The Untold History of the United States

Chapter 2 THE NEW DEAL: “I Welcome Their Hatred”

The world Franklin Delano Roosevelt confronted when he was inaugurated president on March 4, 1933, bore strikingly little resemblance to the one in which he ran for vice president thirteen years earlier. In 1920, the world was on the mend following the Great War. In 1933, the problems seemed insurmountable. The United States was mired in the fourth year of the worst depression in its history. Unemployment stood at 25 percent. GNP had fallen by 50 percent. Farm income plummeted by 60 percent. Industrial production was down by more than 50 percent. The banking system had collapsed. Breadlines formed in every town and city. Homeless walked the streets. Misery was ubiquitous, despair pervasive.¹

Most of the world was in even worse shape than the United States. Unlike the United States, which had experienced a period of relative prosperity in the 1920s, most belligerents had never fully recovered from the devastation of the world war. Their citizens had less of a cushion to buffer them from the impact of the global economic meltdown. Trouble loomed everywhere.

Benito Mussolini was firmly ensconced in power in Italy after eleven years of dictatorial rule. Adolf Hitler and his National Socialists had come to power in Germany by exploiting both postwar grievances and economic hardship. Only a week before Roosevelt took office, Hitler had used the Reichstag fire to consolidate his dictatorial stranglehold over the country, unleashing vicious attacks on German Communists, Social Democrats, trade unionists, and left-wing intellectuals.

Trouble was also brewing in Asia. In September 1931, Japanese forces had seized Manchuria, a resource-rich and contested region situated between the Soviet Union, China, and Korea, and renamed it Manchukuo in 1932. In response to international protests, Japan left the League of Nations in 1933.

Despite the devastation wrought by the Depression, the mood was decidedly more upbeat in the United States. On the day of Roosevelt’s inauguration, a New York Times editorial captured the excitement that surrounded the change of administrations:

Roosevelt decided to act boldly. The country was behind him. The Democrats controlled both houses of Congress and people wanted action. Will Rogers commented on the president’s early days: “If he burned down the capitol, we would cheer and say, ‘Well, we at least got a fire started anyhow.’”³

Roosevelt’s much-anticipated inaugural address rallied the nation to the fight. His declaration that “the only thing we have to fear is fear itself” seems, in retrospect, to have been out of touch with reality, given the magnitude of the problems. But Roosevelt connected with a deeper reality: Americans’ desperate need for renewed hope and confidence. And that he set out to restore.

He identified those responsible for the current dismal state of affairs: “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 the restoration lies in the extent to which we apply social values more noble than mere monetary profit.” He called for “strict supervision of all banking and credits and investments” and “an end to speculation with other people’s money.”⁴

Roosevelt had given little indication of the kind of policies he would adopt once in office. At times, during the campaign, he attacked President Herbert Hoover from the right for spending too aggressively and unbalancing the budget. At other times, he acknowledged the suffering of the people and called for a “new deal.” Now he had to solve some very real and very practical problems. Hoover accused him of deliberately making a bad situation worse by ignoring Hoover’s pleas for joint action during the four-month interregnum between the election and Roosevelt’s taking office in March. Now the waiting was over. First up was the banking system.

Between 1930 and 1932, one-fifth of U.S. banks had failed. Many others were tottering. On October 31, 1932, with the Nevada governor off in Washington seeking a federal loan, Lieutenant Governor Morley Griswold declared a twelve-day bank holiday, preventing depositors from withdrawing their funds and thereby safeguarding against a run on the banks. Mayors and governors across the nation anxiously eyed the situation, hesitating to follow suit. Things began to unravel when Michigan declared an eight-day bank holiday on February 14, closing 550 state and national banks. The New York Times assured nervous readers that “there is no reason why [Michigan] should be taken as a precedent.” Maryland and Tennessee saw sufficient reason to act, as did Kentucky, Oklahoma, and Alabama, as panicky depositors lined up to get their money out while they still could.⁵ By the time Roosevelt was inaugurated, banking had been halted completely or sharply limited everywhere.

Conditions were ripe for dramatic changes in the banking system. Public anger against bankers had been building since the stock market crash. The year before, in February 1932, New York Times reporter Anne O’Hare McCormick had described the widespread antipathy toward Wall Street bankers afoot throughout the land: “In a country which suffered more than 2,000 bank failures last year… the tendency is to blame the bankers for almost everything that has happened at home and abroad…. Not in a generation at least has the feeling against money barons been so bitter…. The average citizen always suspected the morals of the financial hierarchy, but now his distrust goes further: he doubts its intelligence.”⁶

A year later, mistrust of Wall Street financiers was at an all-time high, fueled by Senate inquiries into the banks’ role in precipitating the economic collapse. Peter Norbeck, the chair of the Senate Committee on Banking and Currency, appointed former New York County Assistant District Attorney Ferdinand Pecora to run the hearings. Pecora blistered the nation’s leading bankers. When announcing, in early February, that Charles E. Mitchell, the powerful chairman of the board of National City Bank, the world’s largest bank, was being called to testify, Norbeck, a Republican from South Dakota, issued a statement: “The investigation so far shows that some of the large banks were highly responsible for the wild stock market boom… some banks were in on the promotion scheme…. It was just a polite way of robbing the public.” Norbeck added that when the Federal Reserve Board in Washington tried to slow down the stock market boom, Mitchell, chair of the New York Federal Reserve Bank, had “defied the board and speeded up the boom. He took a ‘go-to-hell’ attitude toward the Board and got away with it.”⁷

News of the hearing was splashed across the front pages of newspapers. Pecora exposed fraud and wrongdoing on the part of the nation’s top bankers, including obscene salaries, unpaid taxes, hidden bonuses, unethical loans, and more. Mitchell, one of the most powerful men in the country, was forced to resign. He managed, however, to win acquittal on charges of defrauding the government of $850,000 in income taxes, narrowly escaping a possible ten-year prison sentence.

