Forgotten Man, The (11 page)

None of the gently pro-Soviet messages, however, was taken seriously by the Republicans in power. As for the collectivist ideal, Americans were still generally not ready to share that either. The spring after his return, an enthusiastic Maurer was nominated as the vice
presidential candidate beside Norman Thomas on the Socialist ticket in New York. Douglas, thoughtful as always, endorsed the Socialists; he felt the two mainstream candidates, Hoover and Al Smith, represented “sterile and corrupt groups.”

Overall, the Socialists did not do well, pulling 300,000 votes, or less than 1 percent, and winning no electoral votes. Tugwell for his part concentrated on the main parties, focusing his energy on finding a way into the campaign of the Democrat Smith. He put out feelers to Belle Moskowitz, Smith’s adviser and the mother of Carlos Israels. He advanced the concept that the government might pay farmers off to curtail supply of excess food. Moskowitz, though a reformer, “Smith’s angel,” still rejected Tugwell’s ideas—as he would recall in his memoir—as “pretty drastic.” How could even a mainstream Democrat hold up against campaign promises made or ascribed to Herbert Hoover, such as “a car in every garage and a chicken in every pot”?

The election did go to Hoover, who polled more than 20 million of the 36 million odd votes cast, taking 444 electoral votes to the Democrats’ 87, even more electoral votes than Coolidge had in 1924. The Republicans also gained strongly in Congress, so that they now held a ten-seat lead in the Senate and nearly a hundred more seats than Democrats in the House. The progressives whom Stalin had watched so carefully did abysmally. Communists and Socialists together could claim less than 1 percent of the vote. For the moment, at least, the similarities between Hoover and the Left progressives were submerged, even though someone like Stuart Chase would work with the budding technocratic movement, which deified engineers. The travelers and intellectuals were leftists; Hoover was a businessman. They were ephemeral professors; he was the vigorous president. They were on the edge; he was at the epicenter. The only party as alienated as they were was Calvin Coolidge, who at first bridled at Hoover’s request that a battleship be placed at his disposal so that he might cruise the coast of Latin America in the long interregnum. Take a cruiser, Coolidge said, “it would not cost so much.”

They watched as President Hoover made his changes and established his rituals. Hoover inaugurated a morning regime, heaving
about an eight-pound medicine ball with fellow members of his cabinet on a tennis court. He had a phone installed right at his desk, ending Coolidge’s “no phone” rule in the Oval Office, and instituted a special switchboard that connected him directly to his prominent staffers. But he also added staff and erected barriers to reaching him; as he would later note, “The president is not open to everyone’s call.” Thus Hoover managed to achieve two habitual goals—maximum efficiency from within, and maximum defenses against unwanted intrusions or criticism from without.

Now the economy was still doing so well that it was hard for anyone to criticize Hoover without sounding morose or shrill. The election outcome brought home to the travelers two things. The first was that their ideas would not resonate in so prosperous a period as the late 1920s. The second was that if they were going to get their ideas through—even in bad times—then Tugwell had it right; they really would have to go with one of the two big parties. Nineteen twenty-eight made clear that from now on, a Tugwell or a Douglas could not attack the parties from outside. Reformers had to work from within—and do so more effectively than Tugwell had succeeded thus far.

In the meantime, therefore, the intellectuals retreated—back to the universities, the union halls, and the magazine offices, to talk and to write. If Russia had a five-year plan, perhaps the United States ought to as well. Tugwell finished an essay he published in a group of essays by the travelers,
Soviet Russia in the Second Decade.
While criticizing some aspects of the Soviet Union, the volume on balance was excited and favorable, containing an essay by Tugwell’s friend John Bartlet Brebner titled “In the Ante-Room of Time.” Counts trumpeted news of a “great social experiment”; Dewey, after his own trip, published a series in the
New Republic.

Roger Baldwin for his part grappled with the ultimate question about Soviet Russia: Could there be freedom there? Baldwin thought there could in the future, even under a dictatorship, be something good like freedom. After his stay in Soviet Russia, he had not returned with the others but had stopped in Paris to write up his Russian
experience, and hired Alexander Berkman, Emma Goldman’s old partner, to translate some of the documents he’d brought out into English. (“He was gentleman enough to hide his view of me as naïve,” Baldwin later told a biographer.) “I am confident that far greater liberties than are tolerated are consistent with the maintenance of the Soviet regime, and even with the Party dictatorship,” he concluded. His thesis was the direct opposite of Coolidge’s “All liberty is individual.” What Baldwin was saying was that a higher liberty could be collective. He optimistically titled his book, published the next year,
Liberty Under the Soviets.

