Forgotten Man, The (37 page)

And as 1936 unfolded, they could see that Roosevelt was doing more for them than any president had done for the country in history. Washington continued to spend: as a share of the economy, the government was expanding to 9 percent from the 6 percent that had obtained when the New Dealers first rode with Roosevelt down to Washington. For the first year in peacetime America, federal spending would outpace that of the states and the localities. The spending
was so dramatic that, finally, it functioned as Keynes and Waddill Catchings had hoped it would. Within a year unemployment would drop from 22 percent to 14 percent. Fourteen percent was still higher than the level that had been the peak in the early 1920s, but the Roosevelt team made the case that it was the rate and direction of change that mattered. The first campaign of 1932 had promised the repeal of Prohibition. This time there was the promise of Ickes’s giant projects, not alcohol. But the effect was the same: like whiskey going down after so many years of tea.

The Republicans and the Liberty Leaguers could not compete with Roosevelt’s new philosophy; to do so would be against
their
philosophy. The fact that they were trapped drove them crazy. In their rage they simply shrieked louder: “Let Tugwell get one of the raccoon coats that the college boys wear at a football game and let him go to Russia, sit on a cake of ice and plan all he wants,” Smith would yell.

But there was another reason the critics’ arguments were not penetrating, one that also addressed William Green’s point. It was that the New Dealers’ economic failures were working to their own political advantage. The country was now entering its seventh year of depression. The sense of futility was stronger than it had been in the early 1930s. Roosevelt’s talk had had an aspect of self-fulfilling prophecy: because the first New Deal had not succeeded, many in the country believed that the United States was actually becoming the society of social classes that Roosevelt now described in his speeches. And they responded accordingly.

Whereas in the old America of the 1920s the sight of so many jobless men had provoked shock and alarm, now people accepted it, telling themselves that at least things were better than before. The same held for stock traders, who had stopped measuring success against the marker of 1929. People told themselves that the fact that the stock average was moving upward was the best they could hope for, even though it remained so far from the 1929 high. Recovery was supplanting prosperity as the goal.

Many Americans had recently seen a new film called
Alice Adams,
starring Katharine Hepburn. In the film, a girl from fine but simple people—Hepburn—is reduced to unseemly social striving in order to make it in a world where the gap between the higher-ups and the rest seems to widen. Meanwhile her family turns to questionable behavior—the appropriation of a company-developed glue recipe, and borrowing without asking from the till at work. In the end Alice prevails as the wealthy members of her town, led by her beau, recognize the error of their own ways. The employer of Alice’s father shares the wealth—Huey Long sprang to mind—by making Alice’s father more of a partner and less a wage slave.

The Republicans, comprehending at least some of their own failures, were seriously considering as presidential candidate a governor from the middle of the country—Alf Landon of Kansas—to help them reconnect with citizens. But even as they planned, they doubted whether Landon was a match for the incumbent.

MEANWHILE, THE ADMINISTRATION CONTINUED
to craft the recovery story line. That winter Roy Stryker, Tugwell’s staffer, sent his photographer Dorothea Lange on her first RA assignment, to photograph the before-and-after experiences of families at a federal camp in Marysville, California. The camp manager at Marysville was Tom Collins, upon whom John Steinbeck would later model the camp manager in
The Grapes of Wrath.
Lange was now on Stryker’s staff at a salary of $2,300 a year, and had a title: “photographer-investigator.” Around the new year Stryker approved expenses of $600 for a trip in California, New Mexico, and Arizona. Through Stryker, Tugwell asked specifically that there be pictures of farm labor.

At the TVA, Lilienthal raced against time, building up his projects. The water behind the Norris Dam was rising. There was some trouble at the TVA. A family in the Norris basin—James Randolph, his wife, and seven children—was refusing to leave. Even as the waters touched the foundations of their house, the Randolphs would not move. “TVA Evicts Family As Waters Lap Cabin,” the
New York
Times
headline read. The evictors collected sixty chickens, one pig, and other animals and moved them to Jacksboro. But Lilienthal was already moving past the bad news, planning to announce in February that the TVA was now at work on a total of five dams.

