FDR AND THE CORPORATE SOCIALISTS
The Swope Plan
the New Deal and its most significant component, the National Recovery
Administration (NRA), are generally presented as the progeny of FDR's
brain trust, as we have seen the essential principles had been worked
out in detail long before FDR and his associates came to power. The FDR
group did little more than put the stamp of academic approval to an already
THE SWOPE FAMILY
The Swope family was of German origin. In 1857 Isaac Swope, a German immigrant, settled in St. Louis as a manufacturer of watch cases. Two of Swope's sons, Herbert Bayard Swope and Gerard Swope, subsequently rose to the peak of American enterprise. Herbert Bayard Swope was long-time editor of the New York World, a racetrack devotee, a close friend of Bernard Baruch, and used by FDR as an unofficial envoy during the New Deal period. Herbert's brother Gerard made his career with General Electric Company. Swope started as a helper on the factory floor in 1893, became a sales representative in 1899, manager of the St. Louis office in 1901, and director of the Western Electric Company in 1913. During World War I Swope was assistant director of purchase, storage, and traffic in the Federal government under General George W. Goethals and planned the U.S. Army procurement program. In 1919 Swope became the first president of the International General Electric Company. Successful promotion of G.E.'s foreign business brought him to the presidency of G.E. in 1922 to succeed Edwin Rice, Jr. Swope remained as G.E.'s president from 1922 until 1939.
General Electric was a Morgan-controlled company and always had one or two Morgan partners on its board, while Swope was also a director of other Wall Street enterprises, including International Power Securities Co. and the National City Bank.
Gerard Swope's political development began in the 1890s. Biographer David Loth reports that, soon after coming to Chicago, Swope was introduced to socialists Jane Addams, Ellen Gates Starr, and their Hull House Settlement. This interest in social affairs developed to culminate in the 1931 Swope plan for stabilization of industry, 90 per cent of which consisted of a scheme for workmen's compensation, life and disability insurance, old-age pensions, and unemployment protection. The Swope plan is an extraordinary document. One short paragraph removes all industry from the anti-trust laws—a long-time industrial goal—while numerous lengthy paragraphs detail proposed social plans. In sum, the Swope Plan was a transparent device to lay the groundwork for the corporate state by defusing potential labor opposition with a massive welfare carrot.
The Swope Plan and Bernard Baruch's earlier and similar proposal became the Roosevelt National Recovery Act. The Wall Street origins of NRA did not go unnoticed when the act was debated by Congress. Witness for example, the indignant, but not altogether accurate, outburst of Senator Huey P. Long:
Huey Long was correct to point up the Wall Street dominance of NRA, but his identifications are a little haphazard. Hugh Johnson, long-time associate of Bernard Baruch, was indeed appointed head of NRA. Further, Johnson's principal assistants in NRA were three corporate heads: Walter C. Teagle, president of Standard Oil of New Jersey; Gerard Swope, president of General Electric and author of the Swope Plan; and Louis Kirstein, vice president of William Filene's Sons of Boston. As we have seen (p. 80) Filene was a long-time proponent of corporate socialism. The "head of General Motors" cited by Senator Long was Alfred P. Sloan, not related to NRA, but G.M. vice president John Raskob, who was the big fund raiser in 1928 and 1932 and behind-the-scenes operator promoting the election of Franklin D. Roosevelt in 1932. In other words, key positions in NRA and in the Roosevelt Administration itself were manned by men from Wall Street. The Public relations explanation for business men turned bureaucrats is that businessmen have the experience and should become involved in public service. The intent in practice has been to control industry. It should not, however, surprise us if the corporate socialists go to Washington D.C. after election of their favorite sons to take over the reins of monopoly administration. One would have to be naive to think it would be otherwise after the massive election investments recorded in Chapter 8.
President Roosevelt was inaugurated in March 1933, a so-called brain trust
was more or less informally put to work on economic plans for the Roosevelt
era. This group comprised General Hugh Johnson, Bernard Baruch (see p.
