Traitor to His Class: The Privileged Life and Radical Presidency of Franklin Delano Roosevelt (99 page)

A competing faction within the administration asserted that Berle and Morgenthau had it all wrong. These younger New Dealers were a cadre of lawyers, economists, and other ambitious fellows who had come to Washington to take part in Roosevelt’s reformation of the American political economy. Thomas Corcoran, nominally counsel to the Reconstruction Finance Corporation but actually an adviser with broad portfolio, was their unofficial leader; Benjamin Cohen, Isador Lubin, Leon Henderson, and Jerome Frank were Tommy the Cork’s lieutenants. These “janizaries,” as their critics called them, lived for their jobs, talking politics and economics from early morning at work till late at night over drinks in Corcoran’s Georgetown home. They had experience in neither elective politics nor practical business, but they professed to tell the politicians and the businessmen what to do. They were often clever enough to get away with it. Their mindset was that of the progressives of a generation before: they blamed big capital for the economy’s woes, and they looked to government—that is, to the agencies they themselves staffed—to make the profiteers mend their irresponsible ways.

Their diagnosis of the 1937 slump was just the opposite of Morgenthau’s. They pointed out that the federal budget that year was closer to balance than any since the New Deal’s start, on account of reductions in relief spending and increases in taxes, particularly the payroll taxes that funded the new Social Security system. The ergo for them was that the declining deficit had caused the recession. Their prescription was to expand the deficit so that government spending would provide what private spending did not.

The young New Dealers bolstered their arguments with the economic theories of John Maynard Keynes. The British economist published his magnum opus,
The General Theory of Employment, Interest, and Money,
in 1936. The work involved intricate analysis of all manner of economic and monetary policies, but for political practitioners the moral was that government ought to intervene, energetically and forthrightly, when the private sector failed. As the moral pertained to the 1937 recession, the federal government should increase the deficit as a countercyclical correction to the shortfall in private consumption.

Keynes couldn’t expect Roosevelt to read his whole book, which even for economists was heavy slogging. So he summarized its main points in another letter. Consumption, Keynes told Roosevelt, was the key to recovery. Private consumption languished—this was the essence of the recession—and therefore public consumption must expand. In particular the government must spend more—much more—than it took in, so that the deficit would put money in the hands of people who would spend it again, in their turn. The people who received the money must be the poor and middling, not the rich; ordinary farmers and workers, not powerful business owners. Ordinary people spent their incomes, from necessity; the rich might sit on the money, depriving it of its multiplier value.

Keynes didn’t suggest that Roosevelt write off the rich and the business classes. The cooperation of business would ultimately be essential in sustaining any recovery. But the economist urged the president to treat the capitalists with caution.

Businessmen have a different set of delusions from politicians and need, therefore, different handling. They are, however, much milder than politicians, at the same time allured and terrified by the glare of publicity, easily persuaded to be “patriots,” perplexed, bemused, indeed terrified, yet only too anxious to take a cheerful view, vain perhaps but very unsure of themselves, pathetically responsive to a kind word. 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. It is a mistake to think that they are more
immoral
than politicians. 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.

B
ETWEEN THE FISCAL
conservatism of Morgenthau and the budget hawks and the liberalism of the junior New Dealers, with the unsolicited kibitzing of Keynes on the side, Roosevelt had to chart a course for the American economy. His head and his past were on the side of the budget cutters; his instincts had always been to trim government spending. But his heart and his politics were on the side of the spenders. He resented the failure of investors—many of whom came from backgrounds similar to his own—to acknowledge their debt to the community at large and their obligation to repay it. And he appreciated that fat capitalists made easy targets.

The October 1937 edition of the Fireside Chats came a week after Roosevelt’s Chicago speech on quarantining aggression. He touched briefly, and vaguely, on the themes of that earlier speech, but most of his talk treated the domestic economy, in particular the role of business in triggering the current recession. Roosevelt didn’t target all businessmen; as when he attacked Republicans, he distinguished the evil few from the virtuous many. The former, besides withholding investment funds, had been spreading malicious stories about government, thereby undermining the democratic faith of the latter. “Most business men, big and little, know that their government neither wants to put them out of business nor to prevent them from earning a decent profit,” the president said. “In spite of the alarms of a few who seek to regain control of American life, most business men, big and little, know that their government is trying to make property more secure than ever before by giving every family a real chance to have a property stake in the nation.” Roosevelt echoed his salvos of the 1936 campaign when he blamed “private monopolies and financial oligarchies” for endangering American prosperity by refusing to lower unconscionably high prices. On Wall Street, not in Washington, should Americans seek the villains in the current recession. The government was doing everything it could to undo the harm the business barons had done. “We are already studying how to strengthen our antitrust laws in order to end monopoly, not to hurt but to free legitimate business.”

