by Amity Shlaes
the forgotten man
A New History of the Great Depression
AMITY SHLAES
for my parents
These unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power, for plans like those of 1917 that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.
—GOV. FRANKLIN ROOSEVELT OF NEW YORK,
RADIO ADDRESS IN ALBANY, APRIL 7, 1932
As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine what C shall do for X, or in the better case, what A, B, and C shall do for X…. What I want to do is to look up C. I want to show you what manner of man he is. I call him the Forgotten Man. Perhaps the appellation is not strictly correct. He is the man who never is thought of….
He works, he votes, generally he prays—but he always pays….
—WILLIAM GRAHAM SUMNER, YALE UNIVERSITY, 1883
contents
Epigraph
Introduction
1
The Beneficent Hand
2
The Junket
3
The Accident
4
The Hour of the Vallar
5
The Experimenter
6
A River Utopia
7
A Year of Prosecutions
8
The Chicken Versus the Eagle
Photographic Insert
9
Roosevelt’s Wager
10
Mellon’s Gift
11
Roosevelt’s Revolution
12
The Man in the Brooks Brothers Shirt
13
Black Tuesday, Again
14
“Brace Up, America”
15
Willkie’s Wager
Coda
Acknowledgments
Bibliographic Notes
Selected Bibliography
Searchable Terms
About the Author
Other Books by Amity Shlaes
Cover
Copyright
About the Publisher
introduction
ONE NOVEMBER EVENING LONG AGO in Greenpoint, Brooklyn, a thirteen-year-old named William Troeller hanged himself from the transom in his bedroom. The boy had watched his family slide into an increasingly desperate situation. The gas for their five-room apartment on Driggs Avenue had been shut off since April. His father, Harold, had lost his job at Brooklyn Edison after suffering a “rupture”—a worker’s hernia, probably. While the father waited for surgery in Kings County Hospital, Mrs. Troeller and six children waited too. Ruth, eighteen, wanted to work as a waitress, but she was unemployed. Harold Jr., twenty-one, had work in a government program. Harold told a newspaper reporter that his brother “was sensitive and always felt embarrassed” about asking for his share at mealtime. The Herbert Street police station near the Troeller home helped to arrange the funeral. Burial would be in a Catholic cemetery. “He Was Reluctant about Asking for Food,” read the headline in the New York Times. New York that year had a Dickensian feel—an un-American feel.
William Troeller was just one story in a city of troubled stories. Across the East River, at an office desk at 20 Pine Street, a utilities executive named Wendell Willkie had spent the fall watching and pondering the downturn. Equally concerned was another executive who worked a block south of Willkie at 120 Wall—the vice president of American Molasses, an agriculture expert named Rexford Tugwell. Both men knew what the boy had probably only sensed: the despair was deep. Later in fact it would emerge that the birthrate that November, the month of William’s suicide, was the second lowest on record for November for the city. A few weeks prior to William’s act the Dow had dropped nearly 8 percent—the day had already come to be known as Black Tuesday.
It was a dark moment for the country as well. Willkie came from farm territory—Indiana. The next year two in ten Indiana families would collect some form of relief. Willkie had bought up a number of farms, in part to conduct a little experiment for himself: he wanted to see whether farming was still possible in America.
The Indiana story replicated itself across the states. A year before William Troeller’s suicide, the Brookings Institution, a new think tank, had warned that the balance of the economy was “precarious.” The economy was tipping. Nationally, durable manufacturing—the most important single meter on the dashboard of the economic engine—was plummeting, and more rapidly than anyone could remember. Unemployment was moving up by the millions. The next spring, the spring after William Troeller’s death, one in five American men would be unemployed. Watching from Britain, the Economist would conclude in retrospect that the United States “seemed to have forgotten, for the moment, how to grow.”
Yet Washington was doing all the wrong things. Officials in the capital seemed arrogant, obsessed with numbers, and oblivious to the pain the nation was suffering. People were angry that Congress and the president had recently raised taxes. With business so hard, why make it harder?
The very week of William Troeller’s suicide, the treasury secretary went before an audience from the Academy of Political Science at the Hotel Astor. The secretary was so anxious about the speech that he had insisted that the president approve it. At his side stood Parker Gilbert, one of the old conservatives from the happy 1920s. There had been a national emergency in the past, the secretary told listeners. But now it no longer existed. The secretary then went on to conclude that the country must now “continue progress toward a balance of the federal budget.”
A member of the audience laughed out loud in shock. The remark seemed so much at odds with the painful reality of that November. That week, there would be an article in the paper about Herbert Hoover. But it did not carry news of his views on the crisis. The article merely covered the fact that Hoover had traveled to Colby College in Waterville, Maine. Maine was one of the states that had voted for him, and now Colby would give Hoover yet another of his many honorary degrees.
