WEBVTT NOTE 44. The Advent of Eugene Meyer, Jr. 1 00:00:00.000 --> 00:00:04.000 The Advent of Eugene Meyer, Jr. 2 00:00:04.000 --> 00:00:11.000 Eugene Meyer, Jr. differed from Strong and Harrison in not being totally in the Morgan camp. 3 00:00:11.000 --> 00:00:20.000 Meyer's father, an immigrant from France, had spent all his life in the employ of the French International Banking House of Lazard-Ferret, 4 00:00:20.000 --> 00:00:25.000 finally rising to the post of partner of Lazard's New York branch. 5 00:00:25.000 --> 00:00:45.000 Eugene Jr. early broke out from Lazard on his own and became a successful speculator, investor and financier, an associate of the Morgans, and even more closely an associate of Bernard Baruch and Baruch's patrons, the powerful Guggenheim family, in virtual control of the American copper industry. 6 00:00:45.000 --> 00:00:51.560 It is true, however, that Meyer's brother-in-law, George Blumenthal, had left this post at Lazard 7 00:00:51.560 --> 00:00:57.160 to be a high official in J.P. Morgan & Company, and that Meyer himself had once acted as a 8 00:00:57.160 --> 00:01:01.040 liaison between the Morgans and the French government. 9 00:01:01.040 --> 00:01:07.040 By the 1920s, Meyer's major financial base was his control of the mighty integrated chemical 10 00:01:07.040 --> 00:01:11.640 firm Allied Chemical and Dai Corporation. 11 00:01:11.640 --> 00:01:16.120 Before World War I, Meyer's major financial involvement had been with the Guggenheims 12 00:01:16.120 --> 00:01:18.220 and the copper industry. 13 00:01:18.220 --> 00:01:23.260 By 1910, he was so prominent in the copper industry that he was able to arrange a cartel 14 00:01:23.260 --> 00:01:29.560 agreement between his old patrons, the Guggenheims and Anaconda Copper, each agreeing to cut 15 00:01:29.560 --> 00:01:32.920 its production by 7.5%. 16 00:01:32.920 --> 00:01:38.280 In the same year, Meyer discovered in London a highly productive and profitable new process 17 00:01:38.280 --> 00:01:44.280 for Mining Copper and was quickly able to become its franchiser in the United States. 18 00:01:44.280 --> 00:01:49.880 It should not be surprising, then, that, under the regime of World War I collectivism, Meyer 19 00:01:49.880 --> 00:01:56.680 began, first, in early 1917, as head of the Non-Ferris Metals Unit of Bernard Baruch's 20 00:01:56.680 --> 00:02:02.680 Raw Materials Committee under the Advisory Commission of the Council of National Defense. 21 00:02:02.680 --> 00:02:09.600 The non-ferrous metals unit included copper, lead, zinc, antimony, aluminum, nickel, and 22 00:02:09.600 --> 00:02:10.960 silver. 23 00:02:10.960 --> 00:02:15.160 When the War Industries Board took over the task of collectivist planning of industry 24 00:02:15.160 --> 00:02:21.720 in August 1917, Meyer assumed the same task there, and was also to become the virtual 25 00:02:21.720 --> 00:02:25.520 quote, czar of the copper industry. 26 00:02:25.520 --> 00:02:29.840 More important for his eventual role in the Hoover administration was Meyer's crucial 27 00:02:29.840 --> 00:02:41.080 The WFC had been set up by Secretary of the Treasury, Micadou, in May 1918, ostensibly 28 00:02:41.080 --> 00:02:45.040 to finance industries essential to the war effort. 29 00:02:45.040 --> 00:02:48.640 Meyer was named the WFC's managing director. 30 00:02:48.640 --> 00:02:52.720 The WFC massively subsidized American industry. 31 00:02:52.720 --> 00:02:56.200 During the war, it had two basic functions. 32 00:02:56.200 --> 00:03:01.980 One was acting as agent of the Treasury to prop up the market for U.S. government bonds. 