Traitor to His Class: The Privileged Life and Radical Presidency of Franklin Delano Roosevelt (48 page)

W
HAT IT ALL MEANT,
none could say. If the carnage continued, investors would suffer still more, to their dismay and, in some cases, dissolution. But the investing class, while larger than ever in American history, remained a distinct minority of the American people. Fifteen million men and women owned stock—which meant that seventy million didn’t.

The critical question was whether Wall Street’s swoon would prostrate the larger economy. Past financial panics had sometimes spilled over into commerce and industry, but sometimes not. The current panic was the worst in American history, but that might simply have been because the bull market that preceded it was the largest and longest in history. With luck—and astute leadership in key parts of the political economy—the damage to the stock market might be contained. If the economy’s fundamentals were as sound as Hoover asserted, America’s hundreds of thousands of non-financial businesses, and their tens of millions of employees, might be spared the fate of the suffering investor class.

The effect of the stock crash on the broader economy was the most important question facing the country in the late autumn of 1929, but a related question was the effect of the crash, and whatever ensued, on the fortunes of the major political parties. The crash placed Franklin Roosevelt in a delicate position. He had long believed, and had been saying quietly, that the Democrats wouldn’t return to power until the bloom fell off the rose of the Republican economy. The stock crash certainly singed the tips of the petals, and it suggested that additional wilting might be in store. Roosevelt the politician—the presidential hopeful—could hardly help thinking that the worse the economic news, the better his prospects of finally following Uncle Ted into the White House. But no politician who aspired to the presidency—and certainly not the governor of the state whose largest city was the capital of the American financial industry—could afford to be caught showing the slightest satisfaction at the misfortunes of investors. Privately, Roosevelt might dream of what the ill tidings portended, but publicly he had to hope the stock market recovered and the damage didn’t spread.

In speeches and in comments to the press, Roosevelt adopted the position that the current difficulties confirmed the need for the progressive reforms he had been advocating since the beginning of the decade. He traveled to Chicago in December to address a gathering of Illinois Democrats. His appearance was partly in support of Democratic candidates for the 1930 congressional elections; it was also in the service of his own ambitions, as a test of the western waters for the 1932 presidential race. This, at any rate, was the interpretation the delegates from eighty-two Illinois counties, mostly rural, placed on his appearance, and by the evidence of their lusty chorus of “East side, west side, all around the town,” they liked what they saw and heard. Roosevelt reviewed a half century of American history, declaring it an era of unexampled progress “in the liberation of the individual from the drudgery of the daily struggle for existence.” Unfortunately, the benefits of progress had not been evenly shared. Agriculture trailed industry, largely because farmers had been denied the benefits of combination that amplified the productivity of manufacturers and because they had suffered from a high tariff and other measures that protected industry at agriculture’s expense. Until now the weakness of the farm sector had affected the farm sector almost alone, leaving city dwellers indifferent to their rural compatriots’ plight. But such a situation couldn’t persist. America was in “a state of unstable equilibrium,” Roosevelt asserted. “And nothing can remain in that condition for long.” Roosevelt blamed the Republicans for robbing the farmers, and he called on the Democrats to defend them. If the Democrats did so, he predicted, they would be rewarded at the polls.

O
F COURSE,
for Roosevelt to be considered for president in 1932, he had to be reelected as governor in 1930. New York’s short cycle had been designed to keep elected officials accountable to voters; in the process it dictated deadlock when one party controlled the legislature and the other party the governorship. Both Roosevelt and the Republicans looked to the 1930 elections to break the deadlock—he with growing confidence, they with mounting trepidation.

The half year after the stock crash revealed that the damage would not be confined to the financial sector. For seven fat years the stock market had risen on the confidence that pervaded the economy as a whole. Market watchers perceived an intimate connection between share prices and business activity. “The stock market and business are more closely allied than at any time in history,” the
Wall Street Journal
declared in early 1929. “You cannot have prosperity with a protracted decline in stocks. Neither can you have an advancing market with business on the decline.” When written, these words were intended to justify the high prices for stocks; after the stock prices collapsed, they became a prophecy of depression.

The Great Depression of the 1930s was hardly the consequence of the stock crash alone. In certain respects, both resulted from the unstable condition of the larger economy. Agriculture’s troubles were well known, but other sectors were not much stronger. A bubble in Florida real estate had burst amid a hurricane in 1926; the escaping pressure flattened much of the residential construction industry. Auto sales had been sluggish for some time; Henry Ford sobered observers by declaring that the industry was substantially overbuilt. Banking labored under its chronic dependence on the confidence of depositors; should anything shake that confidence, even the most responsibly run bank would be at risk.

Nor were the sources of instability confined to America. For decades, but especially since the World War, American finance had been intimately entwined with European finance, rendering American banking houses vulnerable to the missteps and follies of their transatlantic counterparts. Whether mere misstep or full-blown folly, the decision of Britain’s chancellor of the exchequer, Winston Churchill, to put Britain back on the gold standard at the prewar exchange rate had the most far-reaching effects. Churchill’s decision ignored the fundamental changes the war had wrought in the world economy; it overvalued the pound and undervalued the dollar, making American exports cheap and draining Britain’s financial reserves westward across the Atlantic. Benjamin Strong, the governor of New York’s Federal Reserve Bank and the de facto leader of the Federal Reserve system, did what he could to rectify the situation, slashing American interest rates and thus making the dollar less attractive to overseas investors. But the lower interest rates fueled the stock speculation that inflated the Wall Street bubble, limiting Strong’s ability to counter the pernicious consequences of Churchill’s exercise in imperial nostalgia.

