by James Grant
Baruch’s response to the unfolding events was revealingly mild. Senator Carter Glass of Virginia, a friend of his who had drafted a plank in which the Democratic Party in 1932 had declared for “a sound currency to be preserved at all hazards,” publicly condemned the dollar-devaluation bill as repudiation and national dishonor. Baruch himself was disturbed by the gold measures, but he had the stock trader’s sense that a change in trend was in the making and a disinclination to quarrel with the tape.[53] As a citizen, he was concerned by the President’s policies. More immediately, however—as would-be adviser to Presidents—he was discomfited by them.
Frances Perkins, Roosevelt’s Secretary of Labor, had a hunch concerning Baruch’s state of mind. He had, she said later,
that curious sense of guilt that you have when you don’t believe yourself to be guilty. You don’t think you did anything wrong, which indeed he had not, and yet you feel guilty. There was nothing wrong in using your best judgment to put your money in gold. But if it was going to be called in, and people who had gold were going to be called hoarders, with penalties, and a bad name attached to them, he began to feel that sense of guilt which was not based on conscious conviction of guilt. It was just, “I’m on the unpopular side of this, and I don’t want to be.”
Probably this was insightful hunch. Perkins went on to relate an exchange that had taken place at a Cabinet meeting concerning the anti-gold-hoarding order. The Vice President, John N. Garner, had been very keen on the policy:
Then [she said] Garner began to chuckle, his face got red, and he said, “Well, of course, it’ll put a lot of people in a very embarrassing position, Mr. President.”
The President looked solemn and said, “Well, I don’t think so. I don’t think anybody who’s doing the right thing by this country will be embarrassed by this at all.”
We had previously talked about the children who had ten-dollar gold pieces given to them by their grandfathers, about whether they had to turn those in.
Garner then said, “Well, you know, one of our greatest friends has got a hoard of gold.”
Then I, or somebody at the table, piped up and said, “Who’s that?”
“Baruch. I understand Baruch’s got a whole bankful of gold bricks.”
Although Perkins didn’t mention it, an incidental revelation from the Pecora Committee late in May also perhaps nourished the New Dealers’ distrust of Baruch. It came to light that J. P. Morgan & Company had kept a “preferred list” of people to whom it had distributed common stock, and that Baruch’s name was on it. His companions were a heterogeneously prominent lot, including, among others, John J. Raskob, Charles A. Lindbergh, Calvin Coolidge, Charles E. Mitchell, William G. McAdoo, John J. Pershing, and Roosevelt’s Treasury Secretary, William Woodin. In 1929 each had been offered stock in one or more newly formed companies. Morgan, which as a rule didn’t underwrite new issues, now and then made an exception, and it would find itself with more stock than it wished to hold for its own account. Not caring to sell to the general public—Morgan was not that sort of firm—it offered the overflow to its friends and acquaintances.
One of the issues it distributed was Standard Brands, the yeast and baking soda consolidation. Baruch happened to be an interested party in that company by dint of his holdings in the Fleischmann Company, one of its corporate components. The proposition before him and the others was that they contract to buy the stock in late June 1929 but pay for it in early September. There was nothing unique in the deal, nor, contrary to the impression left by the committee, was it free of risk to the buyers. If the price of the stock went up, as Pecora strongly implied to be inevitable, there would be a profit, but if it happened to fall, there would be a loss. Baruch took 4,000 shares at 32. His records show that he sold 3,000 shares at 32 as the market was crashing—no profit there—and that a year later he held 300 shares in an account at Morgan at a price of 15¾—no profit there either. (To Baruch, of course, it was absurd to think that the Morgan firm had favored him when, in his opinion, it had consistently opposed him in railroads and sulphur.) When the Pecora headlines struck in May 1933, Swope drafted a long and rambling broadside for use against the committee but wisely concluded that Baruch say nothing.