Douglas discussed the Soviet Union in a symposium with the journalist Dorothy Thompson, who was shortly to marry Sinclair Lewis, the author of
Babbitt.
Both Thompson and Douglas were friendlier to the Soviet authorities that the third speaker, a former envoy of the interim Kerensky government named Boris Bakhmeteff: “I came here to sound a note of anxiety,” Bakhmeteff told the audience on January 19, 1929. Nineteen twenty-nine turned out to be the year in which Stalin would begin a new stage of terror, systematizing exportation to concentration camps in what would later be known as the Gulag. Still, most Americans could not know this, and most New Yorkers certainly didn’t: Walter Duranty, the
New York Times
correspondent, failed to convey the extent of the violence. Generally, the salons of Washington, Chicago, and above all Manhattan welcomed the travelers as celebrities.

Stuart Chase, too, would work on articles and a book about Russia, aimed at capturing the attention of the leaders in the established political parties. Interested in the future of cities, he was also imagining a new style of federal government far more ambitious than what had been before. The volume, published a few years later, would open with a reference to Keynes, the English economist who had approved of Hoover: “John Maynard Keynes tells us that in 100 years there will be no economic problem.” To get to that point, though, Chase reiterated, the United States would indeed have to depart from free-market models. Once again, he sketched limits. “
Laissez faire
rides well on covered wagons; not so well on conveyer
belts and cement roads,” Chase wrote. Whatever the change that was happening, “it is going in the direction of more collectivism.” Chase argued the key to the change was Russia. It might be a dictatorship, but it was, just as Steffens said, the future. “Russia, I am convinced,” Chase said, “will solve for all practical purposes the economic problem.” Someday, the United States might begin its own experiment in central planning. The conservatives were having their day, and the planners would get theirs. After all, as Chase would ask in his final sentence, “Why should Russians have all the fun remaking a world?”

October 1929
Unemployment: Heading toward 5 percent
Dow Jones Industrial Average (October 1): 343

“CLOSING RALLY VIGOROUS,”
remarked the
New York Times
headline when the stock market crashed the last Tuesday in October 1929. Bankers noted that throughout the day periodic lifting spells had pulled the market up. Back on August 20, the Dow had closed at a high of 368. Then the market had gone yet higher, to 381. It made sense therefore that there had been spectacular drops all month, right up to this closing, on the twenty-ninth, at 230. As Treasury officials had told the paper the preceding Thursday, the losses did not matter so much anyhow—they were “paper losses.” Things were moving into balance. Much of the nation shared this view. Hoover, six months in office, planned to spend the weekend at the White House with the author Samuel Crowther, who had published an adulatory biography of him during his campaign. In those days the treasury secretary was a member of the Federal Reserve Board. Mellon sat out the week, concluding, along with Fed colleagues, that no action was necessary. Paintings, as usual, were crowding out markets in his
mind. That week he lent out one of his paintings, a Flemish primitive, so that it could appear in an exhibit that would benefit the distribution of free milk to babies.

In Chicago, Paul Douglas was preoccupied with a fierce municipal battle. He was trying to constrain Insull. Two reform-minded attorneys, Donald Richberg and Harold Ickes, were with him on the campaign. Richberg hired David Lilienthal, Frankfurter’s former student, to work with him, and he could see that the young man would make his own name in public utility law. The admiration was mutual, and Lilienthal would later write of Richberg: “He is not simply a brilliant lawyer, but a social philosophy runs through everything he does.” Douglas, Ickes, and Richberg had formed the People’s Traction League to defeat state and city legislation that would consolidate Insull’s control of the city’s streetcars and elevated lines. Insull for his part was fighting back with vigor—and, as it would emerge later, with the support of both voters and legislators. The Windy City’s uncrowned monarch was also preparing for the gala November opening of his opera house. Guests wearing ermine, sable, velvet, and brocade—among them Mellon’s brother, Richard B. Mellon—would come to hear
Aïda.

Now settled back in Massachusetts, Coolidge was busy earning up a storm writing freelance articles for
Cosmopolitan
,
Ladies’ Home Journal
, and other periodicals, and netted a $65,000 advance for his autobiography. The first year out of office counted most in earnings for ex-presidents, and he was determined to make his own worth it. He also headed down to New York from time to time—the next year, for example, he would join Irita van Doren, a literary editor, along with Governor Roosevelt, Thomas W. Lamont of Wall Street, William Woodin (a financier), Ida Tarbell (the journalist), Henry Morgenthau Sr., and others in serving on the welcoming committees for the Indian poet Sir Rabindranath Tagore.

