by Adam Cohen
While the Senate wrestled with the agriculture bill, Roosevelt turned to two related issues. He introduced the Home Owners’ Loan Act of 1933, which would extend to home mortgages the sort of relief he had just provided for farm mortgages. Homeowners had gotten less attention than farmers, but they were also being squeezed by the gap between what they were able to earn in the Depression economy and what they owed on their mortgages. One thousand urban homes were being foreclosed on every day. The bill would create a Home Owners’ Loan Corporation that would refinance home loans at 5 percent interest and lengthen repayment schedules. The government loans would be capped at $20,000, to ensure that benefits were reserved for poor and middle-class homeowners. When he signed the bill, Roosevelt urged lenders to institute a moratorium on foreclosures until the program could get up and running. The new law was a great success. The HOLC would soon hold one-fifth of all urban mortgages.19
The second issue, inflation, was forced on Roosevelt. The farm bloc in Congress had long been pushing for an inflationary monetary policy to reduce the burden of farm debt. Farmers were the most outspoken advocates of inflation, but they had powerful allies. Insurance companies, retailers, and other businesses with farm customers stood to gain from a looser money supply, which would leave their customers with more to spend. The Committee for the Nation to Rebuild Prices and Purchasing Power, which counted top executives from Sears, Roebuck among its membership, was an influential pro-inflation force. At the same time, members of the silver lobby, led by senators from silver-producing states, were pushing for inflation for their own reasons. They were calling for free coinage of silver, which would produce inflation and, not incidentally, increase the demand for silver. The pro-silver senators were adamant about their cause. “The nation must adopt bimetallism,” Senator Burton K. Wheeler of Montana declared, “or face bolshevism.” The farm bill provided a convenient vehicle for them. Wheeler introduced an amendment calling for gold and silver to be coined in unlimited amounts at the ratio William Jennings Bryan had once advocated, sixteen ounces of silver equaling one ounce of gold. Pro-inflation forces in the Senate rallied to the Wheeler Amendment, and it looked like it was on its way to passing.20
It was unclear how Roosevelt would respond. He had run in 1932 on the Democratic Party’s “sound money” platform, and he had spoken out on the campaign trail against inflation. Now, he was being pulled in two directions. Powerful forces in Congress, and his own Farm Belt supporters, were pushing him to support an inflationary monetary policy. At the same time, fiscal conservatives were pressuring him to hold firm. Bernard Baruch insisted that even modest inflation was “sheer nonsense.” It would only benefit one-fifth of the nation, he said: “unemployed, debtor classes—incompetent, unwise people.” Lewis Douglas was the most outspoken of all. He argued that inflation would push America in the direction that Germany, where Adolf Hitler had just become chancellor, was headed: “social disorder.” Despite Roosevelt’s public pronouncements, there had long been signs that he was considering supporting inflation, including his refusal to promise Carter Glass, during Cabinet selection, that he would remain on the gold standard. With Congress increasingly clamoring for some kind of inflationary policy, Roosevelt seemed to have quietly made his mind up. In early April, he wrote to Democratic Party elder statesman Edward M. House, “It is simply inevitable that we must inflate...though my banker friends may be horrified.”21
If Roosevelt had any doubts about whether to abandon the gold standard and embrace inflation, the Wheeler Amendment forced his hand. Farm Belt senators were threatening to vote against the farm bill if it lacked an inflation provision. Roosevelt’s main objection to the Wheeler Amendment was that it was mandatory, which would put Congress, rather than him, in charge of monetary policy. He made clear to the Senate that if the Agricultural Adjustment Act came to him with the amendment, he would not sign it. The administration went to work lobbying individual senators. William Borah of Idaho, who had initially been inclined to support the amendment, committed himself to voting against it and brought others along. When it came to a vote, the Wheeler Amendment got thirty-three votes, up from just eighteen in January. Although the administration won that round, Walter Lippmann reported that at least eleven of the senators who voted no did so “not because they are by conviction opposed to inflation, but because they wish to give the Administration more time to formulate a policy.” Senator James Byrnes of South Carolina, a close ally of the administration, warned Moley that the Wheeler Amendment could not be held back much longer. In the end, Moley was convinced, Roosevelt was shaken out of his ambivalence about inflation by a simple “counting of noses in the Senate.”22
On April 18, Roosevelt gave his answer. At a meeting with Woodin, Douglas, other economic advisers, and congressional leaders, he announced that he was supporting an amendment introduced by Oklahoma senator Elmer Thomas. The Thomas Amendment would give the president broad authority to induce inflation by expanding the currency supply, lowering the gold content of the dollar, or coining silver. When Roosevelt issued his bank holiday proclamation on March 6, which barred the exchange of currency for gold, many people wondered if he had abandoned the gold standard. If it had been unclear then, his decision to back the Thomas Amendment removed all doubt. Roosevelt had also decided to stop issuing gold export licenses, a further step in taking the nation off gold.23
