In the summer of 2008 I started a series of articles about U.S. presidents, which, although it slowed down over time as the articles got longer, continued at a fairly steady pace until the summer of 2017. Then I made the move into public education and lost all my free time, so the series stopped. I am currently taking a sabbatical from the classroom, but I still have too many competing projects to be able to revive this series. However, today is Franklin Roosevelt’s 140th birthday, and to celebrate, I am posting the section of part two that I had completed by the end of 2017.
<< continued from part one
Roosevelt: The Lion and the Fox,
1882-1940
James MacGregor Burns, 1956
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FDR Jean Edward Smith, 2007 |
Traitor to His Class H.W. Brands, 2008 |
Action movies tend to start with a short set piece that introduces the audience to how the hero operates before the main plot gets underway. Upon assuming the presidency, Franklin Roosevelt had a Great Depression to lead the country out of, but that was a battle for the long term. The more immediate crisis was that the nation’s banking system had just collapsed, starting with Michigan on Valentine’s Day and continuing until Inauguration Day, when Delaware became the 48th and final state to shutter its banks. So, minutes after declaring in his first inaugural address that “the rulers of the exchange of mankind’s goods have failed through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated”, Roosevelt had to decide what kind of economic regime America would have going forward—and it was essentially his decision to make, for he had said that he would seek “broad executive power to wage a war against the emergency”, and the newly installed Democratic Congress was eager to give it to him. Some called for all the banks to be permanently nationalized and private finance to be ended in the United States, and if ever there was a time in American history that such a move might be accepted by the public, March of 1933 was it. Roosevelt took a different tack. First, at 1 a.m. on Monday, March 6th, he announced that all banks would remain closed by federal order for one week while analysts did a quick triage to distinguish fundamentally sound banks from those that required restructuring—which both forestalled the risk of a fatal bank run that morning, and signaled to the public that the crisis would be of a limited and predictable duration. Next, to make sure that banks had enough cash on hand to cover reasonable withdrawals once they did open, he decided to simply print some up—an option that was not available to the government prior to the creation of the Federal Reserve under Woodrow Wilson. During the Civil War, the Lincoln administration had issued greenbacks, but those were manifestly different from the gold and silver coins people then thought of as money, and their value drifted up and down with the Union’s fortunes in the war. This new cash infusion, Roosevelt insisted, was to consist of real money: banknotes identical to the Federal Reserve notes that people had grown used to over the preceding twenty years. They would not be pure fiat; like existing banknotes, they would be backed by the assets of the Federal Reserve—just not gold and silver assets. Written up as the Emergency Banking Act, the measure was introduced in the House on Thursday at 3 p.m., passed at four and forwarded to the Senate, passed by the Senate at 7:30, and signed by the president at 8:30—proceeding from presidential proposal to official law in less than six hours. Now the question was whether the public would buy in as quickly as the congressmen.
Ninety percent of American households now had a radio, and on the night of Sunday, March 12th, Franklin Roosevelt delivered his first “fireside chat” as president to an audience of forty million people. Roosevelt wagered that a lot of the anxiety that had triggered the banking crisis stemmed from the fact that most of the public didn’t fully comprehend how banks even worked, and that if he simply laid it out in a clear and informal but not patronizing manner, his listeners would then understand the steps he had taken to get the banks ready to reopen and would be reassured that, with surprisingly few exceptions, those banks were financially healthy and honestly run. Have a listen:
All that remained was to see what would happen on Monday. If people trusted what the president had told them, then all would be well; if not, their panic would doom the banks and thereby doom his presidency. As it turned out, on Monday the banks were mobbed—by people looking to deposit the money they had been hoarding during the crisis. In making those deposits, they brought the crisis to an end. The value of the dollar soared. When the stock market reopened, the first day of trading saw a one-day gain of 15.34%, which remains a record to this day. Presidential speechwriter Raymond Moley declared, “Capitalism was saved in eight days.”