106 for his political contributions), Alexander Sachs of Lehman Brothers
(see p. 117 for political contributions), Rexford G. Tugwell, and Raymond
Moley. This small group, three from Wall Street and two academics, generated
Roosevelt's economic planning.
According to Roos, Johnson's first NRA draft was on two sheets of foolscap paper and provided simply for suspension of the anti-trust laws, together with almost unlimited authority for President Roosevelt to do almost anything he wished with the economy, including licensing and control of industry. According to Roos, "It was, of course, rejected by the Administration, since it would have made the President a dictator, and such power was not desired."
This seemingly incidental rejection of unwanted dictatorial power by the Roosevelt administration may be of some significance. In Chapter 10 we will describe the Butler affair, an attempt by the same Wall Street interests to install Roosevelt as a dictator or replace him with a more pliant figurehead in case of his objection. Johnson's first draft attempts were to set up NRA in a form consistent with Roosevelt as an economic dictator, and its rejection by Roosevelt is consistent with serious charges laid at the feet of Wall Street (p. 141). At this point in the planning, according to Roos, Johnson and Moley were joined by Tugwell and later by Donald R. Richberg, a Chicago labor attorney. The three proceeded to draft a more "comprehensive" bill, whatever that meant.
Hugh Johnson, was appointed head of the National Recovery Administration
created under the title of the N.I.R.A. and believed for a while that
he was also to head the Public Works Administration. The plans and diagrams
drawn up by General Johnson and Alexander Sachs of Lehman Brothers assumed
that the NRA head would also direct the public works program.
SOCIALIST PLANNERS OF THE 1930s
were, of course, many other plans in the early 1930s; indeed, economic
planning was endemic among the academics, politicians, and businessmen
of this era. The weight of informed opinion considered economic planning
essential to raise America from the depression. Those who doubted the
efficacy and wisdom of economic planning were few and far between. Unfortunately,
in the early 1930s no empiric experience existed to demonstrate that economic
planning is inefficient, creates more problems than it solves, and leads
to loss of individual freedom. To be sure, Ludwig von Mises had written
Socialism and made his accurate predictions on the chaos of planning,
but von Mises was even then an unknown economic theoretician. There is
a mystical lure to economic planning. Its proponents always implicitly
visualize themselves as the planners, and the anti capitalist psychology,
so well described by von Mises, is the psychological pressure behind the
scenes to make the plan come about. Even today in 1975, long after economic
planning has been totally discredited, we still have the siren song of
prosperity by planning. J. Kenneth Galbraith is one prominently vocal
example, no doubt because Galbraith's personal estimate of his abilities
and wisdom is greater than that of America at large. Galbraith recognizes
that planning offers a means to exercise his assumed abilities to the
full. The rest of us are to be coerced into the plan by the police power
of the state: a negation of liberal principles perhaps, but logic was
never a strong point among the economic engineers.
Economic Stabilization Plans: 1933
The U.S. Chamber of Commerce plan was similar to the Swope plan, but required only voluntary compliance with the code and did not embody the extensive welfare clauses of the Swope plan. The Chamber of Commerce plan was also based on voluntary compliance, not the coercive government regulation inherent in the Swope proposal.
The third industry plan was put forward by the Associated General Contractors of America. The AGC plan proposed that greater powers be granted the Federal Reserve System to guarantee banks bonds for public construction and, not surprisingly, establishment of special construction credit bureaus financed by the state, coupled with licensing of contractors. In brief, the AGC wanted to keep out competition and tap Federal (taxpayers') funds for promotion of the construction industry.
The American Federation of Labor plan proposed a National Economic Council to spread and guarantee jobs and embark on economic planning for stabilization. The unions did not push for government regulation.
The academic plans were notable in the sense that they supported industry objectives. Stuart Chase, a well-known socialist, came up with something very close to the Wall Street plans: in effect, a revival of Bernard Baruch's 1918 War Industries Board, with coercive power granted to industry, but confined to 20 or 30 basic industries, with continuous regulation. The Chase plan was an approximation of Italian fascism. The Beard plan also proposed syndicates along Italian lines, with continuous regulation and use of the unemployed in public programs á la Marx and The Communist Manifesto. The National Civic Federation advocated the total planning concept: full and complete power to fix prices and combinations, with state regulation and welfare features to appease labor.
