Nothing to Fear

by Adam Cohen

  Moley, who was ambitious and status conscious, was not happy with the title and arrangement Roosevelt was offering him. He was being banished from the White House to a made-up job, and he would nominally report to a secretary of state he did not know and would have little to do with. Moley was thinking seriously of returning to teaching full-time. His influence on the world would be far less, but his ideas would be accepted, he reasoned, “on the basis of what I had to say, rather than because I was part of a governmental machine.” Despite his reservations, Moley could not bring himself to walk away from the new administration he had helped to bring about, and he convinced himself that his country needed him. The lame-duck Congress was proving incapable of doing anything of consequence about unemployment, depressed agricultural prices, or the many other crises the nation faced. While Congress squabbled and equivocated, conditions in the country were only getting worse. It was looking increasingly likely that the nation would be lost to revolution or complete economic collapse if things did not improve quickly. There was no choice, Moley decided, but to accept the call. “If Roosevelt failed, in the weeks to come,” he said, “no one’s dreams of individual salvation would be worth a damn in any case.”38

  Moley accepted the job, but he did not make a long-term commitment. He kept his full teaching load, scheduling all of his classes on Thursdays to minimize the commuting back to New York, and asked Columbia to list his fall classes in the 1933-1934 course catalogue. While he was in Washington, Moley stayed at the Carlton Hotel, a short walk from his office, paying by the day and living out of a suitcase.39

  Moley was an ideal person to help with the banking crisis. Roosevelt had come into office without a plan for reviving the banks, and Moley’s greatest talents were identifying experts and developing policy proposals. Roosevelt also appreciated that Moley approached problems pragmatically. There were all sorts of ideas circulating in Washington for how to deal with the banks, including radical proposals to nationalize them, or to have U.S. post offices deliver basic banking services. Roosevelt was more interested in reforming the banking system than in taking it over, and he could count on Moley to promote cautious, nonideological solutions. People who knew Moley only by reputation, and from his work with the Brain Trust, were inclined to see him as Lewis Douglas, Roosevelt’s conservative budget director, did: as “one of the passionate, collectivist New Dealers.” But people closer to Moley, who listened to him discuss policy matters in what one observer called his “gleeful-depressed way,” knew better than to lump him in casually with the administration’s liberals. Moley’s youthful progressivism had evolved into pragmatism, and now that pragmatism was evolving. As he had risen in status through his association with Roosevelt, and as he had begun spending more time with rich and powerful men, he had started to drift rightward. By the time of the inauguration, Moley was already one of industry’s closest allies in the administration. Tugwell, who remained a strong progressive and a critic of big business, noticed the change in his old Brain Trust colleague. “Ray was somehow in process of being quite lost to me,” Tugwell lamented.40

  During the interregnum, Moley had helped Roosevelt make one particularly important decision. They decided that the people who knew the most about how to save the banking system were not in the Brain Trust, or even in the Democratic Party. They were, rather, the Hoover administration officials who had been working on banking issues for the past four years. “Great dif[ference] now is emergency,” Moley wrote in his notebook on January 19, “turn over to people now on job—the things they are now doing.” Moley and Roosevelt talked about working closely with Hoover’s Treasury Department team to come up with a solution to the banking crisis. The idea ran counter to the spirit of the moment, which called for quickly pushing out tired, conservative Hoover holdovers and replacing them with dynamic New Dealers. After three terms of Republican presidents, however, there were not many Democrats who had direct experience in regulating the banking industry. The decision to work with the Hoover banking team turned out to be an inspired one.41