From time to time in those days the newspapers depicted Baruch as an éminence grise. While not himself the wielder of power, the stories had it, he had planted his right-hand men in office and therefore controlled the government by proxy. Conspicuous among the so-called Baruch men were George N. Peek, administrator of the Agricultural Adjustment Administration; General Hugh Johnson, chief of the National Recovery Administration; and Swope, who filled a visible if subordinate role with the American delegation to the World Monetary and Economic Conference.
Although intriguing and imaginative, the stories were wide of the mark. Before Peek took the AAA job, it had been offered to Baruch. He declined it on the ground that the enabling law—which sought to raise prices by paying farmers not to raise crops—was unworkable. Peek accepted with misgivings and was fired seven months later. He took a new job as a special trade adviser from which he resigned in 1935. (On the occasion of his leaving the Administration, the Chicago Daily News wondered how gray was Baruch’s eminence: “His [Peek’s] passing removes the last vestige of the Moline Plow Works from the New Deal, but whether it also indicates that Bernard Baruch, chronic friend of presidents, has also lost his drag remains to be seen.”) If anybody was a Baruch acolyte, that man was Johnson, but it was not on Baruch’s say-so that the general was given command of the NRA. On the contrary, Baruch had warned Frances Perkins that Johnson was unfit of the job and that someone must impress that fact on the President. Baruch himself was unwilling to bear the message—possibly, Perkins thought, because he was embarrassed at being caught with his gold. At all events, Johnson joined the New Deal not because of Baruch but in spite of him.
In a way the NRA did owe its commission to Baruch, or at least to the precedent of the involuntary voluntary method of the War Industries Board. In the crisis of 1933, as Johnson saw it, industry abdicated leadership to government. He had a definite theory about the Depression. “It happened,” wrote Johnson, “because they [businessmen] were doomed by the law to unchecked and uncontrolled competition—doomed by the law not to take common counsel, not to regard each industry as a unit and not to regard the country as an economic integer in which every citizen had an interest and every employer an obligation.”
If, as Johnson thought, the antitrust laws prevented this sensible taking of common counsel—assured frantic competition, overbuilding, and the inevitable bust—then the obvious step was to write new laws. In Washington he set to work to help with the drafting of the National Industrial Recovery Act, the charter of what he liked to call industrial self-government. Henceforth, under the law, businessmen would formulate “codes” to regulate maximum hours of work, minimum wages, lawful trade practices, and prices, and so on, industry by industry. All this was to be done under federal supervision in the name of the national interest.
Baruch was ambivalent toward this scheme, his free-market side colliding with his war-socialism side. As the Hundred Days wore on, it was the martial Baruch that came to the fore. It was uppermost in a speech at the Brookings Institution on May 20 in honor of the founder of that organization and a WIB alumnus, Robert S. Brookings. Having deplored the loss of “privacy in business,” at Johns Hopkins three months earlier, Baruch now urged a regime of “enlightened cooperation” of companies under government control. He likened the current economic crisis to war and held up the record of 1917–1918 (“that high adventure”) as an example of what the new National Recovery program might accomplish. Unfortunately, he said, echoing Johnson, the Sherman Act prohibited cooperation among competing firms. What was needed was voluntary action to cooperate supplemented by “the power to discipline.” As wages and costs went up—the fruit of rational planning—prices too would rise, which could mean trouble. “Higher prices by agreement constitute a danger s
ignal,” said Baruch, “and this brings us face to face with the necessity for governmental provisions. Industrialists who favor this plan must understand clearly that it involves imposition by government of a price limitation, agreed upon by industry to be sure, but always subject to government approval.”
There would, of course, be the recalcitrants to deal with, Baruch went on—he suggested a government licensing scheme to trip them up—but the problem would be manageable if the public were prepared:
If it is commonly understood that those who are cooperating are soldiers against the common enemy within, and those who omit to act are on the other side, there will be little hanging back. The insignia of governmental approval on doorways, letterheads, and invoices will become a necessity in business. This method was used with success in 1918. It is a short cut to action and to public support, without which no such plan can succeed.
