A History of Money and Banking in the United States: The Colonial Era to World War II (43 page)

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A History of Money and Banking in the United States:
The Colonial Era to World War II

consumption spending. Thus, in January 1933, powerful business groups formed The Committee for the Nation (more formally, The Committee for the Nation to Rebuild Prices and Purchasing Power), dedicated to getting the government to

“reflate” prices back up to 1929 levels, and to get off the gold standard so that the government could issue fiat paper money for that purpose. The co-defenders of The Committee for the Nation were Vincent Bendix, head of Bendix Aviation, and General Robert E. Wood, head of the mighty retail combine of Sears, Roebuck. Others who soon joined them were Frank A. Vanderlip, former president of the National City Bank of New York—

the flagship bank in the Rockefeller orbit; James H. Rand, Jr., president of Remington Rand Company, manufacturer of typewriters and other retail products; Lessing Rosenwald, major owner of Sears, Roebuck; Samuel S. Fels, producer of Fels Naptha; Philip K. Wrigley, head of William J. Wrigley Company; E.L. Cord of the Cord automobile company; William J.

McAvenny, president of Hudson Motor Company; R.F. Wurlitzer, producer of Wurlitzer musical instruments; Frederic H.

Frazier, chairman of the board of the General Baking Company; and a galaxy of farm leaders: Fred H. Sexauer, president of the Dairymen’s League Cooperative Association; Edward A.

O’Neal, head of the American Farm Bureau Federation; and Louis J. Taber, head of the National Grange. It should also be noted that Rockefeller’s petroleum products were of course goods largely sold at retail.46

Another emboldened inflationist group was the silver mining interest, centered in the Mountain states, which seemingly had lost out permanently to the McKinley and Republican gold forces in the 1890s. Mountain-state senators led the silver bloc in Congress, and Senator Burton K. Wheeler (D-Mont.) introduced a bimetallic bill to reinstitute the silver-gold standard at 46Murray N. Rothbard, “The New Deal and the International Monetary System,” in
The Great Depression and New Deal Monetary Policy
(San Francisco: Cato Institute, [1976] 1980), pp. 93–95.

From Hoover to Roosevelt:

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The Federal Reserve and the Financial Elites
the old nineteenth-century ratio of 16-to-1. Leading theoretician and lobbyist for the silver bloc was New York banker Rene Leon, who got himself appointed as adviser to the House Ways and Means Committee in unsuccessfully pressing for an international conference to raise silver prices.

More generally, the Rockefeller and Harriman forces had been allied against the Morgans since the turn of the century, and now they and other rising financial groups banded together avidly to overthrow and dethrone the financial and political dominance achieved by the House of Morgan during the Republican decade of the 1920s. Again influential in the new Democratic regime was the veteran speculator and political manipulator Bernard Baruch, who had been czar of the collectivized economy as head of the War Industries Board in World War I, and who yearned to re-establish a similar, collectivist cartelized regime in peacetime, using the depression as the means for achieving this goal. Baruch, since childhood, had been a protégé of the powerful Guggenheim family, who controlled the American copper industry, but who liked to keep a low political pro-file and operate through Baruch and his network of operatives.

Newer Jewish Wall Street investment banking houses, more anti-Morgan than Kuhn, Loeb, were also rising to help challenge Morgan: notably, Goldman, Sachs and Lehman Brothers, the Lehman family contributing New Deal governor of New York Herbert H. Lehman to the American political scene. Furthermore, Jewish retail interests, led by the Boston Filene brothers, were in favor of more inflation and consumer spending; and longtime Filene and retailer attorney Louis D. Brandeis had become powerful in the Democratic Party, and was helping run the New Deal surreptitiously from his seat on the U.S. Supreme Court. Brandeis was a longtime enemy of the Morgans, as attorney for opposing corporate interests, and a dedicated supporter of retail cartels supported by the government.

Moreover, all these financial and industrial groups were swinging notably leftward, not simply in monetary matters, but also in advocating far more government intervention,
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A History of Money and Banking in the United States:
The Colonial Era to World War II

including promotion of labor unions, than the Morgans were willing to accept. Thus, these anti-Morgan groups, now gathered in the Democratic Party, were happy to form a coalition with left-wing intellectuals, technocrats, economists, and social workers who wished to staff the planning agencies, all to advance their common New Deal and ultra-statist agenda.

