Free People, Free Markets. George Melloan
also become skeptical of the ideas of the British wunderkind, John Maynard Keynes, and would remain so thereafter. Keynes was not a member of FDR’s “brain trust,” but he influenced policy. He wrote an open letter to FDR in late 1933 suggesting that the government could cure the Depression by borrowing more and spending more. The Journal attacked this theory with the same argument it would continue to use thereafter against Keynesianism: How is it economically “stimulative” when the government takes money from one person, the taxpayer, and gives it to another?
The Journal also challenged Nicholas Murray Butler, the president of New York’s Columbia University, an institution that had contributed two of its faculty members, Raymond Moley and Rexford Tugwell, to FDR’s original three-member brain trust.
After Butler had deplored the “the profit motive,” a Journal editorial asked: “What is this profit motive that is suddenly become fashionable to decry. The profit motive is simply the common aspiration of all men to better their material status through individual exertion . . . How many members of the Columbia University faculty have exerted themselves beyond the requirements of their inadequately salaried duties to make contributions to literature and the technological arts for which the world is glad to pay them?”
The New Deal’s Banking Act of 1933 gave the Fed board in Washington more clearly defined monetary policy power by creating an FOMC to conduct the Fed’s money-creation activities. Putting to bed the days when those powers were often exercised at the discretion of the New York Fed, the act made political control over monetary policy more explicit by dictating that the FOMC would be made up of the seven politically appointed Fed governors and only five regional presidents, whose membership would rotate from year to year. It is doubtful that greater political control improved the Fed’s performance.
First with Hoover and then with the New Deal, the center of the nation’s economic decision making was shifting from New York to Washington. The Federal Reserve Board in Washington had won its power struggle with the New York Federal Reserve Bank. Board members even got titles, able to call themselves “governors” in the manner of the governor of the Bank of England, whereas the heads of the regional banks would remain bank “presidents,” implying that their responsibilities were mainly regional.
With this power shift going on, Hogate saw the need to beef up the Journal’s Washington bureau. The man he chose to do it was the 25-year-old Barney Kilgore, whom he appointed manager of the bureau in early 1935. The able William Henry Grimes had been promoted from bureau chief to managing editor of the Journal in September 1934 and had moved to New York.
Hogate was responding to the massive change the New Deal had wrought on the origins of news as it spread its influence over economic transactions far and wide. Washington was now in charge of the economy, or was at least boldly and recklessly attempting to be. For better and for worse, the Journal had to cover that capital city’s outpouring of ukases.
Barron had thought so little of the Journal’s Washington bureau that he seldom visited it, preferring to deal directly with presidents. His good friend Coolidge had once invited him to spend a night at the White House. When he did consult with the Journal’s Washington reporters, there was something of a communications problem. According to the Wendt history, Barron’s corpulence precluded his climbing the steep stairs to the Washington bureau. So he would get out of his chauffeured limousine below the bureau’s window and shout up to the longtime bureau manager, John Boyle, “Boyle, Boyle! Come down here!”
Boyle, who somehow despite Prohibition, managed to supply his large thirst for alcohol, also was averse to climbing, either up or down, those steep stairs. So he would stagger to the window and yell, “You come up.” The standoff was resolved by Barron shouting his instructions from his position on the sidewalk to Boyle in the window. He was willing to tolerate Boyle because he didn’t assign much importance to the bureau.
But that was certainly not true after FDR’s first 100 days of legislation to totally reorder the American economy, from acts (Glass-Steagal) that separated commercial and investment banking, to farm legislation that authorized the government to try to raise farm prices by paying farmers to burn part of the cotton crop and slaughter baby pigs. The Journal found it difficult to even record what was happening, let alone offer sufficient commentary on the wisdom of the acts. Hogate was a friend of FDR but not a confidante. One thing they had in common, though, was a mutual admiration for the young Barney Kilgore.
Early in his administration, FDR had publicly recommended to reporters that they read a Kilgore column to get a better understanding of the monetary and budgetary issues involved in paying World War I veterans a cash bonus. He said, “I don’t agree with the story all the way through but it’s a good story. It is an analytical story on an exceedingly difficult subject, the question of issuing currency to meet the government’s obligations. I think that Kilgore could have gone just a bit further than he did.”
FDR, like Hoover, was a believer in a balanced budget, and though some of his programs were radical, they weren’t extravagant. For example, his farm act proposed to pay for farm subsidies with a tax on food processors, a provision among others that prompted the Supreme Court in January 1936 to scuttle it and necessitate a rewrite. The court ruled that the AAA included unconstitutional infringements by the federal government on powers reserved for the states.
As to the nettlesome bonus issue, a 1924 act had granted veterans bonus certificates, but they were not redeemable until 1945. A large “bonus army” consisting in large part of unemployed veterans descended on Washington in the summer of election year 1932 demanding immediate cash payments. Hoover paid a high political price when he refused on budgetary grounds and ultimately ordered the army to disperse the protesters.
Roosevelt also refused to pay but partly defused a similar protest in 1933 by offering the veterans jobs in the newly created Civilian Conservation Corps, which employed young men primarily to maintain national parks and forests. Congress finally passed a bill in 1936 to grant the bonuses nine years early and overrode FDR’s veto. So naturally the president was grateful for Barney’s dispassionate analysis in 1933.
A Journal editorial deplored the 1936 Bonus Act, arguing that it and farm subsidies would further expand the federal budget deficit in fiscal 1937. It said this had raised the question, in acute form, “whether there is to be any control over spending and borrowing?”
The Roosevelt administration had been running large deficits throughout the depressed 1930s, with the gap between revenues and outlays rising to a high of 5.4% of Gross Domestic Product (GDP) in fiscal 1936, which happened to be an election year. One might argue, as did Keynes, that deficit spending had a bearing on the limited economic recovery from 1933 through 1936. But that theory would be subject to some doubt when, in 1937, the U.S. stock market and economy suffered another crash, ushering in what has been called the second Depression.
In 1934, Kilgore was becoming increasingly skeptical of the New Deal’s programs and voiced his doubts on the Journal’s front page. He wrote that, since the New Dealers came to power in March 1933, they had had “a definite political philosophy . . . They have had, too, a vague social philosophy . . . But they have lacked and continued to lack any economic philosophy whatever.”
Of the NRA, he wrote that after six months of reporting on its efforts, he had concluded that “because of its haste in pursuing the objective of a code for everyone and everyone under a code, and to the degree with which it succeeded in attaining that objective, it now finds itself with an enforcement problem on its hands that staggers the imagination.”
Some New Dealers may have breathed a sigh of relief after the Supreme Court put the NRA out of its misery in 1935. Democrats in Congress were sensing that the public was becoming a bit weary of great social and political experiments. To be sure, FDR sought to retaliate against the court with his euphemistically titled Judicial Procedures Reform Bill of 1937, which would have given him the power to expand the 9-member court to as many as 15 members with his own appointees, a move that quickly became identified as an effort to “pack” the court.
One would have expected the Journal to rain hellfire on this proposal, but instead it came up with a short and rather badly written editorial equating the president’s scheme to an effort