The 'Great Saga' of the New Deal
JR., ADOLF A. BERLE
The 'Great Saga' of the New Deal From the Morgenthau Diaries: Years of Crisis, 1928–1938. By John Morton Blum. Houghton Mifflin. 583 pp. $7.50. Reviewed by Adolf A. Berle Jr. Former US....
...All of the book is worth reading as history...
...Over Morgen-thau's dissent, he announced in April 1938 a program of spending and public works...
...or whether the control should be exercised through Federal Reserve Banks who are...
...Under his hand, the outline of the great saga—as seen from the Morgenthau point of view—emerges strong and clear...
...Morgenthau was in these up to his neck...
...Daily, Morgenthau added notes of his own...
...he accomplished it, and the decision will never be reversed...
...Author, "Tides of Crisis" HENRY MORGENTHAU, associate and original backer of Franklin Roosevelt, Governor of the Farm Credit Administration, and Secretary of the Treasury from 1935 to the end of World War II, was one of the key men in the Roosevelt era...
...monetary policy...
...Morgenthau, as Secretary of the Treasury and therefore a prime figure in the management of money, credit and Federal finance, was one of the chief instruments of the change-over...
...Morgenthau thought that complete Reserve independence in dealing with the supply and price of money and credit meant non-responsible dictatorship...
...It is to be hoped that he will complete his work...
...The two men finally worked out a solution on a partnership basis —but the partnership was anything but easy...
...Fundamentally, money, credit and finance exist to serve the masses, assisting the economic system to produce and distribute so as to provide for human need...
...I commend to the attention of economic politicians, specifically, the record of Treasury dealings with the Federal Reserve Board, then headed by Marriner Eccles, on the supply and price of money...
...He made the controlling decisions, and while doing so, somehow had to keep the whole team going in approximately the same direction...
...This group, by buying and selling Government bonds for the Federal Reserve banks, raises or lowers the amount of money available to banks for lending...
...He has wisely eliminated the minor, unimportant evidences of bitterness, inevitably cropping up among men working under terrific strain...
...indeed, it exists in many quarters now...
...The vast aggregate of these papers constitutes the Morgenthau Diaries...
...To Eccles, having become Chairman of the Federal Reserve, Treasury control meant that "politics" (that is, the interest of an elected Administration) would control money rates...
...Presumably a second volume, drawn from the same source, will be made available later...
...This naturally cuts down savings available for other activities—for example, housing...
...In the last-mentioned fight, I was clear that Roosevelt and not Morgenthau had the sounder view, and I think Morgenthau would perhaps admit it today if he were asked...
...The partisan political fighting was at all times angry, but it was less violent than the struggles between various groups within the Roosevelt Administration...
...This was finally accomplished by the Banking Act of 1935...
...the program in fact did stop the recession and started a new upswing...
...Roosevelt persuaded him to stay on, but nevertheless adhered to his decision...
...Another conflict reminiscent of the 1935–1937 incident recorded by Morgenthau is clearly in the making...
...It recognized and established that the underlying responsibility for the functioning of American economy rested with the Federal Government...
...The principle seems obvious to everyone now...
...Morgenthau himself is a sensitive man, passionately interested in America as a force, and in certain specialized phases of American economic development...
...Perusal of the chronicle suggests rather than describes the tremendous burden resting on President Roosevelt...
...he was no mean opponent and he took his battles seriously...
...I agree—and John Morton Blum's well-arranged and well-edited record gives proof...
...The New Deal, under Roosevelt's leadership, made a basic constitutional change in the government of the United States...
...The old stereotype was hard to break...
...The Federal Reserve at present has its independence...
...On the first, Morgenthau and Eccles agreed...
...Morgenthau wanted cheap money during the depression period...
...He had a stenographer take down and transcribe verbatim every interview in his office...
...Like all personal records, the point of view is that of the chronicler...
...This assumption is fairly well accepted today, but 20 years ago there was still an undissolved core of conviction that the finance, monetary and credit system was a product and embodiment of mystical and unchangeable truth and that the economic system should conform to it, instead of the other wav round, more or less irrespective of human results...
...I should like to go into many other angles of this fascinating volume...
...in detail, they largely revolve around the operations of the "Open Market" Committee...
...Assumption of that responsibility was President Roosevelt's precise political mission...
...It also affects (indeed, it can peg) interest rates on Government securities, and with them, bond and mortgage rates generally...
...The event proved Roosevelt right...
...Meanwhile in Great Britain the so-called "Radcliffe Commission" has thumpingly come out for the doctrine that ultimate control of the reserve banking operations should be in the hands of the Chancellor of the Exchequer—the British counterpart of the Secretary of the Treasury—and the American banking community is trying to explain it away...
...it has elected to tighten money rates and thereby require the Federal Government to bid for the true savings by paying high interest rates...
...The second issue (which remains unsettled to this day) was whether the Federal Reserve Board should be independent in its decisions or whether it should work closely with, and in ultimate decision should be guided by, the Treasury...
...There were two issues...
...part of it is devastatingly instructive on issues now current...
...dominated by individuals who are banker-minded...
...The task, as always at this level, was one of economics modified by politics— as indeed such tasks must always be in a democracy...
...Essentially, they were there to represent the public interest, not the banking interest...
...John Blum has done a masterful job in sifting, selecting and organizing the materials up to the outbreak of World War II...
...Morgenthau thought he won the first round, inducing Eccles to yield to Treasury's views on economic policy...
...But thereafter there were many battles...
...It so happens that a very similar issue is being debated as this review goes to press...
...The question as it appeared to Morgenthau then was (and still is) "whether the Government through the Treasury should control...
...Joseph Alsop observed to me that he frequently got into "swivets," adding, "the country owes a good deal to Henry's swivets...
...Later he took a more classic view of things, plumping for a balanced budget and less Government "spending...
...Realizing that history was being made, and that he was helping to make it, Morgenthau was determined to give it contemporaneous record...
...Both believed that the Federal Reserve Board and the Reserve Banks, as managers of the currency and credit system, must be under public control...
...All Administrations have this problem, but struggles between groups in the financial and monetary field are perhaps more exacerbated than in other fields...
...As Blum observes, the real bond between the two men was a common conviction that the first concern of government should be for the masses of the people...
...When, for example, President Roosevelt finally decided to resume public spending in order to stop the swift and dangerous downslide of the national economy in 1937–1938, Morgenthau was against it, and seriously thought of resigning...
...but at that time the in-fighting was bitter beyond belief and the positions taken assumed emotional intensity...
...Assistant Secretary of State...
Vol. 42 • December 1959 • No. 46
