Like other major New Deal programs, the NIRA had divergent sources. But as with the agricultural measures, it drew on a common theme: the perceived need for centrally administered organization of the American economy. Like the agriculture community, the “business community” was divided between large corporations with a global reach and small to midsize enterprises whose operations were local to regional in scope. The lines of business themselves were multitudinous. As in agriculture, the large players were the truly important objects of a recovery program.
Herbert Hoover had favored voluntary industrial self-government with government acting in an advisory capacity. Roosevelt and his advisers wanted to build on this vision. But what limits or mandates did self-regulation require? Would “reform” lead to price fixing, division of marketing territories, and similar cartel-like practices?
Organized labor, a growing voice in the Democratic Party, wanted strong federal backing for unionization, arguing that this would ensure fairness and decent wages for workers. Senator Hugo Black of Alabama sponsored legislation for the establishment of a thirty-hour workweek that would presumably spread employment around. The unions backed it. On April 6, the Senate passed the Black bill, forcing the administration to formulate and push through an alternative.
Drawing on the experience of the War Industries Board and Hoover’s own efforts during the 1920s, White House drafters, legislators sympathetic to the labor movement, and a few business leaders developed a bill that provided for the organization of business into self-governing trade associations, akin to the construction industry association Roosevelt had headed for a time in the 1920s. Each would adopt “codes of fair competition” with the force of law. The codes would dictate pricing and marketing, provide workers with minimum wages and maximum hours, and recognize their right to bargain collectively. The codes and the trade associations would function under the aegis of a National Recovery Administration (NRA) with wide supervisory and enforcement authority. The NRA, the administration believed, would foster a healthy reform of industry.
Title II of the NIRA established a Public Works Administration (PWA) with a huge appropriation of $3.3 billion, equal to the total outlay of the federal government just three years earlier. The PWA would become known for large-scale enterprises—great hydroelectric dams, suspension bridges, spacious auditoriums, and port facilities—but during its first two years it pursued many modest projects. The PWA also undertook many state-level projects, but these required matching funds, were slow to get under way, and were often too dispersed to have much of an economic impact. Conceived as a part of the economic recovery program, the PWA actually operated more as a conventional construction program that concentrated on high-quality work and scrupulously honest management. Over a ten-year history, it would provide a lot of employment and produce such national ornaments as New York’s Triborough Bridge and the Grand Coulee and Bonneville dams.24
It seemed reasonable to assume that a single administrator with the authority to coordinate their activities would run both agencies. Instead Roosevelt picked retired General Hugh S. Johnson, one of the bill’s primary formulators, to head the NRA and named Secretary of the Interior Harold Ickes to run the PWA. Perhaps he thought the two jobs were too much for any one appointee. Perhaps he simply did not want to give one person so much power and authority.
In addition to legislation related to relief and economic restructuring, the president promoted and Congress delivered a Railroad Transportation Act, which would attempt with scant success to revive major rail lines bogged in bankruptcy; a Truth in Securities Act, which would lay the groundwork for the establishment of the Securities and Exchange Commission a year later; and the Glass-Steagall Act, which established the Federal Deposit Insurance Corporation and separated retail and investment banking.
Congress adjourned 104 days after Roosevelt’s inauguration. Americans had witnessed history racing at top speed before their eyes. Roosevelt had been at the center of it all, making the key decisions in negotiations with Congress, swaying the public with his radio talks and press conferences, and overwhelming Washington in a fashion that eclipsed even the example of Uncle Ted.
It was natural to feel that a strongman president had executed a major departure in American politics. But how drastic was it? How radical? On the one hand, the emerging New Deal seemed to be building huge new bureaucracies to run the economy. On the other, it made much of its Jeffersonian Democratic roots. The agricultural program was organized at the county level, and participation was optional. The National Recovery Administration declared that most of its codes would be written at a regional level, would be minimal, and, although they had the force of law, would rely on voluntary compliance rather than strict enforcement. Some critics grumbled that this was all a smoke screen for progressive centralism and large-scale government compulsion of a sort that would have delighted Uncle Ted (or Stalin or Trotsky). But key personnel the president had chosen—Woodin at Treasury, Johnson at the NRA, Peek at the AAA—seemed safe and conservative.
Even the government expropriation of the nation’s gold supply was not out of line with emergency measures taken in other nations. For every person who feared a devaluation of the dollar, a dozen or more others would, for various reasons, welcome such an event. Above all, the nation saw a magnetic president who had taken bold action in attacking a major crisis.
After signing the final pieces of legislation and turning implementation over to his subordinates, Roosevelt left Washington for a much deserved vacation. He traveled by train to Boston, where an estimated 250,000 people lined the streets to cheer him, then continued to Groton to pay respects to the revered old rector, and then went on to Buzzards Bay, where a rented forty-five-foot schooner, Amberjack II, awaited him. Accompanied only by his sons, James and Franklin Jr., he sailed some four hundred miles up the coast of Maine, shadowed by a small press boat and the US Navy cruiser Indianapolis. To surface appearances, the sailing was quiet and carefree. Inwardly, the president pondered whether the New Deal was compatible with efforts to reconstruct an international economic order that had largely collapsed in the chaos of the Depression.