33 00:03:01.980 --> 00:03:07.960 During the last six months of the war, Meyer spent $378 million to keep government bonds 34 00:03:07.960 --> 00:03:13.780 from falling by more than one-quarter point a day and later resold the bonds to the Treasury 35 00:03:13.780 --> 00:03:16.120 at the cost of purchase. 36 00:03:16.120 --> 00:03:22.360 The second and dominant function of the WFC was to subsidize and bail out firms and industries 37 00:03:22.360 --> 00:03:33.360 The WFC began with an authorized capital of $500 million supplied by the Treasury and 38 00:03:33.360 --> 00:03:38.520 with the power to borrow up to $3 billion through the issue of bonds. 39 00:03:38.520 --> 00:03:44.400 Its major focus was on utilities, railroads, and the banks that had financed them. 40 00:03:44.400 --> 00:03:48.720 Banks were also under strain because many of their savings deposits had been drawn down 41 00:03:48.720 --> 00:03:51.680 to help finance the federal deficit. 42 00:03:51.680 --> 00:03:58.240 All in all, during the war, the WFC made loans of 71 million dollars in addition to its bond 43 00:03:58.240 --> 00:04:00.440 price operations. 44 00:04:00.440 --> 00:04:05.400 It was clear that the essential mission of the WFC acted as a camouflage for a government 45 00:04:05.400 --> 00:04:07.740 subsidy operation. 46 00:04:07.740 --> 00:04:10.440 As Meyer's approving biographer writes, 47 00:04:10.440 --> 00:04:17.160 "...the WFC had been created as a rescue mission for essential war-disrupted industries, 48 00:04:17.160 --> 00:04:22.960 and Meijer had shaped it into a powerful instrument of public policy. 49 00:04:22.960 --> 00:04:28.380 If the WFC and for that matter the rest of the apparatus of war collectivism had been 50 00:04:28.380 --> 00:04:33.260 strictly war related, they all would have been dropped swiftly as soon as the armistice 51 00:04:33.260 --> 00:04:37.500 was signed on November 11th, 1918. 52 00:04:37.500 --> 00:04:43.800 But on the contrary, Baruch, Meijer, the war industry's board and most business leaders 53 00:04:43.800 --> 00:04:47.880 Manufacturers were anxious to continue the benefits of collectivism indefinitely after 54 00:04:47.880 --> 00:04:49.840 the war was over. 55 00:04:49.840 --> 00:04:55.280 The goals were two-fold, price controls to keep prices up during the expected post-war 56 00:04:55.280 --> 00:05:01.760 recession and a permanent, peacetime cartelization of American industry enforced by the federal 57 00:05:01.760 --> 00:05:03.640 government. 58 00:05:03.640 --> 00:05:07.920 Permanent cartelization was endorsed by the U.S. Chamber of Commerce and by the National 59 00:05:07.920 --> 00:05:10.880 Association of Manufacturers. 60 00:05:10.880 --> 00:05:17.200 President Wilson, however, prompted by Secretary of War Newton D. Baker, insisted on scuttling 61 00:05:17.200 --> 00:05:21.200 the WIB by the end of 1918. 62 00:05:21.200 --> 00:05:26.480 Other aspects of wartime government interventionism continued on, however, not the least of which 63 00:05:26.480 --> 00:05:29.240 was the War Finance Corporation. 64 00:05:29.240 --> 00:05:34.280 The War Finance Corporation was a striking example of a wartime government agency that 65 00:05:34.280 --> 00:05:36.700 refused to die. 66 00:05:36.700 --> 00:05:41.420 After the war, the investment bankers were worried that Europeans, shorn of American 67 00:05:41.420 --> 00:05:47.620 aid, would no longer be able to keep up the bountiful wartime level of American exports. 68 00:05:47.620 --> 00:05:53.100 Hence, the Morgans urged their friends in the Treasury Department to use the WFC to 69 00:05:53.100 --> 00:05:59.140 provide credits to finance American exports, specifically to pay American exporters and 70 00:05:59.140 --> 00:06:02.680 then collect the money from foreign importers. 