  Hoover may have done little about the banking crisis, but it was not his staff’s fault. He had a capable economic team, led by his secretary of the treasury, Ogden Livingston Mills, Jr. The aristocratic Mills, who had graduated from Harvard with Roosevelt in the class of 1904, was the grandson of Darius Ogden Mills, who had made his fortune in mining and banking in California during the gold rush. Ogden Mills had been a Republican congressman from New York and had run against Al Smith for governor in 1926. Although he had campaigned energetically for Hoover in 1932, Mills also believed that Hoover should have done more to confront the banking crisis, even if he could not persuade Roosevelt to go along. Mills’s group—which also included Arthur Ballantine, the undersecretary of the treasury; F. G. Awalt, the comptroller of the currency; and Walter Wyatt, the general counsel of the Federal Reserve Board—had proposed an array of activist measures that Hoover could implement, including declaring a national bank holiday, which would have frozen conditions in place, stopping depositors from withdrawing currency and gold from individual banks, and from the United States. Hoover, however, resisted all of their suggestions. Mills and the others had worked around the clock in the administration’s final days, hoping until the end that Hoover would relent. When Roosevelt took office, Hoover’s banking team had assumed that their government service was done. They had no reason to expect that the new administration would ask them to stay on and work on a rescue plan for the banks. It came as a shock to them, Wyatt would later say, that Roosevelt and his advisers “apparently had no plans about the banking system, none whatever.”42

  The cooperation between the two administrations began the night before the inauguration. Within hours of his final fruitless meeting with Hoover at the White House, Roosevelt gathered his banking advisers at the Mayflower Hotel. He spoke with Moley, Woodin, Glass, and Jesse Jones, the chairman of the RFC, late into the night. The group made little progress toward a solution. Glass continued to push his conservative agenda on Roosevelt, trying to get him to commit to remaining on the gold standard, and insisting that the president did not have the legal authority to order a national bank holiday. Everyone was “indescribably tense,” Moley recalled, “even Roosevelt.” Hoover called twice during Roosevelt’s meeting. At eleven-thirty p.m., he asked Roosevelt to approve an order from the president restricting withdrawals. Roosevelt turned him down. He was inclined to close all of the banks, not merely to limit withdrawals, and he believed it was better for him to act without Hoover. Hoover was still free, of course, to act on his own. At one a.m., Hoover called back to say that Mills and his other economic advisers were still at the Treasury Department, working on the crisis. Roosevelt thanked Hoover for the information, and the two men agreed they should turn in for the night.43

  Moley was planning on going to bed when he bumped into Woodin in the Mayflower lobby. Woodin, who had left the meeting with Roosevelt earlier, had tried to go to sleep, but he was so worried he “couldn’t even get to the stage of undressing.” The two men decided to go over to the Treasury Department to see what the Hoover banking team was up to. When they arrived, they found Mills, Ballantine, and Awalt in the Federal Reserve Board’s room looking bleary-eyed. Mills and his team were convinced the devastating bank runs and currency and gold withdrawals would continue on inauguration day if the banks remained open. They had hoped up until the end to persuade Hoover to declare a bank holiday, but it was now clear that he would not go along. Having failed at getting a national holiday, they were trying to achieve the same effect by persuading all forty-eight governors to declare state holidays.44

  When Moley and Woodin arrived, there were only two holdouts, Illinois and New York. Governor Henry Horner of Illinois had not yet been reached, and Governor Herbert Lehman of New York, under pressure from his state’s bankers, was holding out. Mills left the room repeatedly to call Lehman. Before the night was over both Lehman and Horner agreed to declare holidays. The crisis was not over, but
it was finally on hold. Moley, who had been awake twenty hours straight, had napped through the moment of triumph. Woodin woke him in the middle of the night to say, “It’s all right, Ray. Let’s go now. Lehman’s agreed.” The two men walked past reporters and photographers and headed back to the Mayflower for a few hours of sleep before the inauguration. The evening had been an auspicious sign that the Hoover and Roosevelt teams would be able to work together better than their bosses had. It was not that the Hoover officials were lacking in partisanship. Mills, “like Hoover, viewed the Roosevelt ascension as a disaster for the nation,” Tugwell said. But the men working at the Treasury Department that night had been able to keep their focus on the national interest and on the vital work at hand. “Mills, Woodin, Ballantine, Awalt, and I had forgotten to be Republicans or Democrats,” Moley said. “We were just a bunch of men trying to save the banking system.45

