|This Week in American History
FDR's 'Hundred Days'
In mid-June 1933, President Franklin Roosevelt completed the first session of Congress under his Presidency, having accomplished the so-called "100 Days" legislative program that pulled the nation back from the edge of the abyss. The measures that were taken in that period of national emergency embody many of the reversals in policy and axiomatic thinking which FDR had to accomplish in order to save the nationreversals that are equally, if not more urgent today. Hence, a review of these measures may provide precisely the kind of economic review which is necessary to awaken, and educate, our citizens for dealing with the economic emergency ahead.
What was re-established in the first 100 days were the fundamental principles enunciated in the Preamble to the U.S. Constitution: national sovereignty, the commitment to the general welfare, and a commitment to our posterity.
Re-Establishing National Sovereignty
When FDR took office in March 1933, he inherited a financial and political system which had been dominated, since the time of his (distant) cousin, President Theodore Roosevelt (1901-1908), by British economics. The axioms were those of British free enterprise, and the enforcer of the free-market system, which had sacrificed the lives of millions of Americans by putting banking interests first, was a financial system, which was dominated by the Morgan-Mellon-du Pont interests.
The primus inter pares among the bankers was J.P. Morgan, a leading financial ally of the British banking system. The Morgan interests' control of credit gave them a vise-grip over the physical economy, and they were determined to use it to prevent implementation of policies they didn't like, and to otherwise loot the economy and the population. Farms had been shut down en masse, while speculative schemes had flourished. Political favorites had received credit, whereas many productive enterprises were given none.
More importantly, these banking consortia worked in such a way as to deprive the United States of its sovereignty, through the enforcement of the British gold system. The creation of credit was limited by the amount of gold held by the banks. Therefore, if the major banking interests decided to sell off their gold to buyers overseas, this resulted in a contraction of credit in the U.S. If the gold supply were controlled from overseas, as it effectively was, through the close-knit British-American banking establishment, then, the U.S. actually lacked sovereign control over its own currency and credit.
President Franklin Roosevelt moved immediately to remedy this situation when he took office. At the same time that he declared the famous bank holiday, he suspended all transactions in gold, and gave authority over any such matters to the Secretary of the Treasury. This is the basis on which the Federal government got the authority to regulate the price of gold, rather than let that money-linked commodity be controlled by private interests.
On April 5, FDR went further, issuing an Executive Order against hoarding of gold. Historian Arthur Schlesinger correctly described the significance of these moves as follows:
"It meant that American monetary policy was no longer to be the quasi-automatic function of an international gold standard; that it was to become instead the instrument of conscious national purpose."
After removing gold as a weapon that could be used by institutions hostile to the purposes of the Federal government, either foreign or domestic, FDR had still to create the basis for a national credit system that would serve the interests of the nation. This was accomplished through his various pieces of banking legislation, and the banking regulation measures which aimed at preventing the banks from being used to loot the general population, and productive enterprises.
The first point that had to be recognized was clear: The banking system was bankrupt. By calling the bank holiday on March 5, Roosevelt dramatized this reality by ordering them all closed.
But then, he had to put the system back together again, which he did through the provisions of the Emergency Banking Act. This Act, which was rushed through Congress in time to reopen the banks (most of them) on March 13, had various provisions for sorting the banks into three classifications: those that were sound, those that would function with a capital infusion, and those which a conservator would liquidate. It also permitted utilizing Federal government instruments, like the Reconstruction Finance Corporation and the Federal Reserve System, to ensure liquidity be provided for those banks which were basically sound, but needed it.
When March 13 arrived, the day after an estimated 60 million Americans had heard President Roosevelt address them on how they had "nothing to fear but fear itself," a large majority of the nearly 19,000 nationally chartered banks opened their doors, providing the basis for issuing payrolls, and maintaining government and other necessary social functions. Sufficient confidence had been restored, such that the very citizens who had been carrying out runs on the banks, now put more money into the banking system in this period, than they took out.