Magazines began calling bankers “banksters.” The Nation observed, “If you steal $25, you’re a thief. If you steal $250,000, you’re an embezzler. If you steal $2,500,000, you’re a financier.”⁸ In this climate, Roosevelt had pretty much a free hand to do what he wanted. Brain Truster Raymond Moley noted, “If ever there was a moment when things hung in the balance, it was on March 5, 1933—when unorthodoxy would have drained the last remaining strength of this capitalist system.” Senator Bronson Cutting concluded that Roosevelt could have nationalized the banks “without a word of protest.” Rexford Guy Tugwell, director of the Agricultural Adjustment Administration, and other advisors urged Roosevelt to do just that.

But Roosevelt chose a much more conservative course of action. He declared a four-day national bank holiday, conferred with the nation’s top bankers on his first full day in office, called a special session of Congress to pass emergency legislation, and calmed citizens’ fears with the first of his famous fireside chats. Congress passed and Roosevelt signed the Emergency Banking Act, written largely by the bankers themselves. The banking system had been restored without radical change. Congressman William Lemke remarked, “The President drove the money-changers out of the Capitol on March 4th—and they were all back on the 9th.”⁹ Roosevelt’s solution to the banking crisis would serve as a template for how he would handle most issues. His instincts were fundamentally conservative. He would save capitalism from the capitalists. As Secretary of Labor Frances Perkins, the first female cabinet officer in the nation’s history, explained, Roosevelt “took the status quo in our economic system as much for granted as his family… he was content with it.”¹⁰ But the means he would use to save capitalism would be bold, visionary, and humane. They would transform American life for decades. Perhaps longer.

Though clearly not a radical, Roosevelt laid out an ambitious recovery program during his first hundred days in office. It included the Agricultural Adjustment Administration, to save farming; the Civilian Conservation Corps (CCC), to put young men to work in the forests and parks; the Federal Emergency Relief Administration (FERA) under Harry Hopkins, to provide federal assistance to the states; the Public Works Administration (PWA) under Harold Ickes, to coordinate large-scale public works projects; the Glass-Steagall Banking Act, which separated investment and commercial banking and instituted federal insurance of bank deposits; and the National Recovery Administration (NRA) to promote industrial recovery.

Established by the National Industrial Recovery Act (NIRA), which Roosevelt considered “the most important and far reaching legislation ever enacted by the American Congress,” the NRA was modeled, in part, on the War Industries Board (WIB), which Bernard Baruch had directed during World War I.¹¹ The NRA suspended antitrust laws, effectively sounding the death knell for laissez-faire capitalism. Centralized planning would instead revitalize the shattered economy. Under the NRA, each industry drew up its own code covering wages, prices, production, and working conditions. The largest corporations dominated the code-setting process in their respective industries, with labor and consumer groups playing, at best, a minor role.

The initial NIRA legislation was hastily cobbled together and did not provide clear guidelines for what was to follow. Many liberals applauded it. The Nation welcomed it as a step toward a “collectivized society.”¹² It was Roosevelt’s choice of General Hugh Johnson to administer the NRA that gave it its distinctive coloration. Johnson was Baruch’s man. They had worked closely together on the WIB. After retiring from the army, Johnson became an advisor to Baruch in his business dealings. Johnson’s leadership of the NRA has fueled allegations that the New Deal was fascistic—a nonsensical and dangerous notion later peddled by Ronald Reagan and more recently by conservative writer Jonah Goldberg. Reagan touched a raw nerve when he said during the 1976 presidential campaign that “fascism was really the basis of the New Deal.”¹³

Johnson was the exception rather than the rule. He did not hide his fascist sympathies. In September 1933, he reviewed the 2 million–strong NRA parade down New York’s Fifth Avenue. Time magazine reported, “General Johnson, his hand raised in a continuous Fascist salute, had declared the parade to be ‘the most marvelous demonstration I have ever seen.’”¹⁴ Johnson gave Frances Perkins a copy of Raffaello Viglione’s fascist tract The Corporate State. Roosevelt finally removed him because of his erratic behavior, abrasive personality, heavy drinking, and penchant for antagonizing labor. In his deeply emotional farewell speech, he celebrated the “shining name” of Benito Mussolini.¹⁵

There was great uncertainty about where Roosevelt was taking the country, leading some observers to compare the United States with Fascist Italy. The Quarterly Review of Commerce wrote in autumn 1933, “Some see in his programme a movement toward a form of American fascism. In fact the tremendous concentration of power in the hands of the president, the new codes under the National Industrial Recovery Act regulating competition, the fixing of minimum wage rates, of maximum working hours in industry, and the general policy of economic planning and coordination of production, all strongly suggest essential features of the Italian fascist programme.” The writer described Johnson’s anti-labor proclivities, including his delivering, on October 10, “a warning to labour in no uncertain terms that ‘strikes were unnecessary’ under the Roosevelt plan and that no opposition of any kind would be tolerated.”¹⁶

Although a plethora of right-wing groups emerged during the 1930s, the fascist threat that Sinclair Lewis warned about in his 1935 novel It Can’t Happen Here never took hold in the United States. That is not to say that Mussolini and Hitler lacked admirers. Time and Fortune were unabashed supporters of Mussolini. In 1934, the editors of Fortune magazine extolled Italian fascism, which embodied “certain ancient virtues of the race [including] discipline, duty, courage, glory, sacrifice.”¹⁷ Many American Legionnaires felt the same way. Legion Commander Alvin Owsley declared in 1923 that “the Fascisti are to Italy what the American Legion is to the United States,” and the organization invited Mussolini to address its national convention in 1930.¹⁸ Elected officials including Pennsylvania Senator David Reed praised Mussolini and proclaimed, “if this country ever needed a Mussolini it needs one now.”¹⁹

