Forgotten Man, The (4 page)

Hoover, who was willing to travel and not afraid of bankers, knew better how to exploit that luck than his geologist teachers.
Equally at home in a mine and a bank boardroom, he moved forward fast. From improving mines themselves he went to improving mining projects and mining finance. Before he turned thirty, the papers reported that he was the best-paid man of his generation.

One of the insights that continued to serve Hoover in this period was that mines were cats—they had nine lives, if only one found the technology to sustain them. In 1905 and 1906, for example, scientists knew both that zinc was a valuable mineral and that it was hard to isolate. Frustratingly, it could be found in chunks of other rocks mined—so-called tailings. In those years they were also discovering that if unusable chunks of rock—the tailings—containing zinc ore were crushed and mixed with sulfuric acid, the zinc in them would float to the surface. Hoover traveled to Broken Hill, hundreds of miles northeast of Adelaide, to observe the ore deposits; then he led Bewick Moreing in creating a company, the Zinc Corporation, to exploit the new process. After a few dicey months in 1907 and 1908—“if we failed, our reputation would be gone,” a colleague on the project later recalled—the Zinc Corp. proved intensely profitable.

By 1908, Hoover had outgrown Bewick Moreing and established himself as an enormously successful freelance engineer. There was more work in Belgium, Germany, France, China, Japan, and Burma. Hoover got to know Russia through his work at a baron’s estate in the Ural Mountains, not far from Ekaterinburg, where the Romanovs would later be killed. The Kyshtim estate provided a livelihood for 100,000 and was rich in copper and other metals. Its engineers, as Hoover discovered when he came to Kyshtim, were working from the wrong metallurgical concept. They were using blast furnaces. Hoover and his engineers thought an unusual process, pyritic smelting on a large scale, might work better. They found additional financial resources both to reorganize the company’s finances and to bring men from Butte, Montana, where a similar quality of ore had been treated. There were also new furnaces. And to his satisfaction, Hoover was later able to report that the property after his rationalization
earned a net of about $2 million annually. Following the doctrines of Taylor, the efficiency guru, the new company paid its workers 25 percent above the going wage in the area.

Hoover had seen great promise for Russia but also recognized the potential for great trouble. While working at Kyshtim he found himself one day at a train station, observing as “a long line of intelligent, decent people brutally chained together were marched aboard a freight car bound for Siberia. Some were the faces of despair itself, some of despondency itself, some of defiance itself.” The whole dark scene, Hoover wrote, robbed him of sleep. But Hoover’s own life had been nearly all sunshine and had seemed to move only forward.

The events in Russia had strengthened Hoover’s conviction about the need for firm leadership in Europe and even the United States. In 1916 Bolsheviks began agitations at his own Kyshtim plants. In 1917 the Communists took power, throwing out the ownership and management at Kyshtim and giving themselves a 100 percent raise. The Americans on the project were sent off on trains to Vladivostok, but the Russian experts were brutalized or even killed. What made it worse was that without the experts the delicate Kyshtim furnaces broke down within a week; the Communists could not read the blueprints left behind that would have told them how to do repair work. “In a week the works were shut down, and 100,000 people were destitute,” Hoover recalled, rightfully disgusted, in his memoir. After that Hoover led a great relief action in “Bololand,” the nickname the relief staff used for the Bolshevik state. But unlike Henry Ford, he did not nurse much hope that doing business with Russia would bring Bolsheviks back to market ways.

By age thirty-five or forty Hoover still feared criticism, but less than before—he encountered it so infrequently. Luck and talent had done their work, and he began to feel his greatness was unlimited. Not only Americans but also foreigners had the same impression. Getting to know Hoover at the peace conference after World War I, the economist John Maynard Keynes was deeply impressed. For Hoover grasped what others had missed: the crushing blow that the reparations payments demanded by France would deal to the
future of Germany. Hoover, Keynes said, operated in “an atmosphere of reality, knowledge, magnanimity and disinterestedness, which, if they had been found in other quarters also, would have given us the Good Peace.” Others might live lives of periodic setbacks; Hoover seemed immune. Sherwood Anderson, the novelist who chronicled such setbacks in
Winesburg, Ohio,
would write with astonishment that Hoover’s was the face of a man who “had never known failure.”

