The New Deal: A Modern History

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ALSO BY MICHAEL HILTZIK

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Copyright © 2011 by Michael Hiltzik

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First Free Press hardcover edition September 2011

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Photo on page vii: FDR delivering his first Fireside Chat, from the collections of the Franklin D. Roosevelt Presidential Library and Museum.

Photo insert credits: 1: Franklin D. Roosevelt Library; 2, 4, 6, 7, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 21, 22, 23, 26, 28, 29: Library of Congress; 3: AP; 5, 27: Bettman/Corbis; 8: Tennessee Valley Authority; 19, 20: Public Works Administration; 24, 25: Collection of the Supreme Court of the United States

Manufactured in the United States of America

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Library of Congress Cataloging-in-Publication Data

Hiltzik, Michael A.

The New Deal : a modern history / Michael Hiltzik.

p. cm.

Includes bibliographical references and index.

1. New Deal, 1933–1939. 2. United States—Politics and government—1933–1945.

3. United States—Economic conditions—1918–1945. 4. Depressions—1929—

United States. I. Title.

E806.H557 2011

973.917—dc22

2011011367

ISBN 978-1-4391-5448-9

ISBN 978-1-4391-5895-1 (ebook)

To Deborah, Andrew, and David

I do not look upon these United States as a finished product. We are still in the making.

—Franklin Roosevelt, February 23, 1936

I am an old campaigner, and I love a good fight.

—Franklin Roosevelt, October 26, 1936

CONTENTS

Prologue : The Long Winter

PART ONE: THE HUNDRED DAYS

1 Action Now

2 A Good Crisis

3 A River Out of Eden

4 Wall Street in the Dock

5 Agony on the Land

PART TWO: THE NEW DEAL RISING

6 The General

7 The Gold Standard on the Booze

8 Harry and Harold

9 So Many Sinners

10 The Little Red House

11 Pied Pipers

12 The Cornerstone

13 Black Monday

14 Federal One

15 The Most Forgotten Man

PART THREE: RETURN TO EARTH

16 Backlash

17 Nine Old Men

18 Roosevelt’s Recession

19 Purgatory

Epilogue: Defining the New Deal

Notes

Bibliography

Acknowledgments

Index

THE NEW DEAL

PROLOGUE

THE LONG WINTER

"I PLEDGE MYSELF TO a new deal for the American people."

Samuel I. Rosenman always claimed that he gave those words little thought when, holed up in a dining room of the executive mansion in Albany, New York, and fortified by a rough meal of boiled frankfurters and a pot of coffee, he scribbled them on a scrap of paper.

At that moment he was convinced they never would be uttered aloud. It was the early morning of July 1, 1932. In Chicago, the Democratic National Convention had completed its third ballot for the nomination for president. Rosenman’s candidate, New York Governor Franklin D. Roosevelt, was still eighty-eight votes short of the required two-thirds majority. Rosenman, who was Roosevelt’s speechwriter, a charter member of his Brain Trust, and an old personal friend, had been drafting the governor’s acceptance speech intermittently for months. The body of the speech had reached its final form several days earlier. All that remained to be drafted was the peroration, that uplifting oratorical coda pinned to the end of every well-crafted speech. Rosenman had set aside the peroration for last, and during the frenetic first days of the convention left it undone.

Seeking a respite from the long, numbing sequence of nominating and seconding speeches coming over the radio, Roosevelt had tried his own hand at a closing. But constant interruptions by phone from the convention floor ruined his concentration. He read his effort aloud to his gathered aides. We unanimously said it was terrible, so he sadly tore it up, Rosenman recalled. The next day Rosenman took up the task again as an antidote to his own restlessness. His spirits were weighed down by the thought that all his work would likely be in vain, for the nomination seemed to be drifting further away with every inconclusive ballot.

Rosenman never specified the source of the term new deal, but it was certainly in the air. His fellow Brain Truster Ray Moley had used it in a covering note to a package of informational memos he had given Rosenman to pass on to Roosevelt in May. (Moley had written that Herbert Hoover’s promise of imminent prosperity is not the pledge of a new deal; it is the reminder of broken promises.) The term also was part of the title of a series in the New Republic by the economic commentator Stuart Chase, which began appearing on June 29, the eve of the convention, and continued through July. In the four installments of A New Deal for America, Chase argued that the Great Depression had been caused by overinvestment in industrial plants and production during the 1920s. He surveyed possible remedies, rejecting violent revolution or the dictatorship of big business in favor of a third road: central regulation leading to a progressive revision of the economic structure, avoiding an utter break with the past.

In his memoirs Rosenman credited neither source, but both usages were certainly known to him and perhaps recorded in his subliminal memory. After all, several other phrases from Moley’s cover letter made it into the acceptance speech almost verbatim. And Chase was a sort of orbiting satellite in the Roosevelt universe, if not a member of the inmost circle of advisors; it was he who had discovered and recruited for Roosevelt’s economic team a progressive-minded Utah banker named Marriner Eccles, whom Roosevelt would later appoint governor of the Federal Reserve. Chase’s view of overinvestment as a cause of the Depression had become Roosevelt campaign orthodoxy, as had his recommendation for overhauling rather than demolishing the nation’s existing financial structure.

Roosevelt, who was handed the scrap of paper with Rosenman’s drafted peroration before leaving Albany for Chicago, told him it seemed all right without remarking on the phrase new deal. When he delivered the speech from the convention floor on July 2, Roosevelt gave the words a modest cadential stress, but no more than he did to several other phrases in the text that might have served just as well as a clarion call—a new chance, for example, or a new order or a new time.

The elevation of this casual phrase into a unifying label for Franklin Roosevelt’s peacetime domestic policy was an accident of history. The next day’s newspapers treated the peroration with indifference. The New York Times did not quote the new deal phrase at all in the front-page convention report by its distinguished Washington editor, Arthur Krock; the Los Angeles Times slightly misquoted its context. But the New York World-Telegram published a drawing by its editorial cartoonist, Rollin Kirby, depicting a farmer staring up at a plane passing overhead with the words New Deal emblazoned on its wings. This was the first indication that a popular phrase had been coined, Rosenman reflected. Within a short time it became a commonplace—the watchword of a fighting political faith.

