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CHAPTER
7
Roosevelt, Hoover, and the Trade Councils
The idea of getting society to work for a privileged group within that society originated neither among the corporate socialists in Wall Street, nor in the financial community at large, nor even among the Marxian socialists. In fact, the notion predates our own industrial society, and there is an interesting parallel between the codes of New Deal America (which we shall examine later) and 13th-century trade legislation in England.1 A MEDIEVAL NEW DEAL In 1291 the tanners of Norwich, England were brought before the local court charged with organizing and coding their tanning activities to the detriment of local citizens. Two years later in 1293, the cobblers and saddle makers of Norwich were faced with similar charges. By "greasing" the legislators, the political power structure of medieval Norwich was brought around to the view that perhaps the tanners needed protection, after all. This protection came to incorporate the same basic principles of economic planning that almost 700 years later were put forward in the Roosevelt New Deal. So in 1307 the tanning industry of Norwich was legally coded and wages and conditions of work prescribed, all done under the guise of protecting the consumer, but in practice granting a legal monopoly to the tanners. In the decade before the New Deal, during the 1920s Wall Streeter Roosevelt was active on behalf of business to promote these same basic ideas of using the police power of the state to restrain trade, to advance cooperation, and to utilize government regulation to inhibit unwelcome competition from more efficient outsiders. The trade associations of the 1920s were more demure in their proposals than the 13th-century Norwich tanners, but the underlying principle was the same. Unfortunately, Franklin D. Roosevelt's role in the Wall Street of the 1920s has been ignored by historians. Daniel Fusfield does correctly observe that FDR "took an active part in the trade association movement that was to develop into the N.R.A. of the early New Deal;"2 on the other hand Fusfield, who offers the only extensive description of FDR's business activities, concludes that his attitude toward business was "a curious mixture." FDR, says Fusfield, was "insistent that mere profits were not a full justification for business activity," that a businessman must also "have the motive of public service." This to Fusfield was inconsistent with participation "in a number of outright speculative and promotional ventures that had little to do with serving the public."3 Fusfield
and his fellow historians of the Roosevelt era have failed to note that
"public service" for a businessman is absolutely consistent
with "profit maximization;" in fact, public service is the easiest
and certainly the most lucrative road to profit maximization. Further,
the riskier and more speculative the business, presumably the greater
is the advantage to be gained from public service.
The American Construction Council (A.C.C.), formed in May 1922, was the first of numerous trade associations created in the 1920s, devices used to raise prices and reduce output. The original proposal and the drive for the council came from Secretary of Commerce Herbert Hoover, and the council operated under the leadership of Franklin D. Roosevelt, then just beginning his Wall Street career following his service as Assistant Secretary of the Navy. The stated public objectives of the A.C.C. were a "code of ethics" (a euphemism for restraint of trade), efficiency, and standardization of production. Most importantly, but less publicized, the A.C.C. was to provide the industry with an opportunity to fix its own price and production levels without fear of antitrust prosecutions by the government. The New York Times reported:
Like the price-fixing committees of Baruch's War Industries Board, the A.C.C. was in effect a primitive industry association, although the high-sounding stated object of the council was:
and so to stabilize conditions for the benefit of the industry, labor, and the general public. This objective was also Baruch's objective for peacetime trade associations: to regulate industry under government control, while citing the public good. In the American Construction Council the public good was announced as the elimination of the scandals found by the Lockwood Commission investigating the New York building industry. However, as that scandal dealt in great part with exclusive dealing and similar coercive conditions forced upon contractors and erectors by the United States Steel Corporation and Bethlehem Steel, the announced public good makes little sense. These industry giants were controlled by the Morgan interests on Wall Street who were, as we shall see, also at the root of the A.C.C. proposal. In brief, the alleged antisocial conditions to be solved by a trade association could have been halted much more simply and effectively by a memorandum from J.P. Morgan and his associates; there was no necessity to promote a trade association to halt such abuses. So we must look elsewhere for the reason for trade associations. The real reason, of course, is to protect industry from unwelcome competition and to establish monopoly conditions for those already in the business. As Howe told us, a legal monopoly is the sure road to profit. It was formation of this legal monopoly that induced Roosevelt and Herbert Hoover to join hands against the public interest, although, according to Freidel:
FDR's
role is not really surprising. He was then attempting to get a business
career underway. He had political contacts and was more than willing,
indeed eager, to use these. On the other hand, there is an odd dichotomy
in the ideas and practices of Herbert Hoover in this area of the relationship
between government and business. Herbert Hoover declared his adherence
to the principles of free enterprise and individual initiative and his
suspicion of government intervention. These assertions were mixed with
other contrary statements encouraging, indeed authorizing, government
intervention on almost trivial grounds. Unfortunately, Herbert Hoover's
Memoirs, the only finally authoritative source, do not resolve these conflicts.