Hitler, too, had more than his share of U.S. defenders. Among the more notorious was Republican Congressman Louis T. McFadden of Pennsylvania. He took to the floor of the House in May 1933 to decry the international Jewish conspiracy, reading passages from The Protocols of the Elders of Zion, an anti-Semitic screed purporting to prove a Jewish conspiracy to take over the world, into the Congressional Record and announcing that the president’s abandonment of the gold standard “had given the gold and lawful money of the country to the international money Jews of whom Franklin D. Roosevelt is the familiar.” “This country has fallen into the hands of the international money changers,” he charged. “Is it not true,” McFadden asked, “that in the United States today the Gentiles have the slips of paper while the Jews have the gold and the lawful money? And is not this repudiation bill a bill specifically designed and written by the Jewish international money changers in order to perpetuate their power?”²⁰

The infamous “radio priest” of Royal Oak, Michigan, Father Charles Coughlin, took to the airwaves to proclaim his corporatist and increasingly anti-Semitic vision. His weekly publication Social Justice serialized The Protocols and urged followers to join the Christian Front armed militia. Gallup reported in 1938 that 10 percent of American families owning radios listened to Coughlin’s sermons on a regular basis and 25 percent did so occasionally. Eighty-three percent of the steady listeners approved of the priest’s messages.²¹ Even in 1940, Social Justice had over 200,000 readers weekly.²²

Even farther to the right were the so-called shirt movements, which took their inspiration from Mussolini’s black shirts and Hitler’s brown shirts. William Dudley Pelley’s Silver Legion may have enlisted as many as 25,000 members in 1933. In Kansas, Gerald Winrod, the “Jayhawk Nazi,” whose Defender newspaper reached a hundred thousand readers, garnered 21 percent of the Republican vote in the Kansas U.S. Senate primary in 1938.²³ With West Virginia’s Knights of the White Camelia, Philadelphia’s Khaki Shirts, Tennessee’s Crusader White Shirts, and New York City’s Christian Mobilizers, the country was awash in extremists.²⁴ One of the most violent of these organizations was the Midwest-based Black Legion, which had split off from the Ku Klux Klan in 1925. Wearing black robes instead of the Klan’s white sheets, the Legion had a membership estimated at between 60,000 and 100,000 in 1935. Its head, electrician Virgil Effinger, spoke openly about the need for mass extermination of American Jews²⁵ before the federal government cracked down on the group in 1937. Although not a “shirter,” a failed haberdasher, Harry Truman, had earlier applied for membership in the Klan before thinking the better of it.

In reality, Hugh Johnson’s influence on the New Deal was fleeting and the far Right’s nonexistent. Not only did the New Deal reject fascist solutions, it resisted attempts to impose any unified, coherent philosophy. It was more of a hodgepodge of agencies. Raymond Moley wrote that viewing the New Deal as the product of a consistent plan “was to believe that the accumulation of stuffed snakes, baseball pictures, school flags, old tennis shoes, carpenter’s tools, geometry books, and chemistry sets in a boy’s bedroom could have been put there by an interior decorator.” Roosevelt was more pragmatic than ideological. And he was willing to allow government to play a vastly bigger role than any of his predecessors could have imagined.²⁶

Roosevelt focused from the outset on jump-starting the U.S. economy and getting Americans back to work. Solving international problems would take a backseat. He made that abundantly clear at the World Economic Conference in London in July 1933. He had already issued executive orders to release U.S. monetary policy from the constraints of gold in April but held out the prospect of returning the United States and, if possible, the rest of the world to the gold standard. By the summer, however, he had had a change of heart. So when confronted with the choice between an inflationary economic recovery program at home and going along with the Europeans’ demand for currency stabilization and a restored international gold standard, Roosevelt opted for the former. Fully expecting that Roosevelt would go along with the joint declaration by Great Britain and the gold-bloc nations to return to the gold standard and halt speculation in exchange rates, the fifty-four world leaders attending the London summit were taken aback by Roosevelt’s July 3 announcement that the United States would be party to neither exchange rate stabilization nor a gold standard. The conference broke up, leaving most European leaders bitterly disappointed. Many, including Hitler, concluded that the United States was withdrawing from world affairs.

Back home, Roosevelt received a mixed response. Certain business and banking titans, including Frank A. Vanderlip, J. P. Morgan, and Irénée du Pont, offered measured support, at least in public.²⁷ Moley surmised that nine out of ten bankers—“even those in the lower part of Manhattan”—supported Roosevelt’s rejection of the gold standard.²⁸ But former Democratic presidential candidate turned New Deal critic Al Smith dismissed Roosevelt’s monetary policy, calling it a commitment to “baloney dollars” instead of “gold dollars.” Smith expressed astonishment that “the Democratic party is fated to be always the party of greenbackers, free silverites, rubber dollar manufacturers, and crackpots.”²⁹

Moley’s assurances notwithstanding, many bankers adamantly opposed Roosevelt’s currency measures. The Federal Reserve advisory council, made up of leading bankers throughout the nation, warned the Federal Reserve Board that economic recovery required a gold standard. “Demands for currency inflation and further credit inflation,” the council instructed, “…rest upon reasoning again and again proved… to be a tragic illusion.”³⁰ The most scathing condemnation of both Roosevelt and his currency decisions, however, came from the Chamber of Commerce. After rejecting a resolution offering support for Roosevelt’s monetary policy, the New York State Chamber applauded when railroad magnate Leonor F. Loree declared that “the ending of the gold standard was as great a violation of trust and a denial of what is printed on that bill as was Germany’s wartime disregard for Belgium’s neutrality.”³¹ By the next May, having been bludgeoned with a constant barrage of criticism, Roosevelt felt compelled to send a letter to the U.S. Chamber of Commerce’s annual convention, asking members to “stop crying wolf” and to “cooperate in working for recovery.”³² But businessmen’s attacks on Roosevelt and his New Deal policies intensified. In October 1934, Time noted that businessmen’s enmity toward Roosevelt had become quite personal: “It was no longer a matter of Business v. Government but of Business v. Franklin Delano Roosevelt.”³³

Roosevelt’s inward-looking approach was apparent across the board. He repudiated his earlier support for joining the League of Nations and willingly sacrificed foreign trade in order to stimulate domestic recovery. He even took steps to reduce the country’s 140,000-man army, which prompted a visit by Secretary of War George Dern. Dern brought along General Douglas MacArthur, who told the president that he was endangering the country’s safety. In his memoirs, MacArthur recalled:

