Bernard Baruch: The Adventures of a Wall Street Legend

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Bernard Baruch: The Adventures of a Wall Street Legend Page 21

by James Grant


  Baruch was an agreeable man, and the hope among businessmen was that his regime at the Board would be an amiable one. The Wall Street Journal, for example, favorably compared his record in price disputes with that of the Coal Administration, which had alienated mine owners and caused shortages. “Mr. Baruch’s method,” the paper said, “was to keep down prices by discussing the problem with the heads of the industries from the standpoint of the Government. His prices have not been liberal but when they were decided upon in conference the industries felt that if a sacrifice was involved it was appreciated.” Baruch brought other advantages to the job. As a stock trader, he was accustomed to seeing the economy whole, of seeking the facts and of wondering (after taking action) whether the facts had changed. His fortune invested him with the presumption of wisdom, and his money and looks together cast a spell. When, for example, he brought Leland Summers, an engineer who’d done consulting work for J. P. Morgan, down to Hobcaw to recruit him for a post on the Board, Summers found his host, the surroundings, or the proffered job so winning that he volunteered to serve for free.

  As chairman, Baruch’s powers were as broad as his tenure was brief (from his appointment until the Armistice exactly 253 days). He had been commissioned to know more or less everything about the supply side of the government, to let well enough alone but to intervene when necessary on price or priority questions. To quote from President Wilson’s letter:

  The duties of the Chairman are:

  1. To act for the joint and several benefit of all the supply departments of the Government.

  2. To let alone what is being successfully done and interfere as little as possible with the present normal processes of purchase and delivery in the several departments.

  3. To guide and assist wherever the need for guidance or assistance may be revealed; for example, in the allocation of contracts, in obtaining access to materials in any way pre-empted, or in the disclosure of sources of supply.

  4. To determine what is to be done when there is any competitive or other conflict of interest between departments in the matter of supplies; for example, when there is not a sufficient immediate supply for all and there must be a decision as to priority of need or delivery, or when there is competition for the same source of manufacture or supply, or when contracts have not been placed in such a way as to get advantage of the full productive capacity of the country.

  5. To see that contracts and deliveries are followed up where such assistance as is indicated under (3) and (4) above has proved to be necessary.

  6. To anticipate the prospective needs of the several supply departments of the Government and their feasible adjustment to the industry of the country as far in advance as possible, in order that as definite an outlook and opportunity for planning as possible may be afforded the businessmen of the country.

  In brief, he should act as the general eye of all supply departments in the field of industry.

  At top strength the WIB numbered 750, and it was organized along the industry-committee lines of the first Advisory Commission. In Baruch’s day as chairman, there were also departments of price fixing, priorities, conservation, and an office of the general counsel, which was occupied by Albert C. Ritchie, a future governor of Maryland. Ritchie issued a riveting first opinion, to wit, that Baruch was operating beyond his legal authority and was personally vulnerable to lawsuit by anyone who suffered losses on account of his decisions. Baruch, who never was one for lawyers or written contracts, chose to ignore that advice (his potential losses in court already exceeded his fortune), but he took the precaution of encouraging the businessmen with whom he dealt on official business to leave their lawyers at home. Mainly they complied, and Baruch emerged from his wartime service litigiously unscathed.

  A casual administrator, he was a scrupulous picker of detail men. The men he got usually hadn’t reached the top of their professions but were getting there fast when the war began. In the case of Ritchie, the top was almost the Presidency (Franklin D. Roosevelt, the former Navy Department man, beat him for the Democratic nomination in 1932). Alexander Legge, a former cowboy who served Baruch as operations chief, went on to the presidency of the International Harvester Company. Billy Rose, the WIB’s ace stenographer, later wrote songs and produced Broadway shows and accumulated 350,000 shares of stock in the American Telephone & Telegraph Company.

  Baruch augmented the office of the chairman with a three-man general staff comprising Harrison Williams, the utilities executive; Clarence Dillon, the investment banker; and Herbert Bayard Swope, the newspaperman. Swope and Baruch hit it off famously, and when Baruch was named chairman, Swope obligingly saluted him in the pages of the New York World: “That he possesses the President’s confidence to a marked degree has been known for some time; that he deserves it is now generally admitted even by those who opposed him.” One reason that Swope had written so flatteringly about Baruch was that Baruch, a few days earlier, had written appreciatively to him: “I have often heard repeated your many pleasing and flattering remarks regarding me, and might I be so bold as to say that I think you are prejudiced, as I think you and I understand each other and became friends as soon as we met. I trust that the future will help to ripen our meeting into a lasting friendship.” Swope, in fact, became his closest friend.