The story sounds familiar. It is something like the descriptions we hear of the Great Crash of 1929. But in fact these events took place in the autumn of 1937. This was a depression within the Depression. It was occurring five years after Franklin Roosevelt was first elected, and four and a half years after Roosevelt introduced the New Deal. It was taking place eight years after President Herbert Hoover first made his own rescue plans following the 1929 stock market crash. Washington had already made thousands of efforts to help the economy, yet those efforts had not brought prosperity. Rex Tugwell, the man at American Molasses, had led many campaigns, but now he had retreated to New York to reevaluate a record that counted too many failures.
The standard history of the Great Depression is one we know. The 1920s were a period of false growth and low morals. There was a certain godlessness—the Great Gatsby image—to the decade. The crash was the honest acknowledgment of the breakdown of capitalism—and the cause of the Depression. A dangerous inflation caused by speculating margin traders brought down the nation. There was a sense of a return to a sane, moral country with the crash. A sense that the economy of 1930 or 1931 could not revive without extensive intervention by Washington. Hoover, it was said, made matters worse through his obdurate refusal to take control, his risible commitment to what he called rugged individualism. Roosevelt, however, made things better by taking charge. His New Deal inspired and tided the country over. In this way, the country fended off revolution
of the sort bringing down Europe. Without the New Deal, we would all have been lost.
The same history teaches that the New Deal was the period in which Americans learned that government spending was important to recoveries; and that the consumer alone can solve the problem of “excess capacity” on the producer’s side. This explanation acknowledges that the New Deal did not bring the country to recovery fast, but emphasizes that the country got there eventually—especially with the boost of military spending in the late 1930s. The attitude is that the New Deal is the best model we have for what government must do for weak members of society, in both times of crisis and times of stability. And that the New Deal gave us splendid leaders and characters: Roosevelt himself, a crippled man who bravely willed us all back into prosperity and has been called the apostle of abundance. The brain trust, thoughtful men whose insights validated their experiments. The Hundred Days—that period at the start of his first term when Roosevelt legislated unprecedented reforms—was a thrilling period. From Adolf Berle, the expert on corporations, to Frances Perkins, the pioneering social reformer, to Tugwell, the New Dealers displayed a sort of dynamism from which today’s moribund politicians might learn.
Without the New Deal, the country would have followed a demagogue, Huey Long, or worse, Father Coughlin. The rightness of Roosevelt’s positions was only validated by what followed; FDR saved the country in peace, and then he saved it in war. Or so the story line goes.
The usual rebuttal to this from the right is that Hoover was a good man, albeit misunderstood, and Roosevelt a dangerous, even an evil one. The stock market of the 1920s was indeed immoral, too high, inflationary—and deserved to crash. Many critics on the right focus on monetary policy. Another set of critics focuses on Roosevelt’s early social programs. They argue that New Deal programs such as the Works Progress Administration of the Civilian Conservation Corps spoiled the United States and accustomed Americans to the pernicious dole. Yet a third set of critics, an angry fringe, has argued that Roosevelt’s brain trusters reported to Moscow. Stalin steered the New Deal and also pulled us into World War II, in their argument. For many years, now, these have been the parameters of the debate.
It is time to revisit the late 1920s and the 1930s. Then we see that neither the standard history nor the standard rebuttal entirely captures the realities of the period. The first reality was that the 1920s was a great decade of true economic gains, a period whose strong positive aspects have been obscured by the troubles that followed. Those who placed their faith in laissez-faire in that decade were not all godless. Indeed religious piety moved some, including President Calvin Coolidge, to hold back, to pause before intervening in private lives.
The fact that the stock market rose high at the end of the decade does not mean that all the growth of the preceding ten years was an illusion. American capitalism did not break in 1929. The crash did not cause the Depression. It was a necessary correction of a too-high stock market, but not a necessary disaster. The market players at the time of the crash were not villains, though some of them—Albert Wiggin of Chase, who shorted his own bank’s stock—behaved reprehensibly. There was indeed an annihilating event that followed the crash, one that Hoover never understood and Roosevelt understood incompletely: deflation.
Hoover’s priggish temperament, as much as any philosophy he held, caused him to both misjudge the crash and fail in his reaction to it. And his preference for Germany as a negotiating partner over Soviet Russia later blinded him to the dangers of Nazism. Roosevelt by contrast had a wonderful temperament, and could get along, when he felt like it, with even his worst opponent. His calls for courage, his Fireside Chats, all were intensely important. “The only thing we have to fear is fear itself”—in the darkness, Roosevelt’s voice seemed to shine. He allowed Cordell Hull to write trade treaties that in the end would benefit the U.S. economy enormously. Roosevelt’s dislike of Germany, which dated from childhood, helped him to understand the threat of Hitler—and, eventually, that the United States must come to Europe’s side.