MacArthur, overwrought, apologized, offered his resignation as chief of staff, rushed outside, and vomited on the White House steps.³⁴

Openly opposing Wall Street and the military made for smart politics in 1930s America, and Roosevelt was nothing if not an astute politician. The 1934 midterm elections showed how far to the left the country had moved. In fact, much of the electorate was to the left of the New Deal. In a remarkable break with normal voting patterns, the party in power drubbed the opposition. The Democrats won twenty-six of thirty-five Senate races, giving them a 69–25 advantage over Republicans in the upper chamber, with one seat being held by a Progressive and one by a Farmer-Laborite. Their lead in the House jumped to 322–103, with seven Progressives and three Farmer-Laborites. The New York Times called it “the most overwhelming victory in the history of American politics[, giving] the President a clear mandate… and… literally destroy[ing] the right wing of the Republican party.”³⁵

Viewing the election as a wake-up call for Republicans, Idaho Republican Senator William Borah told reporters that “unless the Republican party is delivered from its reactionary leadership and reorganized in accordance with its one-time liberal principles it will die like the Whig party of sheer political cowardice.” He criticized his party’s leadership for opposing the New Deal “without offering a program of their own in place of it.” Borah complained that when Republicans around the country ask their leaders for an alternative to the New Deal, “they are offered the Constitution. But people can’t eat the Constitution.”³⁶

Radical ideas were in the air. Upton Sinclair, author of The Jungle, almost won election as governor of California with a campaign called “End Poverty in California” that proposed handing uncultivated farms to farmers and idle factories to workers for productive use. California physician Francis Townsend’s call for giving people over age sixty $200 a month to stimulate the economy won numerous adherents. And Louisiana Governor Huey Long’s “Share the Wealth” program, with its “soak-the-rich” tax plan, offered another vision for redistribution of wealth and a more just and egalitarian society.

The Soviet Union, which would later become such an albatross around the necks of American leftists when the almost unfathomable depths of Stalinist cruelty became known, actually strengthened the appeal of left-wing reform in the early 1930s. Soviet communism seemed to be producing a dynamic egalitarian society that offered a viable alternative to the moribund capitalist economic order. Soviet leaders sparked the interest of American intellectuals in 1928 by announcing their first Five-Year Plan, which promised a rational, centralized economy that would create abundance by unleashing science and technology. Socialists and progressives had long favored intelligent planning over a seemingly anarchic system in which individual capitalists made decisions based on maximizing profits. The concept of planning had inspired works as disparate as Edward Bellamy’s 1888 socialist masterpiece Looking Backward and Walter Lippmann’s 1914 Drift or Mastery, the bible of the Progressive movement. Many intellectuals agreed with editor of The Nation Oswald Garrison Villard, who, in late 1929, described the Soviet Union as “the greatest human experiment ever undertaken.”³⁷

The results seemed to justify that description. While the United States and the rest of the capitalist world plunged deeper into depression, the Soviet economy appeared to be booming. In early 1931, the Christian Science Monitor reported that not only was the Soviet Union the only country to have escaped the Depression, its industrial production had jumped an astronomical 25 percent the previous year. In late 1931, The Nation’s Moscow correspondent described the Soviet frontier as “a charmed circle which the world economic crisis cannot cross…. While banks crash… abroad, the Soviet Union continues in an orgy of construction and national development.”³⁸ The Nation could be dismissed as a liberal publication, but similar reports in Barron’s, Business Week, and the New York Times were harder to disregard. As the U.S. unemployment rate approached 25 percent, a Times report that the Soviet Union intended to hire foreign workers caused desperate jobless Americans to stampede Soviet offices in the United States. Despite official Soviet disclaimers, Business Week reported that the Soviets planned to import 6,000 Americans and that 100,000 had applied. Soviet society seemed to be undergoing an incredible transformation from agrarian backwardness to industrial modernization before people’s eyes.³⁹

Many American intellectuals had also begun to see the Soviet Union as a place of intellectual, artistic, and scientific vibrancy compared with the United States’ stultifying bourgeois culture. In 1931, economist Stuart Chase wrote, “For Russians the world is exciting, stimulating, challenging.” The next year, he asked, “Why should Russians have all the fun of remaking a world?”⁴⁰ New Republic literary editor Edmund Wilson noted that when visiting the Soviet Union, he felt as if he were “at the moral top of the universe where the light never really goes out.” Socialized medicine for all, remarkable scientific breakthroughs, dazzling economic growth—Soviet progress, many Americans believed, was vastly eclipsing that of its economically struggling capitalist competitors.⁴¹

Indications of Soviet success added enormously to the appeal of the Communist Party of the United States of America (CPUSA) at a time when so many Americans were looking for alternatives. An invigorated Communist Party would contribute significantly to the growth of 1930s radicalism, but it was only one piece in a much larger puzzle. Many groups, some having nothing to do with the CP, became radicalized during this decade. Radicalization proceeded at different paces for different groups. The first to respond were the unemployed. Hundreds of thousands demonstrated for jobs and relief all over the country on March 6, 1930. Intellectuals followed suit, rejecting the shallow materialism of American life in the 1920s and the anti-intellectualism that had driven so many writers and artists to Europe for cultural salvation. Edmund Wilson captured this perfectly when he wrote in 1932:

The upsurge among workers started in 1933, as the economy showed early signs of recovery, and continued throughout the decade. The year 1934 saw major strikes in Toledo, Minneapolis, and San Francisco as well as a national textile strike as workers turned to Musteites, Trotskyists, and Communists for leadership. Unemployed Councils and Unemployed Leagues brought in jobless workers to support the strikes rather than take jobs as strikebreakers. With broad support from all sectors of the working class, these strikes often spread to other industries, even shutting down entire cities, as happened in San Francisco. The Los Angeles Times reported, “The situation in San Francisco is not correctly described by the phrase ‘general strike.’ What is actually in progress there is an insurrection, a Communist-inspired and led revolt against organized government.”⁴³ The Portland Oregonian called for presidential intervention: “San Francisco, paralyzed, is in the throes of violent insurrection. Portland faces the practical certainty of a general strike within a few days that will similarly paralyze this city.” The San Francisco Chronicle complained, “The radicals have wanted no settlement. What they want is revolution.”⁴⁴

This was a welcome change after thirteen years in which the unions had taken a pounding and suffered sharp declines in membership. Aided by New Deal legislation that helped level the playing field between management and labor, the labor movement even began to penetrate heavy industry with the formation of the Congress of Industrial Organizations in 1935. Communists played a major role in the organizing. Corporate resistance often resulted in violent and bloody confrontations. But militant workers adopted new tactics like sit-down strikes that proved particularly effective in the right circumstances.

