Roosevelt Myth - John T. Flynn

The Rabbits Go Back In The Hat

All that happened in those four years from 1933 to 1936 is now lost behind the fiery curtain of the war. It seems so long ago. Few remember much about it. Out of the blur remains the impression that this Second New Deal must have been quite a success because in 1936 the people turned out en masse to approve it in the greatest electoral victory in our history. Roosevelt carried every state but two—Maine and Vermont—and many commentators said it meant the end of the Republican party.

What actually happened may come as a surprise as it is reviewed. After all, the problem before Mr. Roosevelt was clear. First he had to open the banks and provide some form of relief for the millions who had been so sorely hit by the panic. Next, and of course more important, he had to take measures to set our economic system to work again. This meant setting business in motion, for it is business that provides the jobs. As part of this, there were flaws in our economic system that had to be corrected in the interest first of more efficient production and second in the interest of social justice.

NRA—National Recover Act

We have seen what happened in reopening the banks and the plans to put men into the forests to relieve unemployment, and to set up a program of public works. But what was done to revive business—for business is merely a name for that vast complexity of farms and mines and factories and stores and power and transportation systems which provide us with our necessities and luxuries while at the same time providing jobs for our people. This economic program included generally the National Recovery Administration and the Agricultural Adjustment Administration—the NRA and the AAA—plus a program of fiscal measures designed to straighten out our enfeebled and disturbed financial mechanisms.

It is, I am sure, difficult to make Americans of the growing generation, to say nothing of their elders, believe the story of that vast hippodrome, that hectic, whirling, dizzy three-ring circus with the NRA in one ring, the AAA in another, the Relief Act in another, with General Johnson, Henry Wallace and Harry Hopkins popping the whips, while all around under the vast tent a whole drove of clowns and dervishes—the Henry Morgenthaus and Huey Longs and Dr. Townsends and Upton Sinclairs and a host of crackpots of every variety—leaped and danced and tumbled about and shouted in a great harlequinade of government, until the tent came tumbling down upon the heads of the cheering audience and the prancing buffoons. I do not exaggerate, I assure you. Let us have a peep at each of the rings and the performers in them.

First, and most important, was the NRA and its dynamic ringmaster, General Hugh Johnson. As I write, of course, Mussolini is an evil memory. But in 1933 he was a towering figure who was supposed to have discovered something worth study and imitation by all world artificers everywhere. Such eminent persons as Dr. Nicholas Murray Butler and Mr. Sol Bloom, head of the Foreign Affairs Committee of the House, assured us he was a great man and had something we might well look into for imitation. What they liked particularly was his corporative system. He organized each trade or industrial group or professional group into a state-supervised trade association. He called it a corporative. These corporatives operated under state supervision and could plan production, quality, prices, distribution, labor standards, etc.

The NRA provided that in America each industry should be organized into a federally supervised trade association. It was not called a corporative. It was called a Code Authority. But it was essentially the same thing. These code authorities could regulate production, quantities, qualities, prices, distribution methods, etc., under the supervision of the NRA. This was fascism. The anti-trust laws forbade such organizations. Roosevelt had denounced Hoover for not enforcing these laws sufficiently. Now he suspended them and compelled men to combine.

At its head Roosevelt appointed General Hugh Johnson, a retired Army officer. Johnson, a product of the southwest, was a brilliant, kindly, but explosive and dynamic genius, with a love for writing and a flair for epigram and invective. He was a rough and tumble fighter with an amazing arsenal of profane expletives. He was a lawyer as well as a soldier and had had some business experience with Bernard Baruch. And he was prepared to produce a plan to recreate the farms or the factories or the country or the whole world at the drop of a hat. He went to work with superhuman energy and an almost maniacal zeal to set this new machine going. He summoned the representatives of all the trades to the capital. They came in droves, filling hotels and public buildings and speakeasies. Johnson stalked up and down the corridors of the Commerce Building like a commander-in-chief in the midst of a war.