On the afternoon before Inauguration Day, Rexford Guy Tugwell was weighed down with a sense of foreboding.

Earlier in the day, Tugwell had boarded the train carrying President-elect Franklin Roosevelt along with several other original members of the Brain Trust, the team of old friends and newly recruited academics who had schooled the youthful governor of New York in the intricacies of national policy and joined him on the long road to nomination and electoral victory in 1932. The traveling party had assembled at the President-elect’s town house on Sixty-Fifth Street in Manhattan, then crossed the Hudson River and headed for the Baltimore & Ohio Railroad terminal in Jersey City in a parade of limousines.

This was the first of many displays of ostentation during the inauguration weekend that Tugwell would find jarring, given the economic misery all about him. For the moment he chose to submit to routine—amenities had to be observed, he told himself. After all, this was the President-elect’s choice: Roosevelt personally had ended the debate in his circle over whether to hold an inaugural gala complete with parades and balls, vetoing the idea of toning down the festivities lest the change in plans add to the nation’s anxiety.

After the train left the station, Roosevelt called the members of his party one by one back to his car, the last one on the special. When Tugwell’s turn came, the professor from Columbia expected to be drawn into a discussion of the agriculture crisis, which was his particular expertise and the subject of his portfolio in his new job as an undersecretary of agriculture. Instead he found Roosevelt in a contemplative mood. As the industrial countryside of the Delaware River Valley flashed past, Roosevelt remarked to Tugwell on the profusion of smokeless factory chimneys, yet another sign of economic paralysis.

Then Roosevelt’s mood shifted abruptly, and they were on to a discussion of student life at the University of Pennsylvania, where Tugwell had studied twenty years before. At length Tugwell was dismissed to make his way forward to his own compartment, marveling not for the first time at his boss’s ability to maintain such composure in the face of the horrific responsibilities he would be assuming in less than twenty-four hours.

Over the many months they had worked together Tugwell had become familiar with Roosevelt’s even temper, his supreme self-confidence. Not so Henry A. Wallace, the ascetic, mystical Iowa farmer who would be Tugwell’s immediate superior as secretary of agriculture, who came wandering back from his own audience with Roosevelt in a lather. Every compartment on the train, he fumed, seemed to be consumed with frivolous revelry: "It’s incredible. The country is in ruins and we seem to be on a kind of Sunday picnic."

Tugwell tried to explain to the outraged Wallace that Roosevelt’s apparent cheer stemmed from his knowledge that everything that could be done in the next few weeks was already in process—emergency proclamations had been drafted, bills readied for introduction at a special session of Congress, speeches penciled out.

Yet he could not help but share some of Wallace’s misgivings. In the four months since the election, the country’s condition had steadily deteriorated—then, in the last two weeks, it had taken a sickening plunge down, as though pitched over the rim of a waterfall. One by one, governors had ordered their states’ crippled banks closed. On the very eve of the inauguration, the last lights winked out in Illinois and New York. "The economy was seized with an incurable illness much as an individual is, Tugwell would recall of those dark days. And the economic doctors had no more helpful advice than medical doctors have when faced with approaching death."

The crisis had exposed the vacuity of Republican economic orthodoxy. But Tugwell wondered whether it might not also expose the limitations of the Wilsonian progressivism motivating Franklin Roosevelt and many members of his inner circle—that marriage of antimonopoly regulation and laissez-faire economic policy that owed so much to Wilson’s intellectual guide, Louis D. Brandeis, and the latter’s aversion to bigness in business and government alike. The old stuff seemed inadequate, Tugwell wrote. Desperate illness calls for something more. During the campaign he had preached that the federal government would have to assume an unprecedented role in delivering relief to the destitute and stern discipline to the business community, which had played a central role in the disaster and resisted taking responsibility. The New Deal would live up to his expectations in the first respect, but not the second.

The revelers aboard the inaugural train were not immune from feeling the paralyzing effect of the Depression. Many of them, prevented from withdrawing cash from their shuttered banks before embarking, would be unable to pay their hotel bills in Washington. And they were the privileged, with paying jobs in the new administration. What of the others, millions of others, with no pocket money and no prospects, food and shelter receding out of reach? These were the millions waiting for Franklin Roosevelt’s train to arrive.

The presidential election campaign of 1932 had resembled a sporting contest between adversaries playing toward a preordained conclusion. In June the Democrats had gone into their national convention in Chicago confident that their nominee would be presumptively the next president. After prevailing in the ferocious battle for the nomination, Roosevelt promptly electrified the party with his superb sense of drama, breaking tradition by flying to Chicago to deliver an acceptance speech to the convention in person. (By cobwebbed custom, a party’s nominee would be offered the honor by a delegation of party elders, weeks after the fact.)

Hoover had been renominated by a dispirited party facing eclipse. A Dump Hoover movement launched by Harold L. Ickes, an insurgent progressive Republican from Chicago, failed for lack of a candidate willing to take up the colors. Shortly after the Republican convention, Hoover announced that he would consider it beneath the dignity of his office to campaign actively for reelection.

Circumstances conspired to change his mind. First and foremost were Roosevelt’s remorseless attacks on Hoover’s record. These started with the Chicago acceptance speech, in which FDR evoked the figure of the forgotten man, "forgotten in the political philosophy of the last years. (This personage had first appeared in a radio speech by FDR in April, as the forgotten man at the bottom of the economic pyramid.) The attacks would continue up to the eve of election, when Roosevelt castigated the fiscal administration of the Hoover White House as a veritable cancer in the body politic and economic."

Then there was Hoover’s political maladroitness—or as he preferred to view it, his ill luck. The leading example was the attack he ordered on July 28 on the bedraggled remnants of the Bonus Army, encamped in the dismal Anacostia Flats of Washington, D.C. The bonus marchers had come east to appeal for early payment of the stipend Congress had voted for veterans of the Great War, which stipend was not scheduled for redemption until 1945. Instead of a hearing they got a rout by cavalry forces under General Douglas MacArthur (whose staff aide, Major Dwight D. Eisenhower, looked on in dismay). News of the army’s gassing and trampling of civilians—the slain including an infant born during the march—dominated the front pages. In Albany, Governor Roosevelt monitored radio reports of the carnage with his friend and advisor Felix Frankfurter. "Well, Felix, he said, this elects me."