Thus the Blue Eagle, the NRA’s insignia, was hatched.
As NRA administrator, Johnson worked a revolution in American business practices. Wage and hour laws were written, sweatshops and child labor were abolished, and collective bargaining was instituted. All this was done without subtlety, as Johnson himself promised when he took the job—“It will be red fire at first and dead cats afterward”—and as Baruch had feared. H. L. Mencken described the general truculently presiding over the hearings at which industries formulated codes of operation—“his coat off, perspiration streaming down his face, and overshotted mikes bursting all around him,” that is, a man as unlike Baruch at the helm of the War Industries Board as could have been imagined.
Baruch felt not so much the paternal pride in the NRA that he might have been expected to feel as disapproval of its regimenting policies. He drew the distinction between an industry that went hat in hand to Washington to seek the right of “self-government” and an industry subdued, and to Johnson he protested in November 1933 that “. . . the whole field of industry is being forced into codes which are really impositions by the Government itself. In other words, the Government is seeking to direct the industrial life of the country even though this was not asked and indeed is not wanted.” One of Johnson’s bitterest foes was Senator Carter Glass, who happened to publish some newspapers in Virginia and considered the NRA’s newspaper code an assault on the freedom of the press. “I just want to tell you, General,” said Glass, “that your blue buzzard will not fly from the mastheads of my two newspapers.” Testimony to Baruch’s charm and political versatility was that as late as the end of 1933, Glass and Johnson each thought that Baruch agreed with him. When in the fall of 1934, Johnson was preparing to resign, it was Baruch alone whom he tried to reach for advice and support, just as earlier that year he had gone to him for a $6,000 loan. In 1935, in his book The Blue Eagle from Egg to Earth, Johnson called Baruch “the most faithful, kindly, and considerate man I ever knew.” He revered him until he died in 1942, attended by nurses whom Baruch had paid for and by Baruch himself keeping vigil at his bedside.
Not inclined to think along ideological lines and reluctant to incur the disfavor of anyone who occupied the White House, Baruch was capable of deft shifts of viewpoint. If he believed anything before the inauguration it was that inflation was evil. He continued to say so in private after the coming of the New Deal, but he was not so incautious as to imperil what access to the White House he continued to enjoy. In the spring of 1933, following the decision to call in gold and the signing of the inflationary Thomas Amendment, he served on a commission to advise the President on issues that would be taken up at the forthcoming World Monetary and Economic Conference in London.
The business of the meeting was to get the gold nations in step with the paper-currency nations, or vice versa, and to try to re-establish fixed values for the world’s unsteady currencies. The conference was set for London in June and July; Baruch had been named chief of the American advisory group in February. According to his enemies, he was appointed merely because he hadn’t been asked into the Cabinet, and because he was too rich, too smart, and too influential in Congress to be alienated. As the conference drew near, what might have seemed a harmless political sop came to alarm (among others) James Warburg, who thought Baruch vain, ill informed, and not above turning the sensitive information that was bound to come his way to his own trading advantage. Indeed, there was something of a consensus on this point. Back in January, Roosevelt had told Homer Cummings, the Attorney General to be, that Baruch had earned $1 million profit in the bonds of the Missouri Pacific Railroad, “evidently” after coming into some inside information about a Reconstruction Finance Corporation loan. Furthermore, he had an option on a silver mine, and silver would be on the London agenda.
In May came word that Baruch would not be going to London but would stay home as a White House liaison. This was a fine joke on Baruch, in Warburg’s estimation, because the President would be going away on vacation just as the conference got under way, thus leaving Baruch no one to coordinate with. In June, the President dispatched Moley, then Assistant Secretary of State, to sail to London to look over the shoulder of the regular delegation. Moley, who was getting on well with Baruch, agreed to take Swope.