71 00:06:02.680 --> 00:06:07.920 While the Wilson administration did not want a permanent government loan program, it persuaded 72 00:06:07.920 --> 00:06:15.520 Congress to extend the WFC in March 1919 and to authorize it to lend up to $1 billion over 73 00:06:15.520 --> 00:06:21.800 five years to American exporters and to American banks that made export loans. 74 00:06:21.800 --> 00:06:27.560 Particularly ardent in pressuring Congress was WFC head Eugene Meyer, who had been gravely 75 00:06:27.560 --> 00:06:38.320 Mayer happily plunged into making and encouraging export loans and, while in Europe for the 76 00:06:38.320 --> 00:06:44.120 peace conference, he tried unsuccessfully to pressure British banks into issuing $600 77 00:06:44.120 --> 00:06:50.200 million in loans to finance British imports and to keep the overvalued pound from falling 78 00:06:50.200 --> 00:06:52.520 to its market levels. 79 00:06:52.520 --> 00:06:58.640 To counter the dangerously inflationary post-war boom, President Wilson shifted David F. Houston 80 00:06:58.640 --> 00:07:04.000 from the post of Agriculture Secretary to Treasury Secretary, and Houston boldly set 81 00:07:04.000 --> 00:07:09.760 about shifting America to a more laissez-faire and deflationary course. 82 00:07:09.760 --> 00:07:15.880 Meyer worked feverishly to keep the inflationary boom going, the WFC approving loans totaling 83 00:07:15.880 --> 00:07:24.360 $150 million to finance the exports of cotton, tobacco, copper, coal, and steel. 84 00:07:24.360 --> 00:07:29.580 But Treasury Secretary Houston refused to give Meyer his required approval. 85 00:07:29.580 --> 00:07:35.540 Houston declared, in fact, that he was proposing ending the WFC in order to complete the government's 86 00:07:35.540 --> 00:07:41.620 withdrawal from all its wartime activities of government intervention in the economy. 87 00:07:41.620 --> 00:07:47.060 Mayer pointed out that exports had already attained an unprecedented volume in 1919, 88 00:07:47.060 --> 00:07:50.460 and that it was important to bring down inflation. 89 00:07:50.460 --> 00:07:54.900 Mayer tried every device to persuade Houston, but he couldn't go over his head to the 90 00:07:54.900 --> 00:07:57.700 president because of Wilson's illness. 91 00:07:57.700 --> 00:08:03.020 Finally, Mayer threw in the towel and resigned his post in May 1920. 92 00:08:03.020 --> 00:08:08.420 Unfortunately, however, Eugene Mayer was soon back in the saddle. 93 00:08:08.420 --> 00:08:11.980 A recession always follows an inflationary boom. 94 00:08:11.980 --> 00:08:18.020 A recession hit in the fall of 1921, and the newly burgeoning farm block began its long-term 95 00:08:18.020 --> 00:08:22.940 drive to get the government to bring the farmer back to the unprecedented good times he had 96 00:08:22.940 --> 00:08:28.020 enjoyed from the artificial export boom created by World War I. 97 00:08:28.020 --> 00:08:33.380 During the presidential campaign of 1920, Secretary of Treasury Houston bravely resisted 98 00:08:33.380 --> 00:08:38.140 the farm block, maintaining that the federal government should do nothing to interfere 99 00:08:38.140 --> 00:08:41.420 with the inevitable post-war recession. 100 00:08:41.420 --> 00:08:46.740 Eugene Meyer, working for the Harding Ticket, put himself at the head of the interventionist 101 00:08:46.740 --> 00:08:50.700 forces battling his old laissez-faire enemy. 102 00:08:50.700 --> 00:08:55.940 When Houston addressed the annual meeting of the American Bankers Association, or ABA, 103 00:08:55.940 --> 00:09:01.700 in Washington, he refused to speak if the ABA succumbed to pressure by a group of Memphis 104 00:09:01.700 --> 00:09:07.060 bankers and businessmen to have Meyer address the group at the same meeting. 