Does this mean that Roosevelt was a “progressive conservative” like his cousin Theodore, whose motive in seeking reforms was to take the steam out of revolutionary movements and thereby preserve the socioeconomic structure of the nation? All of these sources suggest that the answer is no—that Roosevelt wasn’t even that much of an ideologue. He called himself a liberal, but beyond that he was never one for abstract philosophy. He was content to let the academics argue about whether the nation’s sky-high unemployment, rock-bottom farm prices, crumbling infrastructure, and dozens of other manifestations of the Great Depression all stemmed from some fundamental flaw in its political economy. Roosevelt was a problem solver. To him, each of those manifestations was a separate problem to be solved. Therefore the “New Deal” he had promised during the campaign turned out to be not a coherent omnibus plan but a patchwork of programs that sometimes worked at cross purposes. For instance, the Emergency Banking Act of March 9 which printed up all that new cash was inflationary—which would have been a very good thing even in the absence of a banking crisis, given that the inflation rate at the time was negative 5.1%. But the very next day Roosevelt sent Congress the Economy Act, which cut the budget by 14%, mostly by trimming government salaries and by slashing veterans’ benefits in half. This was clearly deflationary, and the measure only passed after conservative Republicans crossed over to replace the appalled progressive Democrats who defected. But Roosevelt viewed the deficit as one of the most important problems to be solved, so it got a bill aimed at it just like all the other ills the Depression had spawned. And even this turned out well for Roosevelt in the end. When the Bonus Army reassembled itself to protest the cuts, Roosevelt directed the military to provide the veterans with lavish accommodations, and arranged for Eleanor Roosevelt to visit their camp and give their complaints a full and fair hearing. “Hoover sent the army; Roosevelt sent his wife,” mused one mollified protester. This second Bonus Army voted to break up peacefully, many enrolling in New Deal programs and others accepting free train tickets back home, and the eliminated benefits were restored within months.
One of those New Deal programs was the Civilian
Conservation Corps (CCC), the bill for which Roosevelt had
drawn up during his first few days in office, at the same time he was
working on the banking crisis.
The idea was simple.
The month Roosevelt took office, unemployment topped 30%.
Nearly sixteen million people were out of work and desperately needed
jobs.
At the same time, Roosevelt had a huge to‑do list and would need
millions of laborers to start ticking off the items on it.
Two birds, one stone: forget about arcane schemes of tax credits to
stimulate employment.
Just have the government directly hire people to get to work on those
projects.
The first project was to tackle the nation’s deforestation problem
and combat the soil erosion that had started to produce frightening dust
storms out on the plains.
The CCC, proposed to Congress on March 21, signed into law on
March 31, and launched on April 5, eventually hired three
million men to plant three billion trees, as well as to build rural
roads and bridges, dig drainage systems for flood control, upgrade
state and national parks, and do literally hundreds of other outdoor
jobs to develop the countryside—particularly out
west, where Roosevelt hoped they would relocate to give the population
a bit more geographical balance.
This side benefit is an example of how, while I said “two
birds” above, the actual count was more like six or seven
birds.
The men who entered the CCC received three nutritious meals a
day—creating a new market for struggling
farmers—and got a tremendous amount of exercise, so when
their stints were up they found themselves in dramatically improved
health.
And since the Army ran the CCC camps, when the U.S. entered World
War II a decade later, that same Army found a ready supply of
sergeants and corporals in its CCC alumni.
Roosevelt also received an unexpected political boost from the CCC, as
organized labor attacked it for its low pay of a dollar a day and for
its military discipline, with men living in barracks and under the
command of not only the civilian superintendents who oversaw the
fieldwork but also actual Army officers.
Were these free workers or conscript labor?
Roosevelt replied that the pay was very good when you added the free
food, free housing, free medical care, and free
education—for only 11% of CCC enrollees had graduated
from high school—and as for the discipline:
“Obviously, you can’t allow a man in a dormitory to get up
in the middle of the night and blow a bugle.”
Roosevelt thus burnished his credentials as an independent
centrist, in the pocket neither of big business nor of the labor
unions, and his popularity among moderates, already high during this
honeymoon period, reached the stratosphere.