Almost no one, except of course Ludwig von Mises, pointed to the roots of the problem to draw the logical conclusion from economic history that the best economic planning is no economic planning.4
SOCIALISTS GREET THE SWOPE PLAN
Orthodox socialists greeted Swope's plan with a curious, if perhaps understandable, restraint. On the one hand, said the socialists, Swope had recognized the evils of unrestrained capitalism. On the other hand the Swope system, complained the socialists, would leave control of industry in the hands of industry itself rather than to the state. As Norman Thomas explained:
Socialist criticism of General Electric's Swope did not consider whether the Swope system would work or had operational efficiency or how it proposed to work; orthodox socialist criticism was limited to the observation that control would be in the wrong hands if industry took over and not in the right hands of the government planners, that is, the socialists themselves. In sum, the dispute was over who was going to control the economy: Mr. Gerard Swope or Mr. Norman Thomas.
Consequently, the Thomas criticism of Swope has a curious duality, sometimes praiseful:
other times Thomas is skeptical and points out that Swope, ". . .
no longer trusts individual initiative, competition and the automatic
working of markets," but proposes to gear the system to the benefit
of "the stockholding class."
THE THREE MUSKETEERS OF NRA
The National Recovery Administration, most important segment of the New Deal, was then designed, constructed, and promoted by Wall Street. In essence, the NRA originated with Bernard Baruch and his long-time assistant General Johnson. In detail, NRA was the Swope Plan, and its general principles were promoted over the years by numerous prominent Wall Streeters.
There were, of course, planning variants from the socialists and Marxist-influenced planners, but these variants were not the versions that finally became NRA. NRA was essentially fascist in that industry, not central state planners, had the authority to plan, and these industrial planners came from the New York financial establishment. Bernard Baruch's office was at 120 Broadway; the offices of Franklin D. Roosevelt (the New York offices of Fidelity & Deposit and the law offices of Roosevelt & O'Connor) were also at 120 Broadway. Gerard Swope's office and the executive offices of General Electric Company were at the same address. We can therefore say in a limited sense that the Roosevelt NRA was born at 120 Broadway, New York City.
General Hugh Johnson had three principal assistants in NRA, and "these three musketeers were on the job longer and they walked in and out of my office whenever they discovered anything that needed attention."7 The three assistants were Wall Streeters from major industries who themselves held prominent positions in major firms in these industries: Gerard Swope, president of General Electric, Walter C. Teagle, of Standard Oil of New Jersey, and Louis Kirstein of William Filene's Sons, the retail merchants. Through this trio, a dominant element of big business was in control at the very peak of NRA. This concentration of control explains the thousands of complaints of NRA oppression that came from medium and small businessmen.
Who were these men? As we have noted, Gerard Swope of General Electric had been assistant to General Johnson in the War Industries Board of World War I. While NRA was under discussion, Johnson "suggested his name to Secretary Roper at once." General Electric was in 1930 the largest of the electrical equipment manufacturers, with Westinghouse holding many of the basic patents in the field, as well as a large interest in RCA and many international subsidiaries and affiliates. In the late 1920s G.E. and Westinghouse produced about three quarters of the basic equipment for distributing and generating electric power in the U.S. General Electric, however was the dominant firm in the electrical equipment industry.8 Under NRA the National Electrical Manufacturers Association (NEMA) was designated as the agency for supervising and administering the electrical industry code. NEMA moved promptly and by July 1933 presented the second code of "fair competition" for the President's signature.
Johnson's second musketeer was Walter Teagle, chairman of the board of the Standard Oil of New Jersey. Standard of New Jersey was the biggest integrated oil company in the U.S., and only Royal Dutch challenged it in international sales. Jersey Standard was controlled by the Rockefeller family, whose holdings in the early 1930s have been estimated at between 20 and 25 per cent.9 One might therefore say that Teagle represented the Rockefeller interests in NRA, whereas Swope represented the Morgan interests. It is interesting to note in passing that the largest Standard competitor was Gulf Oil, controlled by the Mellon interests, and there were persistent efforts early in the Roosevelt administration to prosecute Mellon for tax evasion.