A Constitutional Principle
There were vociferous objections to FDR's banking measures in this period, on the basis of the "principle" that "private enterprise"not governmentshould run the economy. This was shoved aside in the course of the emergency, but the reason for FDR's success was not just pragmatic. It was based on the constitutional principle of national sovereignty, which principle FDR was fully aware of and committed to.
There is no question, according to the U.S. Constitution, that control over the currency of the United States, is a power that resides in the Federal government, specifically the U.S. Congress. Article I, Section 8 makes that clear. And when this principle was challenged in the early days of the republic, the founding genius of the American System of Economics, Alexander Hamilton, came forward to argue the case explicitly.
That argument appears succinctly in Hamilton's "Opinion on the Constitutionality of the Bank," a paper he wrote for President George Washington, in defense of his proposal for a National Bank of the United States. Secretary of State Thomas Jefferson and Attorney General Edmund Randolph had vigorously opposed the National Bank, claiming that it gave the Federal government too much power. (In fact, without the bank, power over the nation's finances would have been ceded to private, foreign interests.)
Hamilton's argument concentrated on the question of sovereignty: that the power of the government, "as to the objects intrusted to its management, is in its nature sovereign," and that the right of erecting corporations (in this case, the Bank of the United States, but the argument is more generally applicable) "is one, inherent in and inseparable from the idea of sovereign power."
FDR had not only studied Hamilton, but located his identity in the tradition which began with his great-great grandfather Isaac Roosevelt, who had fought alongside Hamilton to get the U.S. Constitution ratified in New York, and later collaborated with Hamilton in forming the Bank of New York.
Although FDR's banking measures never went so far as to restore the National Bank, the President found a way to exercise this sovereign power by other means. He blasted his opponents as "economic royalists," who claimed to believe in political freedom, but "have maintained that economic slavery was nobody's business." "What they really complain of is that we seek to take away their power," he said.
Promoting the General Welfare
National sovereignty, however, as FDR understood, is not just a question of power, but the use of that power for the common goodwhat the Preamble to the Constitution calls the "general welfare." It was on this basis, that the President justified his far-flung initiatives for creating jobs, saving the farm sector, and establishing a safety net for those who had suffered from the "dog-eat-dog" economy which had predominated under the Tory ideas of Andrew Mellon, Calvin Coolidge, J.P. Morgan, and the like.
The most famous of FDR's measures for relieving the suffering of the poor came in what is called the second phase of the New Deal, in 1935, when he moved with Democratic supporters in Congress to push through both the Social Security Act and unemployment insurance. These measures, which immediately came under attack by the Morgan-led banking interests, eventually survived a challenge that went all the way up to the U.S. Supreme Court, which ruled that they were consistent with the general welfare clause of the U.S. Constitution.
But Roosevelt, from the very beginning, understood that his government had to "drive from the temple of our ancient faith those who had profaned it"the "moneychangers in the temple"and provide the basis for a government which would guarantee the security and peace necessary to the "pursuit of happiness." In reviewing the work of his first term, during his Second Inaugural Address, the President put it this way:
"We of the Republic sensed the truth that democratic government has innate capacity to protect its people against disasters once considered inevitable, to solve problems once considered unsolvable. We would not admit that we could not find a way to master economic epidemics just as, after centuries of fatalistic suffering, we had found a way to master epidemics of disease. We refused to leave the problems of our common welfare to be solved by the winds of chance and the hurricanes of disaster.
"In this, we Americans were discovering no wholly new truth; we were writing a new chapter in our book of self-government.
"This year marks the 150th anniversary of the Constitutional Convention which made us a nation. At that Convention our forefathers found the way out of the chaos which followed the Revolutionary War; they created a strong government with powers of united action sufficient then and now to solve problems utterly beyond individual or local solution. A century and a half ago they established the Federal Government in order to promote the general welfare and secure the blessings of liberty to the American people.
"Today we invoke those same powers of government to achieve the same objectives."