A third factor forcing Hoover to the hustings was his conviction that Roosevelt was not merely an adversary from across the political divide, but a dangerous radical seducing voters with his appeals to "class antagonisms. Hoover’s view of the campaign as a cataclysmic battle with the nation’s fate hanging in the balance led him to muse openly but vaguely about using his powers of state to stop Roosevelt and save the republic. Such talk led his aides to wonder whether the pressures of the campaign had unhinged the President. Secretary of State Henry L. Stimson wrote in his diary: He has wrapped himself in the belief that the state of the country really depended on his reelection."

Hoover’s disdain for Roosevelt may have been encouraged by widespread doubts about FDR’s character and depth. Among progressive opinion makers Roosevelt was viewed as a wealthy dilettante playacting at liberal politics. "He makes excellent speeches about ‘the forgotten man,’" wrote Bruce Bliven, managing editor of the New Republic, but he is no spokesman for that man by any blood brotherhood. . . . [T]o me he seems rather the good fellow who talks in terms of restitution to the poor, but would not do anything which would seriously hurt the rich.

No one expressed these misgivings more acidly than Walter Lippmann, America’s leading public intellectual. "Mr. Roosevelt is a highly impressionable person, without a firm grasp of public affairs and without very strong convictions, Lippmann wrote in a historic misreading of the Rooseveltian character in January 1932. Franklin D. Roosevelt is no crusader. He is no tribune of the people. He is no enemy of entrenched privilege. He is a pleasant man who, without any important qualifications for the office, would very much like to be President."

But then Lippmann found scarcely more to impress him about Hoover, whom he judged singularly inept at the "hurlyburly of politics. The presidency was the first public office Hoover ever sought, and he won it easily. His campaign had been built, Lippmann observed, around his contrived image as the master organizer, the irresistible engineer, the supreme economist. Confronted by the reality of a disobedient Congress and Depression rather than prosperity, he revealed himself to be a political leader utterly without political skills, paralyzed by his own inexperience in the very special business of democracy."

Once drawn into campaigning for reelection, Hoover acted within strict limits. After delivering his acceptance speech on August 11 at a small garden party at the White House—not, like Roosevelt, to a cheering convention audience of thousands—he made only eight more formal speeches, the first not until October 4. Roosevelt, by contrast, could deliver that many formal speeches in a single weeklong campaign swing, and almost never let a whistle-stop go by without addressing the crowd.

Though the New Deal would mark a major watershed in the federal government’s approach to economic and social issues, a change of such magnitude was only intermittently telegraphed by the Roosevelt campaign. More often, the candidate’s policy stance seemed flexible and only vaguely progressive. This was partially the result of what Raymond Moley, a Columbia professor who served as chief speechwriter during the campaign, called his "abundant hospitality to novel ideas. Moley did not consider this a positive trait. There is a lot of autointoxication of the intelligence that we shall have to watch, he wrote his sister early in the campaign. A typical approach to a big problem is ‘so and so was telling me yesterday.’ . . . So far as I know he makes no effort to check up on anything that I or anyone else has told him."

Some of the equivocation in Roosevelt’s campaigning reflected his understanding that politics was often less about substance than presentation, and that audiences always were less bothered by paradox and contradiction than they were impressed by self-confidence. This was brought home to Moley when he presented Roosevelt with two drafts of a speech articulating diametrically opposed approaches to tariff policy. "Roosevelt read the two through with seeming care, Moley recalled. Then he left me speechless by announcing that I had better ‘weave the two together.’"

And some reflected Roosevelt’s natural Dutch conservatism. "A practical streak in him caused him to lean upon orthodoxy when grappling with the immediate problems before him, Moley related. He had been an economical governor of New York. Measurably, he believed in free enterprise." For economic advice he relied on a small circle of conservative Democrats with business backgrounds or distinctly probusiness leanings, including Texas banker Jesse H. Jones, Pennsylvania industrialist Will Woodin, and a young Arizona congressman named Lewis Douglas. All three would play important roles in the new administration.

It is important to understand the delicate political calculus involved in laying out a novel economic program. As the economist John Kenneth Galbraith would later observe, the economic orthodoxy of the era was "all on Mr. Hoover’s side. . . . The cranks, crackpots, eccentrics, and the vaguely irresponsible talked about cutting loose from gold, having a big bond issue to alleviate unemployment, of the need for some kind of national planning. Such thinking would become central to New Deal economics, but during the campaign Roosevelt trod a careful path between the orthodox and the heterodox. Wisely so, Galbraith concluded: had he cast his lot with the cranks, his contemporary reputation as a man of economic sense would have suffered. On the other hand, had he accepted uncritically the respectable ideas of the men of established reputation, his views would not have been different from those of Mr. Hoover."

For an explicit preview of the improvisational character of the New Deal, one had to reach back to May 1932, and FDR’s commencement speech at Oglethorpe University in Atlanta, one month before the Democratic convention. "The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation, he said then. It is common sense to take a method and try it; if it fails, admit it frankly and try another. But above all, try something."

Yet the Oglethorpe address was unique, in that it was drafted without any input from the Brain Trust. Rather, it arose from a dare Roosevelt issued to a clutch of newspapermen who had joined him on a picnic in Warm Springs, FDR’s rural Georgia hideaway. The newspapermen, among them Ernest K. Lindley of the New York Herald Tribune, were ribbing Roosevelt for his overly cautious campaigning.

If you boys don’t like my speeches, why don’t you take a hand at drafting one yourselves? Roosevelt shot back.

As drafted by Lindley, the result was what Samuel I. Rosenman termed "a kind of watchword for the New Deal program. More directly than any other Roosevelt speech of that period, it outlined the dismal effects of years of plutocratic rule, focused on the inequality of income and opportunity that characterized the Twenties, and called for social planning." It was a newspaperman’s aspirational road map for the future administration of a President Franklin Roosevelt.

