National Association of Manufacturers. Consumer groups also appeared in force, with Harriet R. Howe of the American Home Economics Association and Caroline Ware, speaking for the American Association of University Women, criticizing Patman’s tax for raising shoppers’ costs.18

  With the chain-store tax headed for certain defeat, the Roosevelt administration finally showed its hand. “We think it would be unwise and unnecessary to give up the economies which have been brought about by chain store distribution,” Agriculture Secretary Henry Wallace wrote to Doughton in opposition. The Commerce Department’s Business Advisory Council opposed the bill because “it kills efficiency in distribution and encourages inefficiency,” and Edward J. Noble, the acting secretary of commerce, echoed the advisory council’s views. The Treasury Department’s tax office deemed the bill unconstitutional. Patman met with Thurman Arnold, the assistant attorney general for antitrust, to solicit support, but Arnold opposed the tax bill. The Federal Trade Commission, which had aggressively investigated A&P two years earlier for violating the Robinson-Patman Act, declined to endorse the tax, suddenly discovering that it lacked up-to-date information about chain stores. Sam Rayburn, who had tolerated his fellow Texan’s anti-chain efforts for years, now steered clear; the mail from his constituents in rural northern Texas ran heavily against the tax. In desperation, Patman sought the support of the retired Supreme Court justice Louis Brandeis, a critic of big business since the turn of the century. Brandeis, then eighty-three, responded with a friendly letter carefully worded to avoid an endorsement.19

  In the second week of May, as the hearings ground to a close, Patman made a last-ditch effort to save his bill. For eight consecutive nights, he held forth on the Columbia Broadcasting System, arguing his case to radio listene
rs nationwide. Moving from the book of Genesis to Leonardo da Vinci to the American farmer, he returned again and again to the idea that the independent merchant was the nation’s bulwark against monopoly. The following week, on the NBC Blue Network, he went even further. “We, the American people, want no part of monopolistic dictatorship in either our American government or in our American business,” he said. “Think of Hitler. Think of Stalin. Think of Mussolini. Let’s keep Hitler’s methods of government and business in Europe.”20

  Such inflated rhetoric did not serve Patman’s cause. Nor did Patman’s last-minute attacks on Byoir on the House floor and then on a national radio broadcast, in which he referred to the A&P strategist as Hitler’s “first agent” in the United States and suggested that he had disclosed military mobilization plans to Germany. On June 18, the Ways and Means subcommittee, headed by the Massachusetts Democrat John W. McCormack, refused to report out the bill to the full committee, effectively killing it. If fear of monopoly justified legislation, McCormack said, “such legislation should be of a regulatory nature and not punitive through the exercise of the taxing power.”21