As for Tugwell, he certainly noted the crash; his thoughts about the economy were already dark. He was worried about the prospects for his father, who was expanding his business, working with a few small banks. But Tugwell was still, mostly, thinking in terms of agriculture, and his world was still a world of the classroom. “Of all the
kinds of men, the farmer is the greatest speculator,” he and coauthor Harry Carman would write several years later in their introduction to an eighteenth-century monograph, Jared Eliot’s
Essays upon Field Husbandry in New England.
“He does not think of himself as a gambler, but he lives every day subject to such risks as would give a professional Wall Street operator nervous chills.” Early that autumn Columbia had introduced a new series of adult education courses in midtown: Tugwell would sally down the West Side from Morningside Heights to teach.

Even the executives from the firms affected by the downturn were not so surprised. One was Willkie. Just that year he and Edith had come to New York so that he could join the legal team that represented one of the new utilities giants, the holding company Commonwealth and Southern. The Willkies’ sudden trip from mid-America to Manhattan shocked them a bit—Willkie told an acquaintance that in Akron he hadn’t been able to walk down the street without meeting a friend, but here, “there isn’t a soul I know.” Alfred Loomis and Landon Thorne, the pair who had created Commonwealth and Southern, had also created United Corp., another giant holding company. But Loomis, Thorne, and Willkie all understood that utilities’ prices, which were astronomical, could certainly be expected to go down. Earlier in the year Loomis and Thorne had sold off shares after discovering to their shock that their new utility company, United Corp., was priced above even their own most ambitious estimates. Hoover’s political opposition were beginning to consider whether the crash might be used to their advantage.

Franklin Roosevelt had proven himself a formidable campaigner the preceding year by winning the governor’s office despite the Hoover sweep. The victory had been noted nationally for three reasons. The first was that Roosevelt was already a presidential name. The second was that New York was by far the nation’s most important state, politically, with forty-five electoral votes—California, for example, a place that was mostly future, had only thirteen. The third was that Roosevelt had come back despite the crippling case of polio he had contracted earlier in the decade. Roosevelt was in perpetual
discomfort—pain, often—and that normally would have made his fellow party leaders rule him out as a prospect for a post like New York. Governors of that state were elected every two years, requiring energetic figures willing to campaign without ceasing. But his fellow party leaders admired his spirit—he did not speak of his infirmity—and he had rewarded them. Now Roosevelt used the opportunity of the crash to jab at Republicans—Democrats certainly would have been blamed had they presided over similar stock drops. But Roosevelt also devoted time in his speech to another project: campaigning for greater public-sector involvement in the area of utilities.

On Wall Street, many investors were losing their livelihood. Most famous was the pair of men who committed suicide by leaping out of the window while holding hands: they had maintained a joint account. This was the kind of anecdotal tragedy that would come to be symbolic of the crash. But the despair was not uniform: indeed, on November 13, 1929, the city’s chief medical officer reported that there had been forty-four suicides in the preceding four weeks in Manhattan, nine fewer than the fifty-three for the same period in 1928. As for banks, some were failing, but the rate was not outside the norm for the 1920s. Total commercial bank failures for 1929 would be lower than the same statistic for 1924, 1926, or 1927.

The nation’s first impulse was correct. Washington might not have needed to do much. The miracle of the 1920s had followed a rough downturn at the start of the decade, and then a comeback. Such crashes—or panics, as they were known—did not make a lengthy slump an inevitability. Perhaps all that was needed now was for owners to sell their holdings, so that the market could find its own bottom. This was what Mellon would mean when he recommended that stockholders, banks, and farmers liquidate their holdings. The phrase “to liquidate” sounded harsh, but it also represented an old and important argument. Uncertainty was one of the market’s problems. Only when stocks or wages were “marked to market” and found their bottom could they rise again.

While the market had indeed been high, it might rebound in the next few years. The increase in stock prices lately had not been the
pure luck of roulette. It had reflected something genuine: productivity gains and the hope for future ones. New consumer products made everyone aware of the potential in the economy for profits. The utilities world of Insull, Loomis, Bonbright, and Willkie was a good example: electrification had dramatically brightened the 1920s, but 50 percent of American households were still waiting for power.

In this argument, the bull market of the 1920s was not an empty speculative bubble. Rather, it was the market’s best effort to quantify the value to America of the potential of the recent and future innovation. At a time of breakthrough innovation like the 1920s, it was entirely rational for stock prices to break through old barriers.

