The New Deal Excerpt

PROLOGUE:
The Long Winter

“I pledge myself to a new deal for the American people.”

Samuel I. Rosenman always claimed that he gave those words little thought when, holed up in a dining room of the executive mansion in Albany and fortified by a rough meal of boiled frankfurters and a pot of coffee, he scribbled them on scrap of paper.

At that moment he was convinced they would never be uttered aloud. It was the early morning of July 1, 1932. In Chicago, the Democratic National Convention had completed its third ballot for the nomination for President. Rosenman’s candidate, New York Governor Franklin Roosevelt, was still eighty-eight votes short of the required two-thirds majority. Roosevelt’s speechwriter, a charter member of his Brain Trust, and an old personal friend, Rosenman had been drafting the governor’s acceptance speech, on and off, for months. The body of the speech had reached its final form several days earlier. All that remained to be drafted was the peroration, that uplifting oratorical coda pinned to the end of every well-crafted speech. Rosenman had set aside the peroration for last, and during the frenetic first days of the convention left it undone.

Seeking a respite from the long, numbing sequence of nominating and seconding speeches coming over the radio, Roosevelt had tried his hand at a closing. But constant interruptions by phone from the convention floor ruined his concentration. He read his effort aloud to his gathered aides. “We unanimously said it was terrible, so he sadly tore it up,” Rosenman recalled. The next day he took up the task as an antidote to his own restlessness. His spirits were weighed down by the thought that all his work would likely be in vain, for the nomination seemed to be drifting further away with every inconclusive ballot.

Rosenman never specified the source of the term “new deal,” but it was certainly in the air. His fellow Brain Truster, Ray Moley, had used it in a covering note to a package of informational memos he had given Rosenman to pass on to Roosevelt in May. (Moley had written that Herbert Hoover’s promise of imminent prosperity “is not the pledge of a new deal; it is the reminder of broken promises.”) The term also was part of the title of a series in The New Republic by the economic commentator Stuart Chase, which began appearing on June 29, the eve of the convention, and continued through July. In the four installments of “A New Deal for America,” Chase argued that the Depression had been caused by overinvestment in industrial plants and production during the 1920s. He surveyed possible remedies, rejecting violent revolution or the dictatorship of Big Business in favor of a “third road”: central regulation leading to a “progressive revision of the economic structure, avoiding an utter break with the past.”

In his memoirs Rosenman credited neither source, but both usages were certainly known to him and perhaps recorded in his subliminal memory. After all, several other phrases from Moley’s cover letter made it into the acceptance speech almost verbatim. And Chase was a sort of orbiting satellite in the Roosevelt universe, if not a member of the inmost circle of advisors; it was he who had discovered and recruited for Roosevelt’s team a progressive-minded Utah banker named Marriner Eccles, whom Roosevelt would later appoint governor of the Federal Reserve. Chase’s view of overinvestment as a cause of the Depression had become Roosevelt campaign orthodoxy, as had his recommendation for overhauling rather than demolishing the nation’s existing financial structure.

Roosevelt, handed the scrap of paper with Rosenman’s drafted peroration before leaving Albany for Chicago, told him it seemed “all right,” but the phrase “new deal” passed unremarked. When he delivered the speech from the convention floor on July 2, Roosevelt gave the words a modest cadential stress, but no more than he did to several other phrases in the text that might have served just as well as a clarion call—“a new chance,” for example, or “a new order” or a “new time.”

The elevation of this casual phrase into a unifying label for Franklin Roosevelt’s peacetime domestic policy was an accident of history. The next day’s newspapers treated the peroration with indifference. The New York Times did not quote the “new deal” phrase at all in the front-page convention report by its distinguished Washington editor, Arthur Krock; the Los Angeles Times slightly misquoted its context. But the New York World-Telegram published a drawing by its editorial cartoonist, Rollin Kirby, depicting a farmer staring up at a plane passing overhead with the words “New Deal,” emblazoned on its wings. This was “the first indication that a popular phrase had been coined,” Rosenman reflected. “Within a short time it became a commonplace—the watchword of a fighting political faith.”