Such candid idealism sneaked into only a few subsequent speeches. One was crafted by Adolf Berle, a brilliant liberal economist and charter Brain Truster, for delivery September 23 at the Commonwealth Club of San Francisco. Berle’s view that the domination of the U.S. economy by a shrinking cadre of industrial barons had stifled opportunity for the average American was the theme of his magisterial work The Modern Corporation and Private Property, coauthored with Gardiner C. Means and published early in 1932. "We are now providing a drab living for our own people, read the words he set down for Roosevelt. Put plainly, we are steering a steady course toward economic oligarchy, if we are not there already. The speech stopped short of proposing outright government control over the corporate sector. But it did call for a re-appraisal of values guided by enlightened administration, the aim being to ensure that the princes of property" work hand in hand with government leadership to advance the public interest. It was very inspiring, yet still rather vague.

In stark contrast was a speech on government economy FDR delivered a few weeks later in Pittsburgh. This one was drafted by a new member of the campaign team, Hugh S. Johnson, a businessman and former West Pointer whose flair for political invective was a byword. It pulsed with the joy of attack on the profligacy of Hoover’s four years of deficit spending: "The air is now surcharged with Republican death-bed repentance on the subject of economy, but it is too late. Johnson’s brio, however, led Roosevelt to blunder into an unwisely specific pledge to reduce the cost of current Federal Government operations by 25 percent. Tugwell, regretting having joined in the campaign team’s effusive praise of Johnson’s draft, later termed it a piece of unforgivable folly."

Indeed, whenever President Franklin Roosevelt proposed federal budgets reliant on deficit spending—as he would do every year—Republicans would punish him by quoting from the Pittsburgh speech. In 1936, as he prepared to return to Pittsburgh to speak for the first time in four years, he asked Sam Rosenman to work up "a good and convincing explanation for it. Rosenman reread the original and reported back that he could think of only one suitable answer to FDR’s critics: The only thing you can say about that 1932 speech is to deny categorically that you ever made it."

But that was no help to voters in 1932, who could only wonder uneasily what course Roosevelt would pursue in office. It is significant that so penetrating an observer as Marriner Eccles, the Utah banker who would become Roosevelt’s Federal Reserve Board chairman, was perplexed by the spectacle of the conservative Hoover basing his campaign on the unprecedented dynamism of his public works spending and banking relief while the ostensibly progressive Roosevelt castigated him for his spendthrift ways. Eccles reflected: "The campaign speeches often read like a giant misprint, in which Roosevelt and Hoover speak each other’s lines."

The Kansas newspaperman William Allen White distilled the mixture of doubt and hope that greeted Roosevelt’s landslide victory on November 8, 1932, in a letter to Theodore Roosevelt, Jr., the former president’s eldest son, early in the new year. "Your distant relative is an X in the equation, White wrote. He may develop his stubbornness into courage, his amiability into wisdom, his sense of superiority into statesmanship. Responsibility is a winepress that brings forth strange juices out of men."

Politically maladroit as a fully empowered president, Herbert Hoover proved no more adept as a lame duck. Part of the problem was the length of the lame-duck period. The interregnum between administrations would be shortened from four months to about ten weeks by the newly ratified Twentieth Amendment. But the change would not become effective until the 1936 election. In the meantime, Lippmann observed, "no one has power and no one has responsibility. The President is virtually without influence. The President-elect is without authority. So power is divided among the leaders of factions, no one of whom is strong enough to govern, though almost every one of them is strong enough to stop every one else from governing."

Compounding the difficulty, Hoover was ungracious in defeat. He believed he had broken the back of the Depression by June 1932, and that the economic recovery would have continued thereafter had business leaders and the public not become spooked by the prospect of a Roosevelt presidency. The recovery had been stymied, Hoover maintained, by a vicious circle in which fears of Roosevelt’s policy intentions bred stagnation, which perversely got blamed on his own administration and caused his defeat at the polls. "The rest of the world turned to recovery in July, 1932, and only the United States marched in the opposite direction with the election of 1932, he wrote later. With the ominous election returns from Maine on September 14th [Maine traditionally held an early election to beat the onset of winter], the country began to realize that Roosevelt would win. . . . The prices of commodities and securities immediately began to decline, and unemployment increased."

More likely, the July 1932 upturn was merely another in a series of false recoveries that had bedeviled economic prognosticators for more than a year. Although fewer banks failed in the second half of the year (635) than in the first (818), the financial sector was far from stable. Jesse Jones, who as head of the Reconstruction Finance Corporation pumped more than $400 million into banks across the country in that half year, likened the process to stamping out brush fires. We were far from being out of the woods, he recalled. Like a fire department we were on all around the clock.

Stock prices ticked up in August from another sickening plunge earlier in the summer, but by the end of the year they were again bumping along the bottom, averaging less than half their 1926 values—in some industrial sectors, such as steel and textiles, only about 25 percent. Even if one wished to take the optimistic view that the economy had stabilized, there could be no doubt about its fragility.

Hoover believed that the nation’s only salvation lay in his ability to maneuver Roosevelt away from the "radical and collectivist tenets of the New Deal and back toward his own traditionalist policies. This effort started only five days after the election. While still en route back to Washington from his California home, Hoover sent the President-elect an urgent telegram. Our government is now confronted with a world problem of major importance to this nation," the wire stated tendentiously. The issue was a request by the British and French to postpone $125 million in war debt payments due December 15. Hoover’s telegram proposed a meeting with Roosevelt to draft a joint response.

Roosevelt’s camp treated the overture warily. Given that the $10 billion in loans America had made to the Allied powers had been an irritant in international relations for more than a decade, Hoover’s urgency seemed contrived. His proposal for joint action threatened to commit the incoming administration to the policies of the old and to entangle foreign affairs and domestic politics in a way that could only complicate the New Deal’s recovery plans.

Hoover’s wire caught Roosevelt at an inconvenient moment, bedridden with the flu and looking ahead to a rest in Warm Springs. Cautiously the President-elect agreed to drop in at the White House on his way south. But he specified that a solution to the Europeans’ request "rests upon those now vested with executive and legislative authority, in other words, Hoover. Hoover’s reaction was a sour one. I did not like the ring of this disavowal of any responsibility," he recollected.

