Wall Street History: The Great Depression & A New Deal For Working People
In 1933, during Franklin D. Roosevelt‘s first year as President, the Democrats launched a number of New Deal social welfare and economic recovery efforts to combat the Great Depression.
Among the more popular and successful of these was the creation of the Public Works Administration (PWA) and the Civilian Conservation Corps (CCC), jobs programs which were modeled on similar programs in New York State.
On the same day the National Industrial Recovery Administration Act of 1933 was passed, the National Recovery Administration (NRA) was created by executive order in an effort to regulate wages, working hours and prices. Businesses throughout the country were encouraged to write “codes of fair competition” and the program was popular among workers. Companies who complied displayed the NRA Member “Blue Eagle.” Those that didn’t were often the subject of boycotts.
Another important element of “the new deal for working people,” the Agriculture Adjustment Agency was created that same year. It was designed to stabilize and increase prices of agriculture products for farmers by setting quotas and at times limiting farm production.
With the success of progressive Democratic Party candidates in the 1934 midterm elections and Franklin D. Roosevelt’s landslide re-election as President in 1936, New Deal programs moved into a higher gear.
One of the most important of these was Social Security, which Labor Secretary Frances Perkins had pioneered in 1935. Modeled on European social welfare programs for the elderly, Social Security was designed to protect those who could no longer work due to old age (before Social Security, the oldest Americans were largely dependent on their children or housed in community “Poor Farms”).
The New Deal, however, was not without its critics. John Pierpont Morgan’s son J.P. Morgan Jr., then leader of the House of Morgan, had initially endorsed the temporary conversion of the nation’s currency from the gold standard, but Morgan and other Wall Street leaders (now significantly discredited following the Crash of 1929) became bitter opponents of what they increasingly viewed as socialist (even Bolshevik) policies to greatly expand the role of the government in the economy. It was said that J.P. Morgan Jr. would not permit Roosevelt’s name to be uttered in his presence, referring to him as “that man” in the White House.
Ironically by 1936, even former New York Governor Al Smith had become an opponent of the New Deal, which he also attacked as socialism. To many conservatives on Wall Street, Franklin Delano Roosevelt was a “traitor to his class,” a socialist, and a wanna-be dictator. Roosevelt responded that his opponents were “economic royalists” and he sought to reshape the coalition around William Jennings Bryan into a new Roosevelt coalition – consisting of farmers, immigrant families, industrial workers, and the unemployed, especially in the cities.
He encouraged the formation of unions through legislation such as the Wagner Act, passed after the conservative Supreme Court ruled against the NRA in 1935, a forerunner of he National Labor Relations Board. Roosevelt also sought to revamp the nation’s securities laws. The Securities Act of 1934 was designed to provide much more extensive disclosures to Wall Street investors – if they ever returned.
The disruption of the NRA by the conservative Supreme Court and its Chief Justice Charles Evan Hughes was one of the most significant attacks on New Deal programs. In A.L.A. Schechter Poultry Corp. v. United States a chicken dealer in Brooklyn was accused of selling chickens under prices set by the National Industrial Recovery Administration Act of 1933. The Court ruled that the Act was an unconstitutional delegation of power to the federal government, destroying the program. In another case, the Supreme Court held that held the Agricultural Adjustment Act, one of the key new deal programs designed to help farmers with prices, was similarly unconstitutional because it in effect fixed prices for agricultural goods.
These Supreme Court decisions and several others were highly controversial and were perceived as crippling important elements of the New Deal that working Americans were being promised. Four conservative Justices, dubbed the “Four Horsemen,” were significant opponents to New Deal programs: James McReynolds, a highly prejudiced Southerner from Nashville appointed in 1914 by Woodrow Wilson; George Sutherland, a Utah Republican nominated in 1922 by Warren Harding (and to whom he had been a close advisor); Willis van Devanter, a Wyoming Republican and former Interior Department official nominated in 1910 by William Howard Taft; and Pierce Butler, a Minnesota lawyer who had built his career representing railroads (appointed by Harding in 1922).
Three Supreme Court Justices – dubbed “the Three Musketeers” – generally dissented from these decisions. They included Louis Brandeis, the first Jewish Justice, nominated by Woodrow Wilson in 1916; Harlan Fiske Stone, former Dean of Columbia Law School and fishing companion of Herbert Hoover nominated by Calvin Coolidge in 1925; and Benjamin Cardozo, a leading legal scholar and former head of the New York Court of Appeals, who was appointed by Herbert Hoover in 1931.
This left Chief Justice Charles Evan Hughes and Associate Justice Owen Roberts, a prominent Philadelphia corporate lawyer appointed by Herbert Hoover in 1930, as the swing votes. Hughes, a former “reform” Governor of New York, somewhat surprisingly voted with the majority against the New Deal policies. Like Roosevelt, the Chief Justice was a graduate of Columbia Law School and his first job out of law school was with a prestigious Wall Street law firm. Unlike Roosevelt, he had a career as a Wall Street attorney, saw great financial success, and was a leading member of the New York Bar.
In 1905, Hughes became prominent in connection New York State legislative investigations of the dairy and (later) insurance industries, where he had uncovered considerable financial abuses. In 1906 the Republican was elected Governor of New York and in 1910 William Howard Taft successfully nominated him to the Supreme Court.
In 1916, many Republican leaders, hoping Hughes would unify the Taft and Theodore Roosevelt factions, convinced him to leave the Court to run for President as the party’s candidate against incumbent Democrat Woodrow Wilson. For a time he was favored to beat Wilson, but a misstep involving popular Governor Hiram Johnson in California contributed to his losing that state, and its significant electoral votes, by 4,000 votes. Wilson was reelected however, largely on his promise to keep the United States out of the First World War, which was then raging in Europe.
Wilson’s successor, elected in 1920, was Republican Ohio Governor Warren G. Harding (Franklin Roosevelt ran unsuccessfully as Vice President on the Democratic ticket). Harding appointed now former Supreme Court Associate Justice Charles Evans Hughes as Secretary of State. In that role Hughes compiled a credible record as a statesmen, negotiating the Naval Disarmament Treaty of 1924, and in 1930, President Herbert Hoover appointed him Chief Justice of the Supreme Court.
At the time of his appointment Hughes was a leading public figure in the tradition of Wall Street lawyer-diplomats such as Elihu Root, Henry Stimson or later John Foster Dulles or John J. McCloy. When he gave the oath of office to Franklin Roosevelt as President in 1932, Roosevelt noted how pleased he was that the oath would be administered someone who, like himself, was a former Governor of the State of New York. Just a few years later they would be antagonists in Roosevelt’s attempt to enlarge the Supreme Court.
Roosevelt’s Attempt To Enlarge The Supreme Court
By 1936, the New Deal policies were popularly considered a success. It was estimated that Roosevelt’s policies had cut the unemployment rate in half since his election, and incomes were twice as high as they had been in 1932. Prices of agricultural goods had significantly increased and even the prices on the New York Stock Exchange had advanced. In the fall of that year Roosevelt and the Democratic Party won an overwhelming landslide. The “Roosevelt coalition” comprised the majority of Americans and American politics had been reshaped from the days when William McKinley and Wall Street held the reigns of power.
Nevertheless, Roosevelt’s great concern was that the third branch of government — especially its strongest body, the U.S. Supreme Court — was obstructing America’s economic progress and would continue to do so. His conservative predecessors had packed the Supreme Court with justices who were frustrating New Deal programs necessary to move the country forward. (This same concern has recently been raised in connection with the three conservative justices appointed by former President Donald Trump).
The Court decisions holding portions of the National Industrial Recovery Administration Act of 1933 and the Agriculture Adjustment Act unconstitutional had eliminated key elements of the New Deal. Roosevelt feared that the NIRA’s replacement, the Wagner Act (passed on the day the Supreme Court’s decision took effect, and which also encouraged unionization) and the new Social Security program would be next. In response he sought to rally the Roosevelt Coalition behind a plan to to expand the number of justices on the Supreme Court by adding a justice for each sitting justice over age 70 (later 75). Charles Evans Hughes was 75 at the time.
A leading pro-Roosevelt publication argued that “Nine Old Men” were impeding the country from moving forward and that it was necessary to have younger, more vigorous justices who were more in tune with the country. Chief Justice Hughes, supported by most New Deal opponents and some supporters, opposed the effort, as did some more conservative Democrats, who had applauded the Court’s decisions in support of free speech and civil liberties. Hughes’s main argument was that the integrity of the Court required that it be independent of what he considered political interference and that it had to be free to decide cases based on their merits.
While the controversy raged however, the Court decided cases affirming the constitutionality of both the Wagner and Social Security Acts. The swing vote was Owen Roberts, who had voted with the “Four Horsemen” in the Schechter case and the case invalidating the Agricultural Adjustment Act. Some cynics called his votes the “Switch in time that saved nine,” claiming he had made a strategic move to protect the Court’s independence from Roosevelt’s enlargement plan, although this turned out not to be true.
The threat to the New Deal also abated somewhat when Justice van Devanter, one of the conservative justices who was 79, announced he would be retiring, permitting Roosevelt to appoint someone supportive of his New Deal for working people.
The fight over expanding the Supreme Court encouraged Roosevelt’s political enemies however, as did a downturn in the economy in 1938. Evidence of this hostility was the ultimately unsuccessful effort by the Louis Dye-chaired House UnAmerican Activities Committee to impeach Frances Perkins, FDR’s Labor Secretary, a key social welfare aide and the first women appointed to a cabinet position. Perkins, who was then in charge of immigration as well as labor matters, was accused of having improperly given a visa to Harry Bridges, leader of the 1934 West Coast Longshore Strike and an alleged Communist.
With easing of the Supreme Court expansion debate, the country turned to the controversy over the extent to which the United States should pursue isolationist policies in light of the rise of totalitarian regimes in Europe.
Ironically Charles Evans Hughes, though an internationalist since his days as Secretary of State under Harding in the 1920s, contended that his successful defeat of Roosevelt’s court plan indicated the importance of the Court in protecting the United States from the unbridled government power being exercised by fascist regimes in Europe. Hughes’s views stood beside major American figures who expressed both isolationist and anti-Semitic ideas; men such as Charles Lindbergh, Henry Ford, and Father Charles Coughlin.
Roosevelt became a strong opponent of isolationism and encouraged American support for the allied powers, most notably Great Britain and the Soviet Union – in their fight against fascism. When the Japanese attacked Pearl Harbor, the country was fortified by industrial capability rebuilt by New Deal policies.
By the time of Roosevelt’s death in April 1945, it was already clear that the United States was about to be a predominant power in the world, with a position that would enable it to greatly influence post-war arrangements. As one of the major belligerents who was least-effected by the Second World War, the Unites States was poised to become one of the most prosperous nations in the world. An optimism swept through the country that contrasted dramatically with the situation of the Great Depression just a few years before.
A broad base of Americans benefited from this post-war prosperity and the location of the United Nations in New York City was a suggestion of where power in the country and the world might reside. Wall Street firms had in many respects played a minimal role in the nation’s emergence from the Great Depression, as the effort had been organized and directed from the federal government in Washington, DC.
Almost 20 years on the sidelines following the disaster of 1929 however, Wall Street was poised for a resurgence.