The Advent of Eugene Meyer, Jr.
Eugene Meyer, Jr. differed from Strong and Harrison in not being totally in the Morgan camp.
Meyer's father, an immigrant from France, had spent all his life in the employ of the French International Banking House of Lazard-Ferret,
finally rising to the post of partner of Lazard's New York branch.
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.
It is true, however, that Meyer's brother-in-law, George Blumenthal, had left this post at Lazard
to be a high official in J.P. Morgan & Company, and that Meyer himself had once acted as a
liaison between the Morgans and the French government.
By the 1920s, Meyer's major financial base was his control of the mighty integrated chemical
firm Allied Chemical and Dai Corporation.
Before World War I, Meyer's major financial involvement had been with the Guggenheims
and the copper industry.
By 1910, he was so prominent in the copper industry that he was able to arrange a cartel
agreement between his old patrons, the Guggenheims and Anaconda Copper, each agreeing to cut
its production by 7.5%.
In the same year, Meyer discovered in London a highly productive and profitable new process
for Mining Copper and was quickly able to become its franchiser in the United States.
It should not be surprising, then, that, under the regime of World War I collectivism, Meyer
began, first, in early 1917, as head of the Non-Ferris Metals Unit of Bernard Baruch's
Raw Materials Committee under the Advisory Commission of the Council of National Defense.
The non-ferrous metals unit included copper, lead, zinc, antimony, aluminum, nickel, and
silver.
When the War Industries Board took over the task of collectivist planning of industry
in August 1917, Meyer assumed the same task there, and was also to become the virtual
quote, czar of the copper industry.
More important for his eventual role in the Hoover administration was Meyer's crucial
The WFC had been set up by Secretary of the Treasury, Micadou, in May 1918, ostensibly
to finance industries essential to the war effort.
Meyer was named the WFC's managing director.
The WFC massively subsidized American industry.
During the war, it had two basic functions.
One was acting as agent of the Treasury to prop up the market for U.S. government bonds.
During the last six months of the war, Meyer spent $378 million to keep government bonds
from falling by more than one-quarter point a day and later resold the bonds to the Treasury
at the cost of purchase.
The second and dominant function of the WFC was to subsidize and bail out firms and industries
The WFC began with an authorized capital of $500 million supplied by the Treasury and
with the power to borrow up to $3 billion through the issue of bonds.
Its major focus was on utilities, railroads, and the banks that had financed them.
Banks were also under strain because many of their savings deposits had been drawn down
to help finance the federal deficit.
All in all, during the war, the WFC made loans of 71 million dollars in addition to its bond
price operations.
It was clear that the essential mission of the WFC acted as a camouflage for a government
subsidy operation.
As Meyer's approving biographer writes,
"...the WFC had been created as a rescue mission for essential war-disrupted industries,
and Meijer had shaped it into a powerful instrument of public policy.
If the WFC and for that matter the rest of the apparatus of war collectivism had been
strictly war related, they all would have been dropped swiftly as soon as the armistice
was signed on November 11th, 1918.
But on the contrary, Baruch, Meijer, the war industry's board and most business leaders
Manufacturers were anxious to continue the benefits of collectivism indefinitely after
the war was over.
The goals were two-fold, price controls to keep prices up during the expected post-war
recession and a permanent, peacetime cartelization of American industry enforced by the federal
government.
Permanent cartelization was endorsed by the U.S. Chamber of Commerce and by the National
Association of Manufacturers.
President Wilson, however, prompted by Secretary of War Newton D. Baker, insisted on scuttling
the WIB by the end of 1918.
Other aspects of wartime government interventionism continued on, however, not the least of which
was the War Finance Corporation.
The War Finance Corporation was a striking example of a wartime government agency that
refused to die.
After the war, the investment bankers were worried that Europeans, shorn of American
aid, would no longer be able to keep up the bountiful wartime level of American exports.
Hence, the Morgans urged their friends in the Treasury Department to use the WFC to
provide credits to finance American exports, specifically to pay American exporters and
then collect the money from foreign importers.
While the Wilson administration did not want a permanent government loan program, it persuaded
Congress to extend the WFC in March 1919 and to authorize it to lend up to $1 billion over
five years to American exporters and to American banks that made export loans.
Particularly ardent in pressuring Congress was WFC head Eugene Meyer, who had been gravely
Mayer happily plunged into making and encouraging export loans and, while in Europe for the
peace conference, he tried unsuccessfully to pressure British banks into issuing $600
million in loans to finance British imports and to keep the overvalued pound from falling
to its market levels.
To counter the dangerously inflationary post-war boom, President Wilson shifted David F. Houston
from the post of Agriculture Secretary to Treasury Secretary, and Houston boldly set
about shifting America to a more laissez-faire and deflationary course.
Meyer worked feverishly to keep the inflationary boom going, the WFC approving loans totaling
$150 million to finance the exports of cotton, tobacco, copper, coal, and steel.
But Treasury Secretary Houston refused to give Meyer his required approval.
Houston declared, in fact, that he was proposing ending the WFC in order to complete the government's
withdrawal from all its wartime activities of government intervention in the economy.
Mayer pointed out that exports had already attained an unprecedented volume in 1919,
and that it was important to bring down inflation.
Mayer tried every device to persuade Houston, but he couldn't go over his head to the
president because of Wilson's illness.