Many economists at the time recognized this hidden value, though they often described it in different ways. One of them was Stuart Chase, who a few weeks following Black Tuesday was writing that “the stock markets will not affect general prosperity.” Another was Irving Fisher, who in that Black October argued that stock prices were too low, and could move up shortly. At the time and later, this provoked ridicule: for decades people would laugh at Fisher, the last holdout, and would note, maliciously, that he had also lost a fortune on his own forecast. Still, Fisher’s surmise was based on facts: companies’ profitable earnings reports, ratios of such reports to share price, and the large scale of companies’ investments in research and development. The stock market reflected more growth, and less speculation, than the panickers said. And in fact the pattern of prices across the economy tended to support this view. While they had risen on Wall Street, they had fallen on Main Street, which meant that this was not traditional inflation. Traditional inflation, his area of study, shows up across the price landscape.

All this, of course, did not mean that highly priced stocks were “safe,” or that they would not gyrate or fall. The same theory—that stocks suggested that new innovations promised further growth—would also have explained the Dow’s volatility that autumn. Everyone knew there was value in new technology. But what that value was and when it might be realized—in 1929, or the next year, or a decade hence—no one knew.

As more bad news arrived, Fed officials, Mellon, Hoover, and many others began to reconsider. After all, they reflected, an adult who had begun watching the market in 1907 had had to wait two full decades for the Dow to double, until 1927, the year Tugwell and the others had sailed on the
President Roosevelt
. In 1927, the Dow Jones Industrial Average crossed the 200 mark. Yet from the 200 of the spring of 1927 it moved to 381—nearly doubling again—by the summer of 1929. This increase seemed too steep not to be somehow economically and morally suspect. Perhaps the country was indeed in the throes of a dangerous inflation.

As the days passed, more bad news came. London was concerned; at Shorters Court, where U.S. securities were commonly traded, chaos reigned until the closing bell. “Fear for our prosperity,” wrote a London correspondent wonderingly, reflecting Britain’s attitude. He quoted the
London Daily News
on its concerns that U.S. incomes would fall so much that Americans would no longer be able to buy European exports. Only prosperity had made Americans willing to buy expensive European goods, despite the extra tariffs. “The tariff wall will become temporarily insurmountable.”

On the Continent, too, the potential for trouble was mounting: recently Gustav Stresemann, the fragile Weimar Republic’s best statesman and diplomat, had died. Who would hold Europe together now? “Successor a Problem,” concluded the
New York Times.
Weimar Germany might fail now after all. The result was that gold, seeking a haven, flowed into the United States—$175 million in 1929 and $280 million the next year. If the Federal Reserve had followed the old gold standard rules, this would have increased money available to banks and citizens. But George Harrison at the New York Fed and others believed in the inflation theory, and thought that more cash would exacerbate inflation. The Fed therefore veered from the old gold standard tradition. It sterilized the effect of all that new money by selling bonds—in effect, soaking up money from the economy to offset any monetary expansion. Looking at a broader period, one could see the trend was even more marked: the actual money supply available dropped by nearly 4 percent between the
end of 1928 and the end of 1930. The sterilization program more than offset some small interest-rate cuts taken shortly after the crash. Instead of loosening in a time of trouble, the Fed was tightening.

The more Hoover thought about it, the more he too liked the idea of a war against inflation. Market fever was in any case the sort of thing Hoover deplored; he had been complaining about abuse of credit for four years. Meanwhile, the market was beginning to look worse. Not merely the margin sellers but also the regular players were suffering on Wall Street. In the fall of 1929 the Dow’s new utility index plunged as well. One night in November, Robert Searle, president of the Rochester Gas and Electric Corporation, gassed himself to death after confronting more than a million in losses in a month. The death seemed a metaphor for the failing of the utilities industry, all the more so because Searle had started out as Thomas Edison’s office boy. Among the stocks that had disappointed him, the papers suggested, was Commonwealth and Southern. Willkie now had some 75,000 stockholders, and he was worried about their fate. The share price had been in the middle $20s in June. Now it was closer to $15.

At the beginning of that same month, November, Hoover received a confidential report from Fed officials that the market readjustment was not completed but would instead last months more. The mood was shifting to crisis, and Hoover felt energized—another rescue opportunity in the offing. He mulled over foreign policy, preparing an Armistice Day speech. Even as he moved to act, he savored the situation, commissioning the famed portraitist Leonebel Jacobs to produce pictures of himself and Lou. “The primary question,” he later wrote, “at once arose as to whether the President and the federal government should undertake to mitigate and to remedy the evils.” His conclusion was that yes, this was a job to be taken on: “we had to pioneer a new field.”