Other unions attempted to organize workers ranging from retail clerks to stevedores. Their heavy-handed tactics probably created more resentment among middle-class Americans than did the frequently rough responses of corporate management. Unionists saw the Memorial Day shooting in Chicago as a wanton massacre instigated by bloodthirsty management and fascistic police. Many newspapers, however, depicted the event as a “riot” initiated by militant strikers. Roosevelt was caught in the middle.19
That April, the president had made his own attitude reasonably clear to an off-the-record gathering of newspaper publishers and editors. Unionization, he said, was experiencing growing pains fueled by an emotional movement mentality. The organization of labor reflected progress but would inevitably involve bloody turmoil in its early years. Eventually, a postconflict generation of leaders would institutionalize new relationships between capital and labor. The process, he implied, was messy but unavoidable and ultimately for the best. He was willing to see it through.20
At the end of June, in an atmosphere of increased tension, Roosevelt was mindful of a growing backlash. Asked to comment on escalating labor-management hostilities, he replied that the majority of Americans were saying just one thing: “A plague on both your houses.” He authorized a direct quotation.21
John L. Lewis’s fierce and offensive response two months later, during a Labor Day weekend radio speech, insinuated that the CIO’s hefty 1936 campaign contribution amounted to a purchase of Roosevelt’s support. Using the deep, booming voice that had once made him an effective amateur actor, Lewis accused the steel companies of having killed eighteen strikers, then asserted, “It ill behooves one who has supped at labor’s table and who has been sheltered in labor’s house to curse with equal fervor and fine impartiality both labor and its adversaries when they become locked in deadly embrace. . . . Those who chant their praises of democracy, but who lose no chance to drive their knives into labor’s defenseless back must feel the weight of labor’s woe.” 22
The president did not respond. He needed the labor vote. The relationship with Lewis had never been easy; now the political had become personal. Two massive egos were facing off in a conflict that would wax and wane over the next several years.
Through the first half of 1937, despite labor strife, the economy seemed to be booming. At midyear, the steel industry, despite its union problems, was operating at 85 percent of capacity. Auto production was at full tilt. It seemed reasonable enough to shift the emphasis of the New Deal from relief and recovery to long-term reform. But how hospitable would a climate of prosperity be to further reform? And what would the consequences be if the economy backslid?
It seemed obvious to many observers and administration officials that it was time to balance the federal budget. Within the administration, the chief advocate of tightening, primarily through spending cuts, was Secretary of the Treasury Henry Morgenthau Jr. The major skeptics were Works Progress Administration (WPA) administrator Harry Hopkins, highly motivated to defend his huge clientele and enormous budget, and Federal Reserve chairman Marriner S. Eccles, increasingly a convert to Keynesian ideas about the importance of stimulative public spending. The strong economy gave the advantage to Morgenthau. So did political calculation. The WPA had made its substantial contribution to Roosevelt’s reelection and could legitimately seem less needed economically. With the president’s nod, the administration began to slash its rolls and those of other federal relief programs in early 1937; they were sharply lower at the beginning of the new fiscal year on July 1.23
The recovery also brought a disturbing whiff of inflationary price increases. General price levels were still below those of 1929, but the long Depression had established a new normal that made any increases seem menacing. The Treasury “sterilized” new gold inflows by refusing to use these as a basis for printing more money; the Federal Reserve mandated higher bank reserve requirements. Both policies tightened the nation’s money supply and thereby bit into the economic upsurge. At the same time, higher federal taxes—Social Security contributions, the wealth tax levies, the undistributed-profits tax—all began to take hold. Although they did not carve huge amounts from the private economy, collectively they had an impact. Slumping agricultural prices, stemming from the limitations of the new soil conservation subsidies and increased production as the Dust Bowl drought ended, pinched farmers.