He began with a blanket code which every business man was summoned to sign—to pay minimum wages and observe the maxi' mum hours of work, to abolish child labor, abjure price increases and put people to work. Every instrument of human exhortation opened fire on business to comply—the press, pulpit, radio, movies. Bands played, men paraded, trucks toured the streets blaring the message through megaphones. Johnson hatched out an amazing bird called the Blue Eagle. Every business concern that signed up got a Blue Eagle, which was the badge of compliance. The President went on the air: "In war in the gloom of night attack," he crooned, "soldiers wear a bright badge to be sure that comrades do not fire on comrades. Those who cooperate in this program must know each other at a glance. That bright badge is the Blue Eagle." "May Almighty God have mercy." cried Johnson, "on anyone who attempts to trifle with that bird." Donald Richberg thanked God that the people understood that the long-awaited revolution was here. The New Dealers sang: "Out of the woods by Christmas!" By August, 35,000 Clevelanders paraded to celebrate the end of the depression. In September a tremendous host paraded in New York City past General Johnson, Mayor O'Brien and Grover Whalen—250,000 in a line which did not end until midnight.

The second phase was to sign up separate industries into the corporative code authorities. Over 700 codes were created. Business men were told to come to Washington and "write their own tickets," as Roosevelt said. They could scarcely believe their ears. Again the conservatives applauded. The Cleveland Plain Dealer said: "The blamed thing works." Dun & Bradstreet said: "Critical opposition of certain industrialists to NRA procedure is gradually being turned to whole-hearted support."

But little by little the spell began to fade. In spite of all the fine words about industrial democracy, people began to see it was a scheme to permit business men to combine to put up prices and keep them up by direct decree or through other devious devices. The consumer began to perceive that he was getting it in the neck. Professor William F. Ogburn of Chicago University, resigned as Consumers Counsel because he said the job was futile. Bitter slurs were flung at the Blue Eagle as a fascist symbol. A senator called it the "Soviet duck." Silk workers on strike stoned the Blue Eagle in the shop windows. Labor suddenly discovered it was getting mostly fine phrases. A wave of strikes swept the country. A battle for control of NRA between labor and capital broke out. Roosevelt went on the air and pleaded for peace. Farmers were indignant at the rising prices.

But the NRA continued to exhibit its folly in a succession of crazy antics which could proceed only from people who had lost their bearings and their heads. A tailor named Jack Magid in New Jersey was arrested, convicted, fined and sent to jail. The crime was that he had pressed a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The price was fixed not by a legislature or Congress but by the tailors. A storm of indignation swept through the country. The name of Jack Magid became for a week as well known as Hugh Johnson's. The judge hastily summoned the tailor from his cell, remitted his sentence and fine and offered to give the offender his own pants to press. The purged tailor proclaimed the NRA a beautiful thing. Each town had its own horrible examples.

The NRA was discovering it could not enforce its rules. Black markets grew up. Only the most violent police methods could procure enforcement. In Sidney Hillman's garment industry the code authority employed enforcement police. They roamed through the garment district like storm troopers. They could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant. Night work was forbidden. Flying squadrons of these private coat-and-suit police went through the district at night, battering down doors with axes looking for men who were committing the crime of sewing together a pair of pants at night. But without these harsh methods many code authorities said there could be no compliance because the public was not back of it.

The American people were not yet conditioned to regimentation on such a scale. It could not have been operated successfully on Americans by angels. But few angels were employed. Dr. Charles F. Roos, who was NRA's research director, has written about its staff: ". . . the political patronage system in vogue in all previous administrations (was raised) to new levels of impudence." He says he once asked Leon Henderson, economic adviser of NRA, for a research economist. Henderson sent him a man through the White House. "The qualifications for economic-statistical analysis," wrote Dr. Roos, "possessed by this applicant were that he had once engaged in detective work."

The staff grew at the rate of 100 a day. It started with 60 and soon numbered 6,000, not including the thousands who served the local code authorities. A green doctor of philosophy fresh out of school, appointed at $1800, was getting $4500 in six months. The abler economists knew the whole thing was drifting from error to error. Dr. Roos says: "Some quit. Some stayed and criticized. Some tried to improve it." He adds that a vast amount of mail received indicated that "Mob rule and racketeering had to a considerable degree displaced orderly government." Feuds broke out everywhere. Johnson and Richberg quarreled. Richberg broke into tears. Senator Borah and Senator Nye denounced the whole institution.

Johnson suggested that a committee be named by the President to investigate. The senators agreed. Clarence Darrow was named chairman of the committee by Roosevelt. It held hearings and issued a report11 in May, 1934, blasting the NRA with a merciless damnation. Some of the words used in the report to castigate it were "harmful, monopolistic, oppressive, grotesque, invasive, fictitious, ghastly, anomalous, preposterous, irresponsible, savage, wolfish and others." Johnson denounced the report but the judgment had come from a board named by the President with a chairman suggested by Johnson. After that the life began to run out of NRA. Miss Frances Perkins began to fear Johnson wanted to be a dictator. She says she began to wonder what he was about, "whether he understood the democratic process . . . and whether he might not be moving by emotion and indirection toward a dangerous pattern."

