The Definitive FDR

by James Macgregor Burns

  But by now—October 1937—a storm was blowing up from a new quarter.

  CLOUDBURST

  Late in the summer stocks had slackened off. At first the drop seemed a normal one, and the usual explanations—readjustment, corrective realignment, and so on—were trotted out. But things rapidly got worse. Wave after wave of selling hit the market and spilled stocks to new lows. Suddenly it seemed like 1929 all over again. Selling orders poured in from all over the country, transactions went to seven million shares in a single day, the ticker tape fell far behind. There was some disposition in the cabinet to see the drop as an artificial one; Miss Perkins reported in mid-September that her statisticians expected an early upturn in business. A week later the President was even cautiously hopeful in a press conference that the country had moved out of its long-term basic emergency, and early in October cabinet members were still speaking of a “corrective dip” in the market.

  Roosevelt was in a paradoxical situation. He believed that economic conditions were fundamentally sound. “I have been around the country and know conditions are good,” he said to the cabinet on October 8. “Farmers are getting good prices.” He suspected that big business was trying to drive the market down as a move against the administration. “Everything will work out all right if we just sit tight and keep quiet.”

  Yet the President dared not show his optimism in public. Above all he feared the dread parallel with Hoover, whose hopeful declarations month after month in the early 1930’s had become a grim joke. “Dan,” Roosevelt said sharply to Roper, who had been trying to calm his business constituency, “I wish you would stop giving out so many Hooverish statements!”

  Sitting tight worked no better for Roosevelt than it had for Hoover. Stocks kept on dropping; the whole economy was now showing a decline. The financial community was suffering a bad case of jitters, Morgenthau reported. Morgenthau’s own jitters were severe. “We are headed right into another depression,” he told Roosevelt. “The question is, Mr. President—what are we going to do about it?” Roosevelt knew his Secretary of the Treasury too well to be alarmed by him. Nor was he alarmed by the deluge of wires from businessmen offering warnings, advice, frantic pleas to do something—anything. He joked with reporters about the industrialist who insisted in a three-page telegram that he was talking not for the big or medium-sized speculators but for the small investors—the kind of investor who carried little brokerage accounts of ten to twenty thousand dollars.

  But the harsh indices of economic decline could not be laughed off. At a cabinet meeting early in November Miss Perkins reported that employment was dropping at a time when it usually rose. A long discussion followed. When Morgenthau suggested that Roosevelt publicly compare current conditions with those of early 1933 to reassure business, the President betrayed his anxiety. “Oh, for God’s sake, Henry, do you want me to read the record again?” he demanded. The discussion revealed a cabinet deeply split on the course to take. Morgenthau, Farley, and Roper wanted a conciliatory approach to business, while Ickes, Perkins, and Wallace sought an expansion of New Deal measures. Government economists were badly divided too.

  Roosevelt was plainly at sea. Ickes had never seen him so worried over the drift of events, so eager for counsel from his cabinet. A former president, beset by conflicting advice, had once exclaimed,

  “I can’t make a damn thing out of this tax problem. I listen to one side and they seem right—and then—God!—I talk to the other side and they seem just as right.… God, what a job!” If Roosevelt was more urbane than Harding, he was no less perplexed. He told reporters about two letters he had received from two leading economic experts:

  “One says the entire question is one of the velocity of capital turnover credit, so do not pay any attention to purchasing power. The other one says: forget all this algebraic formula about the velocity of capital turnover credit; the whole question is purchasing power on the part of one hundred and thirty million people.

  “It is a fascinating study,” the President wound up almost ruefully.

  By mid-November, when Congress met in special session, the decline had become so severe that it could not be openly ignored. “Since your adjournment in August,” the President declared to Congress, “there has been a marked recession in industrial production and industrial purchases following a fairly steady advance for more than four years.” He quickly added that he had been aware of uncertainties in the economic picture before the recession began, and that the decline had not reached serious proportions. “But it has the effect of decreasing the national income, and that is a matter of definite concern.” The job was both to check the recession and to lay the groundwork for a more permanent recovery.

