Forgotten Man, The (45 page)

Another recent book shed some light on the reasoning of the average American:
Middletown in Transition,
a lengthy revisit by Robert and Helen Lynd, the pair of sociologists who had reported
on Muncie in the 1920s. Muncie, the Lynds reported now, had gone for FDR in 1936. But it had not changed its values as much as the New Dealers had expected it to. The town did not share the view of Robert Lynd about Stalin, he noted with appealing objectivity. It did not even seem to share Roosevelt’s inauguration view that the country had ceased admiring worldly success. “By and large Middletown believes,” the authors had written, “in being successful”—the Brooks Brothers shirt. In general, the town also believed that radicals wanted to “wreck American civilization.”

An editorial in a Muncie paper had spoken not of Moscow but of the revolution in Spain, equally large in the news. “There is one reason why a revolution of the kind now existent in Spain is improbable in the United States…Spain has no middle class.” But the United States still did. The paper also quoted Abraham Lincoln: “There is no permanent class of hired laborers amongst us. Twenty-five years ago I was a hired laborer.” An editorialist at a Muncie paper noted that Theodore Roosevelt had said, “To preach hatred of the rich man as such” was “to mislead and inflame to madness honest men.” The point was clear: the current divisions were not ones that Middletown wanted to see made permanent.

What the interviewers observed especially was that Muncie’s citizens were unhappy at receiving two opposing lessons from governments. The first might be labeled: “Saving—the Private Man’s Only Safeguard.” The second was “Spending—the Nation’s Hope.” The citizens had trouble squaring those two ideals, and the contradiction made them anxious. There was, what’s more, the “growing feeling of the insecurity of future investments due to national government policies. Stocks and bonds are now very uncertain.” But perhaps most telling of all the material that the Lynds had amassed was yet another editorial from the Muncie papers—one about “the forgotten man.” “Who is the forgotten man in Muncie?” asked the paper. “I know him as intimately as my own undershirt. He is the fellow that is trying to get along without public relief…. In the meantime the taxpayers go on supporting many that would not work if they had jobs.”

One of the people whom
Middletown in Transition
may have impressed was Irita, who shortly would serve on a committee of publishers in New York that selected two hundred books for the White House library. The books, as Van Doren would tell the press, would be chosen for their timeliness. A selection of the editors would be
Middletown in Transition.
Once again, the country was sending a general political signal, muffled but important, that it wanted change. And once again the people with their ears to the ground, ready to transmit the message—even one they did not like—were in New York.

Tugwell, for his part, was spending a restless summer. American Molasses wasn’t right for him: “There was no real place for me and no real work to do,” he would later write. Within a year he would move to a more appropriate job, creating low-income communities as chairman of the city planning commission. He was watching, with a bit of anxiety, the developments at all his RA communities. The social worker from Casa Grande Farms was getting ready to select families to live in its pastel-colored houses. Greenbelt, in Maryland, was due to open in September. But within a month, too, Henry Wallace would formally “liquidate”—that was the word the magazines used—the RA as an institution. With it would go a distressingly large share of the Tugwell legacy.

Tugwell may not have known it, but his life had now taken a turn like Herbert Hoover’s. Later he would write that he was, “after all these years, still bitter about the disappearance of the Resettlement Administration,” and that he still harbored “in spite of myself, a good deal of resentment.” The next decades would include rewarding moments—Tugwell was still the honest idealist he had always been. Taking his new family, he would serve as the last governor of Puerto Rico. But the years would also be spent writing articles, giving speeches, producing memoirs, nearly all to the same purpose. Like Hoover, Tugwell was trying to limit the damage that history would do to his reputation.

August 27, 1937
Unemployment: 13.5 percent
Dow Jones Industrial Average: 187

ON AN AUGUST EVENING
at his daughter’s at Southampton, Andrew Mellon died. The financier was eighty-two; his son-in-law David Bruce reported that a combination of bronchitis and other diseases had felled him. “My greatest impression of him was his innate modesty,” said Hoover. S. Parker Gilbert, Mellon’s former undersecretary of treasury, announced that Mellon’s death represented a national loss.