Roosevelt was negotiating larger stumbling blocks than the hapless Randolphs. In January, the Supreme Court invalidated the Agricultural Adjustment Act, the NRA’s twin. The excesses were the same ones again, involving the Commerce Clause and delegation. The AAA levied its processing tax nationally. In this instance, the receivers of a bankrupt Massachusetts cotton-processing company in Hoosac Mills argued that the AAA had no authority to levy the tax in the first place since it used the money for the sort of regulation that only states might impose. Agriculture was still a local activity. Stanley Reed, the lawyer for the government—the same one who had argued
Schechter
—became ill and had to stop his argument and sit down.

This time, there was no horse-and-buggy explosion. The administration merely focused on dealing with the new challenge. Morgenthau alerted the president to the immediate problem that the Court’s act caused: an enormous shortfall in tax revenues. The year before, the government had had $3.7 billion in receipts; losing the AAA’s processing tax revenue meant losing $500 million, some one-seventh of the money. Though the president had just promised three days earlier that there would be no new taxes, now he had to consider reversing himself. Congress made the budget challenge harder by overriding the president’s veto of cash for the Bonus Army veterans, at a cost of an additional $2 billion, or something like half of the prior year’s revenues.

Morgenthau and his aides began an intense review of the tax problem. The revenues from business were disappointing, in part because corporations were not earning as much as they had, and in part because the companies were not distributing their cash in taxable dividends. Morgenthau and his advisers therefore came up with a novel plan to choke the money out of companies: an undistributed profits tax. If they could squeeze hard enough, the Treasury men posited, the companies would issue dividends or otherwise spend. This in turn would put cash in the hands of the consumer-voter in an
election year—exactly what Keynes and Eccles were telling the administration was important. Eccles was especially vehement—cash in hand for the visible consumer was important. Morgenthau estimated that about $4.5 billion in profits would not be distributed for 1936. He would write a law that would get at that money. Some of his advisers liked the idea because, in addition, it especially punished big companies, performing an antitrust function, something to please Brandeis. Morgenthau brought the whole concept to Roosevelt, arguing that the undistributed profits tax ought to replace the corporate income tax.

At the White House and in Congress, Roosevelt’s advisers worked on the plan. For a business earning $10,000 a year, the tax on savings in the plan was 42 percent. For those with higher incomes it could be as much as 74 percent. But that was not all. The president was also talking about using the income tax in a new way—not just as a tax for revenue, but also as a means of social reform.

Mellon, the old tax hand, did not want to watch. Though robbing the corporate nest sounded amusing, to take the cash away was like taking the egg away from the bird, the offspring that was the insurance for future growth. But he was a private citizen now. So he worked harder on a new project, a more formal home for his own egg warmer, the idea incubator at the Mellon Institute. The institute had been a roaring success, producing research permitting sponsors to take out many hundreds of patents. In 1936, companies would give $816,000 to create sixty-nine fellowships. The final structure, costing $6 million and trimmed in aluminum, of course, would not be ready until the following year.

In February 1936, while everyone was still digesting the tax news, there came an important—albeit imperfect—victory for Roosevelt. In the
Ashwander
case, a 5–4 majority of Supreme Court justices—Brandeis, Stone, Cardozo, and Roberts dissented—found that the shareholders of Alabama Power had the right to their original suit against the TVA contract with Commonwealth and Southern. The court, however, also decided 8–1 that the TVA had the right to sell surplus electricity and operate in the marketplace. Whether the
TVA itself in all its grandeur was constitutional the Court did not directly take up. In his diary, Homer Cummings noted that stockbrokers listening to Justice Hughes read aloud the Ashwander opinion first thought the opinion was pro-private sector, and so bought utilities. Midway, still unclear, they stopped buying. Toward the end, they sold wildly.
Ashwander
helped the TVA, by buying it time and dimming prospects for future challenge.