Finally, Mayer threw in the towel and resigned his post in May 1920.
Unfortunately, however, Eugene Mayer was soon back in the saddle.
A recession always follows an inflationary boom.
A recession hit in the fall of 1921, and the newly burgeoning farm block began its long-term
drive to get the government to bring the farmer back to the unprecedented good times he had
enjoyed from the artificial export boom created by World War I.
During the presidential campaign of 1920, Secretary of Treasury Houston bravely resisted
the farm block, maintaining that the federal government should do nothing to interfere
with the inevitable post-war recession.
Eugene Meyer, working for the Harding Ticket, put himself at the head of the interventionist
forces battling his old laissez-faire enemy.
When Houston addressed the annual meeting of the American Bankers Association, or ABA,
in Washington, he refused to speak if the ABA succumbed to pressure by a group of Memphis
bankers and businessmen to have Meyer address the group at the same meeting.
When Houston's ploy was successful, the Memphis group of inflationist and interventionist
bankers organized a rump meeting nearby featuring the address by Meyer, who led a fervent campaign
for restoration of the WFC, this time stressing government financing of agricultural exports.
The defeat of the Democrats in November was a referendum on World War I, its aftermath,
and the inflation and rationing of wartime, rather than against Houston, but Meyer used
the victory to step up attacks on Secretary Houston.
Organizing a nationwide campaign of demagogy, stressing especially the plight of the cotton
farmer, Meyer personalized his assault on Houston's stalwart laissez-faire views.
Combining hyperbole with alliteration, Meyer roasted Houston before the Joint Agricultural
Committee of Congress.
Meyer thundered, Quote, History records no precedent for the wholesale sacrifices imposed
upon the civilized world by the secretaries, Huston's, present policies for the purpose
of maintaining the petty platitudes of the outworn political economy which he professes.
End quote.
Congress duly passed the measure to revive the export lending of the WFC.
When Wilson followed Houston's advice to veto the measure, asking Houston himself to write
the veto message in December, Congress easily overrode the veto.
During the interregnum, Meyer and his friends angled for top jobs for him with the new Harding
administration.
But with Treasury and Commerce closed off, Meyer turned down the post of Assistant Secretary
of Commerce under Herbert Hoover, correctly expecting Congress to re-enact the WFC.
The new president duly appointed Meyer to be head of the revived WFC, refurbished as
an Agricultural Export Aid Bureau.
In fact, exports were largely forgotten as the WFC was transformed into a simple agricultural
relief agency.
Under Meyer's aegis and supported by Harding, Congress passed the Agricultural Credits Act
of 1921, which increased the maximum authorized credits by the War Finance Corporation to
and permitted it to lend directly to farmers, cooperatives and foreign importers, as well
as exporters.
Meyer plunged in with a will, heavily financing farm co-ops, enabling them to buy and store
crops, thereby raising farm prices and presaging the more directly governmental farm price
support policies of the Hoover and Roosevelt administrations.
The WFC's first loan was to Aaron Sapiro's Staple Cotton Cooperative Association.
Sapiro was a high-priced young attorney for several California farm co-ops who concocted
grandiose plans for voluntary price-rising cartels in cotton, wheat, tobacco and other
crops, all of which turned out to be failures.
By the summer of 1923, the WFC had loaned $172 million to farm co-ops and another $182
million to rural banks, which in turn loaned money to farmers.
The WFC, working closely with farm block leaders, appointed a Corn Belt Advisory Committee of
Farm Leaders to pressure Midwestern rural bankers into lending more heavily to farmers
in that region.
With banks providing a steady flow of short-term farm loans and a vast federal farm loan system
established in July 1916, supplying plentiful mortgage loans, the farm bloc still felt a
gap in unsubsidized intermediate-term credit.
Meyer and the co-op interests duly introduced the bill into Congress calling for a system
of privately capitalized agricultural credit corporations, with the Federal Reserve empowered
to extend credits and support these corporations.
But the farm block, supported by Secretary of Commerce Hoover and Secretary of Agriculture
Henry C. Wallace, went further, backing a competing bill establishing a large, governmentally
capitalized system of Federal Intermediate Credit Banks, patterned after the Federal
Reserve System and governed by the Federal Farm Loan Board, or FFLB, which had already
Congress passed both bills in one Agricultural Credits Act of 1923 in the summer of that
year.
But the Meyer system was in effect a dead letter.
How could a privately financed, albeit subsidized, credit system compete with one financed by
the US Treasury?
With WFC duties now assumed by the new Federal Intermediate Credit System, Eugene Meyer allowed
called the War Finance Corporation's authority to make loans expire at the end of 1924.
The WFC lingered on with no duties for five years until Congress finally liquidated it
in 1929.
Meyer was cheerful about its demise, however, because he was able to use the virtually defunct
post to meddle in and eventually take over the now powerful Federal Farm Loan Board,
or FFLB.
Mayer assumed control of the FFLB in March 1927 and continued to run it until the advent
of the Hoover administration two years later.
His lengthy record in charge of inflationary government lending, in addition to his service
in helping swing the New York Republican delegation to Hoover at the Republican Convention of
1928, made Eugene Mayer eminently qualified to be Hoover's new governor of the Federal
Federal Reserve Board, in the autumn of 1930.