Wall Street already knew that. What it was asking itself was whether more loss was yet to come. The same day that it reported Mellon’s death, the
New York Times
carried a story on the consequences of the undistributed profits tax. Companies that had formerly sought to retain employees through downturns now no longer had the reserves to do so. They had likewise ceased to invest in new equipment, normally a traditional move in slow periods. The headline on the story was: “Levy on Profits Halts Expansion.” What would happen to the meager recovery? Stocks had begun dropping
in mid-August. Now they accelerated their decline. As if to underscore the news of Mellon’s death came the news of the death of Ogden Mills, the former treasury secretary who had become so angry at Roosevelt. Mills died on Monday, October 11, in his home at 2 East Sixty-ninth Street, just off Fifth Avenue. At Saint Thomas Church farther down the avenue, Theodore Roosevelt Jr., the president’s angry cousin, would serve as usher at the funeral. So would Herbert Hoover.

By the next Monday the worriers had their answer. Bond prices plummeted farther than they had on any single day in three years. Businesses and investors did not want to buy money anymore because they did not want to use it. Bonds can measure the market’s expectations of growth. Stock-exchange seats are another measure of expectations—the stronger the economy and the more profits to be made, the higher the worth of a seat. The same mid-October day came the report that a seat had been sold for the lowest price since 1919, $61,000. As for stock shares, they were down between $2 and $15, the greatest drop in six years. In recent times, before this panic, the market had been “thin”—relatively few shares had traded, at least when compared with pre-Depression days. This panic, though, was so broad and trading so furious that the ticker closed seventeen minutes late. The traders were finally awakening, just as everyone had hoped they would. But they were awakening only to run.

At first the country hoped that the problem would be Wall Street’s alone. After all, there was some good news in 1937: the cotton harvest was strong. Investors were sending cash to the United States. At Casa Grande, the Farm Security Administration had found what it believed to be the most crucial component to success, a competent-seeming manager. Robert Faul was himself a homesteader; “stout, raw-boned, farmer type,” as one of the planners summed up. Another official had written: “Very practical type; used to giving orders and not asking too many questions.” A letter in Faul’s file read: “He handled crews of 200 to 300 men and got a lot of cooperation from them.” Faul had also run the Arizona Turkey Growers’ Association. Under Faul, Casa Grande might show the
profits that improved productivity could yield. In the West Coast offices of the FSA, Faul became an emblem of agricultural comeback.

People busied trying to figure out the reasons for the downturn. Some of them were monetary. Inadvertently, Marriner Eccles’s Fed and Henry Morgenthau’s Treasury had replicated some of the conditions of the period of the crash. The new Fed law had created stricter reserve requirements for banks. Forced to keep more cash, banks cut back on loans. Then Fed officials had asked banks to increase reserves again. Gold had poured in for years, and Fed officials began to fear inflation. So again, they sterilized, offsetting gold inflows with restrictive actions. By the month of Mellon’s death, more than a billion dollars had thus been extinguished.

Then there were the other factors. The payments into the new program, Social Security, were also taking money out of circulation. The year before there had been a soldiers’ bonus, but that cash was not there this year. The Fed had increased requirements of member bank reserves, taking money out of the system. The easy feeling of 1936 was gone. Meanwhile, the Wagner Act was making business more expensive for employers. Benjamin Anderson, the Chase economist, had seen a chart at Treasury comparing U.S. wages, prices, and the cost of living. The changes in these three areas had moved along in a fairly consistent way from 1934 to 1936. But with the Wagner Act, wages had jumped far ahead of the rest. In the first six months of 1937 alone, wages rose 11 percent. In the steel industry the rate was higher, 33 percent from October to May. Taxes of course were a problem too. Private investment had been low all decade.

