Forgotten Man, The (21 page)

In London, George Harrison of the New York Fed, Hull, Warburg, and others promptly began work on a plan to maintain exchange rates among the United States, the UK, and France, which was still on the gold standard. The move would be a return not to the U.S. gold standard but something like one, with France’s golden franc as anchor.

Still, Roosevelt had not made up his mind about what outcome he sought. Shortly, he sent a message that crossed the Atlantic like a torpedo: he would not accept a France-UK-U.S. agreement as his own team had negotiated. The participants reeled. Building consistency and trust was what such summits were all about, yet their president was now undermining his own emissaries. After a two-hour conference with Moley aboard the schooner
Amberjack II
the president next made a show of dispatching Moley to London. Moley took out of the meeting that the president did want to stabilize. The press speculated that Moley was to replace his boss, the free trader Hull. Moley’s job was to suggest a third plan: prices must move up globally. The president had told Moley that when he arrived in London, “the essential thing is that you impress on the delegation and others that my primary international objective is to raise the world price level.” The U.S. delegates in London were confused; one spoke out for low tariffs, another for higher tariffs. After Moley arrived, Roosevelt telegraphed yet a third and a fourth policy position, all variants on the question of monetary arrangements, budgets, and international relations. Finally, the representatives in London cobbled together a document that they believed addressed Roosevelt’s concerns for the struggling farmer. In fact, as Moley later recalled, “the most fanatical inflationist could not have objected to this statement.” And, after all, Roosevelt had suggested to him on the
Amberjack II
that he would stabilize. Now Moley and the Europeans expected
Roosevelt would sign off on the document—indeed, the Europeans were ready to agree to almost anything they thought Roosevelt would sign. Roosevelt rejected it.

Still, neither Moley, nor anyone else, reckoned on the last and most dramatic Roosevelt missile, the one later known as the “bombshell.” It was sent from aboard the steamship
Indianapolis.
The president now attacked the effort to return to the gold standard—the very effort that, the public and his advisers believed, was the purpose of the London conference—as a “purely artificial and temporary experiment.” The effort, Roosevelt said, was a “specious fallacy.” International cooperation did not matter. The only thing that mattered was “the sound internal economic system of a nation.” It was wrong to be misled by “fetishes of international bankers”—a clear reference to Montagu Norman of Britain. Reduced government costs at home and other domestic concerns were what was important to the United States.

Roosevelt’s vacillation had partly to do with trouble at home. So many families were defaulting on their mortgages that he was now contemplating a home version of Hoover’s debt moratorium, a national plan to prevent any more Americans from losing their homes. What he felt he needed was to buy time, and if stalling on the international monetary question helped that, he would do it. And he was a comfortable punter—as he would confide later to Morgenthau in regard to another debate, “Strictly between the two of us, I do not know. I am on an hourly basis and the situation changes almost momentarily.” But the president was also inconsistent because he saw no cost to being inconsistent. Lately, moreover, he had been listening less to Wall Street. Increasingly, a new man had his ear: George Warren, a professor of agriculture to whom Morgenthau had introduced him. (The threesome had apparently discussed trees in their first meetings. “How different life would have been had Franklin and Henry not met those arboreal experts!” Mrs. Morgenthau is said to have mused at one point.) Warren was telling Roosevelt that domestic prices were the most important thing. If he could get those
up while paying lip service to other goals, the rest of the U.S. economy would follow, and so would the rest of the world.

In Britain, John Maynard Keynes declared that Roosevelt was “magnificently right.” Perhaps if the United States and Britain “put men to work by all means at our disposal,” then prices would rise to a level to match existing government debts. Also pleased were western lawmakers—finally, a president who was concerned about deflation, and not Wall Street.

But many Americans, and most of the British leaders, were furious. The United States might want to grow, but it could not grow without foreign markets and stable exchange rates. Oliver Sprague disapproved so intensely that only loyalty kept him from resigning. “What is it that occurs in the Holy Writ about keeping the hand to the plow?” he asked newsmen. Ramsay MacDonald, UK prime minister, threw up his hands, telling Moley, “I give up now. I can do nothing.” The king told people that he would not have foreigners “worrying my prime minister this way.”