Still, Hoover and Roosevelt were alike in several regards. Both preferred to control events and people. Both underestimated the strength of the American economy. Both doubted its ability to right itself in a storm. Hoover mistrusted the stock market. Roosevelt mistrusted it more. Roosevelt offered rhetorical optimism, but pessimism underlay his policies. Though Americans associated Roosevelt with bounty, his insistent emphasis on sharing—rationing, almost—betrayed a conviction that the country had entered a permanent era of scarcity. Both presidents overestimated the value of government planning. Hoover, the Quaker, favored the community over the individual. Roosevelt, the Episcopalian, found laissez-faire economics immoral and disturbingly un-Christian.
And both men doctored the economy habitually. Hoover was a constitutionalist and took pains to intervene within the rules—but his interventions were substantial. Roosevelt cared little for constitutional niceties and believed they blocked progress. His remedies were on a greater scale and often inspired by socialist or fascist models abroad. A number of New Dealers, Tugwell included, had been profoundly shaped by Mussolini’s Italy and, especially, Soviet Russia. That influence was not parenthetical. The hoarse-voiced opponents of the New Deal liked to focus on the connections between these men, the Communist Party, and authorities in Soviet Russia. And several important New Dealers did indeed have those connections, most notably Lauchlin Currie, Roosevelt’s economics adviser in later years, and Harry Dexter White, at the Treasury. White’s plan for the pastoralization of Germany takes on a new light when we know this. Lee Pressman and Alger Hiss duped colleagues in government repeatedly.
But few New Dealers were spies or even communists. The emphasis on that question is in any case misplaced. Overall, the problem of the New Dealers on the left was not their relationship with Moscow or the Communist Party in the United States, if indeed they had one. Senator McCarthy was wrong. The problem was their naïveté about the economic value of Soviet-style or European-style collectivism—and the fact that they forced such collectivism upon their own country. Fear of being labeled a red-baiter has too long prevented historians from looking into the Soviet influence upon American domestic policy in the 1930s.
What then caused the Depression? Part of the trouble was indeed the crash. There were monetary and credit challenges at the young Federal Reserve, and certainly at the banks. Deflation, not inflation, was a big problem, both early on and also later, in the mid-1930s. The loss of international trade played an enormous role—just as both Hoover and Roosevelt said at different points. If the United States had not raised tariffs at the beginning of the decade and Europe had not collapsed in the 1930s, the United States would have had a trading partner to help sustain it. Part of the problem was the challenge of the transition to industrialization from agriculture. Part was freakish weather: floods and the uncanny Dust Bowl seemed to validate the sense of apocalypse. With money and the weather breaking down, men and women in America felt extraordinarily helpless. They were willing to suspend disbelief.
But the deepest problem was the intervention, the lack of faith in the marketplace. Government management of the late 1920s and 1930s hurt the economy. Both Hoover and Roosevelt misstepped in a number of ways. Hoover ordered wages up when they wanted to go down. He allowed a disastrous tariff, Smoot-Hawley, to become law when he should have had the sense to block it. He raised taxes when neither citizens individually nor the economy as a whole could afford the change. After 1932, New Zealand, Japan, Greece, Romania, Chile, Denmark, Finland, and Sweden began seeing industrial production levels rise again—but not the United States.
Roosevelt’s errors had a different quality but were equally devastating. He created regulatory, aid, and relief agencies based on the premise that recovery could be achieved only through a large militarystyle effort. Some of these were useful—the financial institutions he established upon entering office. Some were inspiring—the Civilian Conservation Corps, for example, which c
reated parks, bridges, and roads we still enjoy today. From Wyoming, whose every county saw the introduction of projects, including the dramatic Guernsey State Park, to Greenville, Maine, whose CCC Road still bears the program’s name today, the CCC heartened young Americans and found a place in national memory. CCC workers planted a total of three billion trees across the country. Establishing the Securities and Exchange Commission, enacting banking reform—as well as the reform of the Federal Reserve system—all had a stabilizing effect. Roosevelt’s desire to control tariff law worked to the benefit of the economy, for, through Cordell Hull, he undid some of the damage of the Smoot-Hawley tariff.
Other new institutions, such as the National Recovery Administration, did damage. The NRA’s mandate mistook macroeconomic problems for micro problems—it sought to solve the monetary challenge through price setting. NRA rules were so stringent they perversely hurt businesses. They frightened away capital, and they discouraged employers from hiring workers. Another problem was that laws like that which created the NRA—and Roosevelt signed a number of them—were so broad that no one knew how they would be interpreted. The resulting hesitation in itself arrested growth.