Following is part of the reason for America's economic problems today. Few of the majority that voted in November 1932 for an end of deficit spending and a balanced Federal budget could have believed that the President's second budget message to Congress would shock the financial reason of the country, or that in the same book, ON OUR WAY, he would be writing about it in a blithesome manner, saying:
"The next day I transmitted the Annual Budget Message to the Congress. It is, of course, filled with figures and accompanied by a huge volume containing in detail all of the proposed appropriations for running the government during the fiscal year beginning July 1, 1934 and ending June 30, 1935. Although the facts of previous appropriations had all been made public, the country, and I think most of the Congress, did not fully realize the huge sums which would be expended by the government this year and next year; nor did they realized the great amount the Treasury would have to borrow."
And certainly almost no one who voted in November, 1932 for a sound gold standard money according to the
Glass money plank in the platform could have believed that less than a year later, in a radio address reviewing
the extraordinary monetary acts of the New Deal, the president would be saying:
"We are thus continuing to move toward a managed currency."
The broken party platform, as an object, had a curious end. Instead of floating away and out of sight as a
proper party platform should, it kept coming back with the tide. Once it came so close that the President had
to notice it. Then all he did was to turn it over, campaign side down, with the words:
"I was able, conscientiously, to give full assent to this platform and to develop its purpose in campaign speeches. A campaign, however, is apt to partake so much of the character of a debate and the discussion of individual points that the deeper and more permanent philosophy of the whole plan (where one exists) is often lost."
At that the platform sank. And so the first problem was solved. The seat of government was captured by
ballot, according to law.
TO SEIZE ECONOMIC POWER
This was the critical problem. The brilliant solution of it will doubtless make a classic chapter in the textbooks of revolutionary technic. In a highly evolved money economy, such as this one, the shortest and surest road to economic power would be control of the money, banking, and credit. That had already been marshalled with the XIII Amendment. The New Deal knew the steps and how to take them, and above all, it knew its opportunities.
It arrived at the seat of government in the midst of that well known occurrence, a banking crisis, such as comes at the end of every great depression. It is like a crisis of a fever. When the banks begin to fail, pulling one another down, that is the worst that can happen. If the patient does not die, then he will recover. We were not going to die. The same thing had happened to us before the cure had brought itself to pass, as it was bound to do again.
In his inaugural address, March, 1933, the President declared that the people had "asked for discipline and direction under leadership"; that he would seek to bring speedy action "with my Constitutional authority"; and that he hoped the "normal balance of executive and legislative authority" could be maintained, and then
"But in the event that Congress shall fail...and in the event that the national emergency is still critical...I shall ask Congress for the one remaining instrument to meet the crisis ‑‑ broad executive power to make war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe."
The people wanted action and were ready for any pain‑killer, and damn the balance of authority between the executive and legislative authority. That was an emotional state of mind perfectly suited to a revolutionary purpose, and the President took advantage of it to make the first startling exposition of the New Deal policy. Discipline under leadership.
Note the assertion of the leadership principle over any other. Note the threat to Congress ‑‑ "in the event that Congress shall fail." But who was to say if the Congress had failed? The leader would. If in his judgment the Congress failed, then, with the people behind him, he would demand war powers to deal with an economic emergency.
The word "emergency" was then understood to mean what the dictionaries said it meant ‑‑ namely, a sudden juncture of events demanding immediate action. It was supposed to refer only to the panic and the banking crisis, both temporary.
But what it meant to the President was a different thing. Writing in his book a year later he said:
"Strictly speaking, the banking crisis lasted only one week...But the full meaning of that word `emergency' related to far more than banks; it covered the whole economic and therefore the whole social structure of the country.
It was an emergency that went to the roots of our agriculture, our commerce, our industry; it was an emergency that has existed for a whole generation in its underlying causes and for three‑and‑one‑half years in its visible effects. It could be cured only by complete re‑organization and measured control of the economic structure...It called for a long series of new laws, new administrative agencies. It required separate measures affecting different subjects; but all of them component parts of a fairly broad plan."
So, what the New Deal intended to do and what it meant to do, within the Constitution, if possible, with the collaboration of Congress, if possible, but with war powers if necessary, was to reorganize and control the
"whole economy and therefore the whole social structure of the country."
And therein lay the meaning ‑‑ the only consistent meaning ‑‑ of a series of acts touching money, banking, and credit which, debated as monetary policy, made no sense whatever.
THE FIRST STEP, three days before the new Congress convened, was an executive decree suspending all activities of banking throughout the country. Simply, every bank was shut up. The same decree forbade, under pain of fine and imprisonment, and dealing in foreign exchange or any transfer of credit from the United States to any place abroad, and that was to slam the door against the wicked rich who might be tempted to run out.
THE SECOND STEP was an act of Congress, saying, "Acts of the President and Sect. of the Treasury since March 4, 1933, are hereby confirmed and approved."
That made everything legal after the fact: and it was the first use of Congress as a rubber stamp. The same act of Congress provided that no bank in the Federal Reserve System should resume business except subject to rules and regulations to be promulgate d by the Secretary of the Treasury, and gave the President absolute power over foreign exchange and authorized the Federal government to invest public funds in private bank stock, thereby providing banks with new capital owned by the government. And that was the act that authorized the President to rewrite any of these acts. It received them from the White House and passed them.
THE THIRD STEP was a decree by the President requiring all persons and corporations, whatever, to divest themselves of gold and hand it over to the government. The law authorizing him to do that had fixed the penalty of non‑compliance at a fine equal to twice the value of the gold. The executive decree added the penalty of imprisonment.
In view of further intentions not yet disclosed it was imperative for the government to get possession of all the gold. With a lot of gold in private hands its control of money, banking, and credit could have been seriously challenged. All that the government asked for at first was possession of the gold, as if it were a trust. For their gold as they gave it up people received paper money, but this paper money was still gold standard money ‑‑ it had always been exchangeable for gold, dollar for dollar, and the people supposed that it would be so again, when the crisis passed. Not a word had yet been said about devaluing the dollar or repudiating the gold standard. The idea held out was that as people surrendered their gold they were supporting the nation's credit.
This decree calling in the gold was put forth on April 5, 1933. There was then an awkward interlude. The Treasury was empty. It had to sell bonds. If people knew what was going to happen they might hesitate to buy new Treasury bonds. Knowing that it was going to devalue the dollar, knowing that it was going to repudiate the gold redemption clause in its bonds, even while it was writing the law of repudiation, the government nevertheless issued and sold to the people bonds engraved as usual, with the promise of the United States Government to pay the interest and redeem the principal "in United States gold coin of the present standard of value."
THE FOURTH STEP was the so‑called Inflation Amendment attached to the Emergency Farm Relief Act. This law made sure that the Treasury need not be caught that way again. It forcibly opened the tills of the Federal Reserve Bank System to three billions of Treasury notes, authorized three billions of fiat money to be issued at the President's discretion, and gave the President power, at his own discretion to devalue by one‑half.
THE FIFTH STEP was the act of repudiation. By resolution June 5, 1933, the Congress repudiated the gold redemption clause in all government obligations, saying they should be payable when due in any kind of money the government might see fit to provide; and, going further, it declared that the same traditional clause in all private contracts, such, for example, as railroad and other corporation bonds, was contrary to public policy and therefore invalid.
THE SIXTH STEP was a new banking act giving the Federal government power to say how private banks should lend their money, on what kinds of collateral nd in what proportions, and the arbitrary power to cut them off from credit with Federal Reserve Banks.
This arbitrary power to cut them off from credit was a strangle hold, and it was gained by changing one little word in the country's organic banking law. From the beginning until then the law was that a Federal Reserve Bank "shall" lend to a private bank on suit able security. This word was changed to "may." Thus a right became a privilege and a privilege that could suspended at will.
THE SEVENTH STEP, and it was the one most oblique, was to produce what may be described as monetary Pandemonium. This continued for six months. To understand it will require some effort of attention.
When by the Inflation Amendment the dollar was cut loose from gold it did not immediately fall. That was because, in spite of everything, it was the best piece of money in the whole world. Well then, when the dollar did not fall headlong of its own weight the government began to club it down, and the club it used to beat it with, was gold. In the President's words the procedure was like this:
"I am authorizing the Reconstruction Finance Corporation to buy newly mined gold in the United States at prices to be determined from time to time after consultation with the Sect. of Treasury and the President. Whenever necessary to the end in view we shall also buy or sell gold in the world market. My aim in taking this step is to establish and maintain continuous control. This is a policy and not an expedient."
Each morning thereafter the Treasury announced the price the government would pay for gold in paper dollars, one day 30 paper dollars for one ounce of gold, the next day 32 dollars, two days later 34 dollars, and so on; and not only the newly mined gold in this country but anyone's gold anywhere in the world. Thus day by day the President and the Sect. of the Treasury determined the value of gold priced in American paper dollars, or the value of American paper dollars priced in gold, which was the same thing; and how they did it or by what rule, if any, nobody ever knew.
The spectacle of a great, solvent government paying a fictitious price for gold it did not want and did not need and doing it on purpose to debase the value of its own paper currency was one to astonish the world. What did it mean? Regarded as monetary policy it had no meaning whatever. But again, if you will regard it from the point of view of revolutionary technic, it has meaning enough.
One effect was that private borrowing and lending, except from day to day, practically ceased. With the value of the dollar being posted daily at the Treasury like a lottery number, who would lend money for six months or a year, with no way of even guessing what a dollar would be worth when it came to be paid back? "No man outside a lunatic asylum," said Senator Glass, "will lend his money today on a farm mortgage."
But the New Deal had a train of Federal lending agencies ready to start. The locomotive was the Reconstruction Finance Corporation. The signal for the train to start was a blast of propaganda denouncing Wall Street, the banks, and all private owners of capital for all purposes. It lent public funds to farmers and home owners to enable them to pay off their mortgages; it lent also to banks, railroads, business, industry, new enterprise, even to foreign borrowers. Thereby, private debt was converted into public debt in a very large and popular way.
It was popular because the government, having none of the problems of a bank, or a private lender, with no fetish of solvency to restrain it, with nothing really to lose even though the money should never come back, was a benevolent lender. It lent public money to private borrowers on terms and at rates of interest with which no bank nor any private lender could compete; and the effect was to create a kind of fictitious, self‑serving necessity. The government could say to the people, and did say: "Look. It is as we said. The money changers, hating the New Deal, are trying to make a credit famine. But your government will beat them."
THE EIGHTH STEP, In a Fireside Chat, October 22, 1933, the President said:
"I have publicly asked that foreclosures on farms and chattels and on homes be delayed until every mortgagor in the country shall have had full opportunity to take advantage of Federal credit. I make the further request, which many of you know has already been made through the great Federal credit organizations, that if there is any family in the United States about to lose its home or about to lose its home or about to lose its chattels, that family should telegraph to either the Farm Credit Administration or to the Home Owners Loan Corporation in Washington requesting their help.
Two other great agencies are in full swing. The Reconstruction Finance Corporation continues to lend large sums to industry and finance, with the definite objective of making easy the extending of credit to industry, commerce, and finance."
The other great lending agency to which he referred was the one that dispensed Federal credit to states, counties, cities, towns, and worthy private organizations for works of public and social benefit. In the same Fireside Chat he urged them to come on with their projects.
"Washington," he said, "has the money and is waiting for the proper projects on which to allot it."
Then began to be heard the saying that Washington had become the country's Wall Street, which was literally true. Anyone wanting credit for any purpose went no longer to Wall Street, but to Washington. The transfer of the financial capital of the nation to Washington, the President said, would be remembered, as "one of the two important happenings of my Administration."
What was the source of the money? Partly it was imaginary money, from inflation. Largely it was the taxpayer's money. If the government lost it the taxpayer would have to find it again. And some of it, as the sequel revealed, was going to be confiscated money. By this time the New Deal had got control of the public purse. The Congress had surrendered control of it by two acts of self‑abrogation. One was the Inflation Amendment and the other was an appropriation of $3,300,000,000 put into the hands of the President to do with what he liked as the architect of "recovery."
All through the commotion of these unnatural events one end was held steadily in view, and that was a modern version of the act for which kings had been hated and sometimes hanged, namely, to clip the coin of the realm and take the profit into the king's revenue.
THE NINTH AND LAST STEP was to devalue the dollar. In his message to Congress asking for the law that confiscated the gold the President said: "I do not believe it desirable in the public interest that an exact value be now fixed."
Nevertheless, on January 31, 1934, the day after the act of confiscation, was passed he did fix the exact value of the dollar at 59% of its former gold content. The difference, which was 41 cents in every dollar of gold that had been confiscated, was counted as government profit and took the form of a free fund of two billions in the Treasury, called a stabilization fund, with which the President could do almost anything he liked. Actually, it was used to put control of the foreign exchange market into the hands of international finance.
Control of money, banking, and credit had passed to New York, and London, through Washington. Thus, problem two was solved.
The reason for giving so much attention to it is that it was the New Deal's most brilliant feat; and certainly not the least remarkable fact about it was the skill with which criticism was played into making its fight on false and baited ground. Each step as it occurred was defended, and therefore attacked, on ground of monetary policy, whereas the ultimate meaning was not there at all.
Consider first the logical sequence of the nine steps; consider secondarily that if national recovery had been the end in view, many optional steps were possible, whereas from the point of view of revolutionary technic these nine were the imperative steps and the order in which they were taken was the necessary order. Then ask if it could have happened that way by chance.
Not even a New Dealer any longer maintains that the four steps directly involving gold; the seizure of it, repudiation of the government's gold contracts, then the confiscation of gold, and lastly, the devaluation of the dollar, were necessary merely as measures toward national "recovery." In the history of the case there is no more dramatic bit of testimony than that of Senator Glass, formerly Sect. of the Treasury, who in April, 1933, rose from a sick bed and appeared in the Senate to speak against the Inflation Amendment.
"I wrote with my own hand that provision of the national Democratic platform which declared for a sound currency to be maintained at all costs...With nearly 40% of the entire gold supply of the world, why are we going off the gold standard?
With all the earmarked gold, with all the securities of ours they hold, foreign governments could withdraw, in total, less than $700,000,000 of our gold, which would leave us an ample fund of gold, in the extremist case, to maintain gold payments both at home and abroad...To me the suggestion that we may devalue the gold dollar 59% means national repudiation. To me it means dishonor. In my conception of it, it is immoral...There never was any necessity for a gold embargo. There is no necessity for making statutory criminals of citizens of the United States who may please to take their property in the shape of gold or currency out of the banks and use it for their own purposes as they may please.
We have gone beyond the cruel extremities of the French, and they made it a capital crime punishable at the guillotine, for any tradesman or individual citizen of the realm to discriminate in favor of gold and against their printing press currency. We have gone beyond that. We have said that no man may have his hold, under penalty of ten years in penitentiary and $10,000 fine."
And when the "hold cases" went to the United States Supreme Court ‑‑ the un‑reconstructed court ‑‑ the judgement was one that will forever be a blot on American history. The Court said that what the government had done was immoral but not illegal.
How could that be?
Because the American government, like any other government, has the sovereign power to commit an immoral act. Until then the American government was the only great government in the world that had never repudiated the word engraved upon its bond.
TO MOBILIZE BY PROPAGANDA THE FORCES OF HATRED
"We must hate," said Lenin. "Hatred is the basis of Communism." It is no doubt the basis of all mass excitement. But Lenin was not himself the master propagandist. How shall the forces of hatred be mobilized? What are the first principles? These are the questions that now belong to a department of political science.
The first principle of all is to fix the gaze of hatred on one object and to make all other objects seem but attributes of that one, for otherwise the force to be mobilized will dissipate itself in many directions.