  It was at the WIB that a handful of men conceived a loyalty to Baruch so tenacious that they were long afterward known as “Baruch men.” One was John M. Hancock, a deliberate, tobacco-chewing investment banker who would serve Baruch in the next war too, and in the ensuing atomic bomb negotiations. Another was the aforementioned George Peek, a farm implements executive who, with Baruch’s moral and financial support, championed the postwar well-being of the American farmer. The most volatile of this inner circle was General Hugh S. Johnson, a West Point graduate who was unwillingly deskbound as the War Department’s representative to the WIB. Just before the Armistice, orders arrived liberating him for active service, but he came down with the flu and got no closer to France than a troopship at Hoboken, New Jersey. After resigning his commission, he joined Peek in the implements business, then went on Baruch’s payroll as a writer and securities analyst. In 1933 he was elevated to the head of the National Recovery Administration, a New Deal variation on the WIB.

  An interesting case of the non-Baruch man was Eugene Meyer Jr. who had been Baruch’s peer on Wall Street, was richer than Baruch, and perhaps knew more than he did about raw materials. Early on Meyer had given him the idea that copper producers ought to sell to the Army and the Navy at a concessionary price in order to show the public that the European war was not being waged in the interests of the rich. Baruch, then a fledgling Advisory Commissioner, leaped at the idea, but wondered what the copper people would say. To his surprise, John Ryan and Daniel Guggenheim leaped at it too, and a deal was struck at a price of less than half of full freight. In the ensuing exchange of congratulations, Baruch received a warm letter from the Assistant Secretary of the Navy, Franklin D. Roosevelt.

  When the United States entered the war in April 1917, Meyer began to look for a job in Washington, and he naturally turned for help to his old Wall Street friend. Baruch, however, was aloof and unhelpful, and the job that Meyer filled was an advisory post in the field of shoes and cotton duck. Dissatisfied (for it was a far cry from his forte of metals), he approached Baruch again, this time frontally. Meyer’s biographer wrote of that meeting: “Baruch had not asked him to come and did not invite him to stay; when Meyer stayed anyway, he was not assigned to any particular task.”

  He made himself useful by answering telephones and organizing papers, from time to time sending Corcoran to the Shoreham to hunt up a missing document in Baruch’s closet. Notwithstanding his determination to serve his country, Meyer perhaps reflected on the strange and unsatisfying turn of events that had brought him to Baruch’s office in the temporary capacity of file clerk.

  “Gene,” said Baruch one day, “you’re awfully sour. You’re always grumbling about thi
ngs. Why don’t you smile more like I do?”

  Meyer spoke as evenly as he could. He said that, in view of the production news, there wasn’t much to smile about, and that perhaps Baruch would smile less if he knew more. Elaborating, he said:

  You’ve got a big job here. Everybody is telling you you are a wonder and you’re blowing up like a balloon. I’m your only friend because I stick a pin in the balloon every once in a while and let out a little of the gas. When things aren’t going so well, I’m not going to tell you they are, I’m going to tell you when they’re not. If you don’t like it, tell me you don’t want me around and I’ll be glad to find something else to do.

  Meyer stayed on for a while, eventually heading an advisory unit on nonferrous metals, but he left to take a position on the board of the War Finance Corporation in early 1918. At a Senate hearing to confirm his nomination to that post, Baruch praised him so lavishly that the committee chairman dryly asked whether Meyer was dead. As time passed, Baruch came to view Meyer’s wartime career as of his own making, and after the war he circulated the inaccurate, and, to Meyer, infuriating, story that it was he (Baruch) who had brought him to Washington in the first place.