Particularly powerful in the New Deal and in the Democratic Party was the underrated W. Averell Harriman, scion of the great Harriman interests and longtime enemy of the Morgans.

Harriman dominated a highly influential new agency set up in the New Deal, the Business Advisory Council (BAC) of the Department of Commerce, which transmitted the influence of the pro-New Deal wing of industry and finance. Also dominant in the BAC was Sidney J. Weinberg of Goldman, Sachs. The Franklin Roosevelt–Hyde Park–Democrat wing of the Roosevelt family had always been close to their Hudson Valley neighbors, the Astors and the Harrimans,47 whereas the Oyster Bay–Theodore Roosevelt–Republican wing of the family had always been close to the Morgans.48

47In early 1933, Mary Harriman Rumsey, sister of Averell, decided to establish a major pro-New Deal newspaper to offset the Republican ownership of the bulk of the press. She, Averell, and their friend and associate Vincent Astor, tried to buy the near-bankrupt
Washington Post
, but were beaten out by Eugene Meyer, who was looking for a satisfying post after leaving the Federal Reserve Board in the early days of the Roosevelt administration. The trio then established the weekly news magazine
Today
, bringing in former New Deal brain truster Raymond Moley as editor, and, in a couple of years, merged with, and took control over, the influential weekly,
Newsweek.
Philip H. Burch, Jr.,
Elites in American
History,
vol. 3,
The New Deal to the Carter Administration
(New York: Holmes and Meier, 1980), p. 60.

48The unsung power of Harriman in the New Deal may be gauged by his neglected but vital role in the two most left-wing appointments to the Roosevelt Cabinet: Frances Perkins as secretary of labor and Harry Hopkins as secretary of commerce. How did these two social workers, without apparent ties to either labor or business, acquire these posts?

Frances Perkins was a close, longtime friend of Mary Harriman Rumsey,
From Hoover to Roosevelt:

301

The Federal Reserve and the Financial Elites
To return to monetary policy: Eugene Meyer, who, after all, had three years to go in a ten-year term as governor of the Federal Reserve Board, refused President Hoover’s request to resign immediately upon the inauguration of President Roosevelt. But Meyer found out quickly that he could not agree to going off the gold standard and an inflationary higher gold price, and he tendered his resignation as Fed chief in early May 1933.

President Roosevelt’s early monetary appointments sent an important signal of his new orientation and policies. To succeed Meyer, Roosevelt appointed his friend, the young Georgia banker Eugene R. Black, who had been governor of the Federal Reserve Bank of Atlanta. Black’s orientation may be gauged by the fact that, when he left the Fed a year later, he was to spend 16 years climbing up the executive ladder at the powerful Chase National Bank, which by this time had shifted firmly from the Morgan to the Rockefeller camp (see “Banking and Financial Legislation: 1933–1935,” p. 308). Indeed, for the rest of his working life, Eugene Black was to serve at Chase as protégé and indeed lived in the same house as Mrs. Rumsey in Washington (the latter had been widowed since 1922) until her accidental death in 1934.

Perkins was also a close friend of the New York banker Henry Bruere, who was president of the large Bowery Savings Bank, treasurer of the influential left-liberal Twentieth Century Fund, and a director of the Harriman-controlled Union Pacific Railroad. Bruere served as credit coordinator in the Roosevelt administration and as executive assistant to Secretary of the Treasury William Woodin.

As for Hopkins, he was a friend of Harriman’s, who obtained the unanimous support of the BAC for Hopkins’s Cabinet appointment.

Hopkins chose as his No. 2 man at commerce Edward J. Noble, who had been a board member in the early 1930s of the ambitious but ill-fated Aviation Corporation, set up by Harriman, and by Robert Lehman of Lehman Brothers. In 1933, the Aviation Corporation was reorganized, and most of its assets sold to the newly formed Pan American Corporation, on whose board sat both Robert Lehman and FDR’s cousin, Lyman Delano.

It did not harm Hopkins that he was also a friend of John D. Hertz, partner in Lehman Brothers. Burch,
Elites
, 3, pp. 30–31, 59.

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The Colonial Era to World War II

of none other than the eminent Winthrop W. Aldrich, chairman of the board at Chase and a close kinsman of the Rockefeller family.49

Roosevelt’s first secretary of the Treasury was William H.