African Americans’ economic hardship was exacerbated by racism and discrimination. Black unemployment skyrocketed as the Depression effectively eliminated an entire category of “Negro jobs.” Urban black unemployment reached over 50 percent in the South in 1932. The North was not much better; in Philadelphia, black unemployment topped 56 percent. Many blacks, struggling for both jobs and civil rights, thought the legalistic approach of the NAACP was too slow given the tenor of the times and turned instead to the CP and its front organizations. Though the national party leaders may have taken their marching orders from Moscow, that information often did not trickle down to the grassroots level.

And scientists, who were among the most conservative groups in the country at the start of the decade—in 1933, sociologist Read Bain called them “the worst citizens of the Republic” because of their apathy and social irresponsibility—had been transformed into one of the most radical by decade’s end, standing in the forefront of the antifascist movement and questioning whether capitalism thwarted the socially beneficial application of science and technology.⁴⁵ In the December 1938 election for president of the American Association for the Advancement of Science, the nation’s largest body of scientists, the five leading vote getters were leaders of the left-wing science and society movement and the winner, renowned Harvard physiologist Walter Cannon, was one of the most openly left-wing scientific activists in the country.⁴⁶

During those turbulent years, many liberals began calling themselves socialists or radicals. Minnesota Governor Floyd Olson proclaimed, “I am not a liberal…. I am a radical.”⁴⁷ For many on the left, even liberalism connoted a moderation that bordered on cowardice. Lillian Symes wrote in The Nation in 1934, “No worse insult [than being called a liberal] could be hurled at anyone’s mentality at a time like this.”⁴⁸ Many felt the same way about joining the Socialists when the Communist Party seemed to offer a viable and more radical alternative. John Dos Passos explained his support of the Communists in 1932: “Becoming a Socialist right now would have just the same effect on anybody as drinking a bottle of near beer.”⁴⁹

Ironically, during the 1935–39 Popular Front period, when the Communists garnered their greatest support, Norman Thomas’s Socialists were often to the left of the Communists, who deliberately toned down their rhetoric in hope of building a broad coalition against fascism. Hundreds of thousands of Americans joined the Communist Party or worked with its affiliated organizations. Among them were many of the country’s best writers, including Ernest Hemingway, Erskine Caldwell, John Dos Passos, Edmund Wilson, Malcolm Cowley, Sinclair Lewis, Langston Hughes, Sherwood Anderson, James Farrell, Clifford Odets, Richard Wright, Henry Roth, Lillian Hellman, Theodore Dreiser, Thomas Mann, William Carlos Williams, Nelson Algren, Nathanael West, and Archibald MacLeish.

But as the 1930s advanced, Western intellectuals’ early enthusiasm for Soviet communism began to wane. Encircled by hostile capitalist nations and fearing a new war, Josef Stalin embarked upon a policy of breakneck industrialization that would claim many victims. Reports filtered out of the Soviet Union of famines and starvation, political trials and repression, ham-fisted bureaucracy, secret police, brutal prisons, and ideological orthodoxy. Kulaks were slaughtered for resisting forced collectivization of agriculture. More than 13 million people died under Stalin’s despotic rule. Organized religion was stifled. Military leaders were purged.⁵⁰ And even those who refused to believe the horrific reports filtering out of the Soviet Union were shocked by Stalin’s apparent treachery in concluding the Non-Aggression Pact with Germany in 1939. Communists left the party in droves at that point, but diehards blamed Stalin’s about-face on Western capitalist nations’ refusal to assist the Soviet Union in stopping Hitler despite Stalin’s persistent calls for collective defense.

The combination of a left-leaning Congress, an energized, progressive populace, and a responsive and caring president made possible the greatest period of social experimentation in U.S. history, especially after the upsurge in mid-decade radicalism drove the New Deal farther left. In December 1935, Harold Ickes told the president that he “believed the general sentiment of the country to be much more radical than that of the Administration.” Roosevelt agreed and sharpened his attack on the business community. He saved his heaviest artillery for his annual message to Congress on January 3, 1936, which he delivered at night over national radio. The only previous time that a president had addressed an evening session was on April 2, 1917, when Wilson read his war message to the House. Roosevelt lashed out at his enemies on the right: “We have earned the hatred of entrenched greed. They seek the restoration of their selfish power…. Give them their way and they will take the course of every autocracy of the past—power for themselves, enslavement for the public.”⁵¹

Having been pushed to the left by the progressive upsurge, Roosevelt kept up his harsh attack on business throughout the 1936 campaign. He trumpeted the list of progressive achievements. The Works Progress Administration (WPA) and other government programs put millions of unemployed back to work in government jobs. The economic and banking systems had been reformed. The government, for the first time, sided, however tentatively, with labor against the employers and nurtured the growth of unions. Social Security guaranteed a modicum of comfort in old age that few workers had previously enjoyed. The tax burden was shifted increasingly to the wealthy.

On the eve of the election, Roosevelt took his defiantly antibusiness message to supporters at Madison Square Garden, declaring,

When election day came around, the revitalized Democrats gave the Republicans the political thrashing of their lives at every level. Roosevelt defeated Kansas Governor Alf Landon 523–8 in the Electoral College, winning every state except Maine and Vermont. Democrats gleefully amended the old saying that “as goes Maine, so goes the country” to declare, “as goes Maine, so goes Vermont.”⁵³ The Democrats controlled the House 331–89 and the Senate 76–16, after accounting for the Farmer-Laborites and George Norris’s switch to Independent.