The currents of politics remained conducive to business-government conflict. Senators Burton K. Wheeler and Harry S. Truman conducted a scathing investigation of the mostly bankrupt railroads, charging with scant evidence that Wall Street financiers had looted the lines. Progressives hoped to nationalize all or most of the rail corporations. Roosevelt himself was interested enough to float the idea in a November 12 cabinet meeting.24
The government’s conflict with the electrical utilities accelerated rapidly. The Tennessee Valley Authority (TVA) pressed hard for exclusive control of electrical power in its region. Major federal hydroelectric projects in the West challenged established generating companies. The Rural Electrification Administration expanded into underserved farming and small-town areas. The private utilities, slow to move into marginal markets and dependent on private financing, had themselves to blame for some of their difficulties. But government financing did give TVA and other public enterprises a big edge. And what was one to make of the administration’s efforts to get congressional approval for seven more regional development authorities patterned on TVA and nearly certain to get into the electricity business? Was nationalization of the industry an unspoken New Deal objective?
In September 1937, the economy suddenly crashed. By the end of the year, capacity utilization in the steel industry had plummeted to below 25 percent. Unemployment, which had bottomed at approximately 7.5 million people, according to the widely accepted American Federation of Labor (AFL) estimates, was 9.3 million. For the first time, a strong scent of economic failure attached itself to the administration.25
With these trends just beginning to take shape in the weeks after Congress had adjourned, Roosevelt remained focused on his legislative program and pursued tactics that had worked well for him in the past. He got out of Washington and took a two-week rail tour of the heartland, from Chicago to the Pacific Northwest. The large and friendly crowds that greeted him reassured the president that the people remained firmly behind him. Back in Washington, he resorted to his other successful tactic, the fireside chat. Announcing a special session of Congress beginning November 15, he laid out an ambitious legislative agenda: wage-and-hours legislation, stabilization of farm prices, new regional planning and development authorities, the executive reorganization bill, stronger antitrust statutes, and encouragement of foreign trade. All this was far too much for any special session. On December 21, Congress dealt the president a serious blow by adjourning without having enacted one significant item on his must list.
Even more ominous for the future were indications that Republicans and anti–New Deal Democrats were beginning to talk to each other and vote together in an informal “conservative coalition.” Most right-wing Democrats came from the South. A deep-seated racism aghast at the New Deal solicitude for Negroes and a wide conviction that the economically backward region could develop a manufacturing economy only if exempted from national wage and hours legislation increasingly countered traditions of populist insurgency. Vice President John Nance Garner, never a Roosevelt loyalist but usually a reliable aide on Capitol Hill, was getting notice as a leader of the conservatives and possibly their candidate for president in 1940. To liberal-minded aides like Harold Ickes and Tom Corcoran, Roosevelt himself seemed dangerously passive in the face of increasingly bad economic news. As 1937 ended, the president, so triumphant just twelve months earlier, faced an out-of-control legislative branch, a deepening economic slump, and a serious loss of personal authority.26
From across the Atlantic, John Maynard Keynes viewed the economic crisis and the political dr
ift in Washington with alarm. He had received too much credit as the mastermind behind the New Deal’s 1935–1936 spending program, but he surely knew that it had roughly followed his public prescription. A political centrist who aligned himself with the nearly defunct British Liberal Party, he favored a mixed political economy, was temperamentally aligned with the New Deal, and admired FDR’s charismatic leadership. He was also managing director of an insurance company, a member of other corporate boards, and a sometimes daring speculator in currencies and commodities. He understood the mentality of business enterprise and finance capital. Confidence and buoyant “animal spirits,” he knew, were essential to a durable business recovery. He was determined to try to move events.27
Privately and publicly in late 1937 and 1938, he assessed the New Deal recovery program as incomplete. It had done little or nothing to restore the railroads to health, taken a negative attitude toward the utilities, and pursued a weak housing program. With these capital industries still suffering, a setback was inevitable once the government cut back its spending. In October 1937, he unburdened himself to Leonard Elmhirst, a British reformer whose American wife, Dorothy Whitney Straight, owned the New Republic, the most important organ of American liberalism. The Elmhirsts were personal and ideological friends of Eleanor Roosevelt. Keynes doubtless expected that his thoughts would find their way to her and then to the president.28