To those concerned about the abuse of confidential information, the choice of Swope was distressing. It was well known, as one Howard Kiroack, of Portland, Maine, took the trouble to wire the President on June 22, that Swope and Baruch were financially intimate and that Swope, from London, would be in a position to tip Baruch to market-related developments. (Roosevelt, hearing Louis M. Howe, a White House aide, contemptuously describe Swope as a “little brother to the rich,” objected, “But I like him.”) In London, after Swope and Moley landed, there were further insider-trading suspicions predicated on the frequency of telephone communication between Swope and Baruch. Although their calling was, in fact, extensive—the phone bill to Baruch came to $432—Swope was more or less constantly on the phone anyway, and for years he had stayed in touch with Baruch through all known channels of communication. On an especially communicative day in 1931 he had written him four letters. In private life it was quite true that he kept Baruch current on information that a later generation would call privileged. As Baruch’s representative on the board of the Brooklyn Manhattan Transit Company, for instance, he regularly divulged earnings and dividend information to him (and to others, including Joseph P. Kennedy) before the rest of the stockholders could read it in the newspapers. It wasn’t unthinkable that he sent him investment advice from London. On the other hand, with Baruch’s encouragement, Swope before sailing had sold his stock in companies that did a mining or an international business in order to avoid the appearance of a conflict of interest. Moreover, it seems unreasonable that Baruch, after his experience with the peace-note leak investigation and the numerous postwar allegations of self-dealing against him in the War Industries Board, would risk the loss of his reputation for a quick turn in the market at the age of sixty-two.
To Secretary of State Cordell Hull, who headed the US delegtion, a more urgent question than to whom Swope was speaking on the telephone was what he and Moley were doing there in the first place. From the start the conference had been a fractious disappointment. The gold-bloc nations, led by France, pressed for an early return to gold convertibility by Great Britain and the United States. The United States, for its part, resisted any immediate currency-stabilization plan and chafed at the repudiation of wartime debts by its former allies. An exchange between James M. Cox, an American delegate, and Georges Bonnet, of France, caught the spirit of the talks:
BONNET: France would not look with favor upon the selection of someone to head the monetary committee who comes from a country that has recently gone off the gold standard.
COX: Nor will the United States look with favor upon the election of a man presented by a country which has repudiated its debts.
The Americans also quarreled intramurally. Senator Key Pittman, one of Hull’s delegates, once chased Herbert Feis, a State Department man, down a hal
l in Claridge’s Hotel with a hunting knife. On another occasion, after a dinner party that the Astors gave, the senator got Lady Nancy Astor down on the floor and tickled her. At the conference, Pittman’s professional interest was silver, exclusively. Hull was mainly a low-tariff exponent. One thing on which the Americans were generally agreed was the desirability of a return to the international gold standard at some future date.
Before sailing with Swope on June 20, Moley had told reporters that Baruch would be filling in for him at the State Department in his absence and that they could expect to see a lot of him. In the retelling Baruch’s role was exaggerated, as it had been throughout the Hundred Days. On June 22, a telegram, addressed to “Bernard M. Baruch, Unofficial President of the United States,” was received at the State Department from a well-wisher in Tulsa, Oklahoma, who said, simply, “Congratulations. I know of no better man for the job.” As Herbert Feis (who survived the encounter with Pittman) wrote later, it was odd of Moley to have chosen Baruch since gold-standard orthodoxy was just what Roosevelt was veering away from, and indeed, what Moley and Swope had been dispatched to London to guard against.
At the time, however, it wasn’t clear to Moley what the President wanted, nor, perhaps, was Roosevelt himself entirely sure. In any case, when Moley called Baruch in New York on June 30 to say that a declaration on gold and the international monetary system had been drafted, that it had gone down well in London and that the President’s quick approval was necessary to save the conference, Baruch was enthusiastic. The statement contained some hopeful language about stability in monetary affairs, the general endorsement of an international gold standard, and a vague pledge on behalf of the governments to cooperate to limit speculative fluctuations in their currencies. Along with Treasury Secretary Woodin and Under Secretary Dean Acheson, Baruch urged Roosevelt to sign it.