Friday, March 12, 2010

Book Rec - The Forgotten Man by Amity Shlaes

I teased this one months ago.

Here they are, finally, my excerpts from - The Forgotten Man:

"...we are fashioning an instrument of unimagined power for the establishment of a morally better world." - FDR, second inaugural. (Timeline p.XX)

That year Roosevelt won because he created a new kind of interest group politics. The idea that Americans might form a political group that demanded something from government was well known and thoroughly reported a century earlier by Alexis de Tocqueville. The idea that such groups might find mainstream parties to support them was not novel either: Republicans, including the Harding and Coolidge administrations, had long practiced interest-group politics on behalf of big business. But Roosevelt systematized interest-group politics more generally to include many constituencies - labor, senior citizens, farmers, union workers. The president made groups where only individual citizens or isolated cranks had stood before, ministered to those groups, and was rewarded with votes. It is no coincidence that the first peacetime year in American history in which federal spending outpaced the total spending of the states and towns was that election year of 1936. It can even be argued that one year - 1936 - created the modern entitlement challenge that bedevils both parties.

Roosevelt's move was so profound that it changed the English language. Before the 1930s, the word "liberal" stood for the individual; afterward, the phrase increasingly stood for groups. Roosevelt also changed economics forever. Roosevelt happened on an economic theory that validated his politics and his moral sense: what we now call Keynesianism, named after John Maynard Keynes, emphasized consumers, who were also voters. The theory gave license for perpetual experimentation - at least as Roosevelt and his administration applied it.

Keynesianism also emphasized government spending. Yet focusing on consumers meant that Washington neglected the producer. Focusing on the fun of experiments neglected the question of whether unceasing experimentation might frighten business into terrified inaction. Admiring the short-term action of spending drew attention away from its longer-term limits - often go into recession when the spending disappears. Supplying generous capital to government made government into a competitor that the private sector could not match. Keynesianism provided the intellectual justification and the creation of constituencies. (p11)

...William Graham Sumner penned a lecture against the progressives of his own day and in defense of classic liberalism. The lecture eventually became an essay, titled "The Forgotten Man."...

"As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determining...what A, B, and C shall do for X." But what about C? There was nothing wrong with A and B helping X. What was wrong was the law and the indenturing of C to the cause. C was the forgotten man, the man who paid, "the man who is never thought of."

In 1932, a member of Roosevelt's brain trust , Ray Moley, recalled the phrase, although not its provenance. He inserted it into the candidate's first great speech. If elected, Roosevelt promised, he would act in the name of "the forgotten man at the bottom of the economic pyramid." Whereas C had been Summer's forgotten man, the New Deal made X the forgotten man - the poor man, the old man, labor, or any other recipient of government help.

Roosevelt's work on behalf of his version of the forgotten man generated a new tradition. To justify giving to one forgotten man, the administration found, it had to make a scapegoat of another. Businessmen and businesses were the targets. Roosevelt's old mentor, the Democrat Al Smith, was furious. Even Keynes was concerned. (p12-13)

At the time Benito Mussolini was popular across the world. Conservatives admired him for his efficiency; he made the cover of Time and filled the pages of Forbes.

...Long before this trip, Dewey and Counts had argued that the best models might be found abroad. Dewey had also argued that in a new mass society, the school must promulgate social change, not respond to it. (p68)

Stalin as a momentary revolutionary was one thing, but now that the Soviet leader was hardening his grip on Russia, many Americans, even some economists, felt alarm. The Los Angeles Times announced to its readers that leaders of all religious faiths would hold a protest meeting at the Trinity Auditorium, for, as the paper noted in shock, it was now clear that 70,000 churches, mosques, and synagogues had been closed in the Soviet Union. "For the first time in history, a nation has undertaken a general crusade against religion," the New York Times wrote, noting that a 1929 Kremlin decree had included a step no one had imagined: forbidding churches to "hold special meetings for children." (p97-98)

Governor Roosevelt spoke out against the "increasing concentration of wealth and power." (!!! p124)

