Pressed to act but not knowing what to do, Roosevelt turned from one scheme to another. For a time he toyed with ideas for a revival of some kind of public and private national planning, although not to the extent of the NRA. Soon he was taking a different tack; in conferring with utility magnates he spoke strongly against utility holding companies, themselves a form of private planning. He denounced various marketing practices of big business, but he also made clear that he was not leaning toward any form of socialism. In the fashion of Hoover several years back, the President warned against wage reductions; but he expressed concern also over high prices in some fields and low prices in others. Roosevelt insisted that all his policies were designed to promote full employment. He failed, however, to back up his policies with more than cajolery, and as business conditions worsened, the nation saw only a policy of improvisation and drift.
A number of economists urged Roosevelt to increase government spending and thus prime the economic pump so that business could step up its own activity. These appeals—many of which came from academic men—did not move Roosevelt, at least at that moment. Pump priming had been proper in 1933, he believed, but it was not desirable in 1938 when business indices were off by only about a third. Here Roosevelt was somewhat a victim of circumstances. The two men close to him who had both an intellectual and vocational interest in spending were inactive, for different reasons. Hopkins had recently had part of his stomach removed because of cancer, and was recuperating in the early weeks of 1938. And Ickes during these months was putting virtually all his political energies behind his obsessive efforts to wrest the Forest Service away from the Agriculture Department and affix it to his own domain.
Roosevelt was now more sorely pressed than ever. Once again, as in early 1935, he was being squeezed by forces beyond his control. His enemies in Congress taunted him for his failure to come to grips with the recession. His friends pleaded for a reassertion of his moral leadership. “Mr. President,” wrote Wallace, “[you] must furnish that firm and confident leadership which made you such a joy to the nation in March of 1933.” It was all Roosevelt could do to get enough money out of Congress to meet immediate and essential relief needs. He warned a congressional leader that if Congress cut relief he would post a big sign in front of the White House announcing WPA NEED NOT APPLY HERE—with a big arrow pointing to Capitol Hill.
It was a condition, not a theory, that finally moved the President. In March the stock market’s halting decline turned suddenly into a panicky drop, and other indices slumped badly. Unemployment was still rising. In fact, the decline from the previous September was the sharpest the country had ever known. Even a number of business leaders were now calling guardedly for spending. When Roosevelt left Washington for Warm Springs late in March he was worried and tense. He stopped off in Georgia to deliver one of the most bitter attacks of his life on minority selfishness, on feudalism that he described as virtual fascism. By now Hopkins was back in action, and, armed with memorandums from New Deal economists, he met Roosevelt at Warm Springs and urged on him a large-scale spending program.
Roosevelt knew that he must act. And he knew that he must act for the people—the people who loved him and who had sustained him. On the train back to Washington from Georgia he looked out of the window at the nondescript men and women who—five years after his inauguration—were still waiting for him along the track to wave and smile at him. He turned to an assistant. “They understand what we’re trying to do.”
Soon after arriving in Washington Roosevelt told Morgenthau that he had decided to scrap budget balancing and resume spending. When Morgenthau cried that he might resign, the President answered, “You just can’t do this!” It would wreck the administration, and Morgenthau would go down in history as having quit under fire. Morgenthau stayed.
As usual, when the President shifted, there was little looking back. In mid-April he proposed to Congress a three-billion-dollar spending program, and in a long fireside chat took his new program to the people. Two weeks later he asked Congress to launch a thorough study of the concentration of economic power in American industry and the effect of that concentration upon the decline of competition. Congress responded enthusiastically to his proposals and passed the legislation by heavy majorities within a few weeks. Three billion was appropriated for spending and lending during the next fiscal year, and the Temporary National Economic Committee, consisting of senators, representatives, and government officials, and staffed by scores of experts, was established under the chairmanship of Senator Joseph C. O’Mahoney to conduct a full-scale investigation of the economy. Within a few months business indices were edging up again, but a large lump of unemployment continued to weigh down the economy.
ROOSEVELT AS AN ECONOMIST
One day late in Roosevelt’s second term Marriner Eccles reported at the White House to raise some pressing economic questions with the President. He had been promised an hour-long luncheon engagement—a prize that an administrator might spend weeks conniving for. To his dismay, he found that Senator McAdoo was cutting into his time. When Eccles finally got into the President’s study the burly old Californian was standing over Roosevelt and declaiming about the political situation back home.
“Bring up a chair, Marriner,” the President said. To McAdoo he added: “Marriner and I are just about to have lunch.”
McAdoo was too engrossed in his problems to take the hint. “Oh, that’s all right,” he said, “you two boys go right ahead—I’ll talk while you eat.”
Reaching to a warming oven next to his chair, Roosevelt pulled out a plate. It was burning hot. Juggling it awkwardly, he managed to place it before Eccles. While the President shook his scorched fingers and Eccles burned inside, McAdoo continued to talk. He finally wound up:
“Now, remember, Franklin. I want to leave one last thought with you. When it comes to appointing any of those federal judges in California, I wish you would take the matter up with me instead of with that son-of-a-bitch Downey.…”
McAdoo finally left. Marveling at Roosevelt’s good humor through all this, Eccles leaned forward to talk. But as the waiter rolled away the tray there was a new diversion. Fala bounded in, Roosevelt took a ball out of his desk, and for several minutes the dog played retriever for his master, while Eccles feebly voiced words of praise.