One rural area singled out for particularly intensive development was the Upland South, where families were living on an average of $1.75 a day (some on much less), malaria was rampant, and forests were being burned down as farmers who had made their soil worthless sought to clear new land. During World War I the Wilson administration had commissioned a dam at Muscle Shoals, Alabama, to produce nitrates for explosives, and for years progressive Republican senator George Norris of Nebraska had been trying (successfully) to keep it out of the hands of Henry Ford and (unsuccessfully) to put it under federal control to generate power for the region. Calvin Coolidge and Herbert Hoover had both vetoed bills to develop Muscle Shoals, declaring that for the government to get into the energy business went against the principle of free enterprise. Roosevelt, who as governor of New York had wanted to tap the power of the St. Lawrence River, and who as a frequent visitor to Warm Springs, Georgia, had become personally acquainted with Southern poverty, had no such qualms, and on May 18 he signed legislation placing the region under the stewardship of the Tennessee Valley Authority (TVA), which not only provided electricity to the backward hinterland but also supplied it with fertilizer to restore the quality of its soil. Building the dams and wiring to accomplish this employed many people; the textile mills and other industrial plants that moved into the Upland South, now that electricity was available, employed many more. And once again, not only was this good legislation, but it was politically astute legislation as well: in partnering with Norris, Roosevelt nailed down the support of the remaining Republican progressives, and in so directly benefiting states such as Tennessee, Mississippi, Alabama, and Georgia, he nailed down the support of those Southern Democrats who had been wary of having a Northern liberal in the White House, no matter what his party affiliation might be.
Another program to employ people, this time indirectly, was the Public Works Administration (PWA), originally suggested by labor secretary Frances Perkins, the first woman in a presidential cabinet and one of the key players in the Roosevelt administration. Part of the National Industrial Recovery Act that Roosevelt signed into law on June 16, the PWA farmed out contracts for major projects: tunnels, highways, airports, dams. On November 8, Roosevelt supplemented the PWA with the creation of the Civil Works Administration (CWA), which directly hired people to work over the winter laying sewer pipes and building schools.
There was more to the Great Depression than unemployment, of course. The agricultural sector had been in a depression since the end of World War I, caught in a vicious cycle as farmers attempted to make up for low commodity prices through sheer volume: e.g., if wheat went from $1.00 per bushel to $0.50 per bushel, then instead of planting 200 acres a farmer might plant 400. When everyone did this, the market would be flooded and prices would crash even further. The Republican presidents who had held office over this stretch had done nothing about the problem. Harding did nothing because he was too stupid to understand the issue or have an opinion about it, but Coolidge and Hoover had taken no action because of their insistence that the free market would always sort itself out. The laws of supply and demand dictated that when prices fell, producers would exit the market until supply dropped far enough to bring prices up to a level that would lure producers back—no government interference required. But this sort of naive analysis assumes the ability to enter and exit markets in a frictionless manner. “Hmm, my sandwich shop isn’t profitable, so I guess I’ll go be an astronaut. I hear that pays well!” The occasional farmer might pack it in and move to the city to become a shoe salesman, but most stuck to the only life they knew, even in the bad years. The overproduction continued, and prices kept plunging, to the point that, at the very moment that millions were suffering from malnutrition, ripe produce was being left to rot in the fields, not worth the expense needed to harvest it. In some cases crops were willfully destroyed, inspiring many an outraged paragraph by John Steinbeck, incensed that “children dying of pellagra must die because a profit cannot be taken from an orange”. As he described those oranges being sprayed with kerosene, potatoes being dumped into rivers with guards posted to keep hungry people from fishing them out, piglets slaughtered and chemically dissolved rather than eaten, and lamented that “men who have created new fruits in the world cannot create a system whereby their fruits may be eaten”, the solution seemed so very obvious: just give the food to the starving people. The problem is that such a practice would bring the price of that food to zero—not just at that spot, but for miles around, because as Steinbeck himself asked, who would buy oranges for twenty cents a dozen if they could drive out and pick them up? American farmers had demonstrated that the productive capacity of the nation’s land was such that food could be virtually free, but when food is free, who grows it? Who puts in the backbreaking effort to plant a crop out of nothing more than altruism? The laissez-faire answer was that when prices dropped to zero, producers would