He had decided by now that he was running for president. He wanted a new kind of adviser. Of the industrialists, the financiers, the political leaders, his adviser Sam Rosenman said to him, "I think we ought to steer clear of those. They all seem to have failed to produce anything constructive to solve the mess we're in today." Instead Rosenman had a novel idea: "Why not go to the universities of the country?" (p125)

The energized professors wanted to fashion for Roosevelt a dramatic message, certainly something that went further than the old anti-trust agreements, such as Louis Brandeis's thesis of the "curse of bigness." "We are no longer afraid of bigness," wrote Tugwell. "Unrestricted individual competition is the death, not the life of trade." (p126)

Revenue Act of 1932 (Hoover)...Added to all this was the fact that Hoover's was not just any tax increase, but a giant one: an increase in the top rate from the mid-20 range to 63 percent. Such increases were the sort the country had heretofore thought possible only in wartime. The maximum top rate when the income tax was first introduced, less than two decades back, had been 7 percent, and that was only on incomes over half a million dollars. The House had already gone Democratic in the midterms, but Republicans still held the Senate and the White House. Yet this tax act was an anti-wealth gesture, it seemed a sort of symbol of Republican capitulation to a coming Democratic moment. (p131-132)

The uncertainty of the interregnum took its toll. When the banking crisis grew yet worse, Hoover tried contacting Roosevelt, even sending at one point a lengthy personal letter....But Roosevelt was not interested in cooperation....Hoover became incensed at the silence, and took to documenting his own good will in the name of an accurate history. In late February, one of the lowest moments as the Dow stood at just above 50 - a manufacturer would leave a phone message for Hoover. He had had a meeting with Tugwell, who had confirmed that the new administration had no interest in cooperating. Hoover wrote a formal letter to the manufacturer to put on record what the man had reported to his secretary: "I beg to acknowledge your telephone message received through Mr. Joslin, as follows: 'Professor Tugwell, adviser to Franklin D. Roosevelt, had lunch with me. He said they were fully aware of the bank situation and that it would undoubtedly collapse in a few days, which would place the responsibility in the lap of President Hoover.'" Hoover added his analysis: "When I consider the statement of Professor Tugwell's in connection with the recommendations we have made to the incoming administration, I can say emphatically that he breathes with the infamous politics devoid of every atom of patriotism. Mr. Tugwell would project millions of people into hideous losses for a Roman Holiday." (p142)

In January, the politicians were intriguing, and it looked as if Hitler would indeed be able to form a government. At the end of the month, president-elect Roosevelt received a letter from 800 professors and university presidents....The proposed solution was the academic club's boldest gesture on behalf of the Soviet Union taken to date: Roosevelt would do what preceding presidents had not, and recognize Russia. Recognition became the central news story about Russia, obscuring other events there, including the news that Stalin was moving forward in the North Caucasus with the collectivization of agriculture.

One morning, FDR told the group he was thinking of raising the gold price by twenty-one cents. Why that figure? his entourage asked. "It's a lucky number," Roosevelt said. "because it's three times seven." As Morgenthau later wrote, "If anybody knew how we really set the gold price through a combination of lucky numbers, etc., I think they would be frightened." (p148)

"Must we," Roosevelt himself asked the people as he announced the NRA on June 16, "go on in many groping, disorganized, separate units to defeat or shall we move as one great team to victory?" (p151)

The act established that farmers deserved the level of the price they had received prior to World War i, labeled the fair price. The AAA began paying farmers to produce less. The government also encouraged farmers to sell less by offering them favorable loans in exchange for restraint. To fund all these changes, the AAA taxed middlemen - distributors - an idea that made particular sense to Tugwell. To him middlemen were the profiteers in a system; if a retail price for food was simply too high, then it was the middlemen who, through their cut, were pushing up retail prices. (p154)

Now, in the spring of 1933, upon the orders of Roosevelt, the Treasury was making clear that it would cease to honor its own gold clauses. This also threw into jeopardy gold clauses in private contracts between individuals. (p158)