  Baruch was always praising his subordinates (and himself for his perspicacity in picking them) and was usually as loyal to them as they were to him. After the war, for instance, he accepted the Distinguished Service Medal but insisted that his chief lieutenants be similarly honored, and in the critical summer of 1918 he urged his overworked division heads and section chiefs to get away for a week or two of vacation. An alumni organization, the War Industries Association, was still going strong at its twentieth anniversary meeting in 1938, when 145 members turned up to hear Baruch speak on current affairs, to see a performance of Hellzapoppin’ (tickets courtesy of Baruch) and to attend an after-theater party at the Savoy-Plaza Hotel (of which the host was Baruch). For their part, the members presented Baruch with a bust of himself. Howard Ingalls, secretary of the association, reported afterward: “The Chief was deeply moved and I know that probably it is his most prized possession and means more to him than anything else we could possibly have given him.”

  No doubt Baruch was moved by the sentiment of his wartime brothers, but he also had an extraordinary attachment to his own likeness. Standing in awe of himself as he did, he naturally tried to explain the phenomenon of Baruch to others. Just after the war, for example, a woman journalist asked him a question, to which he confessed that he didn’t know the answer:

  And then [she wrote] he talked to me for two hours about himself. He told me of his start in life as a three-dollar-a-week clerk, how rich he was, his philosophy of life; how you should recognize defeat when it was coming, accept it before it was complete and overwhelming and start out afresh, how liberal and advanced were his social views, how with all his wealth he was ready to accept a capital tax as perhaps the best way out of the bog in which the war had left the world, how democratic he was in his relations with his employees and his servants, it all seemed as amazing to him as if he were describing someone else, or as if it had happened the day before.

  Baruch’s vanity was so artless that it often evoked wonder rather than scorn, but some people were unsympathetic to it and to him. Robert Brookings, for example, complained of the impression that Baruch managed to leave of having just returned from the White House or of preparing to attend an urgent meeting there. Colonel House, who wrote in his diary in 1917 that “I do not believe the country will take kindly to having a Hebrew Wall Street speculator given so much power,” allegedly put a man in the WIB to spy on Baruch. And, according to Alice Roosevelt Longworth, Army intelligence once planted a listening device in the home of a beautiful woman who was thought to be passing information to the enemy. Unsuspecting, Baruch paid a call on the lady one day while the microphone was turned on. Mrs. Longworth, who herself sat listening with the intelligence officers, recalled: “We did hear her ask Bernie how many locomotives were being sent to Rumania, or something like that. In between the sounds of kissing so to speak. ‘You are a coward, you don’t dare to look’ was one of her lines.”

  Baruch, in any case, was a storehouse of information, and he had the complementary speculator’s capacity to act on the basis of what he knew. President Wilson, who called him, in that informational vein, “Dr. Facts,” thought of him in the summer of 1918 when there was a demand for a man to get results. At the time the Administration had taken the decision to outfit some Czechoslovakian forces to fight in Russia with the Allies in the expedition against the Bolsheviks. The Secretary of State, Robert Lansing, was trying to arrange the shipment of equipment and warm clothing before the onset of the Siberian winter, but had been frustrated by the War Department. Appealing directly to President Wilson, he urged that one competent man be put in charge of things. Wilson answered him on September 2:

  May I not ask you to have a full conference with Mr. Baruch on this matter? He and I were speaking of it the other day, and I found that he was familiar with the available stocks in the hands of the War Department. His information and advice ought to enable us to get final action.[33]

  Fresh evidence of Baruch’s high standing was furnished the next day when the President directed the heads of federal agencies to check with the chairman of the WIB before taking it upon themselves to commandeer private property. The decision not only widened Baruch’s domain—he was already a member of the President’s eight-man War Cabinet and an ex officio member of the Price Fixing Committee—but also simplified his official correspondence. Some months before the order, he had written to Josephus Daniels in acute frustration over a contested utility plant:

  Nothing will be gained by the Navy commandeering any particular power plant, because you will come in competition with the commandeering power of the Army and Shipping Board, who are vitally interested in that district as you are vitally interested in other districts that they are similarly interested in.

  Despite Baruch’s success at uncorking bottlenecks and reducing the level of confusion in federal supply lines, not all of the Administration’s wartime economic goals were met. Overall industrial production, for example, hit its peak in May 1917 and gently declined through the war. Although an Expeditionary Force of more than two million men was raised, trained, equipped, and shipped to France, only 100 of the 2,250 artillery pieces that they fired in action were actually made in America, and the air corps that was supposed to blacken the skies of Europe essentially amounted to 3,227 De Havilland 4 observation and day-bombing aircraft, of which only 1,885 ever crossed the Atlantic. The Administration, however, did succeed in slashing corporate profits in 1918, thereby providing an ideological balm to soothe the disappointment of shortages.

