A week after that, Roosevelt received Democratic leaders of the House of Representatives. Asking the president to give his blessing to the usual adjournment ahead of the steamy Washington summer, they encountered a “desk-pounding” chief executive unhappy that his legislative program remained stalled on Capitol Hill. A Democratic Congress, he told them, could not ignore a Democratic president.2
Faced with a floundering program, a hostile Supreme Court, and a lethargic Congress, Roosevelt had opted for a new reform agenda. Would it “increase the security and happiness” of the American people? Or would it get in the way of a desperately needed economic recovery? The second hundred days had begun.
The president had already displayed his exasperation with Congress on May 22 when he vetoed a revived veterans bonus bill. For many Democrats and not a few Republicans, the legislation was, as in 1932, a quick and easy way to play to a large and politically powerful constituency. Breaking yet another precedent, Roosevelt came to the Capitol and read his message to a joint session of Congress. Millions listened at their radios across the country as he argued that the bonus was both inequitable and unaffordable. The House had overridden the veto by the time the president arrived back at the White House. As expected, however, the Senate sustained him and thereby underscored his leadership of party and nation.3
A “must list” Roosevelt gave House leaders three weeks later remained a bit vague. It clearly included social security, public utility holding company curbs, transportation regulation, and strengthening of the Federal Reserve. He had already called for passage of Robert F. Wagner’s labor relations bill on May 24. Bringing all these measures to a vote over the next several weeks would be a daunting task.
Then, without warning, on June 19 the president sent a message to Congress demanding a new priority: a comprehensive revenue bill that would sharply elevate taxes on large inheritances, high incomes, and the net profits of corporations. Social justice, he declared, required these changes; the redistribution of wealth, moreover, would stimulate the economy. Huey Long strutted up and down the aisles of the Senate chamber as a clerk read the message. Most congressmen, wanting only to get out of town, were shocked. The president had displayed little interest in soak-the-rich taxation during his first two years in office. Was the message an ideological manifesto or a strategic ploy?4
It probably was a bit of both, expressing at once Roosevelt’s alienation from a social and economic elite that mostly scorned him and his disdain for those Theodore Roosevelt had called “malefactors of great wealth.” It equally reflected a cool political calculation that he needed to move in a populist direction. If that meant following a course that appealed to him anyway and shoving aside Huey Long and Father Charles Coughlin in the process, so much the better. A careful reading of his message revealed the sensibility of an individual of modest wealth outraged at the lavish lifestyles of the very rich but far from ready to lead mobs of ragged peasants with pitchforks. Where Long proposed wholesale confiscation, Roosevelt quoted Andrew Carnegie on the virtues of thrift and industry, cited Uncle Ted on the deleterious effects of generational transmissions of vast wealth, and specifically suggested high taxation only on incomes exceeding $5 million a year, a level well in excess of that sustaining his country squire/small yachtsman lifestyle.
Democratic leaders in Congress promptly passed the word that the president was not insisting on immediate action; the White House did not contradict them. Twenty-two senators, most of them from the progressive bloc led by Robert La Follette Jr. of Wisconsin, responded by signing a manifesto calling for immediate consideration of the White House proposal. Roosevelt had long courted their support. Huey Long, not one of the signers, backed them up: “Don’t give us the voice of Jefferson and the hand of Mellon and Morgan.” The White House got the message. The president demanded quick passage of his still vague tax proposal.5
The bill that took shape over the next several weeks provided a template for Roosevelt’s larger “must list.” More than any other item, it gave thematic coherence to an agenda that had been a mishmash of relief programs, attempts to organize sectors of the economy, and bits of selective socialism. It addressed the economic need to deal with a mounting national debt and also served the political purpose of scapegoating the wealthy. Consistent with the New Deal’s occasional prosecutions of rich and prominent figures for income tax evasion or other varieties of financial malfeasance, it was far more potent because it implicitly indicted an entire class. Thus the bill began its way through the legislative process, jostling with other items aimed at specific constituencies and adding to the irritability of a discontented Congress.