The Europeans felt that Roosevelt had made fools of them by inviting them to negotiate with his envoys and then undermining both sides with a contradictory statement. The advisers were in agony—it was as though the doctor had jerked at the dislocated shoulder but stopped short of setting it right.

Warburg composed an icy note to Hull, who was staying at Claridge’s, announcing his resignation to the secretary. He had flown for the navy in World War I, and he selected images that would mean something to Roosevelt: “We are entering upon waters for which I have no charts and in which I therefore feel myself an utterly incompetent pilot.” Other economists were aghast. So were the statesmen. Hull begged his subordinate Moley, who was closer to the president, to ask the president one thing: “not to change his policies again, because his sudden turns had been exceedingly embarrassing.” Lindley heard one correspondent call Hull “a stricken man.”

The Dow crossed 100, then dropped back to around 90 at the end of July. The stock market knew that London, Paris, and Berlin
mattered. Roosevelt had declared himself an internationalist, but he was preventing the sort of internationalism that the market believed would help recovery.

Over the summer, Roosevelt increasingly concentrated on farms and the land. In July, while the monetary conference was still dissolving, came the news that the first Civilian Conservation Corps camp—Camp No. 1 at Big Meadows, Virginia—was up and running. The Labor Department found young men to work there; the army ran the camp; and the Forest Service managed the woodsmen. In August, Tugwell, Wallace, and Ickes met up with Roosevelt for a day of inspection. They ate lunch, as Tugwell later recalled, at a rough board table; Ickes recorded in his diary that they ate “so-called apple pie”—it was not his responsibility, since it came from the army. Roosevelt and Tugwell were happy. Their own farm dreams were now being shared with hundreds of thousands of young men, coming off the street to live in woods and forests for the first time. The camp was one of more than a thousand that would rise up in the coming years. The CCC would serve youths and men who otherwise would be unemployed; CCC programs would also give hope and work to the sorry Bonus Army marchers and other veterans.

That same month Roosevelt was already claiming success on the farm front. Supply had been curtailed, and agriculture prices seemed to be duly moving up. Lately, he had spent more and more time with Warren of Cornell. Now he and Warren together presented to the press a chart demonstrating that the price of agricultural goods had already returned to the level of 1914. As for Henry Wallace, the name most associated with the AAA, he was popular. The
Des Moines Tribune
would shortly suggest that Wallace might shepherd the agricultural sector out of “the wilderness of mortgages and overproduction.” He had proven that Washington could really do something for the farmer. Wallace was in his forties, and he had time yet “to inscribe his name among the greats of the nation’s history.”

Roosevelt believed he was also making progress on the money issue. By September, the Dow was back over 100 again. After taking advice from dozens of anxious bankers and lawmakers, Roosevelt
finally found a monetary plan that he liked: and it came not from the Fed, or Wall Street, but from the professor, Warren.

The plan was beautiful for its simplicity. The government, the president, using his new war power, would buy gold on the market. That would drive the price of gold up and the value of the dollar down. This was a matter of supply and demand. And if the price of gold went up, then so would the prices of everything else, especially farm goods.

The theory had some validity. With the gold purchase program, the White House was introducing cash into a cash-poor economy. Finally, the government was making an attempt at correcting the money shortage. Reflation generally was what Irving Fisher had been begging the president to undertake, this was why Fisher was so enthusiastic. And there might indeed have been an increase in the overall price level subsequent to such action had the country still been on the gold standard, under which gold had set the worth of the dollar, and therefore everything that dollar bought.

But Roosevelt himself had snipped the link to gold. For the moment, gold was just another commodity whose price seemed too low. More important, the increments of the money that Roosevelt was spending on gold in the Warren case were so small that they could not affect the overall economy by themselves. What Roosevelt was doing, under Warren’s tutelage, and to Morgenthau’s applause, was like pouring glasses of water into the ocean in the hope of raising the sea level. The discretionary aspect of the project, however, was the worst thing about it. On money, the executive needed to send a clear signal—pick a certain price—if markets were to follow him. Fisher’s goal was establishing stability, not undermining it. Here FDR’s playfulness was at its most destructive.