Peek would be able to announce that checks to a million farmers to pay $110 million on their contracts to take more than 4 million bales of hay out of production had already been sent. To many, this seemed odd, outrageous even. The $110 million that went to the farmers more than offset the $100 million in savings the government had gained by cutting its employees' salaries. In a year of hunger - the year that the pair had starved in the cabin on the New York lake - food production was cutting back, and additional food was being withheld....Still, Peek was calling this "the most amazing period in the history of American agriculture." Of course, the political solution of buying off the farmers in this way was a short-term one. Come spring, the farmers would still be there, and they would want payments again. But this did not seem like an unattractive change, at least politically: it gave the politicians an annual chance to rescue their farmer constituents. (p159-160)

At the Treasury, therefore, Morgenthau acted, dramatically increasing the number of tax officials. Between 1934 and 1935, the staff at the Bureau of Internal Revenue rose to 16,000 from some 11,000. (p 205)

Eccles envisioned new Federal Reserve legislation, which indeed would become law the following year. Under the new Federal Reserve Act, monetary officials in Washington would control the money, supplanting New York. The law would give the Washington Fed the power to buy and sell bonds and therefore to control the quantity of money and credit in a more formal way. (p211-212)

The NRA code that applied to the Schechters was the Code of Fair Competition for the Live Poultry Industry of the Metropolitan Area in and About the City of New York, a lengthy and forbidding document....Businesses could not sell unfit animals. Nor could they exchange in "destructive price cutting." The code prohibited "straight killing," defined it as "killing on the basis of official grade." The rule meant that customers might select a coop or a half a coop of chickens for purchase, but they did not "have the right to make any selection of particular birds." This went directly against the old marketplace rule of customer choice.

Yet all these rules, the letter of transmittal assured, were "not designed to promote monopolies or eliminate or oppress small enterprises." The argument was that they would help small business by eliminating competition. FDR had personally signed this code into law... (p217)

At a tea at his house the year before, Perkins had sat beside Justice Harlan Stone, and he gave her a tip. She had confided her fears that any great social insurance system would be rejected by his court. Not so, he said, and whispered back the solution: "The taxing power of the federal government my dear; the taxing power is sufficient for everything you want and need." If the Social Security Act was formulated as a tax, and not as a government insurance, it could get through. (p229)

Roosevelt, uneasy, sought to determine what his options would be if the Supreme Court ruled that his gold policy was unconstitutional. Days after the oral argument began, he told Secretary Henry Morgenthau and Homer Cummings at lunch that he hoped to keep the bond market in confusion until the Supreme Court decided the gold-clause issue. Then, if the Court decided against the administration, things would still be so rough that the people would turn to the president and say: "For God's sake, Mr. President, do something."

Cummings liked the tactic. Morgenthau was horrified. "Mr. President," he told Roosevelt, "you know how difficult it is to get this country out of a depression and if we let the financial markets of this country become frightened for the next month it may take us eight months to recover the lost ground." Morgenthau might be Roosevelt's yes man, but he had already learned a few things at Treasury. Roosevelt indicated to Morgenthau the next night that he had been kidding, but Morgenthau believed the reality might also be that the president had simply, upon consideration, changed his mind. (p233-234)

The president formulated a bet. If he followed his political instincts, furiously converting ephemeral bits of legislation into solid law for specific groups of voters, then he would win reelection. He would focus on farmers, big labor, pensioners, veterans, perhaps women and blacks. (p246-247)

In advancing his plan, Roosevelt was also refining his definition of his forgotten man. Before, the forgotten man had been something of a general personality - albeit always a poor one. In projects like the NRA, and with grand planners like Arthur Morgan, there had at least been the attitude that the country was all in it together. Now, by defining his forgotten man as the specific groups he would help, the president was in effect forgetting the rest - creating a new forgotten man. The country was splitting into those who were Roosevelt favorites and everyone else. The division started at the top. The president pulled increasingly close to legal pragmatists and yes men - Frankfurter and his entourage, Lilienthal at the TVA, Henry Morgenthau, even Henry Wallace at Agriculture. (p249)