All the while, four characteristics made Hoover subtly different from some of the others, especially from Mellon. The first was that he was younger, born in 1874, which made him a full generation younger than Mellon. His world was more Edwardian than frontier or Victorian; the experience of the war had made a big impression on him. Hoover came to believe that life was like wartime, and that government, therefore, ought to plan more, as if in a war. The second was his love of publicity. The third difference was that Hoover, who had profited so much from commodities, tended to distrust Wall Street, whose wealth he viewed as ephemeral. The fourth was that Hoover loved to jump in where, say Mellon, had stayed back. That was why he had been so successful as a consultant.

Under Harding, the differences between Hoover on the one hand and Mellon and Coolidge on the other became more visible, at least for those who looked carefully. Mellon, true to form, had focused on allowing businesses to work on their own, which to him meant reducing taxes. Income taxes in those days applied only to the rich—and those rich paid extremely high rates, the top being 73 percent. Mellon believed that rate was prohibitive—it killed investment, and therefore jobs. He did not see taxation as a moral matter. Taxes were a practical thing: a tax was a price. And one could only charge “what the traffic will bear,” as he put it, drawing on a metaphor from his own railroad freight days. When a government overtaxed, it hurt itself, for it got less revenue. Taxes that were too high, Mellon noted, simply were not paid. In the end lawmakers wrote loopholes that enabled high earners to escape. Instantly, with the aid of his staff, Mellon began to work on plans to cut taxes. Overtaxation was the very sort of intervention he
had abhorred as a venture capitalist, and he would do what he could to reduce it from Washington.

Mellon’s other preoccupation was with the efficient use of family money—his own, and that of other people. Money, he believed, must stay in the private sector, with the family, either for further investment, or for one’s children, or for charity. He had watched in admiration—and perhaps envy—as his friend Henry Clay Frick built up his art collection. Every once in a while a headline trumpeted “Another Vermeer Bought by Frick.” In the autumn of 1919, though, Frick died, and Mellon saw originally enormous bequests to charity, as well as Frick’s splendid collection of paintings, become embroiled for years in fights over estate taxes. Institutions such as Princeton University to whom Frick had promised gifts found themselves with far less than expected, a shameful outcome from the philanthropist’s point of view. Mellon resolved to find a way to change the way estates were taxed.

At the Commerce Department, meanwhile, Secretary Hoover had begun to apply
his
notions. The department pre-Hoover had been relatively tame, almost a sinecure. One of its tasks was coordinating the nation’s lighthouses. It was said of the post of commerce secretary that it consisted of “lighting the lamps along the coast and putting the fishes to bed.” Early on Hoover invited a promising young man from the Warburg banking dynasty, James Warburg, to work as his assistant secretary. “But what do you do?” Warburg asked Hoover impudently—and did not take the job.

Hoover saw the post as grander: an opportunity to show the country what it could do if it had a national engineer. When the recession hit, he urged President Warren Harding to host a conference with business and labor on creating employment. The idea was that Washington could encourage business, and perhaps the states and labor, to work together to make the economy grow. Among those attending was John L. Lewis of the United Mine Workers. Later, in 1922, Commerce Secretary Hoover argued that union wages were too high, and that there was “an overplus of mines and
miners” in general. The miners struck, and Hoover intervened; this time the innocent in need of protection had been consumers, not Belgian children. “The administration is not injecting itself into the strike,” he wrote Lewis; “it is trying to protect the general public from the results of the strike.” Meanwhile, Hoover was also working on the problem of the Colorado River and the parched Southwest. The river was a monster, violent and unpredictable. In one season it swelled and destroyed farmlands. In the summer its flow dropped to a trickle. It had knocked out a dam built earlier in the century as if the dam were nothing. Hoover agreed with the conservatives that it was wrong for Washington to intervene, but he also firmly agreed with Franklin Roosevelt of New York, who believed that state governments must involve themselves in hydropower. Hoover therefore assigned himself the task of playing go-between among the seven states through which the Colorado flowed. In the early 1920s he visited each of the states, convincing them to make various key concessions.