On the afternoon before Inauguration Day, Rexford Guy Tugwell was weighed down with a sense of foreboding.

Earlier in the day, Tugwell had boarded the train carrying President-elect Franklin Roosevelt along with several other original members of the Brain Trust, the team of old friends and newly-recruited academics who had schooled the youthful Governor of New York in the intricacies of national policy and joined him on the long road to nomination and electoral victory in 1932.  The traveling party had assembled at the President-elect’s townhouse on 65th Street in Manhattan, then crossed the Hudson River and headed for the Baltimore and Ohio train terminal in Jersey City in a parade of limousines.

This was the first of many displays of ostentation during the Inauguration weekend that Tugwell would find jarring, given the economic misery all about him. But for the moment he chose to submit to routine—“amenities had to be observed,” he told himself. After all, this was the President-elect’s option: Roosevelt himself had ended the debate in his circle over whether to hold an Inauguration Gala with parades and balls, vetoing the idea of canceling the festivities lest the change in plans add to the nation’s anxiety.

After the train left the station, Roosevelt called the members of his party one by one back to his car, the last one on the special. When Tugwell’s turn came, the professor from Columbia expected to be drawn into a discussion of the agriculture crisis, his particular expertise and the subject of his portfolio in his new job as an Undersecretary of Agriculture. Instead, he found Roosevelt in a contemplative mood. As the industrial countryside of the Delaware River valley flashed past, he remarked to Tugwell on the profusion of smokeless factory chimneys, yet another sign of economic paralysis.

Then Roosevelt’s mood shifted abruptly, and they were on to a discussion of student life at the University of Pennsylvania, where Tugwell had studied twenty years before. At length Tugwell was dismissed to make his way forward to his own compartment, marveling not for the first time at his boss’s ability to maintain such composure in the face of the horrific responsibilities he would be assuming in less than twenty-four hours.

Over the many months they had worked together Tugwell had become familiar with Roosevelt’s even temper, his supreme self-confidence. Not so Henry Wallace, the ascetic, mystical Iowa farmer who would be Tugwell’s immediate superior as Secretary of Agriculture, who came wandering back from his own audience with Roosevelt in a lather. Every compartment on the train, he fumed, seemed to be consumed with frivolous revelry: “It’s incredible. The country is in ruins and we seem to be on a kind of Sunday picnic.”

Tugwell tried to explain to the outraged Wallace that Roosevelt’s apparent cheer stemmed from his knowledge that everything that could be done in the next few weeks was already in process—emergency proclamations had been drafted, bills readied for introduction at a special session of Congress, speeches penciled out.

Yet he could not help but share some of Wallace’s misgivings. In the four months since the election, the country’s condition had steadily deteriorated—then, in the last two weeks, taken a sickening plunge down, as though pitched over the rim of a waterfall. One by one, governors had ordered their states’ crippled banks closed. On the very eve of the inauguration, the last lights winked out in Illinois and New York. “The economy was seized with an incurable illness much as an individual is,” he would recall of those dark days. “And the economic doctors had no more helpful advice than medical doctors have when faced with approaching death.”

The crisis had exposed the vacuity of Republican economic orthodoxy. But Tugwell wondered whether it might not also expose the limitations of the Wilsonian progressivism motivating Franklin Roosevelt and many members of his inner circle—that marriage of anti-monopoly regulation and laissez-faire economic policy that owed so much to Wilson’s intellectual guide, Louis Brandeis, and the latter’s aversion to “bigness” in business and government alike. “The old stuff seemed inadequate,” Tugwell wrote. “Desperate illness calls for something more.” During the campaign he had preached that the federal government would have to assume an unprecedented role in delivering relief to the destitute and stern discipline to the business community, which had played a central role in the disaster and resisted taking responsibility. The New Deal would live up to his expectations in the first respect, but not the second.