Now, however, FDR too turned to taxes. In a message he sent to be read aloud to Congress, he railed against the "great accumulation of wealth" and called for a tax bill to change society....The president wanted rich families to pay an estate tax when they died, but he also wanted their children to pay a second levy, a new inheritance tax, when they inherited the money. There would be a graduated corporate income tax, a shift from the old flat rate for companies, in accordance with Brandeis's philosophy that big was bad. There would be a sharp increase at the top of the rate schedule for earners above $50,000. And there would be a tax on intercorporate dividends. Roosevelt relished the suddenness of his surprise. (p251-252)

Under Wagner Act rules, a union, once in place at a company, might keep out workers who did not join - the so-called closed shop. The same union need not ever again be subject to election by ratification but could represent the workers more or less in perpetuity. The effect was the most coercive of any law passed in the New Deal. (p253-254)

Though presumably precisely the sort of person whom acts like Social Security might protect, Gore was sarcastic. "Isn't this socialism?" Why no, Secretary Perkins replied. "Isn't this just a teeny weeny bit of socialism?" (p254)

The participants pulled close to the table and signed what was to be the most famous legislation of Roosevelt's presidency: the Social Security Act. "The civilization of the past hundred years with its startling industrial changes has tended more and more to make life insecure," Roosevelt said in a statement. Now, with this pension bill for older citizens, that insecurity would be reduced. Government would begin to provide "a law to flatten out the peaks and valleys of deflation and inflation - a law that will take care of human needs." (p255)

..."A community does not consist of houses alone," said Tugwell. "You cannot just build houses and tell people to go and live in them. They must be taught how to live in them. They must be taught how to live," Mrs. Roosevelt echoed. (p256)

The wealthy, after all, were in a position to take risks with new ventures precisely because they were wealthy - they could invest in several projects at once. Under the new 1935 law, a very wealthy man would see more than three-quarters of any profits from new ventures taken by income tax. Any loss, however, would be the same man's to bear. This man would try to hoard his capital and wait - thus coming to fit the very stereotype of the idle rich man the New Dealers were hoping to propagate. (p263)

He (Father Divine), unlike Norman Rockwell, feared that government help might make citizens more dependent. In 1936 he would write directly to Harold Ickes about a government law that required people to apply for relief before they could be hired for public works positions. (p263)

Morgenthau and his aides began an intense review of the tax problem. The revenues from business were disappointing, in part because corporations were not earning as much as they had, and in part because the companies were not distributing their cash in taxable dividends. Morgenthau and his advisers therefore came up with a novel plan to choke the money out of companies: an undistributed profits tax. (p269)

At the White House and in Congress, Roosevelt's advisers worked on the plan. For a business earning $10,000 a year, the tax on savings in the plan was 42%. For those with higher incomes it could be as much as 74%. But that was not all. The president was also talking about using the income tax in a new way - not just as a tax for revenue, but also as a means of social reform. (p270)

...for the Republicans were flailing. At a fretful convention in mid-June, uncertain party leaders selected Kansas governor Alfred M. Landon as their candidate. But Landon failed to distinguish himself from Roosevelt. The telegram on policy he sent to the Republican convention before the roll call vote of his nomination differed, as he would put it much later, "not too much" from the Democrats'. In the nomination speech, John Hamiliton of the national Republican committee spoke of the importance of combating "great combinations of wealth" - a Democratic theme. (p276-277)

Roosevelt, smelling victory, did not let up. He traveled to the Democratic convention in Philadelphia to attack the "economic royalists" of American business for bringing down the economy. The government, Roosevelt said, had to help citizens "against economic tyranny such as this" - there was no other power. (p277)

"I should like to have it said of my first administration," he told crowds, "that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second administration that in it these forces met their master." (p282)

"You and your employer will each pay three cents on each dollar you earn, up to $3,000 a year." That amount the circular added, "is the most you will ever have to pay." Last came the promise: "From the time you are old and stop working, you will get a government check every month of your life. This check will come to you as your right." (p282)