The Chicago Tribune saw the lopsided vote as an unambiguous endorsement of the president’s agenda. “The result of the election is a vote of confidence in Mr. Roosevelt and the New Deal… he will enter upon his second term with what amounts to a blank check signed yesterday by an overwhelming majority of the American people.” The conservative Tribune worriedly pointed to the coalition Roosevelt had formed with the Farmer-Labor, American Labor, Socialist, and Communist parties: “How Mr. Roosevelt will discharge his obligations to his radical partners becomes a matter of intense interest.”⁵⁴

But the near universal hopes for further reform would be frustrated by political and economic miscalculation on the part of the usually savvy president. Roosevelt lost momentum following the election with his ill-fated scheme to pack the Supreme Court with progressive judges out of frustration with the Court’s repeated vetoing of New Deal programs. If the New Deal stumbled over the Supreme Court, it was knocked flat by the economic crisis of 1937, which critics quickly dubbed the “Roosevelt recession.” Believing incorrectly that economic progress was self-sustaining and the Depression’s end in sight, administration officials decided to cut spending and balance the budget. Roosevelt particularly targeted the WPA and PWA for deep cuts. The economy plummeted almost overnight. In fact, the collapse was so stunning that Roosevelt and other administration officials believed it was deliberately staged by businessmen seeking to bring Roosevelt down. Stocks rapidly lost one-third of their value, and corporate profits fell by 80 percent. Unemployment skyrocketed anew as millions lost jobs.

Reformers were now on the defensive. Despite that, many Americans realized that one essential human need had yet to be addressed and set out to correct that oversight. Few people appreciate how close the United States came to adopting a national health care program in 1938 and 1939. The Committee of Physicians for the Improvement of Medical Care, an insurgent group of progressive physicians, largely based at the nation’s most prestigious medical schools, acting in defiance of the conservative American Medical Association, sparked a national movement to create a sweeping national health care system. The administration threw its weight behind the effort, arguing that health care was a right, not a privilege, a position strongly supported by labor and a broad range of reform-minded organizations. In fact, administration support was so strong that the editors of The Nation were convinced that “no government would” so mobilize public opinion or “put such expert effort and the time and attention of more than half of its cabinet officials into the development of such a program and then abandon it.”⁵⁵ In late February 1939, New York Senator Robert Wagner submitted his administration-backed bill for a national health program, claiming that no legislation had received “more widespread approval” from the American people.⁵⁶ But faced with vehement AMA opposition and seeking to avoid a nasty fight with elections approaching, Roosevelt decided to abandon the effort. New Deal reform was over once and for all.⁵⁷

The progressive reforms that the New Dealers had been able to implement provoked sharp opposition from the still powerful business community. Roosevelt and advisor Rexford Guy Tugwell, agency heads Harry Hopkins and David Lilienthal, and progressive cabinet members like Henry Wallace, Harold Ickes, and Frances Perkins incurred the wrath of much of the business and banking communities. Though some businessmen, like Joseph Kennedy, thanked Roosevelt for rescuing capitalism from shortsighted capitalists, most considered him the enemy and fought the New Deal every step of the way. A U.S. Chamber of Commerce membership survey registered 97 percent opposition to the philosophy of the New Deal.⁵⁸

The most extreme of these right-wing businessmen set out to prove that the New York Times’ obituary for the Republican Right was premature. They announced formation of the American Liberty League in August 1934, a few months before the midterm elections, although they had begun gathering forces long before that.

The American Liberty League was the brainchild of members of the du Pont family, including brothers Irénée, Pierre, and Lammot, and in-law and top executive Robert “Ruly” Carpenter. Carpenter alleged that Roosevelt was being controlled by “[Felix] Frankfurter and his thirty-eight hot dogs—a gang of fanatical and communistic Jew professors.” He recruited John Raskob, former chairman of the Democratic National Committee, to the cause. Raskob, a strong proponent of shifting the tax burden from the wealthy to the working class, had engineered du Pont’s purchase of General Motors and had simultaneously served as chief financial officer in both corporations. Others brought on board included GM President Alfred Sloan, former Democratic presidential candidates Al Smith and John Davis, National Steel Corporation President Ernest Weir, Sun Oil Company President J. Howard Pew, and General Foods Chairman E. F. Hutton. Charles Lindbergh turned down the League’s offer to serve as president.⁵⁹

The American Liberty League went public on August 22, 1934, announcing its intention to combat radicalism, defend property rights, and uphold the Constitution. Headed by Jouett Shouse, former chairman of the Democratic Executive Committee, the five-member executive committee included Irénée du Pont, Al Smith, John Davis, former New York Republican Governor Nathan Miller, and New York Republican Congressman James Wadsworth, Jr. Shouse announced plans to recruit 2 million to 3 million members and hundreds of thousands of contributors. The League unfurled a massive, though largely ineffectual, “education” campaign over the next few years in a concerted effort to stem the liberal tide. It fell far short, however, of its recruitment and fund-raising targets, claiming 125,000 members and 27,000 contributors. But most of the members were inactive, and most of the funds came from the du Ponts and a handful of other right-wing businessmen. Its reputation was also tarnished by two damning congressional investigations of 1934 and 1935.⁶⁰

The first investigation was short-lived but shocking in its implications. In November 1934, highly decorated retired Marine General Smedley Butler told the House Special Committee on Un-American Activities that William Doyle, commander of the American Legion’s Massachusetts branch, and bond salesman Gerald MacGuire had tried to recruit him to organize a military coup against the Roosevelt administration. Paul Comly French, a reporter for the New York Evening Post and the Philadelphia Record, corroborated Butler’s account, testifying that he overheard MacGuire say at one point, “We need a Fascist government in this country to save the Nation from the Communists who want to tear it down and wreck all that we have built in America. The only men who have patriotism to do it are the soldiers and Smedley Butler is the ideal leader. He could organize one million overnight.” MacGuire had gone to France to study fascist veterans’ movements, which he envisioned as a model for the force Butler could organize in the United States.