The revelers aboard the inaugural train were not immune from feeling the paralyzing effect of the Depression. Many of them, prevented from withdrawing cash from their shuttered banks before embarking, would be unable to pay their hotel bills in Washington. And they were the privileged, with paying jobs in the new Administration. What of the others, millions of others, with no pocket money and no prospects, food and shelter receding out of reach? These were the millions waiting for Franklin Roosevelt’s train to arrive.

Politically maladroit as a fully empowered President, Herbert Hoover had proved no more adept as a lame duck. Part of the problem was the length of the lame-duck period. The interregnum between Administrations would be shortened from four months to about ten weeks by the newly-ratified Twentieth Amendment. But it would not become effective until the 1936 election. In the meantime,  Lippmann observed,

no one has power and no one has responsibility. The President is virtually without influence. The President-elect is without authority. So power is divided among the leaders of factions, no one of whom is strong enough to govern, though almost every one of them is strong enough to stop every one else from governing.

Compounding the difficulty, Hoover was ungracious in defeat. He believed he had broken the back of the Depression by June 1932, and that the economic recovery would have continued had business leaders and the public not become spooked by the prospect of a Roosevelt presidency. The recovery had been stymied, he maintained, by a vicious circle in which fears of Roosevelt’s policy intentions bred stagnation, which perversely got blamed on his own Administration and caused his defeat at the polls. “The rest of the world turned to recovery in July, 1932, and only the United States marched in the opposite direction with the election of 1932,” he wrote later. “With the ominous election returns from Maine on September 14th [Maine traditionally held an early election to beat the onset of winter], the country began to realize that Roosevelt would win….The prices of commodities and securities immediately began to decline, and unemployment increased.”

More likely, the July 1932 upturn was merely another in a series of false recoveries that had bedeviled economic prognosticators for more than a year. Although fewer banks failed in the second half of the year (635) than in the first (818), the financial sector was far from stable. Jesse Jones, who as head of the Reconstruction Finance Corporation pumped more than $400 million into banks across the country in that half-year, likened the process to stamping out brush fires. “We were far from being out of the woods,” he recalled. “Like a fire department we were on all around the clock.”

Stock prices had ticked up in August from another sickening plunge earlier in the summer, but by the end of the year they were again bumping along the bottom, averaging less than half their 1926 values–in some industrial sectors, such as steel and textiles, only about 25 percent. Even if one wished to take the optimistic view that the economy had stabilized, there could be no doubt about its fragility.

Hoover believed that the nation’s only salvation lay in his ability to maneuver Roosevelt away from the “radical and collectivist” tenets of the New Deal and back toward his own traditionalist policies. This effort started only five days after the election. While still en route back to Washington from his California home Hoover sent the President-elect an urgent telegram. “Our government is now confronted with a world problem of major importance to this nation,” the wire stated tendentiously. The issue was a request by the British and French to postpone $125 million in war debt payments due December 15. Hoover’s telegram proposed a meeting with Roosevelt to draft a joint response.

Roosevelt’s camp treated the overture warily. Given that the $10 billion in loans America had made to the Allied powers had been an irritant in international relations for more than a decade, Hoover’s urgency seemed contrived. His proposal for joint action threatened to commit the incoming Administration with the policies of the old and to entangle foreign affairs and domestic politics in a way that could only complicate the New Deal’s recovery plans.

On February 18, Roosevelt was enjoying the “Inner Circle” banquet of New York city hall newspapermen. This was an annual affair at which the press corps gently tweaked by song and skit New York’s mayor and governor, who were invariably in attendance. Shortly before midnight a Secret Service agent placed a buff-colored envelope in the President-elect’s hands. Roosevelt inconspicuously scanned its contents, and without changing expression passed it under the table to Moley. The aide was surprised to find himself holding a handwritten letter from Hoover—evidently scribbled hastily, for it was addressed to “President Elect Roosvelt.”

It opened, “My Dear Mr. President-Elect: A most critical situation has arisen in the country of which I feel it is my duty to advise you confidentially.” What followed was an oddly circuitous text referencing “the state of the public mind…a steadily degenerating confidence in the future which has reached the height of general alarm,” but alluding only tangentially to the crisis at hand. As song and raillery went on around him, Moley managed to divine the letter’s terrible import, which was that the American banking system was on the brink of collapse. “The breaking point had come,” he concluded.