The meeting that followed on November 22 did little to reduce each side’s disdain for the other. Hoover, who was waiting in the Red Room of the White House with Treasury Secretary Ogden Mills, expected the President-elect to be accompanied by a Democratic second of suitable dignity and experience, such as the venerable Senator Carter Glass of Virginia. Instead Roosevelt showed up with Ray Moley, who was struck by the bristling formality of the occasion and Hoover’s habit of fixing his gaze upon the United States seal woven into the crimson rug, rather than on his successor.

Yet Moley was also spellbound by Hoover’s mastery of the complex debt issue. Hoover held the floor for nearly an hour, laying out the history entwining the financial interests of Britain, France, Germany, and the United States in laborious detail without consulting a single scrap of notepaper. On this subject, Moley conceded, we were in the presence of the best-informed man in the world. Roosevelt remained silent except to interject an occasional question from note cards prepared in advance.

The meeting adjourned in mutual disagreement, with all possibility of a joint communiqué dashed. Hoover conceived a lower regard for his successor than ever. As Secretary of State Stimson recorded in his diary, Hoover complained that he and Mills "had spent most of their time in educating a very ignorant, and as he expressed it, a well-meaning young man." Despite Hoover’s attempt to communicate a sense of emergency to FDR, the war debt issue would remain unresolved until 1940, when it became wrapped up in the lend-lease arrangements associated with a new European war.

Hoover’s second effort to inveigle Roosevelt into endorsing his own policies also began inopportunely. On February 18, Roosevelt was enjoying the Inner Circle banquet of New York’s City Hall newspapermen. This was an annual affair at which the press corps gently tweaked by song and skit New York’s mayor and governor, who were invariably in attendance. Shortly before midnight a Secret Service agent placed a buff-colored envelope in the President-elect’s hands. Roosevelt inconspicuously scanned its contents, and without changing expression passed it under the table to Moley. The aide was surprised to find himself holding a handwritten letter from Hoover—evidently scribbled hastily, for it was addressed to President Elect Roosvelt.

It opened, "My Dear Mr. PresidentElect: A most critical situation has arisen in the country of which I feel it is my duty to advise you confidentially. What followed was an oddly circuitous text referencing the state of the public mind . . . a steadily degenerating confidence in the future which has reached the height of general alarm, but alluding only tangentially to the crisis at hand. As song and raillery went on around him, Moley managed to divine the letter’s terrible import, which was that the American banking system was on the brink of collapse. The breaking point had come," he concluded.

The condition of the banks had never been far from the minds of policy makers since the crash of 1929, but it had ebbed and flowed. The crisis had peaked in 1931, when 2,298 banks failed. But it moderated in January 1932 when Congress, at Hoover’s urging, established the Reconstruction Finance Corporation as the clearinghouse for more than $3 billion in government capital assistance.

To use Jones’s imagery, the RFC was constantly putting out fires. A major flare-up in June 1932, the near failure of the Central Republic Bank of Chicago because of its heavy exposure to the collapsed utility empire of Samuel Insull, had to be doused with an emergency RFC loan of $90 million. The loan was negotiated over the weekend of June 25 as delegates swarmed into Chicago for the Democratic convention, which would shortly nominate Franklin Roosevelt. Jones, himself a delegate, shuttled between the convention hotel and the bank’s headquarters, each time making his way through throngs of "frantic, rumor-spreading depositors . . . milling about every bank entrance in La Salle, Clark, and Dearborn Streets."

The loan saved the bank, but at the price of political controversy, for the institution’s chairman was Charles Dawes, a former Republican vice president and, until ten days earlier, the RFC chairman. By introducing the odor of favoritism into the agency’s work, the Dawes rescue prompted Democrats in Congress to demand that the recipients of all RFC loans be made public. Bankers and policy makers considered this a lethal misjudgment, for it would undermine public confidence even in banks that had been saved and would discourage weakened banks from seeking timely help in the future.

But the fundamental causes of the renewed runs on banks across the country in the winter of 1933 were continued high unemployment and foreclosures on homeowners and farmers. Nowhere was the crisis as acute as in Detroit, the hub of industrial America. Its residential neighborhoods and commercial streets had been abandoned by tens of thousands of furloughed autoworkers, leaving behind derelict homes and patronless shops. Two giant holding companies controlled almost all Detroit’s banks—the Union Guardian Group, in which the Ford family was a major investor, and the Detroit Bankers Company. Both were relentlessly hammered by runs draining as much as $3 million a week from their vaults. In mid-January the board of the Union Guardian, which had received $15 million from the RFC in July, bluntly informed federal bank examiners that without another loan of $50 million the group would collapse.

An examination of its books revealed an institution in worse trouble than anyone suspected. Exactly how much worse was a matter of great confusion in Washington and Detroit, because there was no agreement on the value of the stock certificates and other assets owned by the group. Should they be steeply marked down to panic levels, as the Federal Reserve advocated? Or priced liberally on the expectation "that normal times would come again," as the Treasury Department maintained? The answer was elusive, but it soon became clear that even under the most generous evaluation, the RFC could not justify contributing more than $37 million.

Hoover assigned Treasury Undersecretary Arthur Ballantine and Commerce Secretary Roy D. Chapin to appeal to Henry Ford to rescue his family’s banking group. Their proposal was for Ford to subordinate his company’s $7.5 million in deposits at Guardian, in effect converting the deposits into an open-ended loan to the group. But when they entered Ford’s office on February 13—the Monday of a long Lincoln’s Birthday holiday—the mogul crisply rejected the plan. As Henry’s son Edsel later informed Congress, his father was "quite incensed" at the idea that, after he had contributed more than $10 million over the previous three years to prop up the banks, he should be asked now to do more. (In truth, over the years the Fords and other investors had been paid millions of dollars in dividends by the holding company even while the subsidiary banks were losing money.) Ford bewildered Ballantine and Chapin with a long harangue to the effect that the request to help the bank was a plot against him, cooked up by unidentified enemies.