The first piece of legislation to clear Congress was the Wagner Act, to which the Supreme Court invalidation of the National Recovery Administration (NRA) had given momentum. Signed into law by Roosevelt on July 5, the new act effectively wrote into law the NRA’s labor provisions. It established as national policy the right of workers to organize and bargain collectively, provided for a National Labor Relations Board to administer the statute, and specified a series of unfair labor practices. Conceptually, it was a continuation of the NRA tendency to see the economy in “corporatist” terms of labor and management rather than as an aggregation of individuals pursuing personal interests.
Politically, the Wagner Act was a masterstroke. Since the early twentieth century, organized labor and the Democratic Party had been growing closer at the state and local levels. A certain ideological affinity existed between Democratic urban machines and the unions; the fact that the leaders of both often had Irish names and were Roman Catholic helped. Unions could provide campaign money and election workers; the government could provide protection in return.
American Federation of Labor president William Green hailed the bill as a “Magna Carta” for the union movement. Roosevelt declared, “By preventing practices which tend to destroy the independence of labor, it seeks for every worker within its scope, that freedom of choice and action which is justly his.” Everyone with an interest in the legislation realized that its viability would ultimately rest on court decisions about the extent of the government’s interstate commerce authority.6
The rest of the president’s program simmered through a steamy July into the first two weeks of August, with representatives and senators of both parties displaying increasing crankiness. Congressional leaders toyed with the idea of a unilateral adjournment but knew that Roosevelt likely would call them back to a special session. They could do nothing but grind out the most hotly contested legislative program since Theodore Roosevelt and Woodrow Wilson had imposed their wills on Washington.7
The Social Security Act cleared Congress on August 10. The new program represented a triumph for a generation of progressives, inspired by social insurance programs already enacted in Britain and several European countries. The bill provided for a federal system of old-age and survivors insurance to be funded by a payroll tax levied on workers and employers. It also authorized federal subsidies to state plans for unemployment compensation, old-age pensions, and welfare payments to the needy, including dependent children. It laid the basis for what was to become an American welfare state.
The administration tried to sell the various Social Security provisions as adding to mass purchasing power and thus fostering economic recovery. Actually, the new taxes took money out of the private economy, and the levy on employers acted at least as a marginal deterrent to hiring new employees. The money that went into the Social Security trust fund could be invested only in US securities, making the government the major beneficiary. Conveniently, no taxes were to be levied until 1937. Old-age and survivors benefits were scheduled to begin in 1942, after the accumulation of a sizeable trust fund. (Four years later, Congress would vote to begin payments in 1940.)
Politically, Social Security was a response to the radical equalizing solutions proposed by Dr. Francis Townsend and Huey Long, who in turn attacked its benefits as in
significant and told a radio audience that the president was a “liar and a faker.” Many of the act’s formulators, however, saw it as establishing the foundations of a social welfare state that could provide succor for all the underprivileged in American society. “This law,” Roosevelt declared, “represents a cornerstone in a structure which is being built but is by no means complete.”8
Nine days later, the president affixed his signature to the Banking Act of 1935. The bill the White House sent to Congress was primarily the work of Treasury economist Laughlin Currie and Federal Reserve Board chairman Marriner S. Eccles, a Utah businessman and banker who had worked briefly in the Treasury Department. An advocate of a strong federal spending program who might more appropriately have served as secretary of the Treasury, Eccles wanted from the beginning to bring focus to a Fed that was a loose confederation of twelve government-blessed but privately controlled and financed regional banks. In practice, the central board had limited power and tended to be dominated by the head of its largest and strongest constituent, the Federal Reserve Bank of New York. Possessing a westerner’s suspicion of Wall Street, Eccles was determined to effect a reorganization that would allow Washington to control Federal Reserve policy in what he saw as the public interest.9
The statute greatly centralized the fragmented Federal Reserve System and enhanced the president’s influence over monetary policy by empowering his key appointee, the chairman of the Federal Reserve Board, who also served as chair of the interest-rate-setting Open Market Committee. Now more visibly the nation’s chief monetary official than ever, the chairman would increasingly be able to count on support from both the board and the Open Market Committee out of fear that dissent would undermine confidence in the dollar. The Banking Act paved the way for such later monetary czars as William McChesney Martin, Paul Volcker, Alan Greenspan, and Ben Bernake.