in fact exit the market, and when demand finally did outstrip supply, prices would rise again, a few farmers would be lured back by the promise of profits, and thus a balance would be achieved. But agriculture isn’t like other markets. When a company can’t keep up with demand for its latest smartphone, the result is a long backorder list. When a country can’t keep up with demand for food, that’s called a famine. Somehow supply needed to be reduced far enough to restore prices to a level that would allow farmers to make a living, without the pendulum swinging so far that people didn’t have enough to eat. If the object of the New Deal had been to install a pure command economy, its agricultural plank could have instituted a system wherein the government analyzed the needs of the populace, dictated to farmers how much to produce based on that analysis, distributed the food they grew to the public, and paid the farmers out of tax revenue. (Whereas the totalitarian solution would have been to just force people onto the farms at gunpoint.) Instead, Roosevelt once again attempted not to dismantle capitalism but to rescue it, getting the Agricultural Adjustment Act (AAA) through the House as early as March 22 and signing it into law on May 12. The idea behind the AAA was that while crop prices were now too low, and while during WWI they had been too high, during the prewar period of 1909 to 1914 they had been just right—high enough to provide farmers with an income, low enough for people to afford groceries—and the food supply should therefore be “adjusted” until prices found the desired level. These adjustments would be made by paying farmers not to grow anything in some of their fields, the money for these payments to be supplied by a new tax on food processors. Exit Steinbeck, enter Joseph Heller. Again, farmers received these subsidies because agriculture isn’t like other sectors of the economy: as one of Roosevelt’s key lieutenants, Harry Hopkins, put it, maybe Republicans were right that the food supply would have sorted itself out in the long run, but “people don’t eat in the long run—they eat every day”. But agriculture was not the only sector of the economy that needed some kind of adjustment. Roosevelt’s next target, in his own words, was “the whole of commerce as well as the whole of industry”.
At one of his regular meetings with the press, Roosevelt told the story of a sweater company that was on the verge of shutting down when the employees, in desperation, unilaterally offered to take a 33% pay cut. This allowed the company to lower the prices of its sweaters, and stores in New York agreed to buy enough at the lower price to keep the operation in business. Reporters who expected the usual encomium on the value of tightening one’s belt and working harder were therefore astonished when Roosevelt declared that this example perfectly summarized everything that had gone wrong in the American economy. These workers had immiserated themselves in a race to the bottom, taking on a hellish workload and still making less than before, and the net gain to society was zero—for in winning the contracts with the New York stores, they had merely doomed some other garment workers to unemployment. To Roosevelt, this constituted a violation of a key tenet of the social contract: in America, if you put in your fair share of work contributing to the commonwealth, you earn the right to take your fair share out of it. And that, Roosevelt declared, meant that “no business which depends for existence on paying less than living wages to its workers has any right to continue in this country”—adding that “by living wages I mean more than a bare subsistence level: I mean the wages of decent living”. One of Roosevelt’s speechwriters, Raymond Moley (mentioned in a couple of times above), worried that this message represented “an enormous step away from the philosophy of equalitarianism and laissez-faire”. Roosevelt replied that “if that philosophy hadn’t proved to be bankrupt, Herbert Hoover would be sitting here right now”. The Republicans of our time, those eighty million or so little Hoovers, have a pat phrase for government intervention to keep the economy from turning into the Wild West: they call it “picking winners and losers”. But Roosevelt’s point was that in a civilized nation, there could no longer be any losers, not in the ultimate sense. “Nobody is going to starve in this country,” Roosevelt insisted, “a simple proposition” that trumped all quibbles over abstract economic philosophy. And that meant that “starvation wages and starvation employment” had to end.
Congress had been on the verge of passing a set of regulations that
would have capped the work week in many industries at thirty hours,
the theory being that firms would thereby be forced to hire more
workers.
Roosevelt found this approach counterproductively
adversarial.
Why not try to keep the business community onside and let some of its
leaders have a hand in drafting the legislation?
The resulting package, which Roosevelt signed into law on June 16,
created the National Recovery Administration
(NRA).
It encouraged businesses to voluntarily agree to a set of
“codes of fair competition”, including a cap on hours
an employee could work in a week and a minimum wage those employees
must be paid; in return, those businesses would be authorized to mark
their product with the blue eagle of the NRA.