  The state bank holidays kept bank runs from breaking out on inauguration day, but they were not a real solution to the banks’ problems. In his inaugural address, Roosevelt would speak forcefully about money changers, and about restoring “that temple to the ancient truths,” but it was still unclear how he intended to go about it. In a story headlined “Roosevelt’s Plans Secret,” The New York Times reported on inauguration day that “there was still no light on the details of any banking plan which would be submitted” to Congress. In fact, Roosevelt had decided on a course of action just that morning. Moley and Woodin had stopped by the Mayflower and told him that they had been at the Treasury Department most of the night. Mills and the rest of the Hoover team were advising, they said, that Roosevelt declare a national bank holiday. They also wanted him to call a special session of Congress to enact new banking legislation. Moley and Woodin were worried that Roosevelt would be unhappy that they had taken it upon themselves to start working with the Hoover officials. Roosevelt, however, was delighted to hear it and approved of the course of action they suggested.46

  Moley and Woodin took a break from the banking work to attend the inauguration, where Moley was able to hear Roosevelt deliver the speech they had written together. Afterward, they returned to the Treasury Department and told Mills, Ballantine, and Awalt what Roosevelt had said. “They had been restrained—even frustrated—by Hoover’s indecision so long,” Moley said, that “Roosevelt’s support gave them new energy and determination.” Moley, Woodin, and the Hoover team worked late into the night. Mills and Ballantine drafted a presidential proclamation declaring a four-day bank holiday that would start on Monday, March 6. As authority, they relied on the Trading with the Enemy Act. The Hoover group had also begun drawing up a plan for reopening the banks after the holiday. The crux of it was dividing the banks into three groups: Class A, which could reopen immediately; Class B, which would need help reopening; and Class C, which might not reopen at all. There was still more work to be done, including drafting emergency banking legislation to authorize this sorting out of banks. Woodin went to the White House to tell Roosevelt about the idea for a national bank holiday and the plan for reopening the banks in phases. If Roosevelt called a special session for Thursday, March 9, Woodin said, they would have a bill ready to submit to Congress. Roosevelt agreed to the strategy. The White House issued a statement saying that he would declare a special session of Congress, though it did not specify when. It was still unclear how long it would take far-flung members of Congress to return to Washington.47

  Woodin decided to invite some of the nation’s leading bankers to Washington to get their thoughts and to give them an idea about what to expect. The following morning, Sunday, March 5, they began arriving. The bankers were greeted by Woodin—“a very worried little Mr. Woodin,” in Time magazine’s account—Moley, and Mills. It was the beginning, Moley would later recall, of “four interminable days and nights of conferences.” The bankers were a traumatized group. One of them, Melvin Traylor, president of the First National Bank of Chicago, had been forced the previous summer to stand on a marble pedestal in his bank’s lobby in the middle of a bank run, reassuring panicked customers that their deposits would be safe. The bankers agreed that Roosevelt should declare a national bank holiday, but they could not agree on much else. Although the bankers ended up having little impact on Roosevelt’s emergency banking law, progressives were troubled by their mere presence. “The money changers whom Mr. Roosevelt drove out of the temples in his inaugural,” complained journalist Ernest Gruening, were now “congregating in the White House and telling him what to do.”48

  That Sunday afternoon, at 2:30 p.m., Woodin and Moley went to the Cabinet Room, where the first formal meeting of the Cabinet was getting under way. Roosevelt presented Moley and Howe to the group, announcing that they were two of his top advisers. After the introductions, Roosevelt talked about the banking crisis and the legal problems it raised. He asked Homer Cummings, the Connecticut lawyer he had named attorney general at the last minute to replace Thomas Walsh, how long it would take him to prepare an opinion on whether the president had the legal power to declare a national bank holiday. “Mr. President,” Cummings replied, “I am ready to give my opinion now.” Cummings, who had spent much of inauguration day researching the question, agreed with Hoover’s banking team that the Trading with the Enemy Act gave the president sufficient authority. Roosevelt said he would issue a proclamation closing the banks and call Congress into special session on Thursday. Woodin emerged from the meeting at three p.m. “I feel ten years younger than when I entered the conference and discussed the problem with the Cabinet,” he told reporters on the way out.49