The third of Johnson's three musketeers at NRA was Louis Kirstein, vice president of Filene's of Boston. Edward Filene is notable for his books on the advantages of trade associations, fair competition, and cooperation (see page 81 below).
The peak of the Roosevelt National Recovery Administration consisted of the president of the largest electrical corporation, the chairman of the largest oil company, and the representative of the most prominent financial speculator in the United States.
In brief, the administration of NRA was a reflection of the New York financial establishment and its pecuniary interests. Further, as we have seen, since the plan itself originated in Wall Street, the presence of businessmen in the administration of NRA cannot be explained on the basis of their experience and administrative ability. NRA was a creature of Wall Street implemented by Wall Streeters.
THE OPPRESSION OF SMALL BUSINESS
The proponents of the National Industrial Recovery Act made a great show that NRA would protect the small businessman who, it was alleged, had suffered in the past from unfair application of the anti-trust laws; the suspension of the anti-trust laws would remove their more unwelcome features, while NRA would preserve their welcome antimonopoly provisions. Senator Wagner stated that all industry would formulate the proposed industrial codes, not just big business. Senator Borah, on the contrary, contended that "monopoly" was about to receive a service it had coveted for over 25 years, that is, "the death of the antitrust laws" and that the NRA industrial codes "are going to be combinations or contracts in restraint of trade, or it would not be necessary to suspend the antitrust laws." Senator Borah also pointedly accused Senator Wagner of betraying the legitimate businessman for the sake of Wall Street:
Senator Borah then cited Adam Smith (see p. 99) to effect, pointing out that no definition of fair competition was in the bill and that codes of fair competition would degenerate into the dictates of the major corporations. Similarly, Senator Gore pointed to the possibility that the President could require all members of an industry to be licensed and that this meant that the President could revoke a license at his pleasure, an obvious infringement on due process of law and basic property rights:
When we examine the results of the N.I.R.A., even a few short months after passage of the bill, we find that these Senatorial fears were fully justified and that President Roosevelt had abandoned the small businessman of the United States to the control of Wall Street. Many industries were dominated by a few major firms, in turn under control of Wall Street investment houses. These major firms were dominant, through the three musketeers, in establishing the NRA codes. They had the most votes and could and did set prices and conditions ruinous to smaller firms.
The iron and steel industry is a good example of the manner in which large firms dominated the NRA code. In the 1930s two leading companies, United States Steel, with 39 per cent, and Bethlehem Steel, with 13.6 per cent, controlled over half of the country's steel ingot capacity. The board of U.S. Steel included J.P. Morgan and Thomas W. Lamont, as well as chairman Myron C. Taylor. The board of Bethlehem included Percy A. Rockefeller and Grayson M-P. Murphy of Guaranty Trust, whom we shall meet again in Chapter 10.
In 1930 the largest stockholders of U.S. Steel were George F. Baker and George F. Baker, Jr., with combined shares of 2000 preferred and107,000 common; Myron C. Taylor head of the Finance Committee of U.S. Steel owned 27,800 shares of common; J.P. Morgan held 1261 shares; and James A. Farrell had title to 4850 shares of preferred stock. These men were also substantial Presidential campaign contributors. For example, in Hoover's 1928 campaign they contributed
In the NRA, we find that U.S. Steel and Bethlehem Steel effectively controlled the whole industry by virtue of their votes in the industrial codes; of a total of 1428 votes, these two companies alone were allowed a total of 671 votes, or 47.2 per cent, perilously close to outright control and with undoubted ability to find an ally among the smaller but still significant companies.
NRA-Voting Strength in the Iron and Steel Industry Code
Source: NRA Report Operation of the Basing Point System in the Iron and Steel Industry.
Under its founder, Henry Ford, the Ford Motor Company had little use for politics, although James Couzens, one of the original Ford stockholders, later became Senator from Michigan. Ford maintained its executive offices in Dearborn, Michigan and only a sales office in New York. Ford was also vehemently anti-NRA and anti-Wall Street, and Henry Ford is notable by reason of his absence from the lists of contributors to Presidential campaigns.