When Roosevelt announced that he was abandoning the gold standard, Moley recalled, “hell broke loose in the room.” Lewis Douglas and his fellow anti-inflationists spent two hours trying to get Roosevelt to change his mind. They painted a grim picture of the damage runaway inflation could do, but Roosevelt held firm. After the meeting ended, a morose Douglas declared that going off gold would be “the end of Western civilization.” Douglas was on the verge of resigning over the president’s “thoroughly vicious bill,” as he described it to his father. Instead, he spent a night with Moley and other Roosevelt advisers in Moley’s rooms at the Carlton Hotel making changes to the Thomas Amendment. With the revisions, which included a cap of $3 billion on the amount of currency the president could issue, Douglas decided the bill was no longer “thoroughly vicious,” merely “pretty discouraging.”24
Conservatives in the Senate reacted to the Thomas Amendment with outrage. Arthur Vandenberg, Republican of Michigan, declared it to be nothing less than “the most revolutionary proposal that has ever been presented in the history of the government.” A tearful Carter Glass begged his colleagues not to take the “immoral” step of going off gold. The pro-inflation forces, however, were unstoppable. “There is no choice any longer between inflation and no inflation,” Walter Lippmann wrote. The only choice, he insisted, was “between inflation by statute and inflation by monetary management.” Roosevelt was simply taking the more flexible course. The Thomas Amendment passed the Senate and the House by wide margins. With its passage, Roosevelt kept control over monetary policy for himself, and cleared the way for the Agricultural Adjustment Act to move forward.25
While Congress deliberated, anger in the Farm Belt boiled over. On April 27, farmers in Le Mars, Iowa, a small town that was developing a reputation for lawlessness, pulled Judge Charles Bradley off the bench while he was hearing foreclosure cases. They carried him out of the courthouse and, when he refused to swear not to sign any more foreclosures, threw him into a farm truck and drove him to the outskirts of town. The mob pulled down his pants and put a noose around his neck. The farmers stopped short of a lynching, content merely to empty a hubcap full of grease on the judge’s head and leave him dazed by the side of the road. The mob attack on Judge Bradley—and the fact that several Iowa counties were being placed under martial law—increased the sense of urgency in Washington.26
The administration’s allies were still working to strip the cost-of-production amendment out of the bill. Senator Joseph T. Robinson, the majority leader, insisted that it was of no practical value, since Wallace had made clear that he would not use the authority, while it
would embarrass Roosevelt. After the House voted 283-109 against cost of production, the Senate gave in and rescinded its amendment, and the bill was headed to Roosevelt for his signature. On May 12, at a White House ceremony attended by Wallace, Tugwell, M. L. Wilson, and a crowd of farm leaders, Roosevelt signed the Agricultural Adjustment Act and the Emergency Farm Mortgage Act. The AAA radically changed the economics of American farming, and it also marked an early milestone for the New Deal. It was the Roosevelt administration’s first law that committed the government to caring for its destitute citizens. It was “the farmers,” declared The New Republic, “with their solidarity, their faith in mass action, their courage in the face of violence and arrest, who have supplied us with one of the few hopeful signs in the depression.”27
Roosevelt considered delivering a fireside chat on the new law. Instead, on May 13, Wallace spoke to a national radio audience about the AAA, which he called “A Declaration of Interdependence.” Wallace explained domestic allotment, and how processor taxes would be used to adjust agricultural output downward. He emphasized that farmers, distributors, and processors should not expect to sit back while the government solved their problems. The Department of Agriculture would create the framework, Wallace said, but “these industries must work out their own salvation.” The AAA was greeted enthusiastically in the Farm Belt, even by farm radicals, who had given up their insistence that it did not go far enough. As soon as Roosevelt signed it into law, Milo Reno called off a farm strike that had been scheduled for May 13. “We believe in giving the Federal administration an opportunity to redeem pre-election promises to farmers,” he declared. Wallace was under no illusions that implementing domestic allotment would be easy. He understood that it ran counter to farmers’ natural inclination to grow as much as they could, and he realized that the processors would continue to oppose the law. “I hope that we can start this thing in somewhat the same way in which you start an automobile,” Wallace said. “I would like to do it by going into low gear and then intermediate, and then into high, without stalling the engine.”28
Roosevelt had originally intended for the special session to be brief, with Congress handling only “four or five” emergency pieces of legislation and then adjourning. But the success of his first few efforts put him in a more expansive frame of mind. At a March 17 press conference, his fourth, he told reporters that he had spoken with congressmen over the past few days, and they wanted to stay in session. Roosevelt said he would have to “work twice as hard as I had planned to work” to prepare the legislation necessary to keep the special session going. Two of the bills Roosevelt sent to Congress were pathbreaking measures not directly related to the economic crisis. They represented the sort of progressive reform agenda Roosevelt might have pursued more singlemindedly if he had not taken office in the middle of a deep depression.29
The first concerned public power. Its chief champion, George Norris, a progressive Republican senator from Nebraska, had for years been fighting a lonely battle to build a power facility in Muscle Shoals, Alabama. Muscle Shoals was on the Tennessee River, whose fast-churning water made it ideal for generating hydroelectric power. The government had begun building a dam there during the World War to produce electricity for military use, but abandoned it when the war ended. Norris, who had arranged a state takeover of Nebraska’s largest power company, had introduced a bill to get the federal government to finish the dam and produce electricity for the region. He argued that public power would be cheaper than the electricity the private power companies were selling and, no less important, it would put the people in charge of a vital public utility. Norris favored regional authorities, so control over public power would not reside in Washington. Hoover and conservative Republicans in Congress, who did not believe the government should be involved in making or distributing electric power, had repeatedly blocked Norris’s Muscle Shoals bills. 30
