CHAPTER 7
 

Roosevelt, Hoover, and the Trade Councils

People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public, or on some contrivance to raise prices.
Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (London: George Routledge, 1942), p. 102.

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.
When we take this more realistic view of social do-goodism, then Wall Streeter Roosevelt's attitude toward business is not at all "curious." It is in fact a consistent program of profit maximization.


THE AMERICAN CONSTRUCTION COUNCIL

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:

It is these tremendous possibilities, in dedication to the public service and the elimination of waste, that have fired the imaginations of Mr. Hoover and Mr. Roosevelt and invited them to accept positions of leadership in the movement.4

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:

. . .to place the construction industry on a high plane of integrity and efficiency and to correlate the efforts toward betterment made by existing agencies through an association dedicated to the improvement of the service within the construction industry. . . ."5

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 friend Elliott Brown, warned him against the "socialistic" tendencies of these associations and of Hoover specifically. Socialistic, because the moment a combination is formed, the Government will assert an interest and will express that interest through the medium of some clerk in the Department of Commerce, who will approve or disapprove many matters affecting the initiative and welfare of all peepul (sic).6

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
On the other hand, Hoover's private correspondence with Roosevelt on the American Construction Council suggests that Hoover, while in favor of government intervention, was careful to disguise this continu
ing interest for fear of bringing public opposition down upon his own head and ruining the proposal. A letter from Hoover to Roosevelt dated June 12, 1923 makes this point:

June 12, 1923
Franklin D. Roosevelt, Vice Pres.
Fidelity and Deposit Company of Maryland
120 Broadway
New York City
My Dear Roosevelt:
I am in somewhat of a quandary about your telegram of June 7th. I had hoped that the Construction Council would be solely originated from the industries without pressure from the Administration. Otherwise it will soon take on the same opposition that all Governmental touches to this problem immediately accrue.
The vast sentiment of the business community against Government interference tends to destroy even a voluntary effort if it is thought to be carried on at Government inspiration.
Yours faithfully
Herbert Hoover

In any event, the American Construction Council was a cooperative association of business, labor, and government

formed at Washington on June 19 at the suggestion and under the guidance of Secretary Hoover of the Department of Commerce (who) has taken the first steps toward putting into operation a program of construction effort which, it is hoped, will eliminate many of the evils which have developed in the industry during the past decade.8

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

architects, engineers, construction labor, general contractors, sub-contractors, materials and equipment manufacturers, material and equipment dealers, bond, insurance and real estate interests and the construction departments of Federal, State and municipal governments.9

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

should be a clearing house for the different national associations, a clerical clearing house, or whether it should be an active, aggressive (sic) militant organization in this service of the public good of the construction industry.10

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:

In construction work, however, we have that great bugbear in our economic life, the seasonal job. All the work is crowded into the summer months, none of the work is carried on during the winter. The results of this piling on are plain. In the summer we have scarcity of labor and skyrocketing of prices, in the winter unemployment and cutting of incomes. The only thing that lasts throughout the year is the bitterness of men engaged in the work.11

How did FDR propose to change all this?

A large part of the work can be spread over the year. There is no reason in the world why a skilled mechanic living in New York, for instance, should be called down in June to help put up a public building in Georgia. Georgia can build in seasons of the year in which it is impossible for New York to build; so can Louisiana, so can all the Southern States.


Roosevelt's suggestion, an aimless non sequitur, was that the construction industry must "get together on this situation: move construction materials during off season and spread labor around." At an early board of governors' meeting, held at FDR's home in New York on May 16, 1923, FDR called attention to the road the council had followed: "The American Construction Council was organized, but frankly, it has not done one darned thing from that time to this except collect dues from some 115 different organizations, I think."

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:

If the Council should go out of existence it would, in my opinion, be a country-wide calamity—as I doubt whether after this second effort to nationalize the great building industry on human lines, enough people with the enthusiasm, faith and patience could be found to make a third attempt.

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.