A Patriot's History of the United States: From Columbus's Great Discovery to the War on Terror (115 page)

Bolstering optimism was no small task. Roosevelt excelled at projecting a reassurance to the public, and, surprisingly to some, most Americans neither lost hope nor drifted into lethargy.
¹¹
Many of the groups hardest hit—the Okies and African Americans—remained hopeful and sanguine that despite the impediments, a better future lay ahead.

By far, the bank collapse was the most serious threat to the nation. Some 5,500 banks had closed in a three-year period, stimulated by the outflow of gold, which had undergirded the banking structure. Roosevelt immediately called Congress into special session and requested broad executive powers. Even before the session was convened, FDR announced on March 5, 1933, a national bank holiday in which all state and national banks would be closed and then examined. After the examiners found that the banks were solvent, they would be allowed to reopen. Banks that still might be in danger, but which were fundamentally strong, could reopen with government support. Weak banks would be closed. Congress, convening a few days later, approved the measures. The bank holiday, obviously, stopped the runs by closing the banks. In his first fireside chat radio address on March twelfth, Roosevelt reassured the nation that the government had stepped in to protect the banks, and when banks began reopening on the thirteenth, deposits returned, leaving Raymond Moley to pontificate, “Capitalism was saved in eight days.”
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While not publicly tied to the bank holiday, Roosevelt’s most important single act in saving the banking system occurred when he took the United States off the gold standard in April 1933, ending the requirement that all U.S. dollars be converted into gold upon request. Other countries not on the gold standard could convert dollars to gold, but the United States could not convert francs or pound sterling notes to gold. Foreign notes flowed in, then were converted to gold, which flowed out. That destabilized the banks in the most fundamental sense by kicking out from under them the gold reserve that propped them up. By protecting the gold reserves, FDR ended the drain, and quietly and immediately restored viability to the financial structure. All along, the banking/gold destabilization had been a response to government manipulation of market forces in which Europeans sought to gain an advantage by going off gold. If all nations had remained on gold, the market would have gradually reestablished stability; or if none remained on gold the same result would have been achieved. America’s bank destabilization occurred in part because
only
the United States continued to honor gold contracts, which was akin to being the only bank in town to remain open during a run, whereupon sooner or later it, too, would run out of money. This single positive action by FDR is widely overlooked.
¹³

Over the Hundred Days, FDR unleashed a torrent of presidential initiatives focused mainly on raising wages or providing jobs. Congress turned out the legislation, creating what was referred to as the “alphabet soup” agencies because of the abbreviations of the host of new offices and acts. The Civilian Conservation Corps (CCC) and the Public Works Administration (PWA) both promised to put people (mostly young men) to work in government-paid make-work jobs. The CCC paid boys from the cities to work in the forests planting trees, cutting firebreaks, and in general doing something that would justify the government paying them. Two million jobs were created, and it made great press. As supporters said, Roosevelt sent “boys into the forests to get us out of the woods.”

Two Roosevelt Brain Trusters, Harry Hopkins and Harold Ickes, battled for control of the piles of new public monies. Ickes, who headed the PWA, insisted that the jobs involve meaningful work and that they pay a wage that would allow the employees to purchase goods, stimulating consumption. The PWA, therefore, tended toward large-scale public works such as new school buildings, hospitals, city halls, sewage plants, and courthouses. Many of these might have constituted worthwhile additions to the infrastructure under normal circumstances, and perhaps a few genuinely fell in the domain of the public sector. But the necessary tradeoff of taxes for public works was missing. At the same time, schools were closing at a record pace because of the inability of local districts to pay teachers and buy books; and pouring money into courthouses and city halls rekindled memories of the Tweed Ring’s abuses. Indeed, had every dollar dumped into public facilities (for which there still existed no funding for the people to
operate
the facilities) remained in private hands, the private sector would have rebounded in a more healthy, but far less flamboyant, way. And grandiose these projects were: the PWA constructed the Lincoln Tunnel, the Triborough Bridge, and linked Florida’s mainland with Key West. PWA money also paid for construction of the navy’s aircraft carriers
Yorktown
and
Enterprise.

On the surface, large-scale projects brought some measure of hope and demonstrated that the government was
doing
something—that America was building again. And, no question, the projects were impressive. Yet what could not be seen was that the capital for these projects came from the private sector, where it would have generated a similar amount of economic activity, but activity that was demanded by the market.

But the job not seen is a vote not won, and therefore public activities had to be…well,
public.
Harry Hopkins’s Works Progress Administration (WPA), which had come out of the Emergency Relief Appropriation Act (1935), extended some of the initiatives of the Civil Works Administration begun a year earlier that had given jobs to some 4 million people. The WPA came about even as Roosevelt warned Congress that welfare was “a narcotic, a subtle destroyer of the human spirit.” Yet the WPA generated jobs of far more dubious value than the PWA.
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There is no question that the WPA (which critics label We Piddle Around) produced benefits in the public sector. By 1940, the WPA could claim a half million miles of roads, 100,000 bridges and public buildings, 18,000 miles of storm drains and sewers, 200 airfields, and other worthwhile projects. It also generated a certain temporary measure of self-respect: unemployed men could look their children in their faces as breadwinners. In an era in which most people took any work seriously, and infused it with pride, even make-work programs had some virtue. But it also built opera houses, hired writers to design travel guides, and paid for traveling circuses.
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Over the long haul, however, government’s attempt to endow work with true market value proved as futile for Roosevelt’s New Dealers as for Robert Owens’s utopians in New Harmony or the Brook Farm communalists. The inescapable conclusion was that if a task was valuable, someone in the private sector would have paid to have it done, or, at least, citizens would have imposed taxes on themselves to pay for it in the first place. If Roosevelt’s New Dealers thought that they could shift the tax burden for all these projects onto the wealthy, they were wrong. As always, the rich could hide much of their income from taxation. What the Brain Trusters did not take into account was the depressing drain on the overall economy by the disincentives to invest and make profits. Virtually all private investment stopped as industry felt punished.