Butler rejected MacGuire’s entreaties. “If you get the 500,000 soldiers advocating anything smelling of Fascism,” he warned, “I am going to get 500,000 more and lick the hell out of you, and we will have a real war right at home.” Testimony revealed that Doyle and MacGuire were fronting for many of the same Morgan and du Pont–linked bankers and industrialists who had formed the American Liberty League. MacGuire denied the charges, and New York Mayor Fiorello LaGuardia mockingly dismissed the episode as a “cocktail putsch.” Morgan partner Thomas Lamont called the allegations “Purest moonshine! Too utterly ridiculous to comment upon!” But James Van Zandt, national commander of the American Legion and a future congressman, lent support to Butler’s testimony, reporting that “agents of Wall Street” had also approached him.⁶¹

After hearing the testimony, the House committee, chaired by John McCormack of Massachusetts, reported that it had been “able to verify all the pertinent statements made by General Butler” except for MacGuire’s direct solicitation of his services, which it accepted as fact. It concluded that “attempts to establish a fascist organization in the United States… were discussed, were planned, and might have been placed in execution when and if the financial backers deemed it expedient.”⁶² The committee, strangely, chose not to call many of those implicated to testify, including Colonel Grayson Murphy, General Douglas MacArthur, Al Smith, former American Legion Commander Hanford MacNider, John Davis, Hugh Johnson, and Thomas Lamont. Butler decried the fact that their names had been omitted from the final report.

The second set of hearings, which began earlier but lasted longer, was conducted by North Dakota Senator Gerald Nye. Nye had been appointed to the Senate upon the death of his predecessor and twice reelected. He immediately identified with the Progressives, including George Norris, William Borah, and Robert La Follette, sharing their desire to avoid overseas entanglements that might involve the United States in foreign wars and their opposition to using the military to protect American businessmen’s overseas investments. In February 1934, Nye proposed what would become one of the most remarkable congressional investigations in U.S. history. He called upon the Senate Foreign Relations Committee to investigate individuals and corporations involved in manufacturing and selling arms, munitions, and other implements of war. Its targets would include steel, airplane, and automobile manufacturers, arms and munitions makers, and shipbuilders. The focus on arms merchants rather than bankers represented a departure from the views of Harry Elmer Barnes and other revisionist historians who had written blistering critiques of U.S. involvement in the war. Barnes wrote in 1934 that arms dealers “never exerted so terrible an influence upon the promotion of warfare as did our American bankers between 1914 and 1917.”⁶³

The idea for the hearings had come from Dorothy Detzer, a tireless peace activist who served as the National Executive Secretary of the U.S. chapter of the Women’s International League for Peace and Freedom. Detzer’s twin brother had been a victim of mustard gas in the Great War. Needing someone to sponsor the proposal in the Senate, she approached twenty senators. All turned her down. George Norris suggested that she try Nye, who agreed to do it. Peace groups around the country organized support for the resolution. In April, the Senate authorized hearings into the “munitions trust,” focusing on war profiteering, the role of weapons makers’ propaganda in pushing the government toward war, and whether the government should have a monopoly of all weapons manufacturing in order to remove the profit motive from war fighting. The resolution’s cosponsor, Senator Arthur Vandenberg, pledged to find out if the country would be allowed “to live at peace among ourselves and with our neighbors and without artificial encouragement to friction and misunderstanding and then to conflict, and then to disaster.” Vandenberg wanted to find out if “these sordid intrigues which we know to exist elsewhere” were also occurring in the United States.⁶⁴

Nye, Vandenberg, and Vice President John Nance Garner selected four Democrats—Homer Bone of Washington, Bennett Champ Clark of Missouri, Walter George of Georgia, and James Pope of Idaho—and three Republicans—Nye, Vandenberg, and W. Warren Barbour of New Jersey. Clark nominated Nye as chairman of the Special Committee Investigating the Munitions Industry, and Pope seconded the nomination. Hearings were delayed to give the committee time to begin its research, which was coordinated by Stephen Rauschenbusch, son of the renowned Social Gospel minister Walter Rauschenbusch. A young Harvard law graduate named Alger Hiss served as a legal assistant, on loan from Jerome Frank of the Agricultural Adjustment Administration.⁶⁵

Progressives rallied to the cause. An article in the Railroad Telegrapher captured the festering anger that many workers still felt toward the munitions makers a decade and a half after the end of the World War: “the American people are showing signs of awakening to the system which encourages wars, slays and tortures millions to build a few swollen fortunes, and leaves the common man and woman staggering under crushing debts…. Labor’s millions are called on to fight all wars, to suffer the mud, lice and blood of the trenches while the bosses gather their dollars and the bosses’ sons become officers. And, after the war is over, labor pays and pays and pays.” In an editorial titled “Murder Incorporated,” the New Republic stated that the investigators would have to follow “the torturous track of blood money… the track is there, the blood-dripping profits are there, a vast, worldwide network of incorporated murder is there.”⁶⁶

While the nation waited for the hearings to commence, two important and timely books appeared that fueled public anger and provided more grist for the inquisitors. Merchants of Death by H. C. Engelbrecht and F. C. Hanighen, which was chosen as a Book-of-the-Month Club selection, and Iron, Blood, and Profits by George Seldes were released on the same day in April 1934. They detailed not only the sordid dealings of U.S. munitions makers but those of their compatriots in other parts of the world. Doubleday also reprinted in pamphlet form the startling exposé of the European arms industry from the March issue of Fortune titled “Arms and the Men.” That article also seethed with visceral anger. It began:

Roosevelt voiced approval of the hearings and urged stronger international steps to curb what he called the “mad race in armament which, if permitted to continue, may well result in war.” “This grave menace to the peace of the world,” he added, “is due in no small part to the uncontrolled activities of the manufacturers and merchants of engines of destruction.”⁶⁸