  Because there was less to go around, the WIB necessarily found itself in the business of telling people what they should do with their own money in the interests of conservation and efficiency. Thus, it successfully encouraged a reduction in the number of automobile tire models to 32 from 287; of steel plows to 76 from 312; of buggy wheels to 4 from 232; and of bathing caps to 1 from 69. It prevailed on traveling salesmen to travel with fewer trunks and on merchants to make fewer deliveries. When only four competing department stores joined in a cooperative delivery scheme, Baruch and the Board reported, the savings amounted to twenty-one drivers, fourteen wagon boys, twenty-nine horses, two stablemen, and twenty-one trucks or delivery wagons. In September 1918 Baruch asked the readers of The Ladies’ Home Journal to do their bit by not insisting that the color of the shoe match the color of the dress: “However harmless such fastidiousness may be in time of peace, in time of war it is inconsistent with serious womanliness.”

  Just as the draft was portrayed as the selection of willing citizens from a nation that had volunteered en masse, so the WIB was presented as a clearinghouse for the self-regulation of business. There was some truth in that view—the US Steel Corporation, which had protested federal controls at the start of the war, actually opposed their relaxation at the Armis
tice—but not everyone went along quietly or without a push. When Baruch threatened to seize the property of one independent-minded lumber-mill owner, the man asked him if he thought the government could actually run it. Baruch allowed that it would be difficult, but added:

  By the time we commandeer those mills you will be such an object of contempt and scorn in your home town that you will not dare to show your face there. If you should, your fellow citizens would call you a slacker, the boys would hoot at you, and the draft men would likely run you out of town.

  In a set-to with Judge Gary, chairman of US Steel, there was a similar exchange. Baruch again conceded the shortage of federal executives to manage complex industrial enterprises but added that he could always get a second lieutenant. Gary was a Republican, but the WIB also tackled some prominent Democrats. Mayor John F. Hylan of New York, who wanted to spend $8 million on school construction, was dismayed to receive a letter over Baruch’s signature (but which had been drafted by Swope) containing a “civilian order of the day: He serves best who saves most.” Building was postponed for the duration.

  War or not, the Fords and the Dodges kept building automobiles, tying up steel and labor that the Administration believed could be better used in the war effort. The WIB protested to Detroit, but the pre-Baruch Board was weak and auto demand ran strong. Sparring between government and industry continued into 1918. On March 4, 1918, Baruch’s first day as chairman, an agreement was struck to reduce passenger-car output by 30 percent in the 1918–1919 model year. But the accord broke down, and there was another meeting in May, at which John Dodge, president of Dodge Brothers, tactlessly said to the WIB side: “It appears to me that what you want is one big boss to get these departments together and shake them up and get results.” As Dodge perhaps realized, Baruch was just that big boss, and at length Baruch threatened: “I know that if we’ve got to close the automobile industry, you will take your medicine.” But nothing came of the threat except more meetings. As the summer rolled around, Edwin Parker, the WIB’s priorities chief, argued for cutting off the industry’s steel and coal; Baruch advised caution. Then, in August, Detroit proposed a 50 percent cut in production (auto sales were falling anyway). Momentarily good will was restored, but the WIB chose to issue a statement declaring that 100 percent conversion would be necessary by 1919. With that the nation’s automotive dealers rose up as one man; next came the Armistice, making the matter moot. A student of the WIB sized up the Board’s influence over Detroit as follows: “We have every reason to believe that the industry moved in its own time, according to its own purposes and calculations of market conditions.” By chance in 1920, Baruch saw Dodge in the lobby of the hotel in which Dodge was staying in New York. The auto executive, regretting some things that he’d said in the heat of bargaining, walked up to Baruch, shook his hand warmly, and invited him up to his room for a drink. Baruch fortunately made excuses. Dodge subsequently fell ill and died of what the papers said was pneumonia but what Baruch had reason to believe was the tainted Prohibition liquor that he drank that day.

 

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