 |
| FDR's biggest challenge was at the Democratic Convention. |
Hoover campaigned in 1928 on the theme of prosperity, but in the next four years he saw this platform collapse under him.
In fact, the crash of 1929 created huge animus against the Hoover Administration.
For his part, FDR had two fewer obstacles to overcome to win the Democratic nomination than confronted Al Smith:
(1) The anti-Prohibition stance of Democrats in big cities was no longer such a negative. City voters were growing fast and so was the evidence of gangsterism created by Prohibition.
(2) FDR was not a Catholic.
However, FDR had two new - big - problems in the run-up to the Democratic convention in Chicago at the end of June 1932.
- In addition to his decade-long struggle with leg paralysis caused by his 1921 bout with polio, FDR was burdened with a huge debt from the Warm Springs, Ga., foundation that he created while there for rehabilitation.
- Democrats in the west and south opposed the nomination of another New Yorker, after two losses by Al Smith in the general election.
Will Woodin was to play a big role in addressing the first problem and a significant role in addressing the second.
FDR's Warm Springs Problem and Woodin's Response
During 1926-28, before he was elected Governor of New York, FDR spent half his time in Warm Springs. While regaining his health, he came to dream of sharing the restorative powers of the hot springs.
In 1926 he committed about $200,000, two-thirds of his liquid assets, to buy from George Foster Peabody the old Merriwether Hotel in Warm Springs to house a new rehabilitation center. He ended up buying nearly 3,000 acres.
After his reelection as Governor in 1930, FDR's circle of supporters turned their minds to the possibility of his running as President and the Warm Springs charity loomed as a giant albatross.
It wasn't just that FDR had ran through his bank account buying the hotel and land and then renovating the properties. The center itself was operating at a significant annual deficit because FDR arbitrarily set a weekly rate for treatment of $42, which was below his costs. On top of that he accepted patients regardless of their ability to pay. The cumulative debt in 1930 was more than the Roosevelt family could handle and precluded FDR from undertaking the expense of a campaign for the Democratic nomination and then a national campaign for the presidency. Until this matter was settled, FDR could simply not take on running for prresident.
At this juncture, Will Woodin stepped in, urged on by John J. Raskob, Chairman of the National Democratic Committee. Raskob was a businessman like Woodin. He was Vice President of both General Motors and DuPont, and champion of the idea that "Everyone Ought to Be Rich". He was prepared to put up money to support FDR's run for Governor, but not to raise money to pay off the debt.
Woodin agreed to chair the Finance Committee of the Warm Springs Board and raise money to pay off the debts. He got a commitment first from Raskob that was fulfilled. He then chipped in a substantial amount himself and went raising money by launching a
public relations program pointing out the devastation caused by polio, and urging support of preventive action and rehabilitation. It worked.
Woodin's taking onto himself the burdens of the Warm Springs finances was a significant contribution - understood by everyone who knew about the situation - to FDR's willingness to run and his electability.
FDR's Strategy for the 1932 Convention
With the Warm Springs debt addressed, FDR hastened to position himself as the champion of Main Street and the ordinary working person against Wall Street. The financial crisis caused a sea change in American electoral politics. From being viewed as the engine of the economy and the creator of wealth, Wall Street had now become a pariah. FDR was intently focused on making sure (1) the blame fell on Hoover, (2) there was a plan to fix the problem, and (3) there was a person he could put in Treasury who could take care of this while he focused on delivering the overall message.
The shift in national psychology from 1928 to 1932 was astonishing. The turnaround in the election returns has never been equalled. The Democrats went to their convention looking for a candidate who could make full use of the opportunity that economic misery offered to them. They succeeded in finding the right person.
Treasury Secretary Andrew W. ("Andy") Mellon was too good a target not to include in the assault that the Democrats prepared on the Republicans in 1932. In addition, FDR came to have an intense personal dislike for Mellon.
So in a chant that the Democrats made a theme song during the campaign, Mellon was portrayed as co-driver in the train wreck engineered by Hoover:
Mellon pulled the whistle / Hoover rang the bell
Wall Street gave the signal / And the country went to hell.
Republicans Join the Attack on Hoover
It got worse for Hoover, as the outcry of the Democrats was joined by maverick Republicans:
- In the Senate, outgoing Republican Chairman of the Banking Committee, Sen. Peter Norbeck (S.C.), found New Yorker Ferdinand Pecora to become the General Counsel to the Committee to investigate the 1929 collapse. This is the man who was called "The Hound of Wall Street."
- In the House, Republican Chairman of the Banking Committee, Rep. Louis Thomas McFadden (Pa.), moved to impeach Hoover in 1932 and thereby induced Mellon to resign within days.