105 00:09:07.060 --> 00:09:12.060 When Houston's ploy was successful, the Memphis group of inflationist and interventionist 106 00:09:12.060 --> 00:09:18.660 bankers organized a rump meeting nearby featuring the address by Meyer, who led a fervent campaign 107 00:09:18.660 --> 00:09:26.260 for restoration of the WFC, this time stressing government financing of agricultural exports. 108 00:09:26.260 --> 00:09:31.720 The defeat of the Democrats in November was a referendum on World War I, its aftermath, 109 00:09:31.720 --> 00:09:37.280 and the inflation and rationing of wartime, rather than against Houston, but Meyer used 110 00:09:37.280 --> 00:09:41.480 the victory to step up attacks on Secretary Houston. 111 00:09:41.480 --> 00:09:46.960 Organizing a nationwide campaign of demagogy, stressing especially the plight of the cotton 112 00:09:46.960 --> 00:09:53.400 farmer, Meyer personalized his assault on Houston's stalwart laissez-faire views. 113 00:09:53.400 --> 00:09:58.920 Combining hyperbole with alliteration, Meyer roasted Houston before the Joint Agricultural 114 00:09:58.920 --> 00:10:01.280 Committee of Congress. 115 00:10:01.280 --> 00:10:08.040 Meyer thundered, Quote, History records no precedent for the wholesale sacrifices imposed 116 00:10:08.040 --> 00:10:14.100 upon the civilized world by the secretaries, Huston's, present policies for the purpose 117 00:10:14.100 --> 00:10:20.440 of maintaining the petty platitudes of the outworn political economy which he professes. 118 00:10:20.440 --> 00:10:22.160 End quote. 119 00:10:22.160 --> 00:10:27.860 Congress duly passed the measure to revive the export lending of the WFC. 120 00:10:27.860 --> 00:10:33.160 When Wilson followed Houston's advice to veto the measure, asking Houston himself to write 121 00:10:33.160 --> 00:10:38.880 the veto message in December, Congress easily overrode the veto. 122 00:10:38.880 --> 00:10:43.960 During the interregnum, Meyer and his friends angled for top jobs for him with the new Harding 123 00:10:43.960 --> 00:10:45.640 administration. 124 00:10:45.640 --> 00:10:50.960 But with Treasury and Commerce closed off, Meyer turned down the post of Assistant Secretary 125 00:10:50.960 --> 00:10:57.560 of Commerce under Herbert Hoover, correctly expecting Congress to re-enact the WFC. 126 00:10:57.560 --> 00:11:02.680 The new president duly appointed Meyer to be head of the revived WFC, refurbished as 127 00:11:02.680 --> 00:11:06.000 an Agricultural Export Aid Bureau. 128 00:11:06.000 --> 00:11:12.320 In fact, exports were largely forgotten as the WFC was transformed into a simple agricultural 129 00:11:12.320 --> 00:11:14.480 relief agency. 130 00:11:14.480 --> 00:11:20.040 Under Meyer's aegis and supported by Harding, Congress passed the Agricultural Credits Act 131 00:11:20.040 --> 00:11:26.960 of 1921, which increased the maximum authorized credits by the War Finance Corporation to 132 00:11:26.960 --> 00:11:33.920 and permitted it to lend directly to farmers, cooperatives and foreign importers, as well 133 00:11:33.920 --> 00:11:35.960 as exporters. 134 00:11:35.960 --> 00:11:42.120 Meyer plunged in with a will, heavily financing farm co-ops, enabling them to buy and store 135 00:11:42.120 --> 00:11:48.080 crops, thereby raising farm prices and presaging the more directly governmental farm price 136 00:11:48.080 --> 00:11:52.920 support policies of the Hoover and Roosevelt administrations. 137 00:11:52.920 --> 00:11:59.360 The WFC's first loan was to Aaron Sapiro's Staple Cotton Cooperative Association. 