The American Construction Council is not mentioned in Hoover's Memoirs,
although Volume II, "The Cabinet and the Presidency," underlines
the evils of government intervention in the economy, pointing to communism,
socialism, and fascism to comment, "This left wing cure for all business
evil" now appears as "national planning." Hoover added
that business "abuses" were only "marginal" and rather
than have government intervention" . . . beyond and better than even
that was cooperation in the business community to cure its own abuses."7
In any event, the American Construction Council was a cooperative association of business, labor, and government
Thus, it was free enterpriser Herbert Hoover who became the sponsor of the first of the trade associations, the American Construction Council, which was designed to include
The organization meeting of the American Construction Council was held at FDR's house in New York and attended by about 20 persons. This group discussed the concept of the council and particularly whether it
It was unanimously decided that the council should be a militant aggressive organization and not just a clearing house for information. This concept was discussed with Dwight Morrow of the J.P. Morgan firm; with Mr. Dick, secretary to Judge Gary of the U.S. Steel Corporation; with Gano Dunn, president of J.G. White Engineering Corporation; and with Stone & Webster. It is interesting to note that most of these persons and firms are prominent in my previous volume, Wall Street and the Bolshevik Revolution. After the financial establishment had expressed support of A.C.C., the construction industry at large was approached for its reaction. This preliminary work culminated in an organizational meeting at the Hotel Washington, Washington D.C., on Tuesday, June 20, 1922. Franklin D. Roosevelt was elected president of the council, and John B. Larner, vice president of the American Bankers Association, was elected treasurer. The chairman of the finance committee was Willis H. Booth of Guaranty Trust Company. The committee then established its committees and laid down priorities for its problems. Roosevelt's interpretation of the causes for the problems of the construction industry were reported by The New York Times: "Muddling through has been the characteristic method employed by the construction industry for the last few years. There has been no system, no cooperation, no intensive national planning." After pointing out that a railroad man is not laid off because of bad weather, Roosevelt commented:
How did FDR propose to change all this?
FDR put the basic choice to the assembled governors: did they want to continue the old way, "Build all we can, paying any old price as long as we get the orders?" Because if that was the case, said FDR, "We might just as well adjourn." On the other hand, he continued, that did not appear to be the view of the majority, and "We want to go back to the real basic purpose of the Council, which was to prevent this sort of thing." Then followed a series of proposed resolutions, adopted unanimously, that would have the effect of slowing down construction. The council continued to have its problems, summarized in a letter of April 29, 1924 from executive vice president D. Knickerbocker Boyd to Franklin D. Roosevelt, "to call attention to the very serious condition of affairs existing at this time." Boyd reminded FDR that the executive secretary, Dwight L. Hoopingarner, had served "practically" without pay, and that $7000 in back salary was owed to him. Boyd added, "This is not just or right and it should not be allowed to continue. He should not only be paid all back fees promptly but assured of prompt pay in the future—or the work should be stopped." Then Boyd commented that he, too, expected recompense for the time expended on council work, noting that time expended to date amounted to $3168.41, in addition to traveling expenses. Boyd suggested that the council face up squarely to its responsibilities, place itself on an adequate financial footing, or dissolve. The final paragraph of Boyd's letter demonstrates the fundamental objective of those promoting the American Construction Council:
Franklin
D. Roosevelt, president of American Construction Council, had argued for
"economic planning;" now the executive vice president acknowledges
an "effort to nationalize" the construction industry. This effort
to organize the construction industry under the somnolent eye of the government,
statedly for the public good, failed. Footnotes 1. See Erwin F. Meyer, "English Medieval Industrial Codes" in The American Federationist, January 1934. Meyer draws some fascinating parallels between the medieval guilds and NRA practice under Roosevelt. In medieval times the result, as in the 1930s was to create "an oligarchy of capitalists" in the English economy. 2. Daniel R. Fusfield, The Economic Thought of Franklin D. Roosevelt and the Origins of the New Deal 3. Ibid. 4. The New York Times, May 15, 1922, p. 19. 5. Cited in Fusfield, Economic Thought, op. cit., p. 102. 6. Freidel, The Ordeal, op. cit., p. 152. 7. The Memoirs of Herbert Hoover. The Cabinet and the Presidency 1920-1933, (London: Hollis and Carter 1952), p. 67. 8. The New York Times, July 9, 1922, VIII 1:3. 9. The New York Times, May 15, 1922, p. 19, col. 8. 10. Minutes of the Executive Board of the American Construction Council, June 20, 1922. FDR Files, Group 14: American Construction Council. 11. The New York Times, June 4, 1922. One searches in vain for a practicable, workable proposal to solve the alleged problems of the construction industry. The most valid suggestions put forward by Roosevelt and his fellow planners required changing the weather to allow year-round construction or movement of men and materials by "planning." Of course, a market system moves men and materials automatically, a point presumably unknown to FDR.
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