None of the Wall Streeters who had originally rallied to Roosevelt’s side—not Warburg, not Woodin, not Dean Acheson, undersecretary at the Treasury—liked the plan. The president had needed emergency powers over money—but again, to set the money right with one quick twist, not to prolong the agony all autumn. Some of the brain trusters were also puzzled. Moley was surprised. Tugwell,
still an economist for all his dreaming, was frustrated at the illogic and at the rising power of the two Henrys, Wallace and Morgenthau: “The catch in the plan had seemed plain enough. It was that the currency, in fact, was no longer so closely related to gold that the value of dollars would be greatly affected by what happened to its price.” The UK press was more direct. The
Times
of London wrote that “most businessmen in the United States and elsewhere regard his currency policy, in so far as they understand it, as impracticable and likely to result in a loss of confidence in American currency, and thereby to hinder rather than assist the process of recovery.” Editorialists at the
Times
wrote apologetically, trying to cover for Roosevelt: “In a sense, all currencies are ‘managed.’…”

But Roosevelt, like many bosses, was choosing to change advisers rather than hear criticism. By that autumn Sprague was resigning noisily, the news making page one in the papers. “Sprague Quits Treasury to Attack Gold Policy,” read a headline. “It’s a free country,” shot back Morgenthau, now becoming the “go-to” man. “I think father wanted to be his own Secretary of the Treasury,” Roosevelt’s son James would later write. Roosevelt told Morgenthau he wanted to buy gold to force up the price. Morgenthau—who of course knew Warren as well—asked whose idea the project was. “Mine,” the president blithely answered. Woodin was ill, and beginning to fade from the scene.

In a last-ditch effort, Warburg traveled to Hyde Park and debated Warren at a luncheon attended by the president and presided over by Sara Roosevelt, the president’s mother. Each man talked about his ideas; the Roosevelts listened. Warren and Warburg left Hyde Park together, sharing a taxi. “Well, I guess you ruined my plan,” Warren said to Warburg. “On the contrary,” Warburg answered. “You have won. Wait and see.” Warburg was correct. Shortly thereafter Fisher was at Hyde Park as well, and Roosevelt told him he would have none of Warburg’s gold-standard talk. Fisher wrote a letter to his wife documenting the president’s words about Warburg: “J. W. wants me to fix a definite price of gold, etc., as people now can’t make future contracts,” Roosevelt had reported. He went on: “I said ‘that’s poppy
cock. The bankers want to know everything beforehand and I’ve told them to go to h——.’” Exhilarated, Fisher transcribed the whole meeting at the Poughkeepsie train station. Roosevelt was leaning decisively to Warren, and Morgenthau would help him do that. The dollar was now like a sail flapping in the wind, and Roosevelt was sure he knew how to bring it in line.

Over the course of the autumn, the results of the first big farm experiments were coming in, and they were mixed. Morgenthau, by the end of the year, was lending $1 million a day, a total of $100 million, at low interest rates. That was helping some farms. But neither the gold price experiment nor the AAA was having the hoped-for effect on prices. The government, as even Fisher had to admit to himself, had tried to address a macroeconomic problem, money, through a microeconomic format, tinkering with supply and demand for agricultural goods. “It’s all a strange mixture,” Fisher wrote to his son in Europe. His joy at contact with the president was moderated by his perception of Roosevelt’s illogic. “I’m against the restriction of acreage and production, but much in favor of reflation. Apparently FDR thinks of them as similar—merely two ways of raising prices! But one changes the monetary unit to restore it to normal, while the other spells scarce food and clothing when many are starving and half naked!” The subsidy might help farmers, but it could not help the overall price problem.

And it was not even helping all the farmers. To larger farmers, the new AAA payments were welcome. Food and cash from another New Deal agency, the Federal Emergency Relief Administration, reached many of the poorest farmers. Small-farm owners, however, found the AAA regimen challenging. And tenant farmers were stunned. Landowners had historically hired sharecroppers because they themselves made profits from their share of the crop that the tenants planted and harvested. That relationship had become more tenuous as crop prices came down, and there was less for landlord and tenant to share. The tractor, a new arrival, was already obviating the need for the sharecropper—and now the AAA was paying the landowners not to farm that land. Removing the tenants began to
make sense, especially when prices for crops were still not high. The next spring a professor from the University of Tennessee would write to the cotton section of the AAA: