THE CABINET: Teachers & Pupils

(See front cover)

A cozy ceremony took place last week in the White House. President Roosevelt sat in his study—the Oval Room on the second floor, overlooking the wintry south lawn towards the bleak pinnacle of the Washington monument—surrounded by his paintings of white-sailed ships scouring green-blue seas. Around him was gathered an intimate group, some two dozen personal friends and members of his official family. They were there to witness the administration of two oaths of office, simple in themselves, but of large importance to the company inside, to the country outside. The chief clerk of the Treasury swore in stalwart Henry Morgenthau Jr. as Undersecretary of the Treasury, swore in Dr. William Irving Myers to succeed Mr. Morgenthau as Governor of the Farm Credit Administration.

When the oaths had been taken the President turned his clear blue eyes upon the group. They passed over Mrs. Roosevelt; noted standing in the background the man who was his economic instructor at Harvard 30 years ago, Dr. Oliver Mitchell Wentworth Sprague, more recently adviser to the Bank of England; noted youngish Dean Acheson, retiring Undersecretary of the Treasury, tall, lean and dark; noted a couple of assistant secretaries, the Comptroller of the Currency, the Commissioner of Industrial Alcohol, the Directress of the Mint, the Chief of the Secret Service, a member of the Federal Reserve Board; noted, also, standing in the background but apart from Dr. Sprague, two other economists, Professor James Harvey Rogers of Yale, unofficial financial adviser to the Administration, and the man who 20 years ago had taught agricultural economics to Henry Morgenthau Jr.—Professor George Frederick Warren of Cornell.

Then for a moment the President’s eyes dwelt in kindly fashion on a family group, spry, fox-bearded Henry Morgenthau Sr., aged 77, standing with his wife, daughter-in-law and grandchildren. Old “Uncle Henry” was bursting with pride because his son was being honored even more greatly than he himself had been honored two decades before when another Democratic President had named him Ambassador to Constantinople. From happy “Uncle Henry” the presidential eye passed on and came to rest on little wizened Mr. Woodin.

Two days before the President had made public two letters that had lately passed between him and his Secretary of the Treasury:

“My Dear Governor,” Mr. Woodin, long afflicted with a bad throat, had written from Manhattan. “It is so cheering to hear your voice over the telephone, that I always feel better after talking to you. Last August after a severe illness . . . you suggested that I try remaining away from my desk for a few weeks and, as far as possible, forget the Treasury. . . . Unfortunately I am not exactly built that way. … I have tried faithfully to carry out your suggestions, but it has been a failure. … I feel that I must tender my resignation and seek complete rest and a change of climate. My physician has told me that unless I do this he will not be responsible for the outcome. . . .”

“Dear Will,”* the President had answered, “. . . The first consideration is your complete recuperation and this can only be accomplished by giving up all work for the next few months. . . . We need you back again and the country needs you back again. For this reason I am going to ask you to withhold your resignation; to take a complete leave of absence and to do all you can to get full health and strength. … I hope that you will do this for me. . . .” Before the gathering in his study the President again turned to the retiring Secretary, again insisted with the enthusiasm of friendship that to Mr. Woodin was due all credit for bringing the U. S. safely through the financial difficulties since last March. Although those present were well aware that the President had himself shouldered the task of maintaining public confidence, no one begrudged the tribute, for it was a sentimental occasion.

No sentimental occasion was it for Dean Acheson, retiring Undersecretary of Treasury, who at the same time was being ushered out of office without so much as a public acknowledgment of his services. Nor was it a sentimental occasion for Mr. Acheson’s friends. Since last March two young advisers have stood close to the President’s ear; Lewis Douglas, whom he made Director of the Budget, and Henry Morgenthau Jr. whom he made head of the Farm Credit Administration. Budgeter Douglas, a “hard money” man, was very close to the President as late as last May when Eugene Black was made Governor of the Federal Reserve, and Dr. Sprague was called in as a prime Treasury adviser. “Lew” Douglas was largely responsible for shoe-horning his “hard money” friend. Dean Acheson, a young Washington lawyer, into the Treasury when the President was looking for someone to help Mr. Woodin.

Gradually, however, as commodity prices failed to respond to the New Deal’s magic wand, the President’s monetary policy veered away from “hard money” toward depreciation of the dollar. That fitted better with Mr. Morgenthau’s ideas. The elder Morgenthau, who made his millions in Bronx real estate, could probably afford to face inflation without undue anxiety, but Son Henry has long been known as more or less economically heterodox by training. Last week when the President made Henry Morgenthau Jr. not only Undersecretary but at the same time acting Secretary of the Treasury, his act was but a visible sign of a change in invisible policy that had been steadily taking place, a change to a policy abhorrent to the “hard money” group. It was like-wise a sign that the teachings of Mr. Roosevelt’s old instructor Dr. Sprague had been definitely superseded by those of Mr. Morgenthau’s old instructor, Dr. Warren.

No secret was it that Dr. Sprague was considering resigning. The moment came when Pupil Morgenthau, as Acting Secretary of the Treasury, decided there was room for only one school of thought, announced rigorous censorship of Treasury news, forbade government officials direct contact with the Press. Oliver Mitchell Wentworth Sprague forthwith called newsmen together, issued his resignation. Said he, in a letter to the President:

“I have reached the conclusion that there is no defense from a drift into unrestrained inflation other than an aroused and organized public opinion. … It is for the purpose of contributing to such a movement that … I sever my connections with your administration. … It is possible that there still might be a meeting of minds had I been offered any opportunity to discuss policies with you. But no opportunities whatever have been afforded me since my return from London in July. . . .

“I am convinced that this policy [gold buying abroad] will prove ineffective in securing a steady rise in prices. . . . Doubtless, given time, a depreciated dollar or a devalued dollar will yield a higher price level. But this will only come when the desired trade recovery has been realized. Our immediate concern is to extricate ourselves from the Depression, rather than with the course of prices after that happy event.

“Finally, and of overshadowing importance, the present policy threatens a complete breakdown of the credit of the government. . . .”

Therefore to those who watched, last week’s ceremony in the Oval Room meant the installation of a new professor in the chair of U. S. economics-and left unchanged the fact that the President of the U. S. was his own Finance Minister.

Teacher from Cornell. George Frederick Warren, 59, Professor of Farm Management and Agricultural Economics at the New York State College of Agriculture at Cornell, is an economist close to the soil. As a boy he herded sheep on his native farm in Clay County, Neb. After his degree from the University of Nebraska and postgraduate study at Cornell he settled down in Ithaca in 1906 as an assistant professor in the Agricultural College and as operator of his own 500-acre farm close by. There he raised six children, cash crops and a large herd of Holstein cows. Scornful of theoretical and impractical farm methods, he liked to take his classes out to working farms, to say “Here is the farm, here is the farmer, and here are the facts.” One of his hard-headed sayings: “You paint a barn roof to preserve it. You paint a house to sell it. And you paint the sides of a barn to look at, if you can afford it.” His own barns had one coat of red paint when they were built, none since.

On the faculty of the Agricultural College he rated high. His Farm Management has been a textbook in many an agricultural school since 1914. After the War he turned his attention particularly to the disastrous problem of farming and depression. With his younger associate, Professor Frank Ashmore Pearson, he worked out an immense number of statistics to show that the thing which controls price levels, which periodically sends farm prices tobogganing and puts farmers out of business, is the value of gold.

With his quiet ways and trenchant phrases he made disciples of a multitude of his students and farmers whom he advised to pay off their mortgages in the days when that was still possible.

In 1928 when Franklin Roosevelt was elected Governor of New York he named Henry Morgenthau Jr. to head a State Agricultural commission. Professor Warren was appointed a member of his one-time pupil’s commission. Later Mr. Morgenthau headed the State Conservation Commission, and Professor Warren, again a member, surveyed the marginal and submarginal lands of the State, made recommendations on which Governor Roosevelt based his reforestation program. Thus the team of Morgenthau & Warren began to work together and Franklin Roosevelt to rely on them.

Meantime Dr. Warren was working on his gold theory. Early last spring he and Professor Pearson issued a book, Prices (which, revised and brought up to date, had sold 6,000 copies to last week), to prove his point that, as price-makers, Supply & Demand are not twins but quadruplets; that the price of a commodity is determined by the Supply & Demand for it along with the Supply & Demand for gold. Since to raise prices means to reduce the value of the dollar, Dr. Warren demanded to know whether trying to reduce the value of the dollar and still maintaining its gold content at 23.22 grains was not the equivalent of raising oneself by one’s bootstraps. Accordingly he prophesied the failure of credit expansion, of domestic allotment and other price-raising schemes, prophesied continuance of drastic depression from three to nine years longer unless the U. S. abandoned its gold standard, revalued the dollar.

Committee for the Nation. While Dr. Warren was still sticking to his academic last, a group of businessmen got busy to find a remedy for Depression. James H. Rand Jr., head of Remington Rand, Lessing Rosenwald and General Wood of Sears Roebuck, Frank A. Vanderlip, Automan Errett Lobban Cord and many another formed the “Committee for the Nation,” became uninvited disciples of Professor Warren, went forth to preach his doctrine to businessmen and politicians. Last week Committeemen for the Nation had almost a free run of the White House office where their frequent visits left their impress upon the presidential mind.

Rubber Money. Last July when from the cruiser Indianapolis President Roosevelt tossed off his amazing monetary message which disrupted the London Economic Conference, his lone companion and adviser aboard was none other than Henry Morgenthau Jr. At the time Mr. Morgenthau’s presence so close to the presidential pen was minimized or ignored altogether but by last week its full significance was startlingly plain.

When the Economic Conference met in June, the President’s hard money advisers sat in the seats of power. Secretary Woodin was ill and Dean Acheson was quietly running the Treasury. Hardmoney-men Sprague and George Leslie Harrison were in London tentatively arranging to stabilize the dollar. On June 29 Mr. Morgenthau sped to Campobello Island, was on the launch with Mrs. Roosevelt to greet the President as he sailed on the Amber jack II. On July 1, the President and Mr. Morgenthau boarded the cruiser Indianapolis and steamed southward. Two days later the cruiser’s wireless ticked out the President’s message: 1) that the U. S. would not consent to stabilize the dollar until prices had been raised higher; 2) that he planned to establish a dollar that would have the same purchasing power from generation to generation; 3) that domestic commodity prices came first and the question of stabilizing exchange was subordinate.

President Roosevelt was hardly back in Washington before Professor Warren, along with Professor Rogers of Yale who holds similar although not identical monetary beliefs, was named unofficial adviser to the Administration. Since then Adviser Warren has worked long hours in the office he shares with Professor Rogers on the ground floor of the huge Commerce Building. The two professors have a double desk (always clear of papers) and a stenographer. Dr. Warren keeps no files, carries all his papers in a brief case with which he slips in and out of the side entrance of the White House. Sometimes he returns to Ithaca for a day or two. In Washington he lives at the Cosmos Club one block from the White House. Since he has been in Washington he has spoken no word to the Press, written no articles, refused to express his opinions even by letter.

For a time after the President’s instructions to the London Conference the trace of Mr. Morgenthau’s and Professor Warren’s influence was not obvious. But in October the exchange value of the dollar began to mount. At the same time commodity prices started to sag badly (in accord with Dr. Warren’s theory), had to be propped up by large Government purchases of wheat. On Oct. 22 the President over the radio announced that the RFC would begin setting its own price for gold. A week later when that step had failed materially to reduce the exchange value of the dollar, gold purchases were extended to the world market. Mr. Morgenthau along with Jesse Jones, the complaisant RFC chairman, and the reluctant Mr. Acheson, began to set the daily price of gold.

Obstacles. Last week, with Mr. Morgenthau in the vacant shoes of Dean Acheson, the new policy was in full swing, but it had obstacles:

1) The opposition of the hard money men was getting organized. Day after the ceremony in the Oval Room of the White House, the directors of the U. S. Chamber of Commerce solemnly adopted a resolution urging a speedy return to a dollar with a fixed gold content, charging that dollar uncertainty prevented recovery, upset Government credit. The same day the President on his way South (see p. 7) quoted John Stuart Mill’s statement: ”History shows that great economic and social forces flow like a tide over communities only half conscious of that which is befalling them.” He admitted that the Administration was “guilty of great experimentation” in its efforts to harness the tide.

2) The steady depreciation of the dollar in foreign exchange had started a serious flight from the dollar. Jesse Jones admitted that the RFC had not bought enough gold abroad “to fill your teeth,” but for several days the exchange value of the dollar held below the domestic value fixed by the RFC gold price. Estimates of the amount of private capital that had flown overseas varied from half a billion to a billion dollars. Such large sums of money leaving the country, drawn from U. S. banks or obtained from the sale of securities had, as Mr. Morgenthau and Dr. Warren well knew, a very deflationary effect. Not fearful of any wild money panic, which they firmly believe impossible as the U. S. Government is thoroughly solvent, and well aware that when the frightened capital returns it will have an inflationary effect, they decided, nonetheless, to avoid having their present inflationary efforts canceled by a flight of capital. So for the first time the RFC’S gold price was held at the same figure ($33.56) for five full days without advancing. Then having steadied exchange a little, they resumed their efforts, boosted the price to $33.66 (a 61.4¢ dollar).

*Mr. Woodin prefers to be called “Bill.”