By this time Johnson was a sick man. He lived at times without sleep. Senator Robert Wagner decided labor was being victimized. Johnson broke with Richberg. Johnson had to go to a hospital. NRA was blowing up, as Miss Perkins said, "from internal combustion." Papers began to say business was just about where it was when the New Deal started. The Chamber of Commerce decided that price control and production control were a mistake.

Johnson tried twice to resign. The President refused. Department heads were at war with each other. Roosevelt forced Johnson to take a vacation and while he was away, set up a board to manage the thing. When Johnson got back Roosevelt told him the board would remain. Johnson quit. Finally the Supreme Court got around to hearing and deciding the Schechter case—the famous "sick chicken" case—which involved the constitutionality of the whole thing. On May 27, 1935, the Supreme Court, to everybody's relief, declared the NRA unconstitutional. It held that Congress at Roosevelt's demand had delegated powers to the President and the NRA which it had no right to delegate—namely the power to make laws. It called the NRA a Congressional abdication. And the decision was unanimous, Brandeis, Cardozo and Holmes joining in it.

This brought down on the heads of the justices a bitter denunciation by all the bureaucrats thus suddenly bereft of their unconstitutional jobs. But the verdict can no longer be questioned. Ernest Lindley, who has written three books in defense of the New Deal, wrote in 1936:

"The NRA Act was the Roosevelt administration's greatest error . . . From whatever point of view the NRA is approached it would be generally agreed that it attempted to do too much in too short a time. NRA was an administrative failure and it evoked a wide range of unfavorable public reactions."

And Lindley admitted besides that when the Supreme Court decided the Schechter case, the NRA was already dead. This is the mildest comment that can be made on it.

Some cabinet advisers thought that with some changes the NRA could be saved. Secretary of Labor Perkins urged Roosevelt to consider this advice. But the President refused and rendered his own decision on the NRA which ought to stand as final. Miss Perkins writes that Roosevelt said to her:

"You know the whole thing has been a mess. It has been an awful headache. Some of the things they have done are pretty wrong."

He felt business had started up, that it would not go back to its old wage levels and would stick to the 40-hour week:

"I think perhaps NRA has done all it can. I don't want to impose a system on the country that will set aside the anti-trust laws. I have been talking to other lawyers besides Cummings and they are pretty certain that the whole process is unconstitutional and that we have to restudy and revise our whole program. Perhaps we had better do it now. So let's give the NRA a certain amount of time to liquidate. Have a history of it written and then it will be over." (Italics supplied)

But of course he had imposed it not as a temporary expedient but as a new order and he boasted of it. He had done his best to impose the dissolution of the anti-trust laws on the country. And everything Johnson had done he had done with Roosevelt's full knowledge.

It would have been impossible to invent a device more cunningly calculated to obstruct the revival of business than this half-baked contrivance which is utterly impossible of administration save in a country like Italy or Germany where obedience can be enforced by a dictator under an absolute government.

AAA—Agricultural Adjustment Act

There is a kind of little man who will tell you that he can't hit a nail straight with a hammer, but who loves to spread a big country like the United States out before him on top of a table, pull up a chair and sit down to rearrange the whole thing to suit his heart's desire. Through the providence of God this kind of fellow, in a country of practical politicians, does not ordinarily get into a spot where he can play this game. But occasionally one slips through and when Roosevelt was picking his cabinet in 1933 a prize specimen of this species was eased into the Department of Agriculture.

During the campaign, Roosevelt had told the voters they would see no cruel jokes like plowing up cotton or not planting wheat or buying up crops to raise prices, all of which had been urged on farmers. He had a plan, he said, which would not cost the government a dollar. Whatever became of that plan we shall never know.

Instead Henry Wallace, as mild-mannered a man and mystic as ever knelt on a prayer rug or slit a pig's throat or burned a field of com, became Secretary of Agriculture and came up with a plan that was supposed to be more effective and more orderly than cinch bugs, boll weevils or dust storms in providing our people with the scarcity that everybody needed.

Curiously enough, while Wallace was paying out hundreds of millions to kill millions of hogs, burn oats, plow under cotton, the Department of Agriculture issued a bulletin telling the nation that the great problem of our time was our failure to produce enough food to provide the people with a mere subsistence diet. The Department made up four sample diets. There was a liberal diet, a moderate diet, a minimum diet and finally an emergency diet—below the minimum. And the figures showed that we did not produce enough food for our population for a minimum diet, a mere subsistence.