His words were sharp and direct: “I think the President is playing with fire, if he does not now do something to encourage the business world, or at any rate refrain from frightening them further. If one is purporting to run a capitalist system, and not something quite different, there are concessions which have to be made. The worst of all conceivable systems is a capitalist one kept on purpose by authority in a state of panic and lack of confidence.” Elmhirst quoted Keynes’s admonition to Eleanor in a letter dated December 11. If, as seems likely, she passed it along to Franklin, he disregarded it.29
At the end of 1937, Assistant Attorney General Robert Jackson (head of the Antitrust Division) and Secretary of the Interior Harold Ickes stepped up the rhetoric of class warfare with radio speeches denouncing “monopoly” and the “sixty families” that they believed controlled the American economy. Asserting that monopolistic pricing had caused the recession and warning that the nation faced the specter of “big business fascism,” Ickes declared that big capital was engaged in a sit-down strike against the administration. The talks won ecstatic praise from political progressives; conservatives denounced them as demagoguery. Revealing a deep political polarization that could only get in the way of economic recovery, they must have confirmed Keynes’s worst fears.30
On February 1, 1938, Keynes wrote an eight-page letter to the president. The New Deal, he said, had been guilty of “an error of optimism” in believing it had created the conditions for a sustainable recovery. Keynes recommended “a large-scale recourse” to public works and other investments, but the burden of his letter advised changing the tone of American politics through a détente with the financial and business establishments.
Drawing on England’s experience, which under its conservative National government had pursued a strong program of subsidized worker housing and low-cost private homes, he declared, “The handling of the housing problem has been really wicked.” So, for that matter, he went on, had the administration’s approach to the utilities. The crusade against the holding companies was ill conceived; the real criminals were long gone. Public ownership was fine in situations where it could be achieved; otherwise, “make peace on liberal terms, guaranteeing fair earnings on new investments and a fair basis of valuation in the event of the public taking them over hereafter.” Avoid a self-defeating policy of establishing plants to compete with viable private companies, simply ensuring losses all around. As for the railroads, they had to be made solvent. “Nationalize them if the time is ripe. If not, take pity on the overwhelming problems of the present managements.” Above all, reach out to the business community. “You could do anything you liked with them, if you would treat them (even the big ones), not as wolves and tigers, but as domestic animals by nature, even though they have been badly brought up and not trained as you would wish. . . . If you work them into the surly, obstinate, terrified mood, of which domestic animals, wrongly handled, are so capable, the nation’s burdens will not get carried to market; and in the end public opinion will veer their way.”
Asking Roosevelt to forgive his candor, Keynes listed one New Deal policy that he supported after another. “But I am terrified lest progressive causes in all the democratic countries should suffer injury, because you have taken too lightly the risk to their prestige which would result from a failure measured in terms of immediate prosperity.” That need not happen, he assured the president. “But the maintenance of prosperity in the modern world is extremely difficult; and it is so easy to lose precious time.”31
Roosevelt had disregarded advice to consult Keynes in the past. Mentioning the Keynes letter to Harold Ickes, Roosevelt remarked that spending lavishly on relief had been the thing to do when the water had been near the bottom of the well, but he doubted that it was the right course when the water was within 25 or 30 percent of the top. Ickes disapprovingly confided to his diary that the president “knows that unemployment is increasing, that business is falling off, but he doesn’t seem to me to know just what he can or should do about it.”32
Roosevelt sent a bland reply to Keynes. The economist, who knew a brush-off when he saw one, could not resist a riposte. “You are treading a very dangerous middle path. . . . Your present policies seem to presume that you possess more power than you actually have.”33
Through the 1937–1938 winter, joblessness had escalated steeply. At the time of the Roosevelt-Keynes exchange, the AFL put the figure at over 11 million, or 16 to 17 percent of the workforce. Horror stories about hunger and homelessness were common.