Roosevelt extended the attack in his annual message to Congress, delivered at the beginning of 1938. The recession had worsened with the winter; the prospects of recovery had retreated commensurately. More than ever the American future required the cooperation of honest businesses and their resources, Roosevelt said. “Capital is essential.” And capital could expect to be rewarded. “Reasonable earnings on capital are essential.” But capital, for its own sake and that of the country, must not overreach. “Misuse of the powers of capital or selfish suspension of the employment of capital must be ended, or the capitalistic system will destroy itself through its own abuses.” Roosevelt identified the worst of the abuses: “tax avoidance…security manipulations…price rigging…collusive bidding…unfair competition…intimidation of local or state government.” Most of these practices resulted from excessive concentration of corporate power in the hands of a very few firms, whose directors belligerently asserted their right to employ their property as they saw fit. Roosevelt didn’t deny the right, but he linked it to responsibility. “The man who seeks freedom from such responsibility in the name of individual liberty is either fooling himself or trying to cheat his fellow men. He wants to eat the fruits of orderly society without paying for them.”

B
LAMING GREEDY CAPITALISTS
might be a political strategy, but it wasn’t an economic policy. Roosevelt had to decide whether to cut spending or expand it. At first he leaned toward Morgenthau, hoping that the back of the depression had been broken and that the current difficulties were fleeting. If this was so, he was willing for government’s role to diminish. In October 1937 he met with congressional leaders and declared his intention of balancing the budget by fiscal 1939. “The President told them with a real ‘burr’ in his voice,” Morgenthau recorded in his diary, “that he expected to balance the budget, that he wanted enough money to balance the budget, that he expected to keep expenditures down so he could balance the budget, and that if any committee passed an appropriation over and above his estimates he would immediately serve notice on that committee that they must find the additional revenue.”

Within a week of this meeting, however, the stock market lurched down again, suffering the single day’s biggest loss in six years. Even Morgenthau was shaken, calling the sell-off “an hysteria resembling a mob in a theater fire.” When the market didn’t recover, and as the effects of the dive rippled into the larger economy, Roosevelt reconsidered his devotion to a balanced budget. He called a cabinet meeting to consider his options. None appeared new or particularly effective. “I am sick and tired,” he said, “of being told by the cabinet, by Henry, and by everybody else for the last two weeks what’s the matter with the country, and nobody suggests what I should do.”

After a long silence, Morgenthau spoke up. “You must do something to reassure business,” the Treasury secretary said.

“You want me to turn on the old record,” Roosevelt replied.

“What business wants to know is this: Are we headed toward state socialism, or are we going to continue on a capitalistic basis?”

“I have told them that again and again.”

“Tell them for the fifteenth time. That’s what they want to know.”

Jim Farley echoed: “That’s what they want to know.” The president should explain that he was going to cut the cost of government.

“All right, Jim,” Roosevelt answered. “I will turn on the old record.”

Morgenthau left the meeting encouraged. “This is the first time that the cabinet had ever talked on a man-to-man basis with the President and that we did not sit back and either talk trivialities or listen to him,” Morgenthau recorded.

Yet the more Roosevelt thought about the recession, the angrier he grew at the greedy capitalists. In a telephone conversation he told Morgenthau that a “wise old bird” had informed him that big business was behind the recession, self-consciously sabotaging the economy in order to force the administration to back away from reform.

Morgenthau inquired who the owl was. Some were better informed than others, he said.

“It is not necessary for you to know,” Roosevelt responded.

Morgenthau, surmising that the owl was the president himself, anticipated a change in course. It came in stages. The Treasury secretary was scheduled to speak to an audience that would include business bigwigs; he wanted to tell them that a balanced budget was still the administration’s goal. He showed his draft to Roosevelt, who read Morgenthau’s words: “This administration is going to do everything possible to promote a continuation of recovery and to balance the budget through cutting expenditures. But I wish to emphasize that in no event will this administration allow anyone to starve.” The latter sentence was already a concession to the spenders in the administration. Yet it wasn’t enough for Roosevelt. He appended an additional promise: “Nor will it abandon its broad purpose to protect the weak, to give human security, and to seek a wider distribution of our national wealth.”

Morgenthau choked. “If you want to sound like Huey Long,” he told the president, “I don’t.” But he gave the speech, with Roosevelt’s coda. And it convinced no one in the business community that the administration was serious about reducing the deficit—for the good reason that the administration, regardless of what Morgenthau wanted, was not serious. Each week brought worse news about the economy. In December the Labor Department calculated that nearly two million people had lost their jobs since September. Government economists predicted that another million would be laid off by the middle of January. This was no financial stumble but a broad economic collapse. The early months of 1938 seemed eerily like the start of 1933. Hunger once more threatened millions; tent cities sprang up anew—and might have been called Rooseveltvilles if the term hadn’t been so awkward. The federal capacity to provide relief had been deliberately reduced the previous summer; it could not re-expand fast enough to cover the growing need. Sixty thousand men and women went without food for a week in Cleveland when local agencies couldn’t make up for the federal shortfall. Chicago closed down its relief offices lest they be crushed by the burden of those who descended upon them.