The act effectively transformed the Federal Reserve into a central bank with strong powers akin to those of the Bank of England. Eccles nonetheless used his authority sparingly. Persuaded that the administration should address the Depression through federal spending policy rather than by manipulating the money supply and interest rates, he was more interested in policing the banking system than addressing the wider economy. Perhaps also wary of Secretary of the Treasury Henry Morgenthau Jr.’s close relationship with the president, he was careful in his policy choices. As the Fed’s subsequent monetary policy would demonstrate, he had more in common with the conservative banking establishment than most observers understood.
Five days after signing the Banking Act, Roosevelt put his name on the Public Utility Holding Company Act. Ostensibly designed to curb abusive corporate consolidation, the new law powerfully expressed a long-held progressive conviction that utilities, necessities of life for those with access to them, should be publicly owned or at the least intensively regulated by government. Electricity had been one of the great American growth industries of the 1920s, requiring huge investments to build generating facilities and string lines. Utilities first serviced population centers, often charging initial high rates that usually declined as local markets used more and more of the product. By 1930, cities and most towns of any size were electrified. In general, the countryside and many small villages were not. They had too few paying customers.
Generating piles of cash, the electric utilities had attracted corporate buccaneers and empire builders. The most famous, Samuel Insull, established holding companies to buy out profitable operating companies and establish new ones. The process was messy, involving takeover bids and battles for control. The empires that emerged were rarely territorially coherent and often complex, with holding companies piled on top of each other to as many as six or seven levels. They also tended to have high levels of debt. The largest such group, headed by Insull, collapsed into bankruptcy under the weight of the Depression.
Defenders of the holding company empires discounted cumbersome corporate structures and speculative excesses. They saw the holding companies as an effective way of raising capital for the maintenance and expansion of the electrical capacity that the nation needed. Progressives, distrustful of the entire ethic of private investment, saw the whole process as parasitical. Utilities, they argued, were natural monopolies that government should operate. In particular, they thought public ownership or cooperative investment provided the best means of bringing electricity to American farms and small towns.
Roosevelt had long agreed with the progressive viewpoint. In May 1935, he set aside a large portion of the $4.2 billion relief appropriation to establish the Rural Electrification Administration (REA), which subsidized local rural electric cooperatives. The nonprofit character of the co-ops and generous government subsidies allowed the REA to distribute power to widely scattered customers. The rates were seldom cheap, but the lure of electricity was strong; most farmers found ways to pay. Over the next decade the REA would lead much of rural America out of the darkness.
The Tennessee Valley Authority (TVA), taking shape by mid-1935, was built on the promise of cheap, government-generated electricity. It sold some of its power production directly to consumers in its area and the rest to the Commonwealth and Southern Company, the region’s dominant private electrical utility. TVA’s clear long-run intention was to take over electrical distribution for the entire Tennessee Valley. Wendell Willkie, president of Commonwealth and Southern, emerged as its chief critic. What Willkie saw as a dastardly socialistic attack on private enterprise, Roosevelt and most New Dealers saw as a noble enhancement of the lives of ordinary people.
The holding company bill, as originally introduced in Congress, would have outlawed all public utility holding companies, in effect reducing private operations to local enterprises servicing contiguous geographical areas and rendering many vulnerable to competition from or takeover by the government-financed enterprises that progressives wanted to encourage. The bill’s sponsorship represented the emerging Democratic coalition that the president needed for a reform program: in the Senate, Burton K. Wheeler of Montana, a progressive maverick; in the House, Sam Rayburn of Texas, a protégé of Vice President John Nance Garner popular among the regulars but also an heir to the populist tradition of the 1890s.