Another act, designed to work in conjunction with employment measures, the National Industrial Recovery Act (NIRA) of 1933, was directed by the National Recovery Administration (NRA) under the hand of Hugh Johnson. A man given to a robust vocabulary of profanity, Johnson had been a lawyer and businessman as well as a soldier, and was capable of using his dynamic genius and exceptional energy to design and administer large-scale military-style operations such as the NRA. Symbolized by a blue eagle—a bright military badge, to Johnson—the NRA authorized industrial and trade associations to establish production codes (based on a blanket code), set prices and wages, and otherwise collude. The NIRA completely reversed the TR–Taft antitrust legislation, suspending antitrust acts, and recognized (from the federal level) the rights of employees to organize unions and bargain collectively, effectively cementing organized labor as a permanent voting bloc for the Democratic Party.

It was unclear, however, how merely allowing corporations to become larger through nonmarket forces and to fix prices would restore vitality to the system. Eventually the collusive effects of the NIRA sparked intense opposition, especially from small employers, who referred to the Blue Eagle as a Soviet duck or a fascist pigeon, culminating with the Supreme Court’s declaring the act unconstitutional in 1935. But in the meantime, it did what most New Deal programs did: it spent money on a large scale. The NRA became so corrupt that Johnson himself persuaded the Senate to name a committee to investigate, headed by the famous attorney Clarence Darrow. The committee’s report, delivered in May 1934, called the NRA, among other things, “ghastly,” “preposterous,” “savage,” “wolfish,” “monopolistic,” and “invasive.”
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Labor and Leviathan

By that time, however, the Democratic Party realized that it had struck gold in the votes of the labor unions, which it courted even more intensively after 1934, when the midterm elections gave the Democrats an even larger majority. The new House had 322 Democrats to only 103 Republicans and fewer than a dozen third-and fourth-party representatives. The Democrats held more than a two-thirds majority in the Senate as well. It was the closest a single party had come to dominating the government since the Southern Democrats had walked out during secession. Traditional Democratic supporters, such as the unions, saw their opportunity to seize power on a more or less permanent basis, and even the split of the unions in 1935, when John L. Lewis left the older, more established American Federation of Labor, did not damage the Democrats’ support with organized labor. Lewis’s new union, the Congress of Industrial Organizations (CIO), drew together industrial unions like the United Mine Workers, the Ladies Garment Workers, and the Amalgamated Clothing Workers. In 1934, however, the unions overplayed their hand. A series of violent strikes, many of them initiated by radical elements, resulted in a wave of looting, burning, and general rioting in New York, Philadelphia, and Milwaukee. That was even before the textile workers began a strike of monstrous proportions, slamming shut factory gates in twenty states and setting off armed conflicts when police and troops battled strikers. Roosevelt conveniently was out of the country at the time, arriving home (with his characteristic good fortune) after the strike had ended.

If anything, labor unrest only encouraged the more radical elements of the Democratic Party to press for more extreme demands within their new majority. Many viewed the period after the 1934 elections as a chance to entrench programs that only a decade earlier might have seemed unattainable, locking their party into power for the foreseeable future.
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Harry Hopkins sensed the critical timing, declaring desperately, “We’ve got to get everything we want—a works program, social security, wages and hours, everything—now or never.”
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Securing the loyalty of the labor unions was crucial to establishing the Democrats permanently as the majority party; thus the new Congress passed the National Labor Relations Act, known for its author, Robert Wagner of New York, as the Wagner Act, which protected the right to organize unions and prohibited firing union activists. More important, perhaps, Congress established the National Labor Relations Board (NLRB) to bring management and labor together, at least in theory. In practical terms, however, management had to bargain in good faith, meaning that anytime the NLRB decided management was not acting in good faith, it could impose sanctions. The Wagner Act thus threw the entire weight of government behind the unions—a 180-degree turn from the government’s position in the late 1800s.

Similar prolabor legislation involved the Fair Labor Standards Act, which established a minimum wage. With the legislators’ focus on raising the wages of employees, especially male family heads, little attention was directed at the natural business reaction, which was to trim workforces. More than any other single policy, the minimum wage law cemented unemployment levels that were nearly twice those of 1929, ensuring that many Americans who wanted jobs could not accept any wage offered by industry, but could only work for the approved government wage. After the law, in order to pay minimum wage to a workforce that had previously consisted of ten employees, the employer now could only retain eight. The problem was that
no
set wage level creates wealth; it only reflects it.

Employment recovery represented the industrial side of job relief, whereas raising income in the agricultural sector was the aim of the Agricultural Adjustment Administration (AAA), which sought to drive up prices by restricting farm output. Aimed at addressing the central problem of agriculture in the 1920s—overproduction, which had resulted in lower prices—the AAA subsidized farmers
not
to produce, that is, to restrict production. In one summer southern farmers received funds to plow up 10 million acres of cotton, and midwestern farmers were paid to eliminate 9 million pounds of pork, all at a time when unemployed starving people stood in soup lines. Farm income indeed rose, but only because farmers took the government subsidies
and
kept their production levels up, occasionally double planting on the remaining acreage. Large corporate producers did well in the new system, receiving substantial government checks, with a large sugar company receiving more than $1 million not to produce sugar. But the farm programs worked in favor of the Democrats, adding to the Roosevelt coalition. Even after the Supreme Court declared the AAA unconstitutional, the administration shuffled the subsidies off to existing soil conservation programs, where in one form or another they remained until the 1990s, when Congress finally eliminated most of them.