"We are beginning to wipe out the line that divides the practical from the ideal; and in so doing we are fashioning an instrument of unimagined power for the establishment of a morally better world." (p299, FDR, second inaugural)

...Roosevelt was having trouble in his court-packing fight....Instead of welcoming the bill, the Senate Judiciary Committee rejected it. This despite Robinson's Herculean effort, and even though seven of the ten members of the committee, a firm majority, were Democrats. The language of their rejection was unforgettable: the senators said that Roosevelt's act "should be so emphatically rejected that its parallel will never again be presented to the free representatives of the free people of America." (p315)

With Van Devanter going, Roosevelt could name his first man to the court - Hugo Lafayette Black of Alabama, chosen later that summer. Very shortly it emerged that Black had belonged to the Ku Klux Klan. What, Roosevelt's friends at Howard asked themselves, could the president mean by such an appointment? The Socialist Norman Thomas and the National Association for the Advancement of Colored People expressed concern. But Hugo Black got through. And now it was clear that within several years Roosevelt would be able to shift others, perhaps Stanley Reed and Robert Jackson, or Frankfurter, over to the Court as well. Roosevelt had assailed the justices for their tenure in office, their longevity. But he was prevailing over them because of his own longevity in office. (p316)

There had been another June signal of FDR's inexorability when 9,200 doctors attended an American Medica Association meeting in Atlantic City. The mood was a happy one: the physicians were looking at a new drug that seemed to conquer bacterial infections. It was called sulfanilamide. An expert from Pittsburgh, Ralph Robertson Mellon - no kin to Andrew - reported that this drug apparently could cure "certain types of pneumonia, typhoid, brain abscesses, scarlet fever and meningitis." Other doctors reported similar wonders.

But the doctors were distracted even from the miraculous sulfanilamide when a representative of the New York State Medical Society, Joseph Kopetzky, spoke. Kopetzky, an ear doctor, suggested a plan that would alter their very independence as professionals: the nationalization of health care. Under the plan, as reported by Time, "Every one of the 150,000 U.S. doctors must become an officer in the Federal Public Health Service." The federal government would pay for whatever service citizens could not pay. There likely would be a new secretary of social welfare. The doctors debated long into the night as to how the American Medical Association might reply. They paid such attention because they heard that Roosevelt had already seen Kopetzky. The doctors might not know everything, but by now they understood that once Roosevelt made a project his, he would not give up - unless someone stopped him. (p316-317)

The Fed's chief confusion was doubtless not reduced when the president, early the following month - and after more bad news nearly daily - told reporters that the idea of a business recession was merely "an assumption." (p342)

At the end of November, Jackson accompanied the president on a fishing trip. Hopkins and Ickes - who at times had feuded bitterly - were also aboard the Potomac, sharing a cabin. The four prepared political strategy: specifically, an assault on the wealthy. Roosevelt caught a large mackerel early on, but it was Jackson who had the biggest catch of the trip, a barracuda of more than twenty-five pounds. If any of them considered the incongruity of planning a class war on a yacht, they did not mention it. (p345)

It suffices to say this was a tremendously informative book. It should be *required* reading for all serious students of economics and history. The parallels between FDR's economic *patches* and those being administered by today's Moronic pols will blow your mind and drop your jaw. Just as back then they first tried to stave off reality by bailing out farmers, their mortgages and crop prices, politicians are prolonging our financial agony by bailing out homeborrowers, banks, and Wall Street.

History is a great teacher lecturing an empty classroom. Enroll!


Justin Time said...


This post was waaaaaaaaaaaay too long to read. I'm guessing it rivals the length of the actual book.

Justin Time said...

Did you retype all that? You might be missing your calling as an Administrative Assistant...

CaptiousNut said...


You can always go back and read it later!

It wasn't a joy to transcribe either - smallish paperback that I couldn't read so easily, and it wouldn't stay open.

Mom in MA said...

That post is a good way to undo all of the work you're doing to improve your readership. Holy CRAP! No matter how interesting, a nightmare on an iPhone!