by Amity Shlaes
Tugwell’s allies spent a weekend in the country prepping him for interrogation with mock questions: “Who are you, anyhow?” “Are you a Communist? “Did you ever spread manure?” Tugwell worried. It likely seemed ironic now that he had not even attended that interview with Stalin in 1927. For now, among all those on the junket, he stood a chance of losing something important because of it.
The preparation was worth it. One senator, L. J. Dickson of Iowa, read aloud Tugwell’s “make over America” poem of 1915. Over and again, senators assailed Tugwell as a red and questioned him on his loyalty to the United States and the Constitution. Tugwell told them he was not interested in implementing Soviet ideas, but rather Roosevelt administration ideas. Tugwell was already sensing what would become a pattern—the frankest of the New Dealers, he said what the others dared not. “Tugwell had been unjustifiably used as a whipping boy,” Douglas concluded from the sidelines. The Spectator, the student newspaper at Columbia, was busy criticizing him from the left. Columbia kept granting him leaves of absence, but Tugwell wondered if its president, Nicholas Murray Butler, would take him after it was all over.
In this instance, things worked out. Six of the seven Republicans on the committee reviewing his nomination voted for him in the end. The full Senate confirmed him 53–24; afterward, Tugwell celebrated at a party hosted by his friend Babbitt author Sinclair Lewis. Absorbing the hits as Roosevelt’s Red seemed, for the moment, worth it. Time put him on its June 25 cover.
That same June Roosevelt took another series of steps in the name of helping the economy. One, hardly given its sufficient due at the time, was to sign a treaty that Cordell Hull had been working toward since the disastrous London conference the previous year. The Reciprocal Tariff Treaty, as it was then known, ended penalty duties. It also granted the president the authority to shift tariff rates. The new agreement was classic Roosevelt—and perhaps classic Hoover—in that it strengthened the power of the executive. But it also happened to be good for the economy; trade increased dramatically. Americans understood this, after the bitter Smoot-Hawley experience. The country had seen trade volume narrow by 40 percent. Hull later said that “in both House and Senate we were aided by the severe reaction of public opinion against the Smoot-Hawley Act.” Still, those who changed their views were mostly Democrats. George Peek, Tugwell’s old nemesis, was now criticizing Hull. The Republicans, obstinate, clung to their old party position notwithstanding the mounting evidence.
That month Roosevelt also gave Wall Street its own policeman: the Securities and Exchange Commission. Publicly traded companies must register with the SEC, and its officers were free to investigate and punish them. In one of his cleverest and most cynical moves to date, Roosevelt named Joseph Kennedy the SEC chairman. People said he had picked the fox to guard the henhouse. Harold Ickes noted the event in his diary: “The president has great confidence in him because he has made his pile, has invested all his money in government securities, and knows all the tricks of the trade. Apparently he is going on the assumption that Kennedy would now like to make a name for himself for the sake of his family, but I have never known many of these cases to work out as expected.” In the year and a half he was at the helm of the SEC, Kennedy would recommend hundreds of prosecutions. At Today, Moley devoted an article to praising Kennedy, writing hopefully that Kennedy’s and the SEC’s inauguration would bring for America a “reign of law in finance.” The article did not spell it out, but it contained a hidden criticism: arbitrary prosecutions were subtly different from consistent enforcement of existing rules.
In late May, on the 28th, Keynes, the British economist, visited with the president. The meeting between the man who was becoming the world’s most influential economist and the U.S. leader was not entirely successful, lasting fifty-eight minutes, and Frances Perkins, whom Keynes saw afterward, would later recall that Keynes told her the session did not go well. Roosevelt gave a similar report, telling Perkins that Keynes had left him, disappointingly, with a “rigmarole of figures. He must be a mathematician rather than a political economist.” Still, Keynes told other New Dealers, including Perkins, that he thought the spending of all the New Deal programs was a good thing, because cash outlays gave the common man purchasing power: “With one dollar paid out for relief or public works or anything else you have created four dollars’ worth of national income.” Marriner Eccles, now at the Treasury with Morgenthau, was hearing intellectual justification for what he already believed instinctively. Whereas before there had been almost no framework to explain what Roosevelt was doing, now a respectable one was forming. Spending promoted growth, if government was big enough to spend enough.