Had Hoover intended his approach to be spurned, he could not have done a better job of it. His letter dripped with condescension—and not by inadvertence: Hoover would later acknowledge that he had made it “unduly long” because he “feared from the lack of understanding of such questions which [Roosevelt] had displayed in our earlier interviews…that he did not fully grasp the situation.”

But it was Hoover who did not fully grasp the situation, and had not for more than a year. Convinced that the banks would eventually right themselves, he had opposed the enactment of strong regulatory and remedial measures throughout 1932. Although he portrayed himself during the campaign and in his memoirs as a strong advocate of banking reform, the evidence is otherwise: a reform bill sponsored by Senator Carter Glass of Virginia foundered in Congress on the “ill-concealed hostility of the White House,” recounted one of Glass’s advisors, the Columbia University banking expert H. Parker Willis.

Hoover’s letter to Roosevelt blamed the conflagration in the banking sector, indeed the continued economic slump in general, on derelictions by the Democratic Congress and on the President-elect’s failure to steady the nation’s nerves. His proposed remedy was Hooverite to the core: Roosevelt should make a series of reassuring statements. Specifically he should disavow any intention to pursue an inflationary policy (meaning that he should commit to keeping the U.S. on the gold standard); promise to balance the budget “even if further taxation is necessary”; and press Congressional leaders to end the publicizing of RFC loans. “Otherwise,” Hoover warned, “the fire will spread.”

As Hoover informed Republican Senator David A. Reed of Pennsylvania a few days after writing Roosevelt: “I realize that if these declarations be made by the President-elect, he will have ratified the whole major program of the Republican Administration; that is, it means abandonment of 90% of the so-called new deal. But unless this is done, they run a grave danger of precipitating a complete financial debacle…[T]hey have had ample warning—unless, of course, such a debacle is part of the ‘new deal.’”

Gold and currency were draining out of U.S. vaults by hundreds of millions of dollars a week. At the end of February, money in circulation—a measure of hoarding—reached a record $6.03 billion, a figure that literally ran off the Federal Reserve chart, which stopped at $6 billion. The record was destined to be shattered in each of the next three weeks.

The American people were in the throes of agony. The steel and textile industries were at a virtual standstill. Construction contracts were disappearing. The output of coal plummeted, despite the grip of winter. The nation’s most august business leaders trooped before a Senate investigating committee to acknowledge that they had no immediate answer to the crisis or, worse, to mouth tattered old nostrums. “Balance budgets,” advised the investment sage Bernard Baruch. “Sacrifice for frugality and revenue. Cut governmental spending—cut it as rations are cut in a siege. Tax—tax everybody for everything. But take hungry men off the world’s pavements and let people smile again.”

Civil unrest stirred in the farm belt. Bankers appeared at farm foreclosure sales at their peril: In Bowling Green, Ohio, the auction of implements owned by a bankrupt farmer ended when the crowd marched a finance company representative out of sight to certain lynching. (He was rescued by the sheriff.) At a foreclosure auction in Perry, Iowa, 1,500 neighbors showed up in such intimidating humor that the holder of the $2,500 note collected only $45.05. John Andrew Simpson, president of the National Farmers’ Union, informed the Senate Committee on Agriculture: “The biggest and finest crop of revolutions you ever saw is sprouting all over this country right now.”

Signs of an era staggering to its anxious end were everywhere. Six days before the inauguration the Spanish Ambassador threw a farewell dinner for Treasury Secretary Mills—“a dinner of the Old World as I fear we will never see it again,” recollected an American diplomat. “The flowers…came from the South. The sole was sent down from New York and the wines were all of rare vintages…The whole table was ablaze with jewels.” Yet the guest of honor was unable to enjoy the festivities; scarcely would Mills take his seat than he would be called to the telephone. Scarcely would a forkful of fish reach his mouth before he would be called out again. Withdrawals of gold from the banks, he was being told, were accelerating.