How to better this may be a problem, but the last course a government run by sane men would adopt to get it solved would be to destroy a good part of what we do produce.

The AAA produced all sorts of dislocations in our economic system. For instance, we had men burning oats when we were importing oats from abroad on a huge scale, killing pigs while increasing our imports of lard, cutting corn production and importing 30 million bushels of corn from abroad.

Wallace himself said: "It is a shocking commentary on our civilization." That was not so. That kind of thing was no part of our civilization. It was, rather, a shocking commentary on the man who engineered it. It was a crime against our civilization to pay farmers in two years $700,000,000 to destroy crops and limit production. It was a shocking thing to see the government pay one big sugar corporation over $1,000,000 not to produce sugar.

Meanwhile, the plight of the sharecroppers, who got nothing out of this, became deplorable and led to a violent schism in the AAA which resulted in the liquidation of their champions.

At all events, the Supreme Court declared the AAA unconstitutional as it did the NRA. However, the administration managed to fix up a fake soil conservation scheme under which it continued to pay farmers for not planting crops upon the fiction that they were saving the soil. The real purpose, of course, was to pay money to the farmers. The war in Europe put an end to the reason for all that by opening up a world-wide market for what we raise and at the same time opening up Uncle Sam's pocketbook to pay the farmers for everything they could raise at however fantastic a price.

Currency Manipulation

Whatever else might be said of the latest New Deal, it was a great show. As each problem presented itself the President stepped up with a "must" bill, a message and, perhaps, a radio talk. Then the reporters would say "he pulled another rabbit out of his hat." A rapidly extemporized legend sprang up that we need worry about no difficulty—the President could always pull a rabbit out of his hat.

The reporters played along with this maker of news. They had to have a continuous parade of rabbits. The President enjoyed it all hugely and was always more than anxious to oblige.

As the performance proceeded the President began to exhibit one of those amiable weaknesses which his immediate entourage looked upon as one of the delightful aspects of his character. In the first days of the administration the inflationists in Congress were riding high. Before the inauguration the Democratic House passed the Goldsborough bill to inflate the currency until prices returned to the 1921-29 level. After the inauguration the Senate came within a few votes of passing a free silver bill. However, when the AAA act reached the Senate, an amendment was offered to it by Senator Elmer Thomas of Oklahoma. This authorized the President (1) to issue $3,000,000,000 of greenbacks to retire government debts, (2) to accept silver in payment of war debts up to $100,000,000, (3) to permit free coinage of silver at a ratio to gold to be fixed by the President, and (4) to devalue the gold dollar up to 50 percent.

Here was a four-barreled inflationary bill which packed all the explosive power the most ardent inflationist could ask. That night a party gathered at the White House, including Hull, Lewis Douglas, Will Woodin, William Bullitt and Raymond Moley. Quite casually and smilingly the President dropped the remark that he had agreed to the amendment. Moley says Douglas and Bullitt were horrified. Hull looked as if he had been stabbed in the back. Woodin had just heard of it before the party, but he had not been consulted before the President made the agreement. Moley says "Hell broke loose" in the White House and it took all the President's tact and patience to mollify his guests. He assured them the powers granted him were discretionary. He laughed—he would not have to use them.15 But of course he did.

This was the weakness which his admirers spoke of as a sort of impish or elfin quality that gave color to his personality. He loved to flabbergast his associates by announcing some startling new policy without consulting any of them. He usually had a good laugh over it. The day after the incident just recorded, the President issued an order prohibiting the export of gold and transactions in foreign exchange save as authorized by the Secretary of the Treasury. Later that innocent functionary arrived smiling as usual. Roosevelt said to him: "Mr. Secretary, I have some bad news to announce to you— that the United States has just gone off the gold standard!" Poor Woodin's eyes popped: "What? Again!" Later the President told this Story to his first biographer, Emil Ludwig, with unaffected delight.

The next target of this merry habit was Mr. Cordell Hull. He was a sober, solemn person, yet he was now cast for a lugubrious role in a veritable comedy of errors. An International Economic Conference had been called before Roosevelt became President. It was due to meet just as the famous Hundred Days drew to an end. Mr. Hull, as Secretary of State, was naturally named as chairman of the American delegation. He was a man of one idea. He believed in free trade as devoutly as a Tennessee plantation darky believes in ghosts. Pending the unity of the world in a state of perfect free trade, he hoped to break down tariffs as much as possible by means of reciprocal tariff agreements between the United States and other nations.