  But it was no crisis program that the President presented to Congress. The two items that might affect recovery—a permanent national farm act and wages and hours—were leftovers from the regular session. So were the other two recommendations—administrative reorganization and regional planning. That Roosevelt would serve this warmed-up assortment was a measure of his inability to decide on a basic economic program.

  Perhaps it made no difference, for the special session was a shambles. The Senate at the start ran into a wrathful filibuster over Wagner’s antilynching bill. In the House Roosevelt’s leaders through a variety of trades squeezed out enough signatures on a petition to pry the wages and hours bill out of the Rules Committee; then the bill was dashed to pieces on the rocks of opposition from AFL factions and from Southern congressmen. The farm bill made faster progress but encountered a split between Secretary Wallace and President O’Neal of the Farm Bureau. The reorganization and regional planning bills simply made no progress at all. When Congress adjourned a few days before Christmas it had passed not one of Roosevelt’s four proposals.

  Roosevelt’s political opponents were alert. They remembered some sentences from an extemporaneous talk the President had made in Charleston over two years before. “Yes, we are on our way back—not just by pure chance, my friends, not just by a turn of the wheel, of the cycle,” Roosevelt had said on that occasion. “We are coming back more soundly than ever before because we are planning it that way. Don’t let anybody tell you differently.” And now Republican orators were mockingly throwing the words back in Roosevelt’s face.

  A reporter cautiously sounded Roosevelt out on the matter. The President was unruffled. That was perfectly true in Charleston in 1935, he said. “The things we had done, which at that time were largely a monetary and pump-priming policy for two years and a half, had brought the expected result, perfectly definitely.” But, he added, there had been a great drop in pump priming, and NRA and AAA had been knocked into a cocked hat.

  Roosevelt’s answer was disingenuous. It was not the Court alone that had blocked New Deal planning. The President himself had shifted back and forth in his search for viable economic policies. To look on his policies as the result of a unified plan, as Moley acidly commented later, was to believe that the accumulation of stuffed snakes, baseball pictures, school flags, old tennis shoes, and the like in a boy’s bedroom were the design of an interior decorator. Indeed, Roosevelt himself had boasted of his experimentation. In five years he had changed direction, reversed speed, and doubled back on his trail.

  Economically the New Deal had been opportunistic in the grand manner. Roosevelt had tried rigid economy, then heavy spending, then restriction of spending again. He had shifted back and forth from spending on direct relief to spending on public works. He had tried controlled inflation and then policing of prices. He had tried economic nationalism, and then encouraged Hull’s program of economic internationalism. His monetary policies had been jumbled—the abandonment of gold, the abortive experiment with the Warren price theory, a flirtation with inflationary silver economics, and later a monetary stabilization agreement with Britain and France.

  Yet experimentation is a means to an end, not an end in itself. Roosevelt recognized this. He argued that his twists and turns were all aimed at a com
mon goal—a more secure and prosperous economy, better living conditions for the mass of people, especially the one-third of the nation ill-housed, ill-clad, ill-nourished. Changing methods, he said, were simply a response to changes in the economic situation as he strove for the greater goal. This argument was convincing as long as business conditions were improving. In the fall of 1937 it seemed an empty apology.

  On one economic matter, however, Roosevelt had shown a dogged tenacity and consistency. This was balancing the budget. Not, of course, that he had balanced the budget—but it remained a central objective of his fiscal policies. Again and again during the first term he had returned to the point until it had become a refrain. He had promised to balance the budget during the 1936 campaign, and early in 1937 he had looked forward hopefully to a balanced budget in a year or two. “I have said fifty times that the budget will be balanced for the fiscal year 1938,” Roosevelt had exclaimed to Garner during the court fight. “If you want me to say it again, I will say it either once or fifty times more.”