138 00:11:59.360 --> 00:12:04.960 Sapiro was a high-priced young attorney for several California farm co-ops who concocted 139 00:12:04.960 --> 00:12:11.680 grandiose plans for voluntary price-rising cartels in cotton, wheat, tobacco and other 140 00:12:11.680 --> 00:12:15.480 crops, all of which turned out to be failures. 141 00:12:15.480 --> 00:12:24.120 By the summer of 1923, the WFC had loaned $172 million to farm co-ops and another $182 142 00:12:24.120 --> 00:12:29.280 million to rural banks, which in turn loaned money to farmers. 143 00:12:29.280 --> 00:12:35.820 The WFC, working closely with farm block leaders, appointed a Corn Belt Advisory Committee of 144 00:12:35.820 --> 00:12:40.940 Farm Leaders to pressure Midwestern rural bankers into lending more heavily to farmers 145 00:12:40.940 --> 00:12:42.960 in that region. 146 00:12:42.960 --> 00:12:49.000 With banks providing a steady flow of short-term farm loans and a vast federal farm loan system 147 00:12:49.000 --> 00:12:55.660 established in July 1916, supplying plentiful mortgage loans, the farm bloc still felt a 148 00:12:55.660 --> 00:12:59.840 gap in unsubsidized intermediate-term credit. 149 00:12:59.840 --> 00:13:04.900 Meyer and the co-op interests duly introduced the bill into Congress calling for a system 150 00:13:04.900 --> 00:13:11.200 of privately capitalized agricultural credit corporations, with the Federal Reserve empowered 151 00:13:11.200 --> 00:13:15.240 to extend credits and support these corporations. 152 00:13:15.240 --> 00:13:20.400 But the farm block, supported by Secretary of Commerce Hoover and Secretary of Agriculture 153 00:13:20.400 --> 00:13:26.660 Henry C. Wallace, went further, backing a competing bill establishing a large, governmentally 154 00:13:26.660 --> 00:13:32.040 capitalized system of Federal Intermediate Credit Banks, patterned after the Federal 155 00:13:32.040 --> 00:13:38.300 Reserve System and governed by the Federal Farm Loan Board, or FFLB, which had already 156 00:13:38.300 --> 00:13:47.980 Congress passed both bills in one Agricultural Credits Act of 1923 in the summer of that 157 00:13:47.980 --> 00:13:48.980 year. 158 00:13:48.980 --> 00:13:52.500 But the Meyer system was in effect a dead letter. 159 00:13:52.500 --> 00:13:57.740 How could a privately financed, albeit subsidized, credit system compete with one financed by 160 00:13:57.740 --> 00:13:59.840 the US Treasury? 161 00:13:59.840 --> 00:14:06.180 With WFC duties now assumed by the new Federal Intermediate Credit System, Eugene Meyer allowed 162 00:14:06.180 --> 00:14:12.660 called the War Finance Corporation's authority to make loans expire at the end of 1924. 163 00:14:12.660 --> 00:14:18.240 The WFC lingered on with no duties for five years until Congress finally liquidated it 164 00:14:18.240 --> 00:14:20.740 in 1929. 165 00:14:20.740 --> 00:14:25.700 Meyer was cheerful about its demise, however, because he was able to use the virtually defunct 166 00:14:25.700 --> 00:14:31.460 post to meddle in and eventually take over the now powerful Federal Farm Loan Board, 167 00:14:31.460 --> 00:14:33.600 or FFLB. 168 00:14:33.600 --> 00:14:40.000 Mayer assumed control of the FFLB in March 1927 and continued to run it until the advent 169 00:14:40.000 --> 00:14:43.400 of the Hoover administration two years later. 170 00:14:43.400 --> 00:14:48.560 His lengthy record in charge of inflationary government lending, in addition to his service 171 00:14:48.560 --> 00:14:53.680 in helping swing the New York Republican delegation to Hoover at the Republican Convention of 172 00:14:53.680 --> 00:14:59.680 1928, made Eugene Mayer eminently qualified to be Hoover's new governor of the Federal 173 00:14:59.680 --> 00:15:02.680 Federal Reserve Board, in the autumn of 1930.