Traitor to His Class: The Privileged Life and Radical Presidency of Franklin Delano Roosevelt (63 page)

Roosevelt’s refusal to join Hoover in declaring for gold naturally led to speculation—figurative and literal—that he would take the United States off the gold standard. At his first press conference he provided the reporters a primer on gold. He read from an article written by “my friend Robey”—journalist, economist, and sometime Brain Truster Ralph Robey—for the
New York Evening Post.
Robey, and now Roosevelt, explained that an effective gold standard had to meet four criteria. First, the dollar (or other unit of currency) must be defined as containing a certain amount of gold of a particular fineness. Second, the government must be committed to coining all the gold delivered to the mint. Third, the government must agree to convert paper dollars to gold upon demand. Fourth, gold must be allowed to move freely into and especially out of the country. By these measures, the United States had an effective gold standard. The gold content of the dollar was defined by law, translating into a gold price of $20.67 per ounce. Dollars were redeemable in gold, and gold could be exported at will.

But—and here the reporters sat up and paid close attention—other countries did not meet the four conditions. “For a good long time, as a matter of actual fact, the United States has been the only country on the gold standard,” Roosevelt said. Britain had formally gone off gold in 1931. “France has theoretically been on a gold standard, but nobody in France can go and take a bill to the bank and get gold for it, and as far as imports and exports go in France, it has been government controlled.” Switzerland and the Netherlands had similar systems.

Roosevelt seemed to be making a case for taking the United States off gold. No reporter put the question so bluntly—in part because of the way Roosevelt stage-managed his press conferences. As in private conversations, Roosevelt was a master at controlling the direction and flow of comments. The location of the conferences—in his office—was initially explained as a convenience, not least on account of Roosevelt’s impaired mobility. But it was equally a calculation, which proved out in practice, that reporters would feel themselves to be his guests and would conduct themselves as such. They rarely asked impertinent questions.

In this instance a reporter broached the subject indirectly. The president had spoken in his inaugural address of a “sound and adequate” currency. Did he care to elaborate?

Roosevelt laughingly corrected him. “I put it the other way around. I said ‘adequate but sound.’”

“Can you define what that is?”

“No.” This monosyllable revealingly elicited further laughter. Where Hoover would have tensed up, if he had answered the question at all, Roosevelt freely—almost merrily—acknowledged that a central part of his inaugural message consisted of indefinable fluff. “In other words—and I should call this ‘off the record’ information—you cannot define the thing too closely one way or the other.” He allowed himself to say that when the banks were closed, the country had lacked an adequate currency. “There wasn’t enough circulating to go around.” And he hoped that when the banks reopened, “a great deal of the currency that was withdrawn for one purpose or another will find its way back.”

But if it didn’t, the administration was prepared to supplement it. Scrip might be employed, or perhaps bank notes issued by the Federal Reserve. “In other words, what you are coming to now really is a managed currency, the adequateness of which will depend on the conditions of the moment. It may expand one week and it may contract another week.”

This was real news, for a managed currency was the opposite of one based on gold. The purpose of a gold standard was to prevent mere mortals—that is, politicians—from fiddling with the money supply to suit their short-term purposes. Roosevelt proposed precisely such fiddling.

“Can we use that part—‘managed’?” one reporter immediately queried, envisioning his lead and likely headline.

“No, I think not,” Roosevelt said.

Yet this was the biggest financial news in years, and so the reporters tried other tacks. “You haven’t defined what you think is ‘sound.’”

“I don’t want to define ‘sound’ now.” But Roosevelt did say—“entirely off the record”—that “in its essence we must not put the government any further in debt.”

“When you speak of a managed currency, do you speak of a temporary proposition or a permanent system?”

“It ought to be part of the permanent system—that is off the record. It ought to be part of a permanent system so we don’t run into this thing again.”

A
ND SO IT BECAME,
though not for another month. The immediate challenge was to reopen the banks, which the administration and Congress contrived to do almost on schedule. Woodin, Moley, and several others were still drafting a bank bill as the members of Congress gathered on the morning of Thursday, March 9; the delay compelled Roosevelt to extend the bank holiday “until further proclamation by the President.” The extension bought enough time for Congress to receive the bill but not enough for the government’s printers to make copies for the members. Undeterred by their own ignorance, they approved it—in the form of a wadded-up newspaper, which served as a proxy for the bank bill itself—within hours. The law retroactively granted Roosevelt authority to close the banks and embargo gold, thereby removing any taint of unconstitutionality from Roosevelt’s executive action. Looking forward, the bank bill authorized him to reopen the banks when he saw fit, under the supervision of the comptroller of the currency, and to direct the Federal Reserve to issue notes that would circulate as money, regardless of the strictures of the gold standard, which remained technically in effect.