Before the Depression, the international economy had hinged on a gold standard in which the major currencies—the French franc, the German mark, the American dollar, and, above all, the British pound—participated. Central banks issued currency redeemable in gold and accumulated the reserves of the precious metal to back up their paper. The gold standard inhibited monetary expansion and enforced stability to the point of a deflationary bias. Debtors, whether nations, business, or individuals, shrank from it; creditors embraced it.
The dollar had always been backed primarily with gold, but the United States had periodically flirted with unsecured greenbacks and issued some currency based on silver. These policies encouraged growth and speculative investment but also gave rise to fluctuating prices and economic instability. After the victory of William McKinley over William Jennings Bryan in 1896, both political parties accepted that US currency would be based on gold at $20.67 to the ounce, the issuance of a relatively small amount of “silver certificates” notwithstanding.
The World War had shaken the European economic order to its roots, leaving the preeminent European powers with huge debts and making an outsized creditor of the United States. Attempts by the European nations to reestablish their currencies had been fraught with difficulty. France and Germany had to undertake dramatic devaluations. Britain resumed gold payments at the prewar rate in 1925 but was forced to abandon the gold standard in 1931, when it also dropped free trade for protectionism. German efforts to defend the mark catastrophically deepened the Depression and facilitated the rise of Hitler. Italy, under the dictatorship of Benito Mussolini, stayed with gold. So did France.
Currencies redeemable in gold might signify economic strength, but they also made their countries’ goods expensive in international trade. The obligation to redeem paper curren
cy or bonded indebtedness in gold limited the amount a country could issue. During hard times, an inability to expand the money supply depressed price levels and made it difficult to manage formerly rational levels of debt. Whether democratic or authoritarian, the remaining gold standard nations hung on with caveats, arcane economic management, and a tolerance for pain.
By the time Roosevelt took office, world trade had all but collapsed, and the monetary system that served as its basis was in a shambles. In 1931, Great Britain had shaken the international financial community by suspending redemption of pound sterling obligations in gold. At the insistence of much of the rest of the world, President Hoover had declared a one-year moratorium on war debts owed the United States. Economists and practical businesspeople alike agreed that a revival of world trade and prosperity would require at least a long-term suspension of war debt payments, a general lowering of tariffs, and a reformed international monetary system that would peg currencies to each other at reasonable valuations.
By mid-1933, only the United States among the large economic powers maintained a truly convertible gold standard. At his first press conference, Roosevelt had made much of presumably temporary European restrictions on gold payments. He surely realized also that continued embrace of the gold standard and defense of the dollar would sharply curtail his ability to engage in the deficit spending that his recovery plan would require.25
Roosevelt undertook a series of actions to establish a federal gold hoard that could be used to defend the US dollar but also suspended redemptions of dollar obligations in gold. An act nullified gold clauses (payment in gold or its equivalent) in private business contracts. The administration suspended international transfers of gold. Most controversially, it moved to establish a government monopoly on ownership of commercial gold. On April 5, the president issued Executive Order 6102, requiring delivery of all gold coins, bullion, and gold certificates to the government in exchange for Federal Reserve notes backed only by the full faith and credit of the United States. The order made exceptions only for collectibles, jewelry, industrial needs, and foreign commercial ownership or obligation.26
For nearly two years, governments had been planning a World Economic Conference in the hope of establishing a stable system that would restart world trade by addressing the three major international issues of the Depression: currency stabilization, tariffs, and war debts. The active collaboration of the United States was essential. The problem was that the United States would need to make most of the concessions on all three topics. Roosevelt found himself forced to make time during the hundred days to meet with high-level European officials who urged him to make these sacrifices. For the most part, they left feeling encouraged.
The conference convened in London on June 12, just as the National Industrial Recovery, Home Owners Loan, Farm Credit, Emergency Railroad, and Glass-Steagall bills were all nearing passage on Capitol Hill. The American delegation itself was split and, in the absence of a firm mandate from Roosevelt, lacking in direction. It arrived in London with no clear negotiating positions. Its formal leader, Secretary of State Cordell Hull, presided over a motley group that included currency inflationists, sound-dollar men, internationalist free traders, and nationalist protectionists. The personal conflicts were even worse than those over policy. Nevada senator Key Pittman, a single-minded advocate of his state’s silver-mining interests and also known for his attraction to good whiskey, pursued delegation staffer Herbert Feis through Claridge’s hotel with a hunting knife. Hull resented the presence of his nominal subordinate, Assistant Secretary of State Raymond Moley.27
In theory, the delegates to the meeting could agree to the essentials necessary to revive the world economy. In fact, a self-enforcing general agreement was impossible. State planning, protectionism, and competitive currency devaluations had become common. No rational observer could believe that authoritarian nations such as Germany, Italy, or Japan would embrace open trade. It was reasonable to doubt that Britain, France, or other democracies would do much better. In the United States, both political parties were committed to the proposition that war debts must be paid to the US Treasury in full, and at American insistence the possibility of rescheduling payments had been removed from the agenda. The Democratic Party remained committed in principle to lower tariffs, but Roosevelt had pointedly refused to ask for a revision of Smoot-Hawley and seemed well on the way to initiating a system of national planning that might require trade barriers. It did not help that since being decoupled from gold, the dollar had been in free fall against the British pound. On April 1, it had taken just $3.42 to buy one pound; by June 30, the price would be $4.26. This collapse reflected a wide expectation that Roosevelt was planning a sharp devaluation.28
What then, in the end, was the purpose of the London conference? At best, it might set the table for trade deals and promote a sense of common interests among the shrinking number of liberal democratic powers in attendance. Bilateral negotiations between the British and American representatives raised the strong possibility of a reasonable dollar-pound ratio in a range centered on $4.00. Whether a trade agreement might follow was more speculative. Such accords would have possessed great value but would also have required determined leadership and heavy political lifting in both Washington and London.29
Roosevelt, despite a surface affinity for low tariffs and an attraction to international leadership, simply was not interested. Neither were most of his advisers. They distrusted Europeans in general, leaned toward national planning and economic management as the road to prosperity, and valued freedom of action above all else. The British and other Europeans were not much different. The American response to the conference would harden their attitudes.