All the changes brought by the New Deal meant that the United States seemed a less reliable place. William Gladstone, one of the English liberals about whom Willkie was reading, had written once that “credit is suspicion asleep.” Now, especially after the president’s second inaugural, suspicion was more awake than it had been in peacetime that century. Knowing that the government wanted to enter an area of the economy was one thing. But knowing that it
could always make vast changes was more disquieting. Roosevelt had had to deal with strikes of labor in the spring. Now he had to deal with the more serious strike of capital.

What data there was reflected this fear. The gold continued to flow in—mostly because the gold standard dollar was a relatively safe dollar. But foreign companies did not float new stocks in America the way they used to. In the 1920s such flotations—something like the modern Initial Public Offering—had run more than $1 billion a year. In the Depression, the average was below $50 million. The difference between short-term interest rates and those with longer maturities tells something about risk—high long-term rates mean that lenders require a lot to make them willing to expose themselves. As one economic historian, Gene Smiley of Marquette University, would later note, the striking thing about the second half of the 1930s was the spreading of that gap between long and short term.

When the data came in, they showed that August had seen the steepest drop in industrial production ever recorded. The Dow Jones Industrial Average dropped from its 190 level in August down to 114 on November 24, about the level it had stood at in the month of the Schechters’ triumph. In the period from September 15 to December 15, the jobs started to disappear, with unemployment moving back to 1931 levels. The Wall Street shock was spreading to Main Street.

The old brain trusters in New York did not deny the problem. Adolf Berle noted in his diary that he had conferred with Tugwell’s employer: “Charles Taussig and I agreed that the economic situation begins to look like a major recession and ought to be tackled on very broad lines,” wrote Berle on October 15. “Yesterday the 1929 panic was really repeated with more to come today,” he added four days later. “The Stock Market people are most bewildered and frightened.” Berle concluded that it was “plain now that business is dropping as well as the market—in other words, we’re in for a rather bad winter.”

One did not have to be an economist to do the math: when wages moved ahead, profits narrowed and shareholders lost. The chart had compared the United States to other countries—Japan,
France, Britain. But the only other country with a similar leap in wages was France, where Leon Blum had earlier in the 1930s put in his own New Deal. The French New Deal had caused a collapse in the economy. Anderson recalled later that the Treasury official had said to him of the American picture, “That looks too much like France.”

A French trade expert, Jacques Stern, happened to be in the United States that autumn. He looked more closely at specific industries but came to similar general conclusions. Taxes were designed to punish risk but permitted little reward. The railroad industry had had to increase salaries because of the new labor laws but had not been able to raise its rates. As Stern pointed out, these industries consumed one-fifth of all the steel and wood produced in the United States, so the slowdown hurt others. Utilities, of course, were not hiring either. The next year Keynes would offer a similar conclusion in a letter to Roosevelt. Keynes saw no use, he wrote, “in chasing utilities around the lot every other week.” Roosevelt should nationalize them if the time was right, but if it wasn’t, he should “make peace on liberal terms.” The recession wasn’t merely monetary. “It is a mistake to think businessmen are more immoral than politicians,” Keynes wrote.

Even on the farms there was serious discontent. All across the country, officials from the Agriculture Department were encountering panicked families. The cotton news had not saved everyone. Earlier that year some 15,000 farm families, the department was discovering, had left drought areas in the Dakotas, western Kansas, and eastern Montana to look for new lives in the Pacific Northwest.

A lady who had placed her pension in utilities had written Mrs. Roosevelt earlier that year: “Personally, I had my savings so invested that I would have had a satisfactory provision for old age. Now thanks to his desire to ‘get’ the utilities I cannot be sure of anything, being a stockholder, as after business has survived his merciless attacks (if it does) insurance will probably be no good either…. I am not an ‘economic royalist’ just an ordinary white collar worker at $1600 per. Please show this to the president and ask him to remem
ber the wishes of the forgotten man, that is, the one who dared to vote against him. We expect to be tramped on but we do wish the stepping would be a little less hard.”