While many Americans don't realize it today, the measures which FDR took in these first hundred days, and later, were literally matters of life and death. Starvation faced millions of Americans who had been thrown off their land, out of their homes, or out of their jobs. People could not afford doctors, or food, or, in many cases, roofs over their heads. The private sector, and bankrupt local governments, were either throwing up their hands, or turning their backs. It was left to the Federal government to come to the rescue.
FDR's Administration did not wait long in implementing this philosophy. The first measure he took was the creation of the Civilian Conservation Corps, a government-administered program to create jobs, especially for unemployed youth. Over the course of its history, the CCC created millions of jobs, which permitted young men to support their families, and regain their health and morale, while doing something useful for the natural resources of the country.
This jobs program was followed later with the creation of public-works programs, that provided millions more with useful work, particularly in the repair and construction of infrastructure, such as waterworks, roads, and schools. Roosevelt's appointee Harry Hopkins personally embodied the spirit of these jobs programs, as non-bureaucratic responses to the need for public improvements, as well as incomes.
In addition to providing jobs, Roosevelt set up a national relief program, better known today as "welfare," by which the Federal government shared the cost of supporting those families who could not have a breadwinner. In establishing this program, FDR explicitly rejected the idea that unemployment was the "fault" of the individual, and acknowledged that it was toleration of rapacious system of cartels and economic royalists, which created the hardships. Society had a responsibility, therefore, to care for the "least of these."
Other immediate measures for saving lives involved ending evictions of people from their homes or farms. Millions found themselves without the ability to pay their mortgages, and to get credit to refinance. FDR recognized this as a national emergency, and intervened to provide the means for refinancing for those who were in desperate need.
While his opponents screamed about "socialism," FDR could confidently scoff at them. He knew that his programs were providing the basis for putting the nation back to work, and restoring the tax base. Every Federal works program created many corresponding jobs in the private sector which had to provide the materials. Every infrastructure improvement increased the potential for a productive, skilled workforce. While helping the poor, these programs demonstrably lifted the conditions of life for the entire nationi.e., served the general welfare.
Provide for our Posterity
The third major principle of our constitutional commitment is the requirement that our governance provide for the welfare of future generations. FDR immediately began to put our government behind this principle, by launching major infrastructure projects in water management, power generation and production, and transportation, all of which would shape and improve the conditions of life for decades to come. The epitome of this aspect of his program was the Tennessee Valley Authority, a project long on the drawing boards, which FDR pushed through in May of 1933.
Major infrastructure projects, such as the Bonneville hydroelectric dam, and the TVA, were conceived by Roosevelt not just as jobs programs, but as means of permanently upgrading the productivity of the economy and the productive powers of labor. Such projects introduced the era of cheap electricity, and in many cases, provided the basis for conquering disease and the devastation of periodic floods. FDR knew that they would not pay for themselves in the short term, but only over the long-term, and that not just in terms of dollars and cents, but, most importantly, in terms of the standard of living of the entire nation.
Over the course of his 12 years in office, FDR launched over 45,000 projects in the five basic categories of infrastructure: water, power, transportation, health, and education. Many of the structures his programs builtfrom parks, to sewage systems, to dams and hospitalsare still being used throughout the nation, some 70 years later.
In this era of Baby-Boomerism, there is perhaps no more crucial lesson for our citizens to learn than this principle of our Constitution, as laid out in the Preamble: of providing for our posterity. The commitment to improve nature, and society, for the benefit of future generations has become increasingly foreign to our national philosophy, since the 1960s' launching of the counterculture and the "me" generation. There used to be a joke in the 1970s, that whereas the Japanese businessman planned for six years ahead, the U.S. businessman planned for six minutes, this being the amount of time that it could take for stocks to be traded on the relevant gambling exchanges. In today's computer age, the attention span has dwindled further, to perhaps six seconds.
There are many who would say that we can't return to FDR's way, and who are even committed to ripping up the physical improvements which his Administrations built. They are wrong in principle, as well as in practice. They should study the history of how FDR brought us out of the Great Depression, before our sinking into a worse one (which has already begun) becomes irreversible, with the blowout of the bankrupt financial system which is imminent.