On Friday, June 29, after hours of fighting a thick fog, Roosevelt piloted Amberjack II into the harbor at Campobello, just as he had done with similar small craft in happier years. An enthusiastic crowd awaited him, including much of the island’s year-round population, the premier of New Brunswick, Canadian Mounties in dress uniform, and Scottish bagpipers. It was his first visit since he had been carried away on a stretcher twelve years earlier. He spent a pleasant three days at the old vacation house, departing on Sunday, July 1.
There, isolated from most of his economic advisers, he sent a personal, decisive message to the London conference: It would be a catastrophe if the meeting allowed itself “to be diverted by the proposal of a purely artificial and temporary experiment affecting the monetary exchange of a few nations only.” The “sound internal economic system of a nation” was more important than “the price of its currency.” He went on to say that the “old fetishes of so-called international bankers are being replaced by efforts to plan national currencies with the objective of giving to those currencies a continuing purchasing power which does not greatly vary in terms of the commodities and need of modern civilization.” The United States, he continued, wanted to stabilize every nation’s currency and restore world trade, but just how remained a mystery.30
The great British economist John Maynard Keynes, perhaps because he desperately wanted to influence Roosevelt, praised the president as “magnificently right” for refusing to accept old nostrums. The president, he bravely asserted, had not foreclosed a cooperative relationship with the British government. But Roosevelt had done just that. As both Keynes and the president surely understood, general currency stabilization in the world of 1933 could not take place without an agreement among leading gold bloc nations and the two great economic powers that had renounced gold, Britain and the United States.31
The letter blew up the economic conference, which staggered along for a few more weeks, then adjourned devoid of accomplishment. Roosevelt had chosen to go it alone economically, just as had most other national leaders. In the circumstances of mid-1933, the decision was easy, driven in substantial measure by the emotional isolationism embedded in the political DNA of most Americans. The shrinking number of liberal, democratic nations
that looked to America for leadership learned a hard lesson. The British chancellor of the Exchequer, Neville Chamberlain, was inclined from that point on to consider Roosevelt untrustworthy.
In the United States, there was scant popular dissent and a wide understanding that Roosevelt had told the rest of the world that the United States would pursue recovery at home, unhampered by international constraints. It was now up to the New Deal to restore the economy.
Chapter 14
Unlimited Ambitions, Limited Achievement
The First New Deal, July 1933–November 1934
Franklin Roosevelt’s promise of a New Deal required transformative expansions of both the government and the Democratic Party. Like all presidents, he could bring a few loyalists to Washington, but mostly he had to staff his administration with individuals who possessed independent identities and ambitions. They managed big new programs that sought comprehensive organization of the economy. Roosevelt welcomed the challenge, but inevitably the achievements of both the people and the programs were mixed. The assumption was that reform and recovery were inextricably linked. But were they? Or would one get in the way of the other? The result would be the First New Deal, whose performance failed to match its promise.
The first imperative remained relief for those still jobless or destitute after the economy began its slow recovery. With the Public Works Administration (PWA) perhaps unavoidably moving slowly, Roosevelt gave Harry Hopkins $400 million from the PWA and Federal Emergency Relief Administration (FERA) appropriations to set up a new agency, the Civil Works Administration (CWA). Established at the beginning of November 1933, by January 1934 it had funded 4 million jobs. The CWA established a template for federal work relief during the 1930s, exhibiting in abundance both the shame and the glory of such efforts. The glory showed amply in the improvement of roads and highways; the construction and refurbishment of schools; the employment of teachers; the building of public parks, swimming pools, sidewalks, and sewage systems; and the commission of murals and other works of public art. Some projects, created almost overnight, were shoddy, but most held up fairly well. Others, such as the raking of leaves in public parks, were evanescent, but even leaf raking needed to be done.
Man of Destiny: FDR and the Making of the American Century Page 26