Roosevelt signed the bank measure that same Thursday evening. He shortly announced a timetable for reopening the banks. On Monday the twelve Federal Reserve branch banks would reopen, along with banks in each of those twelve cities. On Tuesday banks in cities where the bank clearinghouses had continued to operate—roughly 250 cities altogether—would reopen. On Wednesday the rest of the country’s banks would reopen. The whole schedule, however, was subject to the oversight of the Treasury, which would bar particularly precarious banks from reopening, lest they quickly fail and threaten the others.

T
HREE DAYS AFTER
signing the bank bill, Roosevelt delivered his first radio address as president. The term “fireside chat” wasn’t yet in general use, but it would have been appropriate on this late-winter night. A week earlier Roosevelt had said the only thing Americans had to fear was fear itself; now he served up reassurance along with a basic lesson in economics. “I want to talk for a few minutes with the people of the United States about banking,” he said. “I want to tell you what has been done in the last few days, why it was done, and what the next steps are going to be…. I know that when you understand what we in Washington have been about, I shall continue to have your cooperation as fully as I have had your sympathy and help during the past week.”

The first part of Roosevelt’s lesson explained why banks were so prone to failure from public loss of nerve. “When you deposit money in a bank, the bank does not put the money into a safe deposit vault. It invests the money in many different forms of credit—bonds, commercial paper, mortgages, and many other kinds of loans…. The bank puts your money to work to keep the wheels of industry and of agriculture turning around.” Only a small portion of the deposits remained on hand, to cover the ordinary needs of the public for cash. “The total amount of all the currency in the country is only a small fraction of the total deposits in all of the banks.” What had happened during the recent panic? “Because of undermined confidence on the part of the public, there was a general rush by a large portion of our population to turn bank deposits into currency or gold—a rush so great that the soundest banks could not get enough currency to meet the demand.” Once the rush started, it was a simple matter of arithmetic that the banks would run out of cash.

The bank holiday had been proclaimed to stem the rush. It had done its job. Roosevelt acknowledged the inconvenience the bank closings had caused. But the closings had been necessary to prevent further damage to the banking system. And they had worked. “No sound bank is a dollar worse off than it was when it closed its doors last Monday.” The bank holiday, moreover, had given Congress the time to pass legislation to relieve the stress on the banks. Officials of the Treasury Department were examining banks to see which could stand reopening, and the Federal Reserve was printing new currency to supplement the old. “The new currency is being sent out by the Bureau of Engraving and Printing in large volume to every part of the country. It is sound currency because it is backed by actual, good assets”—namely the notes and bonds of the federal government.

The key to the success of the whole program was the cooperation of ordinary Americans. “There is an element in the readjustment of our financial system more important than currency, more important than gold, and that is the confidence of the people. Confidence and courage are the essentials of success in carrying out our plan.” Fear had been the enemy; fear remained all that could foil the new system. “Let us unite in banishing fear. We have provided the machinery to restore our financial system. It is up to you to support and make it work. It is your problem no less than it is mine. Together we cannot fail.”

23.

L
IKE MANY OTHER MEN WHO ASPIRE TO GREATNESS
, F
RANKLIN
R
OOSEVELT
could be incredibly self-centered. Men seldom become great without believing the world revolves around them. If Sara Roosevelt hadn’t doted so on her only son, he would have lacked some of the self-confidence that enabled him to think he could overcome his polio and return to the political arena. Whether Sara appreciated this irony—that her very solicitude for her son, articulated over his first four decades of life, was much of what made him ignore her pleas to retire to Hyde Park squiredom for the remainder of his life—is unclear. She never became accustomed to the spectacle of politics, especially when it played out on her front lawn or in her dining room. Huey Long had arrived for lunch during the 1932 campaign and put on his characteristically egregious show. Franklin was compelled to suffer the Louisiana senator in silence, but Sara wasn’t. “Granny endured it as long as she could,” James Roosevelt remembered, “then, in a stage whisper that could have been heard down at the stables, inquired: ‘
Who
is that
dreadful
person?’” Sara naturally took pride in her son’s elevation to the highest office in the land and even issued a statement upon departing the capital after his inauguration: “I shall leave my son in Washington, confident that he will give all the strength that is in him, to help his country, and I shall be glad if every mother will pray God to help and preserve him.”

Yet the realities of public life often disconcerted and wounded her. She felt personally the political attacks on Franklin, and she sometimes found it difficult to reconcile his policies with the culture in which she had grown up and which still surrounded her in the Hudson Valley. She disapproved of Eleanor’s involvement in politics, which, notwithstanding the Nineteenth Amendment, Sara considered the province of men. After Franklin’s inauguration, Eleanor made a habit of visiting parts of the country most badly hit by the depression. One news report depicted her in a coal mine in the Appalachians; Sara wrote Franklin a few days afterward, her displeasure oozing from between the bland words: “I hope Eleanor is with you this morning…. I see she has emerged from the mine…. That is something to be thankful for.”