“That’s enough now,” Roosevelt said to Fala. “I’ve got to get back to work.” Eccles started talking, but after a few minutes he saw that he had lost his audience. Roosevelt was looking around the room for Fala. Suddenly the President burst out: “Well, I’ll be God-damned! Marriner, do you see what I see?”
Eccles did. Over in a corner Fala was committing an indiscretion on the rug. Several more minutes elapsed while Roosevelt summoned a guard, had Fala’s nose rubbed in the mess, and delivered a post mortem. By now Eccles’ time was almost up. He left in a blind rage. To his associates awaiting him expectantly at the Federal Reserve Building he could report only on California politics and on the doings of Fala.
This sort of thing happened many times. People were amazed at Roosevelt’s governmental habits—at his way of running through a series of wholly unrelated conferences like a child in a playroom turning from toy to toy, at his ability seemingly to put one matter out of his head when he turned to another, above all at his serenity and even gaiety under the pitiless pressures of men and events. The methods, of course, reflected the man. Roosevelt’s mental agility and flexibility were well suited to the experimental phase of the New Deal. In 1938 Roosevelt was still the improviser, still the pragmatist.
Was practicality enough? Roosevelt’s fumbling and indecisiveness during the recession showed his failings as an economist and thinker. His distrust of old and doctrinaire economic theories freed him from slavery to ideas that would have been risky in the 1930’s. But at the same time, that distrust helped cut him off from the one economist and the one economic idea that might have provided a spectacular solution to Roosevelt’s chief economic, political,
and constitutional difficulties.
The man was the noted British economist John Maynard Keynes. An academician who was yet a leader in the bizarre Bloomsbury set, an economist who had won and lost fortunes as a speculator, a Cambridge don who also ran insurance companies, a prickly intellectual who was close to men of affairs throughout the world, a reformer who believed in liberal capitalism, Keynes for two decades had been provoking British opinion with his unorthodox views of economics, industry, and international affairs. In 1936 he had published the capstone of his economic thought, The General Theory of Employment, Interest, and Money. Bristling with critical references to cherished theories and honored names, filled with strange terms and equations, punctuated by lengthy appendixes, the General Theory had been read by few. But its impact on liberal economists in America was already making itself felt.
For, out of all the complexities and involutions of Keynes’s writings, there emerged a central idea that was dazzling in its stark simplicity. Classical economics dictated that in bad times governments must permit if not encourage lower wages, lower prices, and rigorously balanced budgets. Purged and cleansed by this stringent process, the economy could then right itself and once again march up the long foothills to the mountain peaks of the business cycle. Keynes boldly assaulted this notion. The nub of his advice to government in time of depression was to unbalance the budget deliberately by heavy spending and low taxes. Only through heavy spending by consumers and investing by government or private capitalists could the economy right itself.
To call any single doctrine a “solution” is, of course, dangerous business. Keynesianism, moreover, is still a highly controversial topic among economists and policy makers; its usefulness is sharply limited depending on the nature of an economy, the people, the condition, and the time. Yet it seems clear that if ever the idea of deficit financing had urgent applicability, it was to the America of the 1930’s, with its huge army of unemployed, its vast raw materials, and the state of its industrial arts.
In the first place, deficit spending was constitutional. When at a social gathering Justice Stone whispered to Miss Perkins, “My dear, the taxing power is sufficient for everything you want and need,” he was in effect reminding the administration of its plenitude of power in the whole fiscal realm as compared with other avenues that could be blocked off by judicial action. Indeed, a great authority on the Constitution, Professor Edward S. Corwin of Princeton, had predicted the “twilight of the Supreme Court” because the Court, by making difficult a legal challenge to federal appropriations, had left to Congress power over spending and taxing.
Massive deficit spending was politically feasible too. Despite the ceaseless talk of economy on the Hill, Congress, at least during Roosevelt’s first five years, was eager to spend. It is an old political bromide that congressmen want to vote for all spending bills and against all taxing bills—which happens to be just the right combination for deficit spending. The President often had to throw his weight against the congressional spenders, as in the case of the veterans’ bonus. If Roosevelt had urged spending programs on Congress rather than the court plan and certain reform measures in 1937, he probably could have both met his commitments to the one-third ill-housed, ill-fed, and ill-clothed and achieved substantial re-employment.
Deficit spending was ideally suited to Roosevelt’s ideology and program. He was no doctrinaire capitalist; twenty years before his presidency he was a New Deal state senator favoring a host of governmental controls and reforms, and he had stood for progressivism as a Wilson lieutenant and as governor. He was no doctrinaire socialist; he had never embraced the idea of central state ownership of the means of production. Rejecting both doctrinaire solutions, Keynesian economics was a true middle way—at a time when New Dealers were groping for a middle way that worked.
