“(We have) Nothing to fear, but fear itself.” That tag line from FDR’s first Inaugural Speech lives on in the memory of the nation. There’s a lot more in there too, for the speech is an outline of what he intends to do as soon as he has the power to do it. Even at this moment, people are drawing up the orders he will issue to do it, he has told them to have them ready after the inauguration, for there is no time to spare as a national economic catastrophe bears down on the nation with the turbulent inevitability of a category 5 Hurricane making landfall.
The first gusts from this storm were already toppling trees; the day before Roosevelt spoke nearly $140 million dollars worth of gold had been withdrawn from the banks. The New York Stock Exchange and the Chicago Board of Trade had closed their doors indefinitely. Banks in 32 states were completely closed down, and in ten more states customers could only withdraw 5% of their deposits. The planned export of $9 million worth of gold aboard the French liner Paris had been aborted by Governor Lehman’s dawn shutdown of New York State’s banks.1 The country was flat-lined; there was no economic pulse.
“The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.
Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men.
Recognition of the falsity of material wealth as the standard of success goes hand in hand with the abandonment of the false belief that public office and high political position are to be valued only by the standards of pride of place and personal profit; and there must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing. Small wonder that confidence languishes, for it thrives only on honesty, on honor, on the sacredness of obligations, on faithful protection, on unselfish performance; without them it cannot live. Restoration calls, however, not for changes in ethics alone. This Nation asks for action, and action now. Our greatest primary task is to put people to work…”2. (FDR’s Inaugural)
Even as Roosevelt spoke, aides drew up the legal documents, proclamations, and legislative proposals that formed the core of the New Deal, his economic recovery program to put the nation’s banking system back on a sound basis. A day-by-day account of some of this process is available in the appended timeline.3 The officials who drafted these documents were members of the outgoing Hoover administration, as Roosevelt’s own appointees could not be sworn in until Congress reconvened. Some conclude from this that FDR was really implementing Hoover’s policy, as Hoover had been urging him to do. Fairy stories for children. What Roosevelt was about to do as he took the oath of office was different from anything his predecessor had either contemplated or attempted.
After attending church that morning at St. John’s Episcopal in Lafayette Square opposite the White House, FDR held a meeting at the Mayflower Hotel to finalize the plans. President Roosevelt planned to employ the Trading with the Enemy Act of 1917 to ban the withdrawal, export, hoarding etc. of gold and silver, and block foreign exchange transactions. He was going to declare under these emergency provisions a Bank Holiday that would last from the 6 March to 10 (a Friday). He was going to convene an emergency session of Congress to take up legislation to fix the banks, and authorize the issue of credit in the form of Treasury notes, not to be called that, as had been done before by Abraham Lincoln. He was going to meet with bankers from the east, to discuss what they could do too. That evening, and the next day, Sunday 5 March, everything proceeded smoothly.
Proclamation 2038 issued on March 6 called Congress back into Emergency Session.
Within two weeks the potential to turn the situation around had been established. Banks were reopening. $300 million worth of gold had been returned. There was a new mood in the country. FDR could report ongoing progress in his first “Fire Side Chat” which he gave March 12. (The chat) By the end of the month banks representing around 90% of all deposits were open for business again.
What had been proven during those first two weeks was that the power of money is not everything. This is a lesson that could be learned again today. This is written on the first anniversary of the devastating hurricane Katrina. The event is commemorated in many ways, and what contribution does the Bush administration claim to have made to the regional and local recovery effort? Money! They are providing $60 billion. More money than has ever been provided for reversing the effects of civil disaster. And a year later, when the unemployed should have been put back to work, building, cleaning, fixing, when businesses should have been helped get back on their feet, how does it look then? $60 billion without the addition of human initiative and energy does not do much on its own. Money may talk as the saying goes, but it does not provide leadership. Unlike Bush, FDR knew what has to be done to make money ‘walk’.
The Katrina example is an example of what used to be called “trickle down” economics. Proponents of “trickle-down” economic policies believe that giving money to the wealthy and to powerful corporations helps the unemployed, as the spending indirectly produces jobs and economic growth. They contend that rather than directly providing jobs or investing in infrastructure, the government should give tax cuts and subsidies to the rich in the hope their spending sprees will create jobs. Roosevelt’s predecessor Herbert Hoover believed in Trickle down economics.
Hoover believed the cause of the US depression lay in an international financial and monetary crisis caused by the collapse of the post World War I reparations payment system in a wave of defaults between in 1931 and 1932. In his heart, Hoover knew he was not to blame, personally, individually, politically, economically, or any other way. It was the international system, you see. FDR had nothing but contempt for that view which he considered an absolute evasion.
Hoover did many things to try to counter what he thought the causes were. None of them worked. First there was the “trickle down” approach. There was the collateralization of real estate secured debt, both agricultural and housing debt; which didn’t succeed. And there was volunteerism. He attacked FDR for spreading fear and alarm, which was causing problems for the economic recovery he had organized.
These attacks continued after the election perhaps more aggressively than they had during the campaign, as Hoover attempted to convince, trap or trick FDR into endorsing policies that had just been rejected massively by the electorate. This activity is documented in the timeline attached and it continued down to the last hours before FDR’s Inauguration. Hoover even called FDR twice on the eve of his swearing in, urging him to commit to Hoover proposals.
But Hoover’s ideology and policies had proven disastrous. Under Hoover, unemployment and its effects were one of the issues thought best to be left to volunteer agencies and charity, not fit to be the work of government. One of the effects of this was an acceleration of the banking collapse, as immigrant ethnic groups ran down deposits in community banks and mutual societies to help the stricken. This devastated communities in Chicago, but Chicago was not alone.
On the trickle down front, in January of 1932, as FDR was announcing his decision to run for office, Hoover was having Congress create the Reconstruction Finance Corporation.4 This agency was capitalized with $500 million and empowered to borrow $1.5 billion, in order to provide funds to worthy banks so the banks could pass those funds out into the broader economy. It didn’t work. By the end of the year, and the first months of 1933, Senate Banking Committee hearings were scandalizing the RFC for its cronyism. As reported in part 1, the RFC’s largest loan, $90 million, was made on Hoover’s personal ok to the Chicago bank of his friend Charles G. Dawes, Central Republic Bank. Another beneficiary was the National City Bank of New York.
Little of this money trickled down to the millions of unemployed Americans who needed help most. Like Bush’s trickle-down tax cuts for the rich, and Katrina-recovery spending, these programs enriched administration cronies while harming large numbers of Americans with their counter-productive consequences.