This dream was within his grasp. As a foundation for his debut on the world stage, he prepared a bill by which Congress would delegate to the President the power to negotiate reciprocal agreements without requiring Senate confirmation. The bill was on the President's desk. The President had agreed to send it to Congress and urge its passage. As Mr. Hull sailed he had a copy tucked away in his pocket to exhibit in London as evidence of his authority to make a binding arrangement there.

He had got one jolt already. The five members of the delegation going with him had been named by the President without consulting Hull. They were actually agreed on nothing and no sooner had they sailed than they fell to quarreling among themselves.

While at sea, Mr. Hull began to get dispatches that the President had decided not to send his reciprocity bill to Congress. As this was the basis of Hull's whole program he was shocked. Reaching London, he wired the President and got a reply saying there would be no tariff legislation at this session. Thus the President pulled the rug from under his Secretary of State. At a session of the delegates in the Claridge Hotel the members had it out hot and heavy. Hull stormed. He declared he had been humiliated by the President, that the delegation did not support him and that he would resign. Someone wired the President to appease Hull and Roosevelt sent his Secretary a message saying in effect: Do not worry, I am squarely behind you. Hull wrote later that the President was behind him in words but not in actions.

But trouble dogged poor Hull's footsteps. He prepared a speech to be delivered at the opening of the conference. In it he denounced "economic nationalism" and all the numerous "bootstrap" methods of lifting a nation out of economic trouble. He sent a copy to Roosevelt for approval. At the moment the President was up to his eyes in a program of economic nationalism. Morgenthau, Johnson, Wallace and Hopkins were piling on the controls and yanking at the bootstraps. It is not difficult to picture the President's countenance when he read Hull's blistering paragraphs. He blue-penciled, erased, interlined and changed freely. And when Hull got the President's editorial elisions he was bowled over completely. When the conference opened he was unable to appear for his speech, which had to be postponed a day.

But the conference bogged down at every point. Hull was limited in his power to the tariff and trade agreements. Stabilization of currencies and other matters were to be handled by others. The section dealing with currencies and exchange was in favor of stabilizing currencies on a gold basis. However, rows broke out in the delegation and the whole conference seemed on the point of falling apart. At this point Raymond Moley, Assistant Secretary of State, arrived in London. He was sent by the President.

Moley did not go to London to interfere in Hull's tariff plans. The President had already squelched them. He went in connection with the currency negotiations being carried on by O. M. W. Sprague and James Warburg of the Treasury. The French wanted to stabilize. American advisers did too, but at a higher ratio to the pound than the British were demanding. Roosevelt sent Moley over with full power to negotiate on that subject and he was authorized as well by the Treasury. But Moley's arrival upset Hull almost to the point of illness. Coming as an emissary from the President to a conference hopelessly at sea he was naturally received as one bearing the latest orders from Roosevelt on the only subject that remained partially alive—currency stabilization. The highest state officials went to meet him. They made a fuss over him. Hull felt himself ignored and eclipsed. He went into a pout. He ostentatiously kept himself in the background and his mouth shut, thus accentuating his futility.

Moley was authorized to agree to a dollar-pound stabilization agreement around $4.25. The President was not anxious for stabilization but was willing to take that. His technical advisers were for that too. However, they were able to get from the conferees a very much better agreement according to Roosevelt's own standard. The proposed agreement committed Roosevelt to nothing save to authorize his Treasury to cooperate in limiting fluctuations. Prime Minister MacDonald asked Moley "for God's sake" to plead with the President to accept the proposal which would cost the President only a meaningless gesture. It would save the conference from wreck and "repel the panic that held Europe in its grip."

Moley talked over the telephone with Baruch, Acheson and Woodin at Woodin's home where he lay mortally ill. They approved. The agreement was sent to the President. Congress had adjourned at the end of the dramatic Hundred Days. The President was on his holiday in the Amberjack stuck somewhere in a heavy fog off Campobello. There a destroyer got to him with the message. With him were Morgenthau and Louis Howe. It would have been perhaps impossible to find three men whose total knowledge of international exchange and currency problems and monetary theory was so thin.