McReynolds, the dissenter, found his fellow justices to be disingenuously narrow. He argued in the dissent that “we should consider the truth of the petitioners’ charge that, while pretending to act within their powers to improve navigation, the United States, through corporate agencies, are really seeking to accomplish what they have no right to undertake—the business of developing, distributing, and selling electric power.” The case was really about whether government could “destroy every public service corporation within the confines of the United States.” His vehemence may have come in part from the fact that McReynolds had lived and worked in Tennessee—he had attended Vanderbilt in Knoxville, at TVA headquarters.

“The tension of the last year is over and we can look ahead with fewer uncertainties!” exulted David Lilienthal, who had been listening to the news over radio and telephone. “For the last few weeks I have been on the point of calling Mr. Willkie and saying that however the case goes, we ought to plan on an early meeting after it to see what should be done. I am glad now that I didn’t do that.” Lilienthal noted in his diary that utility stocks had gone “up and up” recently, proving that “speculators are just as poor guessers as everyone else.”

In fact, of course, even after the recent rises, the Dow’s utility index was still breathtakingly low, at 32 or 33, less than one-third of its level in 1929. A whole sector of the economy, the one that had excited observers so much the previous decade, was being wiped out. Now Willkie and his industry understood that it might be a long time before it recovered. Within two days the National Resources Board sent Roosevelt a proposal to build another TVA in the Pacific
Northwest. Willkie pointed out that between its power subsidies to municipalities and its other plans, the TVA was going far beyond its original legal pretext. Some 300,000 investors had invested $650 million in utilities in the South, and what the TVA was really responsible for was eroding that $650 million. The TVA paid no taxes, he noted. Let it pay taxes like other power companies; that would be a fair yardstick. He began to prepare another lawsuit, to try again to test the constitutionality of the TVA. His time was running out; Norris Lake was filling with water; C & S was making a profit, and he was more impatient than before.

Others, aware that they were beginning to sound like a broken record, argued generally that the president and the administration would hurt the economy with such projects. Ray Moley deplored the idea of “reform through taxation” and charged that it would send businessmen into “paroxysms of fright.” At Chase, Benjamin Anderson was preparing a bulletin that tried to capture the longer-term economic damage that could result from Morgenthau’s undistributed profits tax. The idea that corporate surpluses were bad, Anderson would write later in the spring, was a sheer fallacy that came down from Marx to Catchings and Keynes. Whatever recoveries the market and the economy were making, both were still behind. How would the Henry Fords of the 1930s succeed if they were not permitted to plow their profits back into the business? That had been the key to Ford’s rapid growth several decades earlier.

But the administration, now eight months from the election and in full campaign mode, treated the pleas as so much background noise. Roosevelt himself, following Frankfurter’s advice, still did not touch the issue of the recalcitrant Supreme Court. His allies, however, were jumping into action. Drew Pearson and Robert Allen, Washington’s star syndicated columnists, were preparing a book about the Supreme Court. The title, chosen early, was
The Nine Old Men.
The new Supreme Court Building was a “mausoleum of justice.” The justice who often provided the swing vote, Roberts, was the “the biggest joke ever played upon the fighting liberals of the U.S. Senate,” the “foremost meat-axer of their cause.” The section
on Roberts was titled “The Philadelphia Lawyer”—a play on the old American pejorative referring to corrupt attorneys. Cardozo, the book reminded, was the son of a corrupt Tweed Ring judge who had to be forced off the bench. Harlan Stone, the man who had passed along the tax secret to Frances Perkins, was “Hoover’s Pal.”

Such swipes, however, did not compare to the authors’ attack on the Four Horsemen, as the anti–New Deal justices were known. The reference was simultaneously biblical and current, both to the Four Horsemen of the Apocalypse in the Revelation of John—war, famine, pestilence, and death—and to the members of the defense on Notre Dame’s football team. Butler, a Democrat, the authors sought to attack for his Catholicism: all his life Pierce Butler had “striven zealously to promote the power and glory of the Holy Roman Church and the power and profits of big business,” they wrote.