This proposition was expounded by Hitler in MEIN KAMPF, where he said:
"It is part of the genius of a great leader to make adversaries of different fields appear as always belonging to one category. As soon as the wavering masses find themselves confronting too many enemies, objectivity at once steps in and the question is raised whether actually all the others are wrong and their own cause or their own movement right...Therefore, a number of different internal enemies must always be regarded as one in such a way that in the opinion of the mass of one's own adherents, the war is being waged against one enemy alone. This strengthens the belief in one's own cause and increases one's bitterness against the attackers."
How, in a given situation, to act on this first principle of strategy is a matter to be very carefully explored. You come then to method and tactics, studies of the mass mind, analysis of symbols and slogans, and above all, skill of manipulation.
Lasswell and Blumenstock, in WORLD REVOLUTIONARY PROPAGANDA, define propaganda as "the manipulation of symbols to control controversial attitudes." Symbols they define as "words and word substitutes like pictures and gestures." And the purpose of revolutionary propaganda "is to arouse hostile attitudes toward the symbols and practices of the established order."
It may be, however, that people are so deeply attached by habit and conscience to the symbols of the established order that to attack them directly would produce a bad reaction. In that case the revolutionary propagandist must mind what the scientific propagandist calls a "crisis of conscience." Instead of attacking directly those symbols of the old order to which the people are attached he will undermine and erode them by other symbols and slogans, and these others must be such as either to take the people off guard, or, as Lasswell and Blumenstock say, they must be "symbols which appeal to the conscience on behalf of symbols which violate the conscience."
This is an analytic statement and makes it sound extremely complex. Really, it is quite simple. For example, if the propagandist said, "Down with the Constitution!" ‑‑ bluntly like that ‑‑ he would be defeated because of the way the Constitution is enshrined in the American conscience. But he can ask: "Whose Constitution?" That question may be a slogan.
He may say: "The Constitution is what the Supreme Court (nine old men) says it is."
And that creates an image, which is a symbol. He can ask: "Shall the Constitution be construed to hold property rights above human rights?"
Or, as the President did, he may regretfully associate the Constitution with "horse‑and‑buggy days." The New Deal's enmity for that system of free and competitive private enterprise which we call capitalism was fundamental. And this was so for two reasons, namely: first, that its policy and that of capitalism were irreconcilable, and secondly, that private capitalism by its very nature limits government.
In his inaugural address, March, 1933, the President said:
"Values have shrunk to fantastic levels; taxes have risen; our ability to pay has fallen...the withered leaves of industrial enterprise lie on every side; farmers find no market for their produce; the savings of many years in thousands of families are gone. More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return...Yet our distress comes from no failure of substance...Natures till offers her bounty. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply.
Primarily this is because the rulers of the exchange of mankind's goods have failed...have admitted their failure and have abdicated. Practices of the unscrupulous money‑changers stand indicted in the court of public opinion, rejected by the hearts and minds of men...They know only the rules of a generation of self‑seekers...Yes, the money‑changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of that restoration lies in the extent to which we apply social values more noble than mere monetary profit."
There was the pattern and it never changed. The one enemy, blameable for all human distress, for unemployment, for low wages, for the depression of agriculture, for want in the midst of potential plenty ‑‑ who was he? The money‑changer in the temple. This was a Biblical symbol and one of the most hateful. With what modern symbol did this old and hateful one associate? With the Wall Street banker, of course; and the Wall Street banker was the most familiar and the least attractive symbol of capitalism. [As events have shown, Roosevelt was working for the Wall Street bankers, who were not just capitalists, but were monopoly capitalists. They wanted to capture America so that they could use its wealth and power to subjugate the rest of the world, destroying America in the maneuver].
Roosevelt used the symbol of hatred to sweep away the old order. The old order became the symbol of all distress. "We cannot go back to the old order," said the President.
Thus, the inviolability of property rights was attacked, and social rights were raised above them, sweeping away the old order.
People think envious thoughts, and every demagogue knows how to exploit the people. But no government before the New Deal had deliberately done so. It was the exploitation of envy, by the New Deal, that was most damaging to the free market system. It was the fatal technique.
When the Federal government imposed a graduated income tax, it was ostensibly to take from the rich and give to the poor. But the middle class, the producing class, is being stripped while the super rich pay little.