In London everybody awaited Roosevelt's approval. Moley was with Hull who was pouring out to him the long catalogue of the humiliations he had sustained. Later, from out of the fog over the sea came the President's reply into the fog over the London conference. The proposed agreement was rejected. It hit the conference like a bombshell and it ended the conference for all practical purposes. The delegates, including Hull and Key Pittman, as well as Moley, had to admit they didn't know what the message meant. The conference drifted along aimlessly, paper-chasing, as Hull put it, and then died.

Hull says on his return he went to Roosevelt and complained bitterly about Moley's mission. He believed the President ought to call Moley down. The President, he says, told him he was surprised at Moley's conduct and that he would transfer him to another department. Of course, Moley went to the conference with specific instructions from Roosevelt and obeyed them. And if Roosevelt told Hull he would transfer Moley—and Hull must be believed—then Roosevelt was pulling the Secretary's leg. Roosevelt knew Moley had already signed a contract to quit the State Department and to edit a new magazine because Moley had notified him to that effect before he left for London.

As for Hull, he seemed to have a genius for getting superseded and ignored. For he made the same complaint in order about Sumner Welles, Bill Donovan and Pat Hurley at a later day. Indeed he was hardly back home when he ran into another incident of supercession. George Peek had been let out of the AAA and to mollify him Roosevelt appointed him Foreign Trade Administrator with authority to negotiate barter trade agreements with foreign countries.

Hull was not consulted about this and inevitably a collision occurred. Peek made an agreement with Germany. Hull protested vehemently. Roosevelt told him to talk it over with Peek. Hull did and then wrote Roosevelt that he and every other government department were agreed against the Peek proposal. Then Hull went to Tennessee to make a speech. No sooner had he turned his back than Roosevelt sent for Peek and approved his plan. Hull was angry when he returned. He went to the White House and protested vigorously. Roosevelt reversed his approval and turned thumbs down on Peek's plan and two months later abolished Peek's office.

Hull did get a clear track later for his reciprocity agreements—a policy good in principle but of little relative importance against the background of world problems. How much interest Roosevelt felt in these is problematical. Hull was important to him. The Secretary was in no sense a student of international affairs. He was favored by nature with a countenance that gave him the imposing aspect of a mid-Victorian Liberal statesman. The mind behind the countenance was that of a crusty, old-fashioned Southern politician. The President throughout his tenure had a problem on his hands in the Southern senators who disliked the New Deal intensely. They went along because they had to do it or go without their share of the vast spoils for their states which the President had at his disposal. However, the intransigence of many was deep and at times turbulent and Hull was a valuable instrument to keep his old Southern colleagues in line.

This disconcerting technique of the President in bypassing his top leaders infected some of the men under him. Secretary Woodring complained, for instance, that Morgenthau went over his head on military matters. When Morgenthau was told this he said gleefully: "I went over and under and all around him."

But Morgenthau himself was a frequent target of his master's impish pleasure in these secret intrusions into his own preserves. Morgenthau was perhaps the strangest of Roosevelt's cabinet appointments, unless we except Wallace and Hopkins as Secretaries of Commerce. Morgenthau was doubtless a good man, loyal, honest, industrious, if permitted to remain on some lower level of mediocrity. As a cabinet officer he was a kind of historic specimen. Other cabinet officers looked on him with scorn. Garner said that "Wallace has crazy ideas and Morgenthau none." He said "He is servile. I do not mean loyal. I mean servile to Roosevelt." He was a slow, dull youth with no capacity for study. Up to the time he was given an important post by Roosevelt he had had no success in any kind of business. His father had set him up as a gentleman farmer on an estate next to Roosevelt's home at Hyde Park and endowed him with plenty of money. That is how he met Roosevelt and he remained for life the latter's humble and compliant servitor.

In the Fall of 1933, prices were not going so well for the farmers and Henry, whom Roosevelt had made head of the Farm Board, decided to do something about it. He fell under the influence of two men—Professor George F. Warren, a farm economist from Cornell and Professor James Rogers of Yale. Another was Irving Fisher, an evangelist of the theory of a managed currency. They sold him on the idea that the country could use a little dose of inflation.

Warren was the most persuasive. Like all farm economists he was an inflationist. They believe the way to hoist farm prices is to grow less farm produce and manufacture more dollars. Warren had a pet theory that the great enemy of mankind was gold, which was the worst rather than the best commodity to use as a measure of money value. He and a colleague had written a book to prove that gold is one of the most variable of all commodities in value. Fisher held that the unit of value should be a composite of commodity values and the value of the dollar moved up and down around that base.