  Curiously, the recession seemed only to harden the President’s determination to get the budget in balance. He expected it to be “definitely balanced by the next fiscal year,” he announced at Bonneville at the end of September. He made the same statement time after time in press conferences. He grew indignant over the disposition of Congress to spend money without raising taxes for it, and throughout the fall of 1937 he was busy searching for ways of cutting spending.

  The high point in this effort came on the night of November 10, when Morgenthau, who had been pressing the President for an end of deficits, announced to the Academy of Political Science in New York that the administration positively intended to balance the budget. This was nothing new—but it amazed the New Deal economists around Roosevelt, for in a series of conferences with the President a day or so before the speech they had got the impression that he was contemplating a resumption of heavy spending. Was Morgenthau, they wondered hopefully, speaking out of turn? No, it developed that Roosevelt had gone over the secretary’s address in advance.

  Whatever his private doubts, Roosevelt was outwardly determined on government economy and a balanced budget. Probably he hoped that this reassurance would buoy up business confidence and check the deepening recession. But business did not pick up.

  It was a dismal December. The President took Hopkins and Ickes on a fishing trip in the Gulf of Mexico, but he had to cut the cruise short because of an infected jaw. Ickes had never seen him so listless and despondent; he even talked of letting Congress have its head. In mid-December Japanese bombers sank the United States gunboat Panay and killed three Americans. A crisis seemed in the making until Japan met American demands just before Christmas. The President’s Christmas greeting to the nation was, in substance, a sermon to “love thine enemy.” One of his last official acts of 1937, however, was to indicate that he expected to expand the country’s naval power. Love thine enemy—but carry a big stick.

  PALACE STRUGGLE FOR A PROGRAM

  The new year—1938—brought no turn in the economic situation. Business indices were still falling; a special census of unemployment confirmed the administration’s worst fears. Between eight and eleven million people were jobless.

  The President maintained an air of self-assurance. To Congress he delivered a long message that was in effect an earnest and persuasive restatement of the New Deal. He again called for a balanced budget, but not if it meant that Americans must starve or go on the dole. Resubmitting his program of 1937, Roosevelt vowed that he would not “let the people down.” His Jackson Day dinner address early in January was a summons to the “overwhelming majority of our citizens” to join him in the spirit of Jefferson and Jackson and Lincoln to curb the power and privileges of small minorities. “We know that there will be a few—a mere handful of the total of businessmen and bankers and industrialists—who will fight to the last ditch to retain such autocratic control over the industry and finances of the country as they now possess. With this handful it is going to be a fight—a cheerful fight on my part, but a fight in which there will be no compromise with evil—no letup until the inevitable day of victory.”

  “Bert,” said the President to House Republican leader Snell following his speech to Congress, “as they used to say on the East Side of New York, ‘that wasn’t esking them, that was telling them!’ ”

  But telling them what? Actually Roosevelt was still a highly puzzled man. He did not conceal this fact from himself. There was something both pitiable and engaging in the way in which, five years after becoming President and in the midst of deepening economic crisis, he set about re-educating himself in the mysterious ways of the economic system. As in the past, he consulted men rather than books. To a New York banker who had warned him against consulting visionary and dangerous theorists the President wrote that he was seeing more businessmen than any other group. “If you could sit in my office beside me for a week it would be very helpful to you, for you would be gaining in education in every line as greatly as I am gaining as each day passes.” Once again the President was talking with men late into the night, rummaging through their minds.

  Unhappily, the more Roosevelt turned for advice to the men around him and to others he called in, the more he risked becoming entangled in the arguments over economic policy within his own staff, within his cabinet, within his whole circle of advisers. And the more he was plunged into the middle of the intellectual warfare among academic economists.

  During the fall and early winter Roosevelt’s conservative advisers seemed to have the upper hand. Morgenthau’s budget-balancing speech, the President’s continued assurances on the same subject, his well-publicized demands for government economy, his frequent distinction between the great number of businessmen and the tiny minority of wrongdoers—all these were designed to bolster business confidence, to embolden investors, to shore up the stock market. In his “budget seminar” with reporters shortly after the new year began Roosevelt said that the most important fact was the cut of over half a billion in estimated spending for the next fiscal year.