  While work continued at the Treasury Department, congressional leaders met with Roosevelt at the White House to hear about the emergency banking legislation. Senator Glass of Virginia and Representative Henry Steagall of Alabama—the leading banking authorities in the two chambers—and Majority Leader Joseph T. Robinson promised to shepherd the bill through Congress. Late that night, the Treasury Department and White House meetings merged. Surrounded by members of his administration and Hoover’s, Roosevelt was prepared to issue the banking proclamation. Walter Wyatt urged him to wait until after midnight so the proclamation would be issued early Monday, rather than late Sunday night. No harm would be done by the delay, since all of the banks were closed, and after starting off in his inaugural address on a well-received religious note, Wyatt argued, there was no reason to undo it by issuing such an important proclamation on the Sabbath. Roosevelt changed the date on the proclamation to March 6 and waited. He had by now made the Hoover holdovers’ proclamation so much his own that the public would not be aware of the Hoover team’s role, or the fact that the banking proclamation was itself a holdover whose first words had originally read: “Now, therefore, I, Herbert Hoover President of the United States of America.”50

  After midnight, early Monday morning, Roosevelt declared that “heavy and unwarranted withdrawals of gold and currency from our banking institutions” had created a “national emergency.” Seated at a desk in his study, a cigarette poised in an ivory holder, he signed a proclamation invoking the Trading with the Enemy Act to declare a national bank holiday through March 9. In addition to stopping bank runs, the bank holiday prevented depositors from taking their money out in the form of gold, as they were otherwise legally entitled to do. A great deal of gold was being withdrawn, and much of it was being hoarded or exported. In the week before the inauguration alone, the Treasury gold reserves had decreased by $226 million, and Roosevelt was worried that the nation’s gold reserves were being lost for good. The new rules appeared to take the nation off the gold standard, since depositors could no longer go to their banks and demand their money in gold, but Woodin denied it. “We are definitely on the gold standard,” he insisted. “Gold merely cannot be obtained for several days.” Two days later, at his first press conference, Roosevelt would be more equivocal, telling reporters at first that it was hard to say if the nation was still on the gold standard and, moments later, admitting that “what you are coming
to now really is a managed currency.” Roosevelt also signed a second proclamation, which called Congress back for a special session starting on Thursday, March 9. The bank holiday, which would necessarily impose a significant burden on the public, was the real start of the New Deal. It was, journalist Ernest K. Lindley observed, “the new regime’s first application of the principle that the larger welfare stands above the individual right.”51

  The bank holiday was, in The New York Times’s estimation, the “most drastic” exercise of presidential power “ever taken in peacetime to safeguard the nation.” By the time Roosevelt issued his edict, most of the country had already begun getting used to operating under state bank holidays, and finding ways to make do without access to cash. In many areas, scrip had began to circulate. An Akron newspaper paid its workers in its own hastily printed currency, which it persuaded merchants to accept and then took back in exchange for advertising. The Dow Chemical Company paid its employees with coins that it manufactured itself from a magnesium alloy that it dubbed Dowmetal. An Oklahoma City hotel announced it would accept payment in “anything we can use in our coffee shop,” and a customer showed up with a pig. Canadian and Mexican money, stamps, streetcar tickets, and simple IOUs were used to settle debts. The humorist Robert Benchley wrote in Harper’s Bazaar: “I see no reason why there should not be a new theatrical season, providing my proposed plan for using pressed figs and dates as money goes into effect fairly soon.”52