Between them they hooked Morgenthau and he took them to Roosevelt. Dr. Warren lectured the President, explaining how the government could regulate prices very simply by regulating the price paid for gold—move the price of gold in dollars up and down to suit the government's price policy at any given time. In time a commodity index could be adopted and the government could then have a completely managed currency. Whether this is sound or not it is a thoroughly revolutionary plan. But it was inevitable that its unorthodox features would captivate the mind of Roosevelt.

Warren proposed that the price of gold, which was then fixed by law at $20.67, should be raised to around $35 an ounce. It didn't take them long to sell this gaudy bill of goods to Roosevelt. He asked the Attorney-General for an opinion on his authority to act. Dean Acheson, Assistant Attorney-General, held it could not be done under the law.

Roosevelt was furious. He called on Stanley Reed, then counsel for the RFC, and Morgenthau brought in Herman Oliphant, legal adviser of the Treasury. Oliphant was a lawyer whose reformist addictions overflowed into every branch of public affairs. A devout believer in rubber laws, it was easy for him to find one which could be stretched to include rubber dollars. Stanley Reed obliged with a favorable opinion. That, of course, is why he was asked for one. The opinion of the Attorney General was disregarded and Roosevelt went on the air on October 22, 1933 and announced that hereafter the Treasury alone would buy all gold mined in the United States and all gold offered from abroad if necessary. The price would be raised and fixed from day to day by the President and the Secretary of the Treasury. The RFC would furnish the money to buy the gold. The initial price was fixed at $31.26 an ounce—giving us 66 cents of gold in a dollar.

The President said: "I would not know and no one else could tell just what the permanent valuation of the dollar would be. When we have restored the price level then we shall seek to establish and maintain a dollar which will not change its purchasing power during the succeeding generation."

He declared: "If we cannot get prices up one way we will get them up another." and, most important, he told the radio audience: "This is a policy, not an expedient. We are thus continuing to move toward a managed currency." Later Congress passed an act to validate what he had done, which was clearly illegal when he did it.

Thereafter each day Morgenthau and Roosevelt met, with Jesse Jones, head of the RFC, present, to fix the price of gold. They gathered around Roosevelt's bed in the morning as he ate his eggs. Then "Henny-Penny" and Roosevelt decided the price of gold for that day. One day they wished to raise the price. Roosevelt settled the point. Make it 21 cents, he ruled. That is a lucky number three times seven. And so it was done. That night Morgenthau wrote in his diary: "If people knew how we fixed the price of gold they would be frightened."

The theory of the plan was to boost foreign purchases, particularly of farm products. But it didn't work. And it didn't raise prices as expected. Had the President called in Dr. O. M. W. Sprague, his distinguished economic adviser, Dr. Sprague could have told him this had been tried in Britain, Sweden, Japan, Italy and France; that in England, Sweden and Japan prices had actually declined, while in Italy and France they had increased only slightly, but due to other causes. But the President knew he had a naughty economic trick in prospect and he didn't dare let Dr. Sprague know or the doctor might explain it to him and ruin the whole show. So he said nothing. Shortly after, Dr. Sprague resigned and on the door of a room in the Executive Department was painted the legend: "Dr. George F. Warren, Economic Adviser to the President." Of course, as the fairy-like dream evaporated, the good doctor, who was an honest man and a good farm specialist also evaporated out of the government.

Some time later, Senator Borah and a number of senators from the silver states went to the White House to urge Roosevelt to do something about silver. After a good deal of amusing badinage, Key Pittman finally nailed the President down to an answer. "All right," said the President laughing, "I experimented with gold and that was a flop. Why shouldn't I experiment a little with silver?" 20 Al Smith had his say about it all in characteristic language. He called this new trick "baloney dollars"—a name that stuck—and asked why the "Democratic party is always fated to be the party of greenbackers, paper money printers, free silverites, currency managers, rubber dollar manufacturers and crackpots."

Poor Henry, however, who enjoyed circumnavigating Woodring and bypassing Woodin on Treasury policy, got plenty of the same medicine from Roosevelt himself. After Roosevelt named him Secretary of the Treasury to succeed Woodin, Morgenthau prepared a tax bill with the aid of Treasury experts. Twenty-four hours before it was to go to Congress, Roosevelt had sent for one of Henry's Treasury underlings and kept him at the White House all night working up some fad just sold to the President into a tax bill which Henry learned about only when it was ready to go to Congress.