In mid-April 1938, Roosevelt finally announced a major spending program, mostly for the upcoming fiscal year, with sharp increases in public works. The WPA, which a year earlier had seemed a candidate for termination, would receive strongly increased funding. The Federal Reserve would lower its bank reserve requirements. The Treasury would monetize a whopping $1.4 billion of its gold reserve. The national debt, the president admitted, would increase by $1.5 billion, but it was a basic responsibility of government “to put idle money and idle men to work.”34
With monetary policy eased and spending ramped up, the economy stabilized over the next several months. By AFL estimates, unemployment, which peaked at 11.4 million in May and June, was down to 10.3 million by the end of 1938. The downward spiral was stopped, but economic improvement would remain sporadic and unsatisfactory into 1939. Roosevelt returned to his confrontation with an increasingly rebellious Congress and now faced a public increasingly skeptical about deficit spending.35
The president had delivered his larger legislative agenda to Congress in person at its opening session on January 3, 1938: an agricultural program that would essentially revive the old AAA; minimum-wage/maximum-hours legislation for industrial workers, with no allowance for regional (i.e., southern) differentials; and adoption of the still pending executive reorganization proposals. He declared he would strive for a balanced budget, subject to the understanding that the government would make adequate provision for the unemployed, that budget cuts must not endanger national safety (i.e., cut defense expenditures), and that the overriding priority must be to “raise the purchasing power of the Nation.”36
To this, Roosevelt added a sharp attack on monopoly, wealth, and economic power, citing a long list of abuses: tax avoidance, excessive capitalization, security manipulation, price rigging, collusive bidding, abuse of patent laws, intimidation of local or state government, and shifting of production in pursuit of cheaper wages. Invoking Andrew Jackson and Woodrow Wilson, he declared that these and other offenses “arise out of the concentration of economic contr
ol to the detriment of the body politic—control of other people’s money, other people’s labor, other people’s lives.” These words, coming on top of the Jackson and Ickes speeches, heralded a revived antitrust campaign that would coexist uneasily with his palpable nostalgia for the NRA and its regime of top-down “corporatist” control.
With administration encouragement, Congress established a Temporary National Economic Committee (TNEC), with members from both the executive and legislative branches to investigate monopoly and economic concentration in America. Over the next three years, the TNEC busied itself with hearings, frequently prosecutorial in tone, and the production of numerous staff studies—all devoted to demonstrating the curse of bigness. Its final report would come in the spring of 1941, when, as defense industries ramped up, it seemed more likely that large-scale industrial capabilities were a blessing.
In March 1938, Roosevelt appointed Yale Law School professor Thurman Arnold to head the antitrust division of the Justice Department, replacing Robert Jackson, whom he made solicitor general. Jackson, sincerely devoted to breaking up large corporations, had begun a suit to dismember Aluminum Corporation of America, which was overwhelmingly dominant in the aluminum industry. Arnold had no illusions that big business could be broken up, but he believed the antitrust laws could serve as an effective disciplinary tool. He was more concerned with preventing or punishing price fixing and other forms of collusion that damaged consumers. His preferred method of pursuing an antitrust charge was to arrive at a court-approved consent decree in which a defendant agreed to cease the offending action. The approach lacked the drama craved by one-hundred-proof populists but may have been more effective in dealing with real abuses while preserving the efficiencies inherent in large, well-capitalized corporate structures. At best, it served Roosevelt’s political objectives while avoiding real damage to the manufacturing capabilities that would be so sorely needed in World War II. Arnold’s style of attack, however, did nothing to deescalate a hostility between the administration and the business-financial establishment that could only get in the way of recovery.37
Man of Destiny: FDR and the Making of the American Century Page 37