Members of the old order were arranging, with a weary air, to vacate their seats to make room for the new. Herbert Feis, an economic advisor to the State Department, received from a colleague a farewell message redolent of exhaustion. “There is a general sense of demoralization and decay in the old crew,” it read. “I am restless to have it over and give my seat to a stranger.”

During the last three days of the Hoover era the atmosphere of calamity rose sharply. A new gold rush was taking place. On March 3 alone, the Federal Reserve Bank of New York lost $200 million in gold and $150 million in currency through wire transfers and exports. The very ground seemed to shake from the impact of banks crumbling to their foundations. Thirty-two states had closed at least some of their banks. The governors of the last two large holdout states, Illinois and New York, were poised to do the same. The nation seemed to be approaching a grand climacteric that would culminate on Inauguration Day either with release, or annihilation.

Hoover made one more attempt to puncture Roosevelt’s serene detachment. The occasion was a ceremonial Friday afternoon tea at the White House for the Roosevelts. Before their arrival, Hoover summoned Mills and Eugene Meyer, the governor of the Federal Reserve, and stowed them quietly in an anteroom, ready to spring them on the President-elect once the social formalities were dispensed with. He was sabotaged by Ike Hoover, the White House chief usher, who revealed the ploy to Roosevelt in a whisper. Roosevelt immediately sent for Moley, who was at his hotel trying to steal a catnap from his twin chores of drafting the inauguration address and managing the bank crisis with Woodin.

Moley arrived in time to join a last desultory discussion of emergency options. Meyer pressed for a nationwide closing of the banks; Hoover sought Roosevelt’s assurance that he would endorse such a proclamation; Roosevelt again insisted that Hoover had sufficient authority to take action on his own. The meeting ended with a petty incivility by Hoover: Understanding that protocol dictated that Hoover return the social call, Roosevelt remarked, “I realize, Mr. President, that you are extremely busy so I will understand completely if you do not return the call.” Hoover fixed him in the eye for the first time that afternoon and replied, “Mr. Roosevelt, when you are in Washington as long as I have been, you will learn that the President of the United States calls on nobody.”

As the clock ticked toward Inauguration Day, discussions continued in both camps. Shortly before midnight Meyer  called Hoover to plead that he declare a bank holiday starting the next morning, when he feared the bank runs would be overwhelming. Hoover petulantly refused, renewing his complaint about Roosevelt’s resistance.

“You are the only one with the power to act,” Meyer told him. “We are fiddling while Rome burns.”

“I can keep on fiddling,” Hoover replied. “I have been fiddled at enough and I can do some fiddling myself.”

At the Mayflower Hotel, the new Administration’s temporary headquarters, Roosevelt remained in conference with Moley, Woodin, Glass, Jesse Jones, and other Democratic leaders. Moley left Roosevelt’s suite after 1 a.m., heading for his own room. When he stepped off the elevator he ran into Woodin.

“I couldn’t even get to the stage of undressing,” Woodin said with an embarrassed grin. “This thing is bad. Will you come over to the Treasury with me? We’ll see if we can give those fellows a hand.”

In Mills’ office they found the secretary in conference with Ballantine, Meyer, and other officials, all red-eyed and haggard. While Roosevelt and Hoover slept that night, separated by a gulf of politics and personal antipathy, their underlings labored as a team. “Everyone forgot political differences,” Moley recalled. “Our concern was to save the banking system.” The immediate task was to complete the process of shutting down the banking system by getting the last few governors to close their state banks. This was achieved after an exhausted Moley had fallen asleep. At 3 a.m. he was jostled awake by Woodin. Silence had fallen upon the room. Scattered about on chairs and sofas were the nation’s preeminent banking and financial regulators, all nearly catatonic with exhaustion.

“It’s all right now,” Woodin said. “Everything is closed. Let’s go.”

Inauguration Day would dawn cold and damp. In ten hours, Franklin Roosevelt would take the oath of office, assuming full Presidential authority at last over the greatest nation on Earth, at that moment a stupefied giant standing face to face with insolvency.