What made it all so effective was the fact that it was the first experience of the American people with organized government propaganda designed "to arouse hostile attitudes toward the symbols and practices of the established order." ‑‑ and that, if you will remember, was the most precise definition of revolutionary propaganda that Lasswell and Blumenstock could think of in their study of WORLD REVOLUTIONARY PROPAGANDA.
TO RECONCILE AND ATTACH TO THE REVOLUTION, THE TWO GREAT CLASSES WHOSE
ADHERENCE IS INDISPENSABLE, NAMELY: THE INDUSTRIAL WAGE EARNER AND THE
FARMER, CALLED IN EUROPE, WORKERS AND PEASANTS
This is the problem for which revolutionary theory has yet to find the right solution, if there is one. The difficulty is that the economic interest of the two classes are antagonistic. If you raise agricultural prices to increase the farmer's income the wage earner has to pay more for food. If you raise wages to increase the wage earner's income the farmer has to pay more for everything he buys. And if you raise farm prices and wages both, it is again as it was before. Nevertheless, to win the adherence which is indispensable you have to promise to increase the income of the farmer without hurting the wage earner and to increase the wage earner's income without hurting the farmer. The only solution, so far, has been one of acrobatics. The revolutionary party must somehow ride the see‑saw.
In Russia it was the most troublesome problem. The peasants understood, at first, that there was to be a free distribution of land among them. When the Bolshevik regime put forth its decrees to abolish private property and to nationalize the land, the peasants went on taking the big estates, dividing the land and treating it as their own; and for a while the government let them alone. To have stopped them at once would have hurt the revolution. When at length the government did deal with the peasants as if they were tenants, whose part it was to produce food not for profit, but for the good of the whole, the revolution all but died of hunger.
The American farmer was a powerful individualist, with a long habit of aggressive political activity. His complaint was that his relative share of the national income had shrunk and was too little. The New Deal was going to redistribute the national income according to ideals of social and economic justice. That was the stated intention. Once it had got control of money, banking an d credit it could redistribute the national income. The trouble was that if it gave the farmer a large share and left the wage earner's share as it was, it would lose the support of labor. If it used its power to raise all prices in a horizontal manner, according to the thesis of inflation, the economic injustice complained of by the farmer would be cured.
The solution was to resort to subsidies. If the prices the farmer received were not enough to give him that share of national income, which he enjoyed before the world depression of agriculture, the difference would be made up to him in the form of cash subsidy payments out of the public treasury. The farmer on his part obliged himself to curtail production under the government's direction; it would tell him what to plant and how much. The penalty for not conforming was to be cut off from the stream of checks is suing from the U.S. Treasury. The procedure was said to be democratic. It was. Most farmers voted for the subsidies when polled by the Federal county agents, as the subsidies were irresistible more income for less work and no responsibility other than to plant a nd reap as the government ordered. Actually, the farmer's income was increased. Whether his share of the national income was increased, is another matter. Probably not. In subsidizing the farmer the New Deal had to increase the share of labor, thus raising the cost of everything the farmer bought. There was the see‑saw again. The New Deal passed a series of laws, the purpose of which was to strengthen organized labor's bargaining power with the employer. These laws were construed and enforced to do three things:
(1) they delivered a legal monopoly of the labor supply,
(2) they caused unionism to become, in fact, compulsory,
(3) they made it possible for unions to practice intimidation, provided that it was in any way connected with a labor dispute.
But there was an indirect subsidy to organized labor much greater than that to the farmer. Federal expenditures for work relief, amounting to more than $2,000,000,000 a year, must be regarded as a subsidy to organized labor. The effect was to keep eight or ten million men off the labor market, where their competition for jobs would have been bound to break the wage structure. Unions' monopoly was protected.
Subsidies to both agriculture and labor came from the United States Treasury. The money had to be borrowed by the government and added to the public debt. This solution was neither perfect nor permanent. From the point of view of revolutionary technic, it did not matter provided certain more important ends were gained. The Federal government became the divider of the national income. Both the farmer and the union wage earner became dependent on the government. Neither of these groups could be free.