Informed that his refusal to help would mean the failure of Guardian Trust and rattle all the other major banks in Michigan, Ford replied that, if so, on the very next morning he would withdraw the $25 million his company had on deposit at the First National Bank of Detroit. A startled Ballantine told him that would mean the closing of every bank in the state of Michigan. The resources of millions of Michigan families hung in the balance.

"All right then, let us have it that way, Ford replied. A thoroughgoing disaster would have a cleansing effect, putting people back to work a little sooner. Let the crash come. Everything will go down the chute. But I feel young. I can build up again."

Ford’s rebuff provoked a final round of frenetic activity in Washington. In the hope of turning over a trump card, Hoover induced Senator James Couzens of Michigan to telephone Ford.

The overture was doomed to fail. Couzens had been a partner in the founding of Ford Motor Company in 1903, and had launched many of the company’s most successful operational initiatives. Chief among these was the five-dollar daily wage for assembly line workers, which he implemented over Ford’s vehement objections, and which more than paid for itself by virtually eliminating labor turnover and creating a new class of potential consumers. But the partners’ relationship, never a warm one, was shattered over Ford’s opposition to America’s entry into the Great War. Couzens moved into politics. In 1919 he sold Henry Ford his stake in the company, for which he had paid $2,500, for $28 million.

Couzens was not a supporter of an RFC rescue of the Guardian Group—indeed, he had threatened to "denounce from the housetops any effort to commit the RFC to a loan on insufficient collateral. Ford, as it happened, agreed with Couzens on this one issue. After being told of his former partner’s opposition to a government bailout of any banks but those certifiably strong and sound, he remarked, For once in his life, Jim Couzens is right."

Couzens did believe, however, that Ford had a duty to save Guardian. He agreed to make one last attempt to make Ford see reason. At 8 P.M. Monday, he called his old partner from Jones’s office at the RFC. "Those two old roosters were scrupulously polite to each other but frigid," recalled Jones, who was listening on an extension. Yet Couzens, perhaps seized by a vision of his home state teetering on the brink of ruin, suddenly made a strikingly public-spirited overture, offering personally to put up half the collateral needed to back the RFC loan—$6.9 million in cash—if Ford would put up the other half. Ford turned him down.

From there things careened swiftly into the abyss. At 1 A.M., Michigan Governor William Comstock declared an eight-day bank holiday, shuttering 550 state and national banks, freezing $1.5 billion in deposits to businesses and families—including more than $42 million that Henry Ford had been prepared to withdraw from the First National and his own Guardian National Bank the moment those institutions opened their doors Tuesday morning. The moratorium merely deferred a solution to the crisis. If the banks were not saved, Chapin warned Couzens, we shall have a riotous Detroit and prostrate Michigan facing us.

Five days later, Hoover delivered his handwritten letter to Franklin Roosevelt, warning that the nationwide banking system was on the brink.

Had Hoover intended his approach to be spurned, he could not have done a better job of it. His letter dripped with condescension—and not by inadvertence: Hoover would later acknowledge that he had made it "unduly long because he feared from the lack of understanding of such questions which [Roosevelt] had displayed in our earlier interviews . . . that he did not fully grasp the situation."

But it was Hoover who did not fully grasp the situation, and had not for more than a year. Convinced that the banks would eventually right themselves, he had opposed the enactment of strong regulatory and remedial measures throughout 1932. Although he portrayed himself during the campaign and in his memoirs as a strong advocate of banking reform, the evidence is otherwise: a reform bill sponsored by Senator Carter Glass of Virginia foundered in Congress on the ill-concealed hostility of the White House, recounted one of Glass’s advisors, the Columbia University banking expert H. Parker Willis.

Hoover’s letter to Roosevelt blamed the conflagration in the banking sector, indeed the continued economic slump in general, on derelictions by the Democratic Congress and on the President-elect’s failure to steady the nation’s nerves. His proposed remedy was Hooverite to the core: Roosevelt should make a series of reassuring statements. Specifically he should disavow any intention to pursue an inflationary policy (meaning that he should commit to keeping the United States on the gold standard), promise to balance the budget even if further taxation is necessary, and press congressional leaders to end the publicizing of RFC loans. Otherwise, Hoover warned, the fire will spread.

As Hoover informed Republican Senator David A. Reed of Pennsylvania a few days after writing Roosevelt: "I realize that if these declarations be made by the President-elect, he will have ratified the whole major program of the Republican Administration; that is, it means abandonment of 90% of the so-called new deal. But unless this is done, they run a grave danger of precipitating a complete financial debacle. . . . [T]hey have had ample warning—unless, of course, such a debacle is part of the ‘new deal.’"

Only someone who thought Roosevelt a gullible pushover could have expected him to take these recommendations seriously. Some of them involved policies that Hoover had failed to implement even in the full bloom of his own presidential authority; far from upholding the principle of a balanced budget, for example, Hoover in his last two full years in office had presided over a combined deficit exceeding $3 billion.

As for his plea that Roosevelt disavow inflation, the President-elect’s refusal to do so already had cost him his first choice for Treasury secretary, Carter Glass, who had insisted on an anti-inflationary Treasury policy as a condition to accepting the post. Some Roosevelt advisors believed that Hoover’s anti-inflation stance, especially his staunch defense of the gold standard, had exacerbated the Depression in the United States, as it placed the country at a disadvantage compared to Great Britain and other European states that abandoned gold earlier. Roosevelt was disinclined to commit himself to the same error. He failed to respond to Hoover’s letter for twelve days. Whether the reason was pique, strategic calculation, or oversight has never been established. But it surely signaled that the new president could not be intimidated by the old.

Meanwhile, the Detroit virus spread across the country. Cleveland’s banks were tottering within days; in Ohio, the only thriving trade seemed to be the one in passbooks for accounts at banks that had restricted withdrawals, put up for sale by account holders desperate for ready cash: one could buy a passbook for an account at, say, Home Savings & Loan of Youngstown for 50 cents on the dollar and use it to pay off a loan at the same bank at full value—thus achieving a 50 percent discount. Local newspapers listed the going rates for each bank’s accounts next to their stock market quotes.

Gold and currency were draining out of bank vaults by hundreds of millions of dollars a week. At the end of February, money in circulation—a measure of hoarding—reached a record $6.03 billion, a figure that literally ran off the Federal Reserve chart, which stopped at $6 billion. The record was destined to be shattered in each of the next three weeks.