All these events, but especially the public prosecutions, were sending business executives into new fits of housecleaning. Willkie busied himself making over Commonwealth and Southern. Late in June came Commonwealth and Southern’s annual meeting; Willkie saw to it that the departure of four board directors was announced—men not engaged in actual operations. Officers of actual operating utilities were elected to take their place. Willkie also cut off local lawyers in the states who had served Commonwealth and Southern and who had been too easy to bribe with stock. Commonwealth and Southern would manage its own lawyers in-house now.
A few days later, on June 28, Roosevelt gave a Fireside Chat that likely did nothing to quell such executives’ anxiety. The president posited that “much of our trouble today and in the past few years has been due to a lack of understanding of the elementary principles of justice and fairness.” And people seemed to like such remarks. Harry Hopkins had hired Lorena Hickok, a journalist and friend of Eleanor Roosevelt, to report on the state of the country and New Deal projects. In 1934 she wrote, “I carry away the impression that all over the area, from Knoxville, Tennessee, to Tupelo, Mississippi, and on up to Memphis and Nashville, people are in a pretty contented, optimistic frame of mind. They just aren’t thinking about the Depression any more. They feel that we are on our way out and toward any problems that have to be solved before we get out their attitude seems to be ‘Let Roosevelt do it.’” With Hickok some of the time was Grace Falke, Tugwell’s assistant. Both Hickok and Falke believed that getting people off barren land into industry was the best antidote to Tennessee-level poverty. The fact that some of the radio power through which the citizens heard Roosevelt had come via Roosevelt’s own TVA made him seem all the more impressive.
Come August, it was Lilienthal who was in the news, announcing that all of the TVA’s power had found a market and that the construction of new dams was ahead of schedule. Lilienthal and the TVA’s engineer, Llewellyn Evans, sailed to Britain to study something new that the United States might copy: what the Britons called their “grid,” which used power from both private and public companies. “The problem of linking public and private companies is similar to that of the Tennessee Valley,” Lilienthal told a reporter in New York at the Hotel Roosevelt before he sailed. In fact the UK grid owed some of its efficiencies to Sam Insull, who had advised Westminster repeatedly. The British press saw irony in the fact that Lilienthal of the TVA wanted to have a look at it. Lilienthal, the Electrical Review chuckled, said he was looking for a man of “seasoned specialized judgment, such as [Mr. Lilienthal] regards as essential for determining future policy in the States, but circumstances have deprived the American people of his experience and that of his associates.”
THE BRITISH WERE ON TO something. Another reality was becoming clear that summer of 1934: the drama of the prosecutions and the spring cleanups was hiding something. While the Norris Dam and other New Deal projects might be ahead of schedule, the economy was not, at least not in the sense of being where it had been before. The American Federation of Labor had reported in late spring that 780,000 workers who had been reemployed by the National Recovery Administration in the autumn had been unemployed again by the spring of 1934. William Green, the AFL’s leader, began fighting with Richberg at the NRA over employment numbers: the AFL wanted industry, not
relief agencies, to solve the economic problem. The job had to be done, and it had to be partly Richberg’s, since, challenged Green, “We cannot indefinitely support one-sixth of our population on money borrowed against future taxes.” There were still nearly eleven million unemployed. And the Dow was heading in the wrong direction; it would spend the summer below the 100 mark of the preceding winter. Looking up, the New Dealers were taken aback. “The Depression was refusing to disappear,” Tugwell later wrote of the whole period.