Companies were also marking new lows. Leonard Ayres, the executive at Cleveland Trust who had called on Aif Landon with Anderson in 1936, tried to get a grasp on the story by comparing the profitability of corporations in the current decade to that in the preceding one. He found that close to two of three had been profitable from the midteens through the 1920s. Since the Depression, however, that ratio had dropped below one in three, so that “for nearly a decade now the great majority of corporations have been losing money instead of making it,” he would note. The editors at the
Economist
in London were also watching, trying to put what was happening to the United States in perspective. In 1930, the per capita national income of the United States had been one-third larger than that of Britain, the magazine wrote. At the end of the 1930s, it was about the same. The problem, the magazine would conclude several years later, was “institutional obstructions to a free flow of capital.” The 1930s, all in all, the magazine would decide, were a strange decade; maybe, as it wrote, the United States really had forgotten how to grow.

Roosevelt’s aides were perturbed, for they were seeing the president behave as he had around the time of the London monetary conference. He could not make up his mind which problem was the worst, or which must be addressed, and in what manner. And he could not see that it was important to be consistent. Regal, he was content to allow his men to joust. And the jousters duly performed, some new to the tournament of New Deal politics, some of them in the same roles as in the past, and some now taking different ones. But to the observer—although probably not to the king—the economic trouble now was too close to that of the early 1930s for the debate to amuse.

On the one hand there was Eccles, arguing now that there was insufficient money in circulation, and more must be spent. Joining Eccles in this view were other economists and New Dealers—
Isador Lubin, Leon Henderson, and Lauchlin Currie. Currie, who had trained at the London School of Economics, was the intellectual leader of the spending group. (Currie, like Hiss, was also a Soviet spy whose arguments won a good reception from naïve colleagues.) What mattered, in any case, at the moment, was the policy. In November, Roosevelt held a meeting at the White House to talk over all these ideas. Eccles got the impression that Roosevelt was ready to come out for more deficit spending. And now there were institutions that stood ready to do that spending, from the Agriculture Department through the WPA to the Farm Security Administration, the National Youth Administration, and the Civilian Conservation Corps. Roosevelt might also loosen credit, and had backed legislation to increase spending on housing. Eccles involved himself deeply in the minutiae of plans to spend on housing to spur economic activity. Earlier and now, their solution was controversial. Still, while the early 1930s had been rough, Eccles believed they had taught them all something.

On the other hand there were the budget balancers. One of them, at least on some days, was Roosevelt himself. For as Anne O’Hare McCormick wrote in 1937 after another visit to Hyde Park, Roosevelt was still “the Dutch householder who carefully totes up his accounts every month and who is really annoyed, now that he is bent on balancing the budget, when Congress can’t stop spending.” Budget balancing also appealed to Morgenthau, now in his fourth year at Treasury.

Men become their offices, just as Coolidge had written a decade earlier. Morgenthau’s response to this situation was to try to behave as he thought a treasury secretary should. Morgenthau had watched as the gold flowed into the United States when its economy or interest rates lured, and he had watched it flow out. He found himself offended by the Keynesians and their loose talk about the dollar. And his disapproval mattered—“Eccles was in the doghouse,” blamed for the new downturn, Currie later remembered. Now Morgenthau was pushing hard for a balanced budget. At a lunch with Roosevelt on November 8, he tried desperately to convey his sense of fear to Roo
sevelt through a story about something that mattered to both men: their sons’ generation. Henry III was at Princeton. So was Philip Willkie, Wendell’s son—indeed, in 1940, Philip would be voted “most likely to succeed” in the graduating class. John L. Lewis’s son, John L. Lewis Jr., would graduate in 1941. The New Dealers might have seen themselves as anti-elite, but they created an elite of their own. Morgenthau told Roosevelt that this young generation had to explain to itself, in its own terms, what the parents were doing. So, as Morgenthau told Roosevelt, he, the treasury secretary, had tried to explain the New Deal to Henry. And he had found himself struggling a bit. What exactly was the correct New Deal response to a floundering country? What had the New Deal achieved, actually?