The American people were in the throes of agony. The steel and textile industries were at a virtual standstill. Construction contracts were disappearing. The output of coal plummeted, despite the grip of winter. The nation’s most august business leaders trooped before a Senate investigating committee to acknowledge that they had no immediate answer to the crisis or, worse, to mouth tattered old nostrums. "Balance budgets, advised the investment sage Bernard Baruch. Sacrifice for frugality and revenue. Cut governmental spending—cut it as rations are cut in a siege. Tax—tax everybody for everything. But take hungry men off the world’s pavements and let people smile again."

Civil unrest stirred in the farm belt. Bankers appeared at farm foreclosure sales at their peril: In Bowling Green, Ohio, the auction of implements owned by a bankrupt farmer ended when the crowd marched a finance company representative out of sight to certain lynching. (He was rescued by the sheriff.) At a foreclosure auction in Perry, Iowa, 1,500 neighbors showed up in such intimidating humor that the holder of the $2,500 note collected only $45.05. John Andrew Simpson, president of the National Farmers Union, informed the Senate Committee on Agriculture, "The biggest and finest crop of revolutions you ever saw is sprouting all over this country right now."

Signs of an era staggering to its anxious end were everywhere. Six days before the inauguration the Spanish ambassador threw a farewell dinner for Treasury Secretary Mills—"a dinner of the Old World as I fear we will never see it again, recollected an American diplomat. The flowers . . . came from the South. The sole was sent down from New York and the wines were all of rare vintages. . . . The whole table was ablaze with jewels." Yet the guest of honor was unable to enjoy the festivities; scarcely would Mills take his seat before he would be called to the telephone. Scarcely would a forkful of fish reach his mouth before he would be called out again. Withdrawals of gold from the banks, he was being told, were accelerating.

Members of the old order were arranging, with a weary air, to vacate their seats to make room for the new. Herbert Feis, an economic advisor to the State Department, received from a colleague a farewell message redolent of exhaustion. "There is a general sense of demoralization and decay in the old crew, it read. I am restless to have it over and give my seat to a stranger."

Hoover continued to wait for Roosevelt’s reply to his letter, complaining of his impotence in the face of his successor’s silence. Yet Roosevelt had communicated his position repeatedly to Hoover and the press: the sitting president must act on his own authority right up to March 4, Inauguration Day. Nevertheless, behind-the-scenes contact between the incoming and outgoing administrations was proceeding, even intensifying. On February 21, Roosevelt had named industrialist William H. Woodin as his Treasury secretary. Woodin had promptly gotten in touch with Mills and George Harrison, governor of the Federal Reserve Bank of New York. They brought him up to speed on the quickening crisis. Assisted by Moley, Woodin plunged into work in cooperation with the men of the old regime to find a way out of the emergency.

On March 1, Roosevelt finally delivered a response to Hoover’s letter of twelve days before. Hoover could not have been heartened by its casual, even fatalistic, tone. Accompanied by a cover letter blaming its delay on a secretary’s error (an explanation Hoover considered transparently insincere), the message rejected Hoover’s proposal to extinguish the spreading fire with talk. The situation, Roosevelt wrote, is so very deep-seated that the fire is bound to spread in spite of anything that is done by way of mere statements.

During the last three days of the Hoover era the atmosphere of calamity rose sharply. A new gold rush was taking place. On March 3 alone, the Federal Reserve Bank of New York lost $200 million in gold and $150 million in currency through wire transfers and exports. The very ground seemed to shake from the impact of banks crumbling to their foundations. Thirty-two states had closed at least some of their banks. The governors of the last two large holdout states, Illinois and New York, were poised to do the same. The nation seemed to be approaching a grand climacteric that would culminate on Inauguration Day either with release, or annihilation.

Hoover made one more attempt to puncture Roosevelt’s serene detachment. The occasion was a ceremonial Friday afternoon tea at the White House for the Roosevelts. Before their arrival, Hoover summoned Mills and Eugene Meyer, the governor of the Federal Reserve, and stowed them quietly in an anteroom, ready to spring them on the President-elect once the social formalities were dispensed with. He was sabotaged by Ike Hoover, the White House chief usher, who revealed the ploy to Roosevelt in a whisper. Roosevelt immediately sent for Moley, who was at his hotel trying to steal a catnap from his twin chores of drafting the inauguration address and managing the bank crisis with Woodin.

Moley arrived in time to join a last desultory discussion of emergency options. Meyer pressed for a nationwide closing of the banks; Hoover sought Roosevelt’s assurance that he would endorse such a proclamation; Roosevelt again insisted that Hoover had sufficient authority to take action on his own. The meeting ended with a petty incivility by Hoover: understanding that protocol dictated that Hoover return the social call, Roosevelt remarked, "I realize, Mr. President, that you are extremely busy so I will understand completely if you do not return the call. Hoover fixed him in the eye for the first time that afternoon and replied, Mr. Roosevelt, when you are in Washington as long as I have been, you will learn that the President of the United States calls on nobody."

As the clock ticked toward Inauguration Day, discussions continued in both camps. Shortly before midnight Meyer called Hoover to plead that he declare a bank holiday starting the next morning, when he feared the bank runs would be overwhelming. Hoover petulantly refused, renewing his complaint about Roosevelt’s resistance.

"You are the only one with the power to act, Meyer told him. We are fiddling while Rome burns."

I can keep on fiddling, Hoover replied. I have been fiddled at enough and I can do some fiddling myself.

At the Mayflower Hotel, the new administration’s temporary headquarters, Roosevelt remained in conference with Moley, Woodin, Glass, Jesse Jones, and other Democratic leaders. Moley left Roosevelt’s suite after 1 A.M., heading for his own room. When he stepped off the elevator he ran into Woodin.

I couldn’t even get to the stage of undressing, Woodin told him with an embarrassed grin. This thing is bad. Will you come over to the Treasury with me? We’ll see if we can give those fellows a hand.