Roosevelt now regrouped. Midterm elections were that November. The prosecutions had originally been about punishing financiers for the crash. If Insull’s debentures had lost all their value, then Insull must be guilty. But now the prosecutions and investigations should also be about justifying the New Deal, economically and morally. The Fireside Chats would help. Roosevelt and others had noticed that the medium of radio really did seem to create a new reality, separate from the reality of old politics. If voters focused on the voice and the message, and not the tardy recovery, that might carry the Democrats forward.
It was a hope that the administration concentrated on—for even as government lawyers prosecuted, they were also finding themselves on the legal defensive. The National Recovery Administration, for instance, was under fire in Congress, and from business, as a bureaucracy out of control. A report submitted to the fifty-seventh annual meeting of the American Bar Association noted that by June 25 of 1934, some 485 codes and 95 supplements had been approved by the president and 242 more by the Administrator for Industrial Recovery. In the period of a year, 10,000 pages of law had been created, a figure that one had to compare with the mere 2,735 pages that constituted federal statute law. In twelve months, the NRA had generated more paper than the entire legislative output of the federal government since 1789.
To survive, Richberg and the Justice Department warned—accurately—that the NRA must pass review by the Supreme Court, and soon. In any case, the law required renewal by Congress in 1935. Its constitutionality was a big question: could such a large program really be legal under the Constitution’s commerce clause? Marking Constitution Day in September, the New York Times commented that in regard to such legislation, “the winds of controversy over this issue are already rising.” With the election coming up, the New Deal had to score victories in national politics; if it couldn’t win a genuine return to prosperity, then it might succeed with the negative victories of bringing down the villains.
Richberg and the Justice Department were on the hunt for a test case through which they might prove that the National Recovery Administration was constitutional. They had not yet settled on a case, or even an industry. One possibility that emerged over the course of 1934 had to do with the oil code, one of Ickes’s babies. Ickes, like Lilienthal and Frankfurter, tended to see life in legal terms. When markets didn’t cooperate with legal precepts, that was because they were being insufficiently policed. He had discovered that at numerous points oil was being extracted clandestinely and illegally, outside his NIRA production quotas, and sold at prices that undercut the policy to force prices upward. He was outraged and opened a campaign against the oil bootleggers, describing them as possessed of a “sly animal cunning.” He also sent investigators all over East Texas to catch the violators—the purveyors of illegal “hot oil.” Hot oil, officials at the Justice Department believed, might be best positioned to win them a victory in the Supreme Court. One of the principal aims of Justice at this point was to prove that the NRA did not violate the commerce clause, which confined Washington’s regulatory authority to interstate commerce. Oil traffic was clearly interstate activity.
And hot oil was not the only violation that officials were reviewing. There was the case of William Elbert Belcher, who had refused to enforce the timber code at his lumberyard in Centerville, Alabama. Belcher had paid his workers less than the 24 cents an hour that the code required—perhaps only 7½ cents.
Poultry was a sector that many of the New Dealers expected to be transferred to the public or cooperative sector. Tugwell had sought to distract Roosevelt from the burden of office by taking him out to an experimental government center at Beltsville, Maryland. There, only ten miles from the White House, the government maintained swine, cattle, and “a large poultry breeding operation.” The poultry trade of course was known as a messy one—distasteful to the eye, smelly, and on the East Coast, often run by Jewish immigrants who ended up in court for corruption, crime, or worse. Animal slaughter was also a topic made for headlines. In these days, in which antibiotics were unknown, there always remained the possibility that a merchant who did not conduct his business properly might sell fatally tubercular meat or milk. And clean food was square in Tugwell’s “bailiwick.
A young Harvard lawyer, Walter Lyman Rice, had already successfully prosecuted a member of the New York chicken industry for violating antitrust provisions. His case had made it to the Supreme Court, which had determined that the live poultry business fell under the jurisdiction of federal laws and was covered under the Commerce clause. The NRA lawyers began to strategize about chickens: if government attorneys could target a poultry dealer—and show, in effect, that he was endangering consumer health by violating NRA rules—that would put the virtuous qualities of the NRA in the best possible light.