As a practical man, Roosevelt liked to apply the test, “Will it work?” Deficit spending had worked in 1935 and 1936 with the huge relief programs, veterans’ bonus payments, and monetary expansion. Then had come a shift to the opposite policy: relief spending had been cut, reserve requirements for commercial banks raised, holdings of securities by banks reduced, and the growth of loans slowed. This shift from deficit spending had not worked. Both experiments had been fairly conclusive, each in its way; Roosevelt might have wanted the chance to experiment further, but a nation can hardly be expected to serve indefinitely as a laboratory.
Why did this most practical of men miss out on what probably would have been the ideal solution for his economic, political, and judicial problems?
Not because Keynes had failed to reach him. The Englishman had corresponded with the President, and he had talked with him in 1934. The two men liked each other, but the intellectual and the politician were cut from different cloth: Roosevelt was dubious about Keynes’s “rigmarole of figures” and seemed surprised to find him a mathematician rather than a political economist; for his part Keynes was disappointed that the President was not more literate in economics.
From England, Keynes had watched the sharp decline of late 1937 with mounting anxiety. On February 1, 1938, he had written the President a long and eloquent letter. “You received me so kindly when I visited you some three years ago that I make bold to send you some birds eye impressions.…” After a disclaimer of omniscience, Keynes delivered a polite but candid attack on the administration’s recent economic policies. There had been an “error of optimism,” he said, in 1936. Recovery was possible only through a large-scale recourse to public works and other investments. The administration had had an unexampled opportunity to organize increased investment in durable goods such as housing, public utilities, and transport.
Could the administration, asked Keynes, escape criticism for the failure of increased investment? “The handling of the housing problem has been really wicked,” and housing could be the best aid to recovery. As for utilities, their litigation against the government was senseless. But as for the allegedly wicked holding companies, no one had suggested a way to unscramble the eggs. The President should either make peace with the utilities or be more drastic. Keynes leaned toward nationalizing them, but if public opinion was not yet ripe for that, what was the point of “chasing the utilities around the lot every other week”? As for railroads, either take them over or have pity on the overwhelming problems of the managers.
Keynes even tried to educate the President on the nature of businessmen. They had a different set of delusions from politicians, he warned, and thus required different handling. “They are, however, much milder than politicians, at the same time allured and terrified by the glare of publicity, easily persuaded to be ‘patriots,’ perplexed, bemused, indeed terrified, yet only too anxious to take a cheerful view, vain perhaps but very unsure of themselves, pathetically responsive to a kind word. You could do anything you liked with them, if you would treat them (even the big ones), not as wolves and tigers, but as domestic animals by nature, even though they have been badly brought up and not trained as you would wish.”
It was a mistake, Keynes went on, to think that businessmen were more immoral than politicians. “If you work them into the surly, obstinate, terrified mood of which domestic animals, wrongly handled, are so capable, the nation’s burden will not get carried to market; and in the end, public opinion will veer their way.…”
“Forgive the candour of these remarks,” Keynes had concluded. He listed half a dozen administration policies he supported with enthusiasm. “But I am terrified lest progressive causes in all the democratic countries should suffer injury, because you have taken too lightly the risk to their prestige which would result from a failure measured in terms of immediate prosperity. There need be no failure. But the maintenance of prosperity in the modern world is extremely difficult; and it is so easy to lose precious time.”
The eloquent appeal had not moved the President. He asked Morgenthau to write a reply to Keynes for him, and the President signed as written the banal little letter that Morgenthau produced. Two mon
ths later Roosevelt did resume spending, of course, but it was not the kind of massive spending that Keynes was calling for.
Part of the reason for Roosevelt’s failure to exploit Keynes and his ideas lay in the web of political circumstances. Lacking a coherent economic philosophy in 1932, Roosevelt had opportunistically pummeled Hoover from both right and left, attacking him both for do-nothing government and for unbalancing the budget. Roosevelt had thus committed himself to a balanced budget, at least in the long run, and during his presidential years he mired himself further in this swamp. The more he unbalanced the budget, the more—literally scores of times—he insisted that eventually he would balance it. The more he promised, the more he gave hostages to the conservatives on the Hill and in his party. His personal stand became party policy in both the 1932 and 1936 platforms.
Another reason for the failure lay with Roosevelt’s advisers. Some of them, of course, opposed any type of heavy spending; but even those who leaned toward a new economic program were committed to particular doctrines or policies and hence were unable to exploit the full potential of Keynes’s idea. Some of them were mainly concerned about price rigidity—so concerned, indeed, that they wished to make this the main basis of a campaign against big business. Some were more worried about inflation than continuing unemployment. Some wanted to penalize business by raising taxes —good politics, perhaps, but a contradiction of the Keynesian idea of lowering taxes while increasing spending. Some, lacking faith in the long-term prospects of capitalism in America, believed in a theory of secular stagnation that did not admit that Keynesian economics was a basic solution. Some were believers only in pump priming; the government could pour heavy doses of purchasing power into the economy, as it had in 1935 and 1936, but after that business was supposed to man the pumps.
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