Envisioning themselves in a struggle for survival, the utilities mounted a strong opposition. Taking advantage of the fact that Washington lobbying, although constitutionally protected, possessed a malodorous reputation, administration forces in the Senate secured the establishment of a special committee to investigate the utility lobby. Headed by Alabama populist Hugo Black, it had the overt purpose of pillorying the opposition. The committee sent subpoena-armed investigators unannounced to the Washington offices of the Committee of Public Utility Education. They took its chief operating officer into custody for an immediate appearance before the Senate committee, then searched the files for evidence of skullduggery. Not surprisingly, they found some transgressions, among them the deployment of thousands of telegrams sent under names picked from city directories. It was easy to demonstrate that the companies were spending millions of dollars in the effort to preserve their existence.
Black’s methods were rough at best. The American Civil Liberties Union denounced them. The New York Times characterized the rifling of files and publication of private documents as akin to intercepting private correspondence from the postal service. A US Court of Appeals ruled that the summary seizure of documents was illegal, but it could not prevent a coequal branch of government from publishing them.10
The bill laid bare fissures opening within the Democratic Party. The most prominent legal spokesman for the utilities was 1924 Democratic candidate for president and Roosevelt family friend John W. Davis. Other old Wilsonians joined him in opposition: Joseph Tumulty, Newton D. Baker, Bainbridge Colby, and A. Mitchell Palmer. Black denounced them all as members of a “five million dollar lobby” that threatened democratic government.11
Black spoke the feelings of a progressive
coalition with a clear majority in the Senate. Harry S. Truman of Missouri, a freshman senator with strong populist inclinations, later remembered the bill as an effort “to destroy the cartels through which the power trusts were able to maintain exorbitant rates.” He voted for it despite having received an estimated 30,000 letters and telegrams in opposition. “I knew the ‘wrecking crew’ of Wall Street was at work behind the scenes.” On this issue, the Senate was more radical than the House, which refused to accept a categorical death sentence despite intense lobbying from the administration.12
Signed into law on August 28, the Public Utility Holding Company Act allowed holding companies to exist only at one level above that of consumer operations if they could be justified to the Securities and Exchange Commission. It also gave the Federal Power Commission extensive authority over the operations of the electrical utilities, paving the way for a system of integrated regional power grids. It may have complicated capital formation in a still expanding industry, and it made mergers very difficult. Contrary to the hopes of many of its backers, it did not clear the way for the general establishment of government-owned and -operated electrical energy. As is often the case in American politics, the act’s results were not commensurate with the noise it generated.
Two days after affixing his signature to the Holding Company Act, Roosevelt signed the bill that more than any other set the tone of the long, contentious summer, the Wealth Tax Act. Hammered out under pressure by a resentful Congress, the legislation elevated class sentiment to an intensity disproportionate to the act’s actual effects.
To counter the appeal of Huey Long, Roosevelt had privately remarked, “it may be necessary to throw to the wolves the forty-six men who are reported to have incomes in excess of one million dollars a year.” The president probably did not expect much in the way of actual legislation, but congressional progressives picked up his tax request and ran with it. The bill finally sent to the president increased federal taxes on estates, corporations, and individuals, but did so relatively narrowly. The new maximum rates seemed draconian: 79 percent on that portion of personal income in excess of $5,000,000; 70 percent on that portion of estates in excess of $50,000,000. To this the bill added relatively small increases in corporate taxes. It was generally understood that the only American taxpayer likely to find himself in the 79 percent bracket was John D. Rockefeller Sr. A $50 million estate was almost as rare. The new tax program significantly impacted less than 1 percent of taxpayers.13
Man of Destiny: FDR and the Making of the American Century Page 33