Woodin, who received the appointment after it was turned down by Melvin Traylor, president of the First National Bank of Chicago, one of the main commercial banks in the Rockefeller orbit. Woodin had spent most of his career as a high official of the American Car and Foundry Company in New York, and was now chairman of the board of the American Locomotive Company. Woodin was also a director of such important enterprises as the Harriman-controlled American Ship and Commerce Corporation, as well as the Rockefeller-dominated Remington Arms Company. He had also been a founding director of the County Trust Company of New York, along with the influential Vincent Astor and Herbert H. Lehman. Woodin’s financial associations in New York were therefore in the Harriman-Astor-Lehman-Rockefeller ambit rather than in the Morgan network.

Ill health forced Woodin to resign in December 1933, however, and his place was taken by Henry Morgenthau, Jr., who was to be an important and controversial Treasury secretary for the remainder of Roosevelt’s reign in office. Morgenthau, who rose from undersecretary, was a longtime friend and neighbor of Roosevelt’s, and a gentleman-farmer interested in agriculture. He was backed by his wealthy father, who had been ambassador to Turkey under Wilson, but more important was Henry Jr.’s close links to the powerful investment banking family of Lehman Brothers. Indeed, Henry Jr. was married to a 49Aldrich’s father, Nelson W. Aldrich, had been a moderately wealthy wholesale grocer who became senator from Rhode Island. Nelson’s daughter Abby married John D. Rockefeller, Jr., and from then on Nelson, a longtime Republican majority leader, was Rockefeller’s man in government. Winthrop was therefore a brother-in-law of John D. Rockefeller, Jr., and uncle to the next generation of Rockefeller brothers.

From Hoover to Roosevelt:

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The Federal Reserve and the Financial Elites
Lehman (her mother was a sister of Herbert H. and Arthur Lehman), and Henry’s nephew Jules Ehrich had married a sister of Philip Lehman. Moreover, Henry Sr. had long been a major stockholder of the Underwood Typewriter Company, and several of his fellow board members were Philip Lehman; Philip’s cousin Arthur Lehman; Maurice Wertheim, who had married Henry Jr.’s sister, Alma; and Waddill Catchings, a top official of Goldman, Sachs.50

Two fateful monetary steps were taken in 1933 by the incoming Roosevelt administration. The first and most revolutionary deed, accomplished in April, was to go off the gold standard, to confiscate almost all the gold of American citizens and place it under the ownership of the Federal Reserve, to embargo the export of gold and to devalue the dollar to $35 a gold ounce.

This swift policy carried out almost completely the program of The Committee for the Nation. But in March and April even the Morgans had been convinced by the banking crisis to go off gold. Democratic Morgan partner Russell Leffingwell was influential in urging Roosevelt to go off gold and devalue the dollar, and Jack Morgan himself applauded Roosevelt’s decision to inflate and go off gold.

The major theoretician of the inflationists, who had liquidated the assets of his own prior Stable Money Association into The Committee for the Nation, was Yale Professor Irving Fisher, the intellectual forerunner of Milton Friedman (who has hailed Fisher as “the greatest economist of the twentieth century”) and who mechanistically had believed that since the price level was not rising in the 1920s, there was no inflation to worry about and no coming crash. Fisher strongly urged the inflationist devaluation and fiat standard upon Roosevelt, who had asked him for advice. When Roosevelt cast the die against gold, Fisher exulted to his wife, “Now I
am
sure—as far as we ever can be sure of anything—that we are going to snap out of this depression fast. I am now one of the happiest men in the world.” 50Burch,
Elites
, 3, pp. 26–27.

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The Colonial Era to World War II

Fisher had a personal as well as an ideological stake in rapid inflation. Sure of a permanent prosperity and stock boom in the late 1920s, he had invested all of his wife’s and most of his sister-in-law’s substantial Hazard family fortune in the stock market, and he was desperately anxious for Roosevelt to reflate and to drive up stock prices. As Fisher added in the same letter to his wife: “I mean that if F.D.R. had followed Glass [who had urged him to stay on gold] we would have been pretty surely ruined.” As it happened, the fiat money policy did
not
restore the stock market and Fisher’s and his wife’s and sister-in-law’s fortune
was
ruined by his unwise speculations—a mute testimony to the unsoundness of Fisherine monetarism in explaining or counteracting business cycles.51