The Pecora Committee. The Committee that was created by Senate Resolution 84, introduced March 2, 1932, authorized the Committee on Banking and Currency to investigate “practices with respect to the buying and selling and the borrowing and lending” of securities.
During the first 11 months of its work, the Committee got little done as banking executives refused to produce bank records and evaded questions. In early 1933, at his wits end because of the stalling of banks and securities firms, Committee Chair Sen. Norbeck made what he called a "happy discovery" and hired a new chief counsel, former New York deputy district attorney Ferdinand Pecora.
Pecora ensured he would be kept on by the Democrats by going right to work using the Committee's subpoena power and the glare of publicity. The results were swift and momentous, and they reached unexpected places.
The Impeachment Resolution. Meanwhile, in early 1932 Republican Rep. McFadden was creating havoc in the House. Born in Bradford County, Pa., he graduated from a commercial college in Elmira, N.Y. and worked his way up to be president of the First National Bank in Canton, Pa. In 1914, McFadden was elected from Pa. to the 64th Congress and he was reelected to the nine succeeding Congresses, chairing the House Committee on Banking and Currency from 1920 to 1931.
His main banking legacy was passing the McFadden Act of 1927, limiting federal branch banks to the city in which the main branch operates. McFadden was a sworn enemy of the Federal Reserve, which was run, he said, by Jewish banking interests who controlled the USA and deliberately caused the Great Depression.
When McFadden moved to impeach President Herbert Hoover in 1932, he also introduced a charge of conspiracy against the Fed, whose Chairman ex officio was the Treasury Secretary. (The following year, in late May, as Pecora's investigation for the Senate was hitting its crescendo, he introduced House Resolution No. 158, calling for impeachment of Treasury Secretary Woodin, two assistant Secretaries, the Board of Governors of the Federal Reserve, and the officers and directors of its twelve regional banks. In 1934, Drew Pearson reported in his column that McFadden had been "extensively" quoted "in support of Adolf Hitler".)
The GOP was in a corner nationally. Even within the GOP, Hoover was isolated. A joke told at the time was that Hoover asked Mellon's replacement as Treasury Secretary, Ogden Mills, to lend him a nickel to buy a soda for a friend. Mills is said to have replied laconically: "Here's a dime. Treat all of them."
The June GOP and Democratic Conventions
To be fair, Hoover was hamstrung by the small-government orientation of his party in the face of a huge crisis. He had experimented with some public-works initiatives, but they were too isolated and tentative to have much impact on the economy.
The Republican convention in Chicago in mid-June 1932 had a six-point economic program. Point 3 was: "To stand steadfastly by the principle of a balanced budget." Point 4
was: "To devote ourselves fearlessly and unremittingly to the task of eliminating abuses and extravagance and of drastically cutting the cost of government so as to reduce the heavy burden of taxation." In short, the GOP was committed to cutting spending despite a 25 percent unemployment rate, which has to be viewed with hindsight as a strategic error as well as a humanitarian failure.
The editors of the
New Republic published a
scathing editorial lacerating Herbert Hoover’s defense of his administration, on October 19, 1932:
Hoover’s claim to credit for a large public-works program is wholly false. Public works have greatly contracted during the depression. He has fought every measure which really would have led to a net expansion. If he had wanted at all costs to aid the unfortunate and increase prices, he would have enlarged governmental expenditures and would have borrowed the money with which to do so. Thus he would have risked further depreciation of bond prices and injured the creditor class. What he really did was to try to save the capitalist system by saving the creditors at the expense of the population at large, letting the devil take the hindmost.
However, the Democratic convention later that month, also in Chicago, followed the GOP line on the balanced budget, and FDR embraced the convention's platform. For years FDR would pay lip service to the balanced-budget program by presenting the Congress with deficit-free budgets - but he then added emergency funding to address unemployment, a practice that more recent Presidents have used to finance military spending. As FDR said in a campaign speech in Pittsburgh in 1936, the year that John Maynard Keynes published his game-changing
General Theory:
To balance our budget in 1933 or 1934 or 1935 would have been a crime against the American people. ... [W]e should have had to set our face against human suffering with callous indifference.
For this decision to spend government money when private money was scarce, Keynes hailed FDR as a "
Trustee for those in every country who seek to mend the evils of our condition by reasoned experiment within the framework of the existing social system." In his Open Letter to FDR in December 1933, Keynes said:
[I]n the first stage of the technique of recovery I lay overwhelming emphasis on the increase of national purchasing power resulting from governmental expenditure which is financed by loans and not by taxing present incomes.
The two leading candidates at the Democratic convention were FDR and former NY Governor Al Smith. FDR's staff spoke privately to the next-leading candidate, John Nance "Cactus Jack" Garner, Speaker of the House, offering him the Vice Presidency in return for his support of FDR; he agreed. At the next ballot, FDR won the nomination.