With Roosevelt’s election, public power had a new life. Roosevelt had championed public power since his days in the New York legislature. It was an issue he felt deeply about. “When he talked about the benefits of cheap electricity he did not think in terms of kilowatts,” his counsel, Samuel Rosenman, said. “He thought in terms of the hired hand milking by electricity, the farm wife’s pump, stove, lights, and sewing machine.” As governor, he had established a public power authority, fought to construct hydroelectric plants on the Saint Lawrence River, and battled to keep the rates of private power companies in check. The power companies had attacked his efforts as socialism, but Roosevelt firmly resisted the label. It was wrong to call public power supporters “Bolsheviks or dangerous radicals,” he insisted. Roosevelt believed that public power worked on the same principle as the Post Office—that government should undertake activities that it could perform better than anyone else.31
In the 1932 election, Roosevelt had campaigned on public power, which helped him appeal to progressive Republicans. In a speech in Portland, he had argued that government-produced electricity could be a “birch rod in the cupboard.” If private power companies acted badly or raised their rates excessively, he maintained, communities should be able to punish them by turning to public power instead. In addition to being a “birch rod,” Roosevelt believed public power could serve as a “yardstick” to help government regulators learn how much it cost to produce public electricity and therefore how much private companies should be charging.32
The location of the Muscle Shoals project gave it a special appeal for Roosevelt. His years of going to Warm Springs for rehabilitation had exposed him to the poverty of the rural South, and had given him an affinity for poor Southerners. The Tennessee Valley region around Muscle Shoals, forty thousand square miles spread out over seven states, was among the poorest in the nation. Its nearly three million residents had an average income that was just 45 percent of the national average. Farming was made difficult by the fact that the region’s topsoil was regularly washed away by heavy rainfall. A well-managed series of dams could generate inexpensive power for the people of the Tennessee Valley, and also help farmers by protecting the region’s topsoil. Roosevelt also liked the fact that the project promoted interstate cooperation, a cause he had promoted as governor of New York.33
In late January 1933, Roosevelt visited Muscle Shoals with a delegation that included Norris. Afterward, he gave a speech from the portico of the state capitol in Montgomery supporting the project in which he said he hoped to move a bill on it through Congress quickly. When Roosevelt told Norris that it should be a happy day for him, Norris responded, with tears in his eyes, “I see my dreams come true.” Later, in Warm Springs, Roosevelt expanded on his remarks. The project he was envisioning, he told reporters, would be “probably the widest experiment ever conducted by a government.” It would include, he said, low-cost hydroelectricity, flood control, and reforestation, and it would eventually employ 200,000 people.34
Roosevelt’s sweeping vision for Muscle Shoals, Moley observed, had “out-Norrised Norris.” There were plenty of critics, including The Washington Post, which insisted it made no sense “in this period of hard times” to “waste still more of the taxpayers’ money on this futile project.” But Roosevelt was not deterred. In a March 13 letter, he asked Norris to take the lead in drawing up a new Tennessee Valley bill. The most controversial issue it would have to resolve was whether the project should include transmission lines, in addition to dams, which would give the government the ability to deliver electricity directly to consumers, putting it in head-to-head competition with power companies. The power companies were bitterly opposed to government-owned transmission lines, but Roosevelt decided that he wanted them for Muscle Shoals. He had become convinced that publicly owned transmission lines were key to keeping electricity rates reasonable.35
On April 10, Roosevelt sent Congress a bill to create the Tennessee Valley Authority. The TVA would, he said, be “a corporation clothed with the power of Government but possessed of the flexibility and initiative of a private enter
prise.” Roosevelt’s goal was to follow the TVA with even bigger projects, which would, as Tugwell noted, “furnish yardstick power on a scale” that energy companies’ “worst dreams had never pictured.” In Congress, Democrats and progressive Republicans rallied to the bill. So many power executives showed up to oppose it that an extra day of hearings had to be scheduled. “The power companies are willing and want to work with the government toward the development of the valley,” the vice president of Tennessee Electric Power Company told Congress, “but we want to be protected.” The biggest sticking point was the transmission lines, but the bill’s supporters would not give in. “This is a national resource,” Representative John Rankin of Mississippi declared, “and we should build lines to carry electricity to the ultimate consumer.”36
On May 18, Roosevelt signed the TVA bill into law. The House had balked at including the transmission lines provision, but Roosevelt had held firm. At the signing, Roosevelt turned to Norris and asked, “George, are the transmission lines in here?” When told they were, Roosevelt jokingly asked where the representative of Alabama Power was. The signing was an emotional moment for the seventy-one-year-old Norris, who declared it the culmination of twelve years of struggling “on behalf of the common people against the combined forces of monopoly and human greed.”37