On the other hand, General Motors was a creature of Wall Street. The firm was controlled by the J.P. Morgan firm; the chairman of the board was Pierre S. Du Pont, of the Du Pont Company, which in 1933 had about a 25 per cent interest in General Motors. In 1930 the General Motors board comprised Junius S. Morgan, Jr. and George Whitney of the Morgan firm; directors from the First National Bank and Bankers Trust; seven directors from Du Pont; and Owen D. Young of General Electric.
Another example is the International Harvester Company, in 1930 under its president Alexander Legge the giant of the agricultural equipment industry. Legge was part of the NRA. The agricultural equipment combination was formed in 1920 by the J.P. Morgan Company and controlled about 85 per cent of the total production of harvesting machines in the United States. In 1930, the firm was still dominant in the industry:
1930 at least 80 large companies were mining bituminous coal in the United
States; of these, two—Pittsburgh Coal and Consolidation Coal—were
dominant. Pittsburgh Coal was under control of the Pittsburgh banking
family, the Mellons. Consolidation Coal was largely owned by J.D. Rockefeller,
who owned 72 per cent of the preferred and 28 per cent of the common stock.
Both the Mellons and the Rockefellers were heavy political contributors.
Similarly, anthracite production was concentrated in the hands of the
Reading Railroad, which mined 44 per cent of U.S. hard coal. Reading was
controlled by the Baltimore and Ohio Railroad, which held 66 per cent
of its stock, and the chairman of B & 0 was E.T. Stotesbury, a partner
in the Morgan firm.
As we glance down the list we note that American Car & Foundry (whose president, Woodin, became Secretary of the Treasury under Roosevelt), American Radiator & Standard, and Crane Company were all prominent contributors to FDR.
Given this dominant influence of large firms in the NRA and the Roosevelt administration, it is not surprising that NRA was administered in a manner oppressive to small business. Even in the brief life of NRA, until it was declared unconstitutional, we find evidence of oppression: witness the complaints by small business in the industries we have discussed compared to other industries in small business with many more units:
Source: Roos, NRA Economic Planning, p. 411, from unpublished NRA data.
1. See Appendix A for the full text.
2. Senator Huey P. Long, Congressional Record, June 8, 1933, p. 5250.3. Charles F. Ross, NRA Economic Planning (Indianapolis: The Principia Press 1937), p. 37.
4. Should the reader wish to pursue the explanation for this pervasive inability to see the obvious, he could start in no better place than Ludwig von Mises, The Anti-Capitalistic Mentality (New York; Van Nostrand, 1956).
5. "A Socialist Looks at the Swope Plan," The Nation, Oct. 7, 1931, p. 358.
6. Ibid., p. 357.
7. Hugh S. Johnson, The Blue Eagle from Egg to Earth, op. cit., p. 217.
8. For more information see Harry W. Laidler, Concentration of Control in American Industry (New York: Crowell, 1931), Chapter XV.
9. Ibid., p. 20.
10. Congressional Record, 1933, p. 5165.
11. United States Senate, National Industrial Recovery, Hearings before Committee on Finance, 73rd Congress, 1st Session, S.17and H.R. 5755 (Washington: Government Printing Office, 1933), p. 5.
12. In addition, the following smaller firms had votes: Acme Steel (9), Granite City Steel (8), Babcock and Wilcox (8), Alan Wood (7), Washburn Wire (7), Interlake Iron (7), Follansbee Bros. (6), Ludlum Steel (6), Superior Steel (6), Bliss and Laughlin (6), Laclede Steel (5), Apollo Steel (5), Atlantic Steel (4), Central Iron and Steel (4), A.M. Byers Company (4), Sloss-Sheffield (4), Woodward Iron (3), Firth-Sterling (2), Davison Coke and Iron (2), Soullin Steel (1), Harrisburg Pipe (1), Eastern Rolling Mill (1), Michigan Steel Tube (1), Milton Manufacturing Company (1), and Cranberry Furnace (1).