The 1932 General Election
It was a terrible year to raise money for FDR's campaign. The Democrats had a considerable deficit when the election rolled around. Frank Walker, treasurer of the Democratic National Committee, did the best he could. The DNC spent about $2.2 million, or $500,000 less than the Republicans.
FDR's top two supporters (both contributing money and asking others for money) were John J. Raskob, banker and automobile manufacturer (GM), who served as Chairman of the DNC, and Will Woodin. Other major donors were Bernard Baruch, financier; Vincent Astor, Chase National Bank; William Randolph Hearst, newspaper publisher; R. W. Morrison, of San Antonio, Texas; M. L. Benedum, Pittsburgh oil and gas operator.
The anti-Wall Street mood in the country produced the numbers that FDR hoped for. In the general election in November, the election returns turned the 1928 numbers upside down. The victory this time went Democratic, with FDR capturing 57.4 per cent of the votes to Hoover's 39.7 percent; the electoral college split 472-59. In Suffolk County, N.Y, where Woodin had a summer home since 1912, Hoover beat FDR, by fewer than 10,000 votes - a sharp drop from 1928 when Hoover carried the county by more than 21,000 votes.
Nationally, the GOP was ahead by 50 in 1928 on the Real Clear Politics index of party support at the polls. Most of the time, 60 percent, the index varies between plus and minus 30 points. By 1936, the GOP score dropped down to -119, a plunge of 169 index points. This is the largest shift in the electoral winds on the RCP chart covering 1928-2012.
The election may be said to have hinged on Hoover's tentativeness in dealing with the stock-market crash, the bank panics and unemployment. A major crisis requires a major response. His efforts to encourage employment, limited by members of his own party, didn't have much effect. The editors of the
New Republic in October 1932 summed it up with an astonishingly 21st-century view of Hoover's error (a theme we return to in the last chapter):
Hoover believed he was a wholly innocent man pursued by fate. But the origins of the Crash of 1929 were interwoven with his own past. He led the country up the mountain of unbridled capitalism and to the brink of the precipice, and he took credit for the ascent. … [H]is defense of “sound money” [and] balancing the budget was a bankers’ policy, pursued in the interest of financial institutions—our great creditors. … It is either disingenuous or stupid to represent this course as being in the immediate interest of debtors, farmers, and the unemployed. On the contrary, it shifts to them a major part of the losses of the [D]epression. [T]he rigid economy necessary to produce a balanced budget limits governmental expenditures at the very time when it is most necessary to expand them as a means of unemployment relief. [D]irect aid to debtors and a really adequate program of public works … may create employment [and] put money in circulation. “Traitor to his class” Roosevelt tempered his objectives with the spirit of compromise. Friends and enemies alike had to admit that FDR was a political genius.
During the interim between November and March, Hoover wanted FDR to sign on to every significant move he considered making. FDR refused to take on his responsibilities prematurely. The Depression changed public opinion about Hoover's understanding of the economy and his ability to fix things. Voters were disappointed in Hoover. FDR's actions in New York State showed that more could be done for the economy than Hoover was willing to do.
The Exiting Treasury Secretary
It is interesting to speculate what might have happened if Andrew Mellon had not been so exasperated with attempts by Rep. McFadden and Wright Patman and other to impeach him starting in January 1932 and had stayed on. I speculate that a likely outcome is that President Hoover might have taken some of the actions that FDR and Woodin took a year after Mellon resigned.
Instead, after Mellon resigned in February 1932, Ogden L. Mills took over until a year later, when on March 5, 1933, FDR took over with Will Woodin at the helm of the Treasury him. (Hoover meanwhile sent Mellon to London as U.S. Ambassador for the remainder of his term.)
Under the 1913 Federal Reserve Act, the Treasury Secretary was also ex officio chairman of the Federal Reserve Board (later, the law was changed to provide for an independent Chairman). Mills was therefore at the top of the two institutions that were supposed to be addressing bank panics. Mills was a competent lawyer but was part of a system that was not equipped to address the problems it faced.
Born in 1884 in tony Newport, R.I., Mills graduated from Harvard College in 1904 and Harvard Law School in 1907. He was a loyal delegate to the Republican National Conventions of 1912, 1916, and 1920, having won election to the New York state senate in 1914. He resigned in 1917 to enlist in the US Army and was discharged with the rank of captain. Starting in 1921, Mills won three successive elections to the US House of Representatives. In 1926, he ran on the GOP ticket against incumbent Al Smith for Governor of New York and was defeated.
In 1927, President Calvin Coolidge appointed Mills undersecretary of the Treasury, where he served under Andrew Mellon. Since Mellon spent much of his time in Europe, President Hoover came to rely heavily on Mills, who was faithful to the GOP Hard Money cause.