Strong watched the bubble grow, with concern but not alarm. He understood the risks but believed that he and the Federal Reserve had the tools to deal with emergent crises on Wall Street. “The very existence of the Federal Reserve System is a safeguard against anything like a calamity growing out of money rates,” he declared. “We have the power to deal with such an emergency instantly by flooding the Street with money.” Perhaps the Fed did have the power, but after the untimely death of Strong in 1928, it lacked the nerve. It lowered interest rates modestly after the stock crash, but skittish investors simply interpreted the reduction as a signal that the Fed, too, had lost confidence in stocks and that worse days were coming. They unloaded still more of their stocks. The flood of liquidity Strong had promised never amounted to more than a trickle, and as investors went into hiding, the nation’s money supply shrank by as much as one-third. Prices fell commensurately, crushing debtors, who had to repay their obligations with dearer dollars, and discouraging producers from expanding, or even maintaining, output.

America’s elected officials did little to alleviate the troubles, and more than a little to aggravate them. Congress and the White House weighed in during the summer of 1930 with the Smoot-Hawley tariff, which tried to protect American jobs and profits by doubling the average duty on imports. “I do not assume the rate structure in this or any other tariff bill is perfect,” Hoover said on signing the measure. “But I am convinced that the disposal of the whole question is urgent…. This provision is a progressive advance and gives great hope of taking the tariff away from politics, lobbying, and log-rolling.” The president asserted that the tariff was “largely directed to the interest of the farmer,” and he predicted that farmers would especially benefit. He added the hopeful conclusion that “with returning normal conditions our foreign trade will continue to expand.”

Hoover was wrong on all counts, except for his admission that the tariff wasn’t perfect. The Smoot-Hawley tariff wasn’t progressive but regressive, undoing even more of what the Democrats had accomplished by way of freeing trade during the 1910s. It represented the triumph of politics and lobbying, winning passage over the published objections of hundreds of distinguished economists. The rhetoric of concern for farmers provided the cover for Congress to ratchet up the rates on numerous manufactured goods. Foreign trade did not expand, nor business conditions return to normal; instead the new American tariff triggered a beggar-thy-neighbor economic war among the great powers that impoverished them all and punished American farmers especially.

19.

A
S THE STOCK MARKET CONTINUED TO SLIDE DURING
1930,
AND AS
the larger economy began to track Wall Street’s downward course, Democratic candidates became more viable than they had been for nearly a generation. The Democrats in 1930 gained control of the House of Representatives for the first time since the World War, and they cut deeply into the Republican majority in the Senate.

And in the state race that everyone was watching, they—or rather Franklin Roosevelt—smashed the Republicans with an authority that gave heart to Democrats nationwide and pause to all Republicans. New York was something of a microcosm of the country as a whole, its upstate farmers suffering from the same low prices as farmers elsewhere, and its urban workers getting laid off in proportions comparable to those of other American cities. Roosevelt registered sympathy but at first accomplished little to ease the pain of his suffering fellow New Yorkers. Yet no one really expected him to do much, in part because of the opposition of the Republicans in the legislature, in part because it didn’t occur to people to look to Albany for solutions to what was clearly a national problem. Roosevelt rode the dissatisfaction to victory by the astonishing margin of 730,000 votes, or twice the previous record plurality in New York history.

Roosevelt’s triumph was personally satisfying, and it augured important changes in the direction of New York politics. But the larger significance wasn’t lost on observers in the Empire State or beyond. “The tremendous vote for Governor Roosevelt was regarded as increasing greatly his chance for the Democratic nomination for President in 1932, for which he is known to be an aspirant,” the
New York Times
explained on its front page the morning after the election.

Roosevelt hardly bothered to deny his intentions. For the record he declared that he had his hands full governing New York, but he declined to disavow the efforts of others to put his name forward. And he undertook actions designed to elevate his visibility among voters in the country at large. Some moves were subtle. He employed his powers as governor to direct monies to the construction of the Theodore Roosevelt Hall at the Museum of Natural Science in New York City. More than a decade after the Rough Rider’s death, voters could be excused for forgetting that TR had been a Republican nearly all his political life; what stuck in the public mind was the connection between the Roosevelt name and a bold, progressive approach to national problems. Franklin Roosevelt was happy to encourage the connection and remind people that things had been better when a Roosevelt ran the country.

Roosevelt played the other side of the progressive street as well. Woodrow Wilson’s star remained in eclipse, but holdover Wilsonians still wielded influence within the Democratic party. Roosevelt reached out to Wilson’s old confidant Edward House, a Texan with considerable pull among the Democrats’ southern wing. The initial gesture was a simple request for advice. Roosevelt sent Louis Howe to visit House with a draft letter responding to a query from supporters; Howe asked House for help revising and sharpening the reply. House had long looked askance at Roosevelt, and even more so at Howe, but on this occasion he was pleased. “It is a joy to cooperate with him,” House wrote Roosevelt regarding Howe. “We never have any arguments and have no difficulty in reaching conclusions satisfactory to us both.” House proceeded to promote Roosevelt in Texas and the South, particularly among former supporters of William McAdoo and the late William Jennings Bryan. House’s efforts didn’t erase all southern suspicions of the New York governor, but they prevented any alternative candidate from gaining traction in Dixie.