In this period, the first half of the 1920s, both Mellon and Hoover published books codifying their philosophies. The austere Mellon gave his an unexpectedly populist title:
Taxation: The People’s Business.
In it he laid out the theories of his fellow Scot Adam Smith to justify his program of continued tax-cutting. Reaching to find an image from the day—it may have been hard—he talked about Henry Ford’s company. “Does anyone question that Mr. Ford has made more money by reducing the price of his car and increasing his sales than he would have made by maintaining a high price and a greater profit per car, but selling less cars? The government is just a business.” The lesson of the book was simple: people responded to tax rates, and lower rates might promote growth in the 1920s and pull in higher revenues for government. The whole idea of overtaxation was to Mellon un-American. “Any man of energy and initiative in this country can get what he wants out of life. But when initiative is crippled by legislation or by a tax system which denies him the right to receive a reasonable share of his earnings, then he will no longer exert
himself and the country will be deprived of the energy on which its continued greatness depends.” When failure attended business, after all, noted Mellon, “the loss is borne by the adventurer.”

Mellon took pains to be consistent, even when it was against his own personal interest. In the same volume he attacked tax-exempt bonds, the very sort of bond rich men like himself tended to purchase. His action here was the proprietor’s: municipal bonds were bad because they deprived the Treasury of revenue. The better philosophy was to lower rates over all. Mellon also disliked other tax loopholes, and did not mind mentioning that fact, even though his own empire availed itself of the same loopholes in the preparation of the Mellon returns. After all, what he did as a private citizen was his own affair, as long as it followed the law books.

Hoover gave his book a title similar to Mellon’s—
American Individualism.
But the text, like Hoover’s work, was distinct. Hoover rejected the old brand of absolute individualism and disdained laissez-faire economics as “theoretic and emotional.” Private property, he also said, was “not a
fetich
” for Americans (using the spelling acceptable in that period). He also made clear that he believed America must move toward regulation: “Our mass of regulation of public utilities and our legislation against restraint of trade is the monument to our intent to preserve an equality of opportunity,” he wrote—and, describing Mellon’s Adam Smith, put the word “capitalism” in quotation marks, to signal that he wanted to keep his distance. The message was clear: as far as he was concerned, men like Mellon could have Adam Smith’s invisible hand. In this view Hoover was in line with two academics popular in the 1920s, William Trufant Foster and Waddill Catchings. The pair were the ones who had popularized the phrase “beneficent hand.” Catchings and Foster introduced other novel theories. They deplored the traditional emphasis on supply; economic policy rather should pay attention to the consumer. Spending, they argued, including spending by the consumer, could promote and smooth over economic growth. Many readers, especially those trained in classic political economy, found Catchings and Foster hard to take. One was Franklin Roosevelt of
New York, who in 1928 inscribed the front pages of his copy of the authors’
Road to Plenty
thusly: “Franklin D. Roosevelt, Hyde Park 1928. Too good to be true—You can’t get something for nothing.” Hoover did not like the writers’ emphasis on increasing debt and deficits, but his book was, essentially, a version of the beneficent-hand argument.

To continue growing, Hoover argued, the economy had to be better organized. Standards and precision were important now. He had faith in the concept of economy of scale—the bigger a thing was, the more efficient. He hated Soviet Russia. Still, in
American Individualism
and elsewhere Hoover made it clear that he viewed as retrograde the old battles of left versus right. What mattered was efficiency and being right. The common craftsman, even the guild member—these small traders were too idiosyncratic and individual for a modern economy. Though he had lived in London, the world’s financial capital, for more than a decade, he still thought of America as a commodities country, whose wealth was something one mined (gold) or planted in the ground (wheat). As for government leaders, they ought not to intervene unconstitutionally but must play the broker. More important, they could be a beacon of reform. If the Commerce Secretary was to “light the lights,” as the old quote said, then let him have a substantial lighthouse: Hoover envisioned a giant new department building.