This background meant that in the midst of the financial panic and high levels of unemployment, Mills kept calm and called for a balanced Federal budget. As more banks closed and workers became unemployed, tax revenues fell, so a balanced budget meant swift deep cuts in government spending and higher tax rates.
After his retirement from the Treasury, Mills attacked FDR's policies in several books that did nothing to stop FDR's massively one-sided reelection in 1936. Mills died the following year in New York City.
Picking the Cabinet
The cabinet short list as of December 9 included Senator Carter Glass or Bernard Baruch as Treasury Secretary. Will Woodin was listed as a probable Commerce Secretary - the job that Hoover had filled.
Biographies of Carter Glass say he was offered the job of Treasury Secretary and turned it down. A widely reported AP story on February 21, 1933 reports just that.
But a frequently cited tale suggests that FDR was still wondering whether Glass or Woodin would be a better choice. Some advisers to FDR urged him to keep Glass in the Senate where his seniority was important. Either FDR's staff made their recommendation or Glass took himself out, but in the end a message went to FDR from his staff saying that "a wooden frame for the swimming pool is preferred to a glass one" (the Warm Springs center had under way a glass-enclosed swimming pool).
Woodin was offered the job. He had already been working closely with FDR in February. He was perfect for the position – a Republican, a Main Street business executive of prominence, a friend of FDR – someone who could be trusted with the huge job of making sure that FDR's remedies for the financial disaster and the bank panics would work. He was not from the banks or Wall Street, but he knew them and vice versa, all the better to take them on.
Another person who would be on FDR's team was Joe Kennedy, who Kennedy graduated from Harvard in 1912 announcing a plan to earn a million dollars by 32. Within 20 years, he headed a bank that he rescued, managed a major Boston shipyard, and helped facilitate the merger of RKO, salvaging the U.S. film industry. He was known as a bloodless investor. But FDR is his match. When FDR was Assistant Secretary of the Navy in 1917, Kennedy refused to release ships his private shipyard had built until the government had paid for them. FDR sent in the Marines, earning Kennedy’s respect and, in 1932, his support – and brought with him William Randolph Hearst.
Kennedy hoped to be appointed Secretary of the Treasury and was disappointed when Woodin got the job. But FDR put Kennedy on the team to head the Securities and Exchange Commission, with FDR commenting in private: “Set a thief to catch a thief.” (Kennedy does an excellent job.)
In the meantime, Hoover was as panicked as the banking system he was supposed to calm. He begged FDR to join with him in supporting certain measures that would stem the panic. Ogden Mills could not bring himself to deviate from the balanced-budget orthodoxy, and after the election in 1932 he was no more eager or willing than Hoover to take strong action.
However, FDR was become by this time a consummate politician and was not going to dilute the impact of his presidency by allowing Hoover to take his share of credit for any employment-creating or panic-reducing measures that might be introduced during the months before Inauguration. In the immortal words of a later era, FDR let Hoover "twist slowly in the wind" while instructing Woodin and other members of the Cabinet to be ready to take action on the day FDR took charge.
Harding was weak and had a strong cabinet that included Herbert Hoover and Andrew Mellon. Hoover was strong and had a weak cabinet except for Andrew Mellon. FDR was a strong President but he had a broad agenda, so he needed strong, detail-oriented managers in his Cabinet, and Will Woodin exactly filled the bill. It was a good match in many ways. Unfortunately, powerful forces unleashed to solve one big problem may create other ones. That is a story for the next chapter.
Notes
Data on GOP Strength 1928-2016: Real Clear Politics Blog
http://bit.ly/1SkadCq.
Warm Springs Purchase, 1926: Jean Edward Smith,
FDR, New York: Random House, 2007, pp. 208-217.
Warm Springs Pub,ic Relations: Disability Museum,
http://disabilitymuseum.org/dhm/lib/detail.html?id=942
Raskob: "Everyone Ought to Be Rich,"
Ladies Home Journal, August 1929.
Balanced Budget: FDR Library,
http://www.fdrlibrary.marist.edu/aboutfdr/budget.html.
Keynes: Open Letter to President Roosevelt
1924 and 1928 Conventions: FDR Library
.
1928 Election: Paul F. Boller, Jr.,
Presidential Campaigns (Oxford University Press, 1996).
1932 Convention: Paul F. Boller, Jr.,
Presidential Campaigns.
1932 Hoover Policies: The editors of the
New Republic (October 19, 1932),
1932 Votes: Paul F. Boller, Jr.,
Presidential Campaigns. Suffolk County: “Normal Rep. Vote Cut Heavily,"
East Hampton Star, Nov. 11, 1932, p.1.
Ogden Mills: Abbreviated from the The Federal Reserve History Gateway bio of Ogden Mills.
Cabinet: “Washington Inside and Out,"
East Hampton Star, Dec. 9, 1932.
Links to other chapters.