Later Henry engaged an eminent tax authority to overhaul our tax laws and plan a more rational tax system. While this was being readied, he took a rest trip to Sea Island, Georgia. During his absence, Oliphant took a bright young man to the White House and in a brief talk convinced Roosevelt to scrap the whole system of corporate taxes, to end all existing taxes on corporations and tax instead their undistributed profits. A more crack-brained scheme never got a welcome in a sober executive office. It was all settled on when Morgenthau got back and prepared to submit his own plan to the President.21 Congress was shocked and the Democratic leaders had to make a hurried rehash of the bill, restoring the corporate taxes and using enough of the undistributed profits scheme to save the President's face.

Social Security Act

There were other plans—the Social Security Act and the Securities Exchange Act. There was no real objection to social security— everybody was for it. The Republicans had denounced the President for his tardiness in presenting a plan. In due time a bill was passed.

But here we saw a characteristic of the President's mind which was to bring countless troubled hours to his Congressional leaders. One might pour a perfectly good idea into his mind at one end and it would come out the other with some fantastic twist. There is only one way to provide old-age pensions for retired workers. Those who still work and their employers must make up by contributions each year a sum sufficient to pay the pensions. The commission finally named by Roosevelt to prepare a plan brought forward just such a proposal with a "pay-as-you-go" tax—a small tax on payrolls to meet the requirements each year plus a moderate contingency fund of two or three billions.

The bill, after hearings before a Congressional committee, was ready to be reported when Morgenthau was sent post haste to the committee with a scheme just sold to the President in a short talk. The plan was to make the payroll tax big enough to pay the benefits, plus enough more to create a so-called reserve of $47,000,000,000 in 40 years. It was given the fraudulent name of Old-Age Reserve Fund. The Security Board would collect the taxes each year, use a small part to pay the pensions and put the rest in the "Fund." That is, it would "lend" it to the Treasury and the Treasury would then spend it for any purpose it had in mind. At the end of 40 years Roosevelt was told this money could be used to pay off the national debt.

Fortunately, Congress in 1938 had the courage to put a stop to this and to reduce the rates to a moderate sum. As it is the payroll taxes amount to two percent—one percent for the worker and one percent for the employer—and even so the fund has amounted to many billions in excess of pensions paid the workers. But had Congress not corrected this, the tax would now be six percent instead of two.

The Securities Exchange Act when finally passed was on the standard New Deal model—the creation of a commission, another bureau, which has been given vast powers to make laws for the security markets. It is a good idea badly twisted. What harm it has done is difficult to appraise as yet. Before any real revival in the investment markets could appear the war intervened. But at least one thing is certain and that is that the Commission has in its hands powers it ought not to have, powers which could be used and might well be used to literally destroy the investment market in this country.

There was one thing more—the banks. When the banks had been closed and then reopened following the crisis, the next thing in order was to adopt a rational banking law that would make the abuses of the past impossible. For some reason which I have never been able to fathom the President never displayed the slightest interest in this subject. Two measures emerged. One was the Glass-Steagall Act to eliminate some of the bad features permitted under the old laws. The other was the present system of insured bank deposits. The President and his promoters took a great share of credit for these bills. Without discussing whether they were sound or not, the fact remains that the President refused to support the Glass-Steagall bill, and that the guarantee of deposits, first proposed to him by John Garner, he resolutely opposed. Both were passed without the movement of a finger by him to assist them.

This is what happened to the new New Deal—the Second New Deal. The big controversial, sensational experiments which were its heart were all killed or died of their own inherent weaknesses.

The NRA, the AAA, the Gold Purchase and Managed Money plan vanished. Roosevelt was glad after they were gone to see them go, but he hated those who had opposed them and who had been proved right. He never forgave them. He had literally nothing to do with what banking reform was adopted. His spurious surplus tax plan had to be smothered by his own leaders. The taxes he promised to reduce were now higher than ever. The debt he was going to check and pay off was now nearing the point of being doubled. And the spending plan—spending by Hopkins through the WPA—had come into such bad odor that Hopkins publicly admitted it was a mistake and the President echoed this opinion by saying that spending on doles must stop—it must in the future be on useful public works.

What was left of this Second New Deal? There was one thing left, one rabbit—the Spending Rabbit—however the money might be put out. This it was which had accounted for whatever lift there was in business and for the tremendous power the President had acquired over the machinery of his party, over numerous groups in the nation and over every town, county and state government which wanted a part of that money. But the New Deal in its second edition was not in any sense a system of government polity. It was a collection of measures based on contradictory principles, the most important of which had been wiped out.