  The President’s caution did little to placate business. It served mainly to arouse the New Dealers around him. By the end of 1937 they were taking their case directly to the people. But this was a flanking effort—their main goal was to drive a salient into the economic mind of Roosevelt himself.

  By this time the New Dealers had become a relatively stable and unified group. Their leaders in the cabinet were Ickes, Wallace, Perkins—and perhaps more influential with Roosevelt than any of these by 1938—Hopkins. Behind these notables was as remarkable and able a group of idea men as Washington had ever seen. The ebullient Corcoran was as active as ever, showing his uncanny capacity to move back and forth between exacting technical jobs and tough backstairs politicking. An official of increasing influence during this period was the chairman of the Board of Governors of the Federal Reserve System, a sharp-faced banker from Utah named Marriner Eccles. Two other rising stars were William O. Douglas, the sandy-haired ex-professor who now chaired the Securities Exchange Commission, and Robert H. Jackson, a New York lawyer who had won wide attention for his work in the Justice Department. Behind these men, backing them up with charts and memorandums and analyses, were a dozen barely known economists and lawyers—Isador Lubin in the Labor Department, Mordecai Ezekiel in Agriculture, Herman Oliphant in Treasury, Lauchlin Currie under Eccles, Leon Henderson and David K. Niles under Hopkins.

  By the end of 1937 little knots of these and other New Dealers had been meeting secretly and holding feverish discussions on how to salvage the New Deal. They were at odds, however, over economic strategy. The out-and-out Keynesians wanted Roosevelt to start a bigger and better spending program. Others called for an old-fashioned, slam-bang attack on the trusts. The New Dealers were too unsure of Roosevelt’s current political mood to let him in on their plans; besides, their tactic was to force his hand by building up pressure on the left.

  As it turned out,
though, Roosevelt unwittingly decided the issue between the spenders and the trust busters for a time. His private complaints during the fall that certain business interests were ganging up on him showed which way the presidential mind was leaning. Jackson, in the tradition of his namesake a century before the New Deal, opened up the counterattack on business by blaming monopolists and profiteers for the recession. Ickes followed with a denunciation of the “sixty families” that, he cried, controlled the American economy. The New Dealers were not content to deplore the economic power of the monopolists. They flayed them for seeking political power, for trying to defy the popular mandate of 1936, even for leading the country toward fascism. Ickes waited anxiously for the President to back up the onslaughts. Roosevelt did, after a fashion—but he took care to reiterate that only a small minority of businessmen were guilty of “poor citizenship.”

  So trust busting was the order of the day. Nothing could have been better calculated to inflame the war between New Deal and business or to sharpen the alternatives facing Roosevelt. For the essence of the businessmen’s argument was that the recession stemmed directly from lack of confidence by investors in Roosevelt’s policies and ultimate intentions. Lack of confidence meant lack of investment, and faltering investment meant a slowing of the wheels of industry. As the New Dealers thwacked them hip and thigh, businessmen turned to Roosevelt for a repudiation of his radical advisers.

  But the President was silent. He was still groping. As long as he could not see his way clear he steered cautiously between the New Dealers and the conservatives and avoided alienating either wing. And he continued to go to school. During the early weeks of 1938 businessmen flocked to the White House on the President’s invitation to tell him their ideas. The administration sponsored in Washington a conference of small businessmen that became so turbulent that the police had to be called. The Business Advisory Council met and its spokesman, Averell Harriman, asked the President to provide leadership around which they could rally, but the businessmen suspected that the President was still planless. Other meetings were more ominous. One hundred thousand workers turned out for a relief demonstration in Detroit; three thousand youth delegates convened in Washington to demand a “youth act” that would provide part-time jobs.