In Mills’s office they found the secretary in conference with Ballantine, Meyer, and other officials, all red-eyed and haggard. While Roosevelt and Hoover slept that night, separated by a gulf of politics and personal antipathy, their underlings labored as a team. "Everyone forgot political differences, Moley recalled. Our concern was to save the banking system." The immediate task was to complete the process of shutting down the banking system by getting the last few governors to close their state banks. This was achieved after an exhausted Moley had fallen asleep. At 3 A.M. he was jostled awake by Woodin. Silence had fallen upon the room. Scattered about on chairs and sofas were the nation’s preeminent banking and financial regulators, all nearly catatonic with exhaustion.

It’s all right now, Woodin said. Everything is closed. Let’s go.

Inauguration Day would dawn cold and damp. In ten hours, Franklin Roosevelt would take the oath of office, assuming full presidential authority at last over the greatest nation on earth, at that moment a stupefied giant standing face-to-face with insolvency.

PART ONE

THE HUNDRED DAYS

1

ACTION NOW

FRANKLIN ROOSEVELT BEGAN Inauguration Day at a 10 A.M. religious service with his family, his cabinet appointees, secretaries, aides, and a few close friends. The location was St. John’s Episcopal Church, across Lafayette Park from the White House, chosen because it had no steps to complicate the wheelchair-bound President-elect’s entry from the street. Inside, the Reverend Endicott Peabody, rector of Groton, FDR’s old school, read from the Protestant Book of Common Prayer and beseeched the Almighty to favor and bless "Thy servant, Franklin, chosen to be President of the United States."

The official party dispersed as soon as the service ended, Roosevelt to the White House for the start of the ritual procession toward the 1 P.M. oath-taking in front of the U.S. Capitol. The wisest among the other attendees had hired cars for the day and promptly drove off. Frances Perkins, the new secretary of labor, found herself standing forlorn on the sidewalk with her daughter, Susanna, and a couple she recognized as Mr. and Mrs. Henry A. Wallace. They introduced themselves to each other, joined forces to hail a passing cab, and tried to figure out how to reach the Capitol entrance reserved for dignitaries.

The members of the new administration drew what encouragement or counsel they could from the faces of the crowds lining the ceremonial routes and assembling before the Capitol. Tugwell remarked on the public’s apparent determination to squeeze just a little enjoyment from the festive inaugural parade, "squads and squadrons of marching clubs, fraternal drill teams, silk-hatted and frock-coated Tammany braves, military detachments and uniformed bands, all in such contrast to the morning’s solemnity." Perhaps FDR’s decision to proceed with the celebration despite the hard times was the right move after all.

Perkins, who had finally reached her spot on the platform by elbowing her way through the crowds behind Wallace in shoes soaking wet from tramping across the sodden Capitol lawn, could not help being moved by "the terror-stricken look on the faces of the people, many of whom were hearing for the first time the bleak rumors that the last of the banks had closed that morning. An enormous crowd had come for the inauguration, but they looked frightened, worried, depressed. It was not the kind of gay Democrats that you saw later on. They were just worried to death."

Roosevelt made his way from the White House to the Capitol seated next to Herbert Hoover in an open car. Along the teeming processional route he tried to make conversation with the grim visage to his right, but could elicit no more than the occasional grunt. As he related the tale later to his secretary Grace Tully, he finally decided that the cheering of the throng warranted a more suitable acknowledgment than Hoover’s dour scowl. "So I began to wave my own response with my top hat and I kept waving it until I got to the inauguration stand and was sworn in."

After taking the oath of office from Chief Justice Charles Evans Hughes, Roosevelt prepared to deliver his inaugural speech. Hoover did not wait to hear it; at the completion of the oath-taking, the ex-president ceremoniously shook his successor’s hand, left the platform, and, trailed by two or three of his cabinet members, continued walking until he reached his car and settled in, at which point it promptly drove off.

President Hoover, Mr. Chief Justice, my friends, the new president began, then uttered a phrase he had scribbled at the top of his draft just before coming out from the Capitol building to the inaugural stand: This is a day of national consecration. The addition was so belated that the phrase did not make it into the official text of the speech.

He continued: First of all let me assert my firm belief that the only thing we have to fear is fear itself . . . nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.

Roosevelt’s flawless delivery, his pausing for dramatic effect before the words fear itself, invested the phrase with his own confidence and assurance. His critics would later assert that in doing so, Roosevelt was himself taking Hoover’s approach to the Depression, reassuring the people that the worst would be over in due course. Yet that is to ignore the context. Hoover’s repeated reassurances served a policy of complacency and limited federal action, even inaction; Roosevelt’s words heralded action, and action now, a pledge of direct government employment of the jobless and the construction of projects to exploit national resources, of definite efforts to raise the value of farm products, of the prevention of home and farm foreclosures, of the broadening and coordination of relief.

The rest of the speech was a model of concise presidential oratory, not quite 1,900 words requiring not quite twenty minutes to deliver. The text outlined the principles of the coming administration and some of its legislative goals, albeit shrouding them in inspirational flourishes and, here and there, veiled censuring of the departing leadership.

In the most assertive (and to many listeners unnerving) moment of the speech, the new president vowed, if the national emergency is still critical, to not shrink from asking Congress for the one remaining instrument to meet the crisis . . . broad executive power to wage a war against the emergency as great as the power that would be given to me if we were in fact invaded by a foreign foe. Roosevelt’s admirers and detractors alike would long debate whether those words were a promise or a threat, and in either case whether or when he might deliver on them.

Those rhetorical bookends, the release from fear at the speech’s opening and the promise of unstinting effort in its peroration, often obscure other elements of the inaugural address that proclaimed a new era in American politics and policy.

One was the recognition that the economic crisis was the creation of men—the unscrupulous money changers—not an artifact of nature. The rulers of the exchange of mankind’s goods, Roosevelt stated, have failed through their own stubbornness and their own incompetence, have admitted their failures and abdicated. . . . The money changers have fled their high seats in the temple of our civilization.

This insight underpinned Roosevelt’s conception of government power as a force to be utilized aggressively. The new administration would not wait passively for recovery, as had the tribunes of false leadership, [who] have resorted to exhortations, pleading tearfully for restored conditions. The New Deal would act,