Beginning in June, inspectors had begun visiting ALA Schechter poultry, a slaughterhouse in Brooklyn, looking for poultry code violations and taking notes. One of the inspectors later confirmed in testimony that the case had been set up in order to clean out the poultry trade, known for its corruption: “We are going to get an indictment and convict the Schechter brothers and that will be a whip over it,” he had been told. Over the course of the summer inspectors swarmed the Schechters’ business. They looked for, and found, evidence of violations of the 40–48-hour workweek mandated under the NRA; they also found that the Schechters, like Belcher, had not always paid the minimum wage mandated by the bill.
By July, or just a few weeks after the first visits from the code officials, a grand jury had indicted the Schechters on not one or two but sixty counts. Some of charges were criminal ones, which meant they would not only have to pay fines if convicted, but also might have to serve time in jail. Among the charges were that they had threatened violence against agents and inspectors; that through illegal transactions they had burdened the freedom of interstate commerce and were subject to federal regulation; and that they had also violated NRA code rules involving hours and pay. The prosecutors said that the Schechters had violated code rules about the selection of chickens and that they had, in the same weeks as the inspector’s visits, “knowingly, willfully and unlawfully sold for human consumption an unfit chicken” to a buyer, a man named Harry Strauber. Finally—and this escalated matters—the Schechters were charged with conspiracy to flaunt the code. The case would come to be known as the Sick Chicken case, and would be heard now, in the autumn.
In order to investigate the way that cases such as Belcher, Schechter, or Andrew Mellon’s demanded, government agencies needed staff. They also found that prosecution became easier if they revised the rules of the game. In the instance of Insull, that meant proving crime and fraud in his bankruptcies. Insull argued that this amounted to illegal retroactive action; prosecutors were imposing current law and sensibility on a different time. As he told his State Department escort on the Exilona, “What I did, when I did it, was honest; now, through changed conditions, what I did may or may not be called honest.” He and Mellon had commiserated—Mellon had written him, he told the escort, to sympathize.
When it came to Mellon, the rule changing involved the definition of what constituted illegal tax behavior. It also meant creating staff to find such behavior. At the Treasury, therefore, Morgenthau acted, dramatically increasing the number of tax officials. Between 1934 and 1935, the staff at the Bureau of Internal Revenue rose to 16,000 from some 11,000.
The New Dealers were comfortable with all these changes. Morgenthau was beginning to feel
at home in his office, and was thinking of putting his own stamp on Mellon’s old department. In October 1934 he announced the establishment of a Treasury Department Section of Painting and Sculpture, its purpose to “secure suitable art of the best quality available for the embellishment of public buildings.” Mellon collected classical art; Morgenthau would collect more modern art—and do it on behalf of the American people. Mellon had disliked tax loopholes. Morgenthau disliked them too, but wanted what Mellon had not—to punish taxpayers for using those loopholes, even when government had created them intentionally.
When it came to taxes, the law was shifting in Morgenthau’s favor. In a case involving stock shares, Helvering v. Gregory, Judge Learned Hand that year found that it was illegal to use a corporate device for tax purposes for which it was not intended. Even Justice Sutherland was going along. He would affirm the finding, writing at the new year that “to hold otherwise would be to exalt artifice above reality.”
Mellon was likely surprised at Morgenthau’s tactics. His dislike of loopholes had been less on moral grounds and more on practical ones. As secretary he had preferred a broad tax base to one with numerous exceptions and had even asked the Bureau of Revenue to supply him with “a memorandum setting forth the various ways by which an individual may legally avoid tax.” With each of his many rate cuts, he had tried also to reduce loopholes. A simple system had always seemed to him the best way for the government to get the most money. “A removal of the artificial value of tax exemption will restore all securities to natural conditions,” he had written in Taxation: The People’s Business.