Meanwhile, the government would roll out a propaganda blitz to encourage
Americans (particularly women, responsible for 80%
of household purchases) to buy as many products bearing the blue eagle
as they could afford—after years of keeping a tight grip
on every last cent, it was time to buy some new shoes to replace those
hole-ridden ones, time to shell out to repaint that weathered
house, time to splurge on a new car.
As for products that did not carry the blue
eagle label: it was every American’s patriotic duty to steer
clear!
Business interests liked the free ad campaign, and they loved the
NRA’s provision forbidding companies to undercut each other’s
prices: if enough firms got on board, and consumers actually did refuse to
buy proudcts without the blue eagle, it meant guaranteed profits.
(As it turned out, the only holdout of any note was Henry Ford, leading an
exasperated Roosevelt to order the executive branch to stop buying Ford
cars to fill out its fleet.)
The NRA only lasted for a couple of years, but it left its mark.
One of its provisions forbade corporations to interfere with their
employees’ right to organize, and positively encouraged
collective bargaining as the basis of contracts going forward.
“PRESIDENT ROOSEVELT WANTS YOU TO JOIN THE UNION”, posters
declared, and membership soared.
When the NRA was struck down, the unions remained—and served
as a powerful political bloc.
With several new employment programs in place and price supports established for both agricultural and industrial commodities, Congress turned to financial reform. On the same day that it passed the act establishing the NRA, it passed the Banking Act of 1933, among whose provisions two stand out. One was the establishment of the Federal Deposit Insurance Corporation (FDIC), which aimed to prevent the bank runs that had plagued the country for over a century. Now if a bank looked like it was on the verge of collapse, those who kept accounts there could rest assured that the government would reimburse them for any money they lost, up to a very generous limit ($2500 initially, $250,000 today). They would thus be more likely to keep their money in a foundering bank, greatly improving the chances that the bank would survive. Roosevelt was initially against the FDIC, suspecting that it would just encourage banks to throw money around recklessly—but that was like opposing seatbelts on the theory that drivers in danger of flying through the windshield would be more cautious. Roosevelt saw that opposing a measure with such immense public support would be political idiocy, and decided to just accept it rather than risk having a veto overridden. Reckless banking was addressed by the other famous section of the bill, now known as Glass-Steagall, which separated commercial banking from investment banking. Now if investment houses wanted to gamble on non-governmental securities, they could no longer do it using the deposits of everyday people.
Roosevelt had little to do with these financial reforms, but he did take the lead in getting one more plank of the New Deal through Congress that same week: the creation of the Home Owners’ Loan Corporation (HOLC), which bought up mortgages that were in default and offered more generous terms to the struggling homeowners. The repayment schedule was stretched to fifteen years (whereas most banks of the time required repayment in as few as three years), and HOLC interest was five percent, rather than the six to eight percent banks charged. HOLC bought up a sixth of the outstanding mortgages in the country, bailing out over a million homeowners. The housing market had been on the brink—by 1932 the foreclosure rate had jumped to four times the pre-Depression norm, and eight times the norm by the time HOLC was launched. Property values had crashed, and new home construction had fallen by ninety percent during the Hoover administration. In stopping the wave of foreclosures in its tracks, HOLC not only revived the housing market but expanded the pool of direct beneficiaries of the New Deal well beyond the poor. Arthur Schlesinger wrote that “probably no single measure consolidated so much middle-class support for the Administration”.
Midterm elections normally do not go well for a new administration, especially when its party holds Congress as well. Those who oppose that party will flock to the polls in outrage, while supporters tend to stay home, disappointed that the country has not blossomed into a utopia. This is doubly true when the new administration has been elected in response to a crisis, as in a two-party system swing voters will side with the out-party whenever things are bad, even though most crises take more than a couple of years to resolve. It’s as if the country were an ocean liner headed straight for an iceberg; the new administration yanks the wheel hard to the left to try to swerve around it; but ocean liners take a while to turn, and the passengers scream, “Oh no, we’re still going to crash into it! Try something else!” and yank the wheel back to the right so that the ship ends up headed directly toward the iceberg again. The New Deal seemed ripe for this sort of response. True, it did have some immediate effects on the economy. Normally it takes a number of years for new policies to restart a stalled economy,
| Cartoon Roosevelt in “Confidence” (1933) |
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