The committee’s eighty researchers and accountants combed the books of the United States’ leading corporations. Committee members were astonished by the findings. Senator Pope promised that the people will be “amazed by the story of greed, intrigue, war scare propaganda and lobbying which will be made public” during the hearings. He added that the information would “shock the entire Nation when disclosed.”⁶⁹ Just before the start of hearings, the New York Times reported that a majority of the seven committee members favored complete government operation of war materials manufacturing plants. Pope expressed optimism that the evidence would be so disturbing that there would be “almost universal demand” for such actions.⁷⁰

On September 12, Felix, Irénée, Lammot, and Pierre du Pont took the stand together and were grilled about the firm’s enormous profits during the war years. The company had received orders of $1.245 billion between 1915 and 1918, a 1,130 percent increase over company orders in the four years prior to the war.⁷¹ During the war, du Pont had paid 458 percent dividends on original par value stock. The hearings that day also revealed that in 1932 Army Chief of Staff General Douglas MacArthur had gone to Turkey, where, according to a letter from an executive of the Curtis Wright Corporation, he had “apparently talked up American military equipment to the skies in discussions which he had with the Turkish general staff.” At that point, Nye interjected, “It looks to me like Gen. MacArthur was pretty much of a salesman. It makes one begin to wonder if the Army and Navy is just a sales organization for private industry.”⁷²

The hearings produced troubling revelation after troubling revelation. U.S. and foreign arms dealers had divided foreign markets through cartel arrangements, sharing secrets and profits and designing German submarines that were busy sinking Allied ships during World War I. More recently, American companies had been helping Nazi Germany rearm. Officials of United Aircraft and Pratt and Whitney testified that they had sold planes and aircraft equipment to Germany for, they claimed, commercial, not military, use. Nye was incredulous. “Do you mean to say,” he asked, “that through all of these negotiations you hadn’t the ghost of an idea that Germany was buying for military purposes?”⁷³ U.S. policy since 1921, Secretary of State Cordell Hull reiterated, had been to oppose the sale of any military equipment to Germany.

Support for the hearings came in from across the political spectrum as the committee landed blow after blow. In late September, John Thomas Taylor, the legislative representative of the American Legion, announced that he supported the plan proposed by the earlier War Policies Commission to have the government seize 95 percent of any abnormal profits in wartime.⁷⁴ Nye promptly announced that he would introduce legislation raising income taxes to 98 percent on all incomes above $10,000 on the day the United States entered a war in order to entirely eliminate war profits.⁷⁵ Nye said that he and two other committee members actually preferred to nationalize the entire arms industry in the event of another war.⁷⁶

Public interest in the hearings was tremendous. England made plans to hold its own hearings. Hearings were already under way in several Latin American countries, spurred by disturbing revelations about nefarious dealings between those countries and the arms makers. Nye had received more than ten thousand congratulatory letters and telegrams. He was being flooded with speaking requests. The adulation made the Washington Post nervous. It editorialized that the outpouring of support was no surprise because “The inquiry revealed much information of a sensational character and gave to the average citizen a new conception of the uncontrolled forces which combat in effect, if not in intent, the efforts to secure world peace. To see glaring publicity given to what has been essentially a secret traffic, evoked a responsive chord among all who desire a better world order.” The Post begrudgingly praised the committee’s “excellent work.”⁷⁷

In early October, Nye gave a national address over NBC radio in which he defended his plans for nationalizing the arms industry and sharply increasing wartime taxes. “Do that and then observe the number of jingoists diminish,” he suggested. If such steps were taken, he confirmed, “war may not be as unpreventable as pictured.” He summarized the committee hearings to that point: “The committee listened daily to men striving to defend acts which found them nothing more than international racketeers, bent upon gaining profit through a game of arming the world to fight itself.”⁷⁸

Calls for nationalization by Nye and other committee members sparked a vigorous national debate in late 1934. In December, the Washington Post pooh-poohed Nye’s proposals and referred readers to an op-ed piece insisting that the topic had been thoroughly vetted in Geneva for the past fifteen years and that it was “an undisputed fact” that “enlightened opinion” was against it. The du Ponts and others weighed in along similar lines.⁷⁹ Commentators pointed out the problems with Nye’s plan. If the weapons industry were nationalized, Walter Lippmann asked, how would the United States decide about exporting weapons to other countries? If the United States nationalized its weapons industry, would other countries follow suit? If so, what would happen to countries with no munitions plants? How would determination be made about the many products that could be used for commercial as well as military purposes? The Chicago Tribune pointed specifically to Japan’s buying scrap metal in the United States and cited the du Ponts’ contention that bales of cotton could be munitions of war. Others asked what would happen to the war industries during peacetime. And, if the factories were obsolescent and unused, would the nation be able to gear up quickly enough to meet an emergency?⁸⁰

With public pressure building for decisive action, Roosevelt decided to get out ahead of and defuse the issue. On December 12, he announced that he had asked a high-powered group of government and industrial leaders to come up with a plan to end war profiteering. Roosevelt told the reporters, “The time has come to take the profits out of war.” Three hours later the group met at the White House to begin its work. Arriving arm in arm were none other than the commission chairman, Bernard Baruch, and Hugh Johnson, the commission’s executive director. Others asked to assist with drafting the legislation included the secretaries of state, war, labor, agriculture, treasury, and navy, Rail Coordinator Joseph B. Eastman, Army Chief of Staff MacArthur, Assistant Secretary of the Navy Roosevelt, Assistant Secretary of Agriculture Tugwell, Assistant Secretary of Labor Edward F. McGrady, and George Peck, the head of the Export-Import Bank. Nye Committee members erupted in anger, accusing the administration of trying to restrict their inquiry before the investigation was completed.⁸¹

Others also voiced skepticism about Roosevelt’s motives. Washington Post columnist Raymond Clapper listed several explanations that were circulating around Washington. One was that the president wanted to steal the spotlight from Nye and Vandenberg, the Republican senators who were making headlines with their investigations. Another was that the “munitions interests have got to the Administration and that it is trying to take them off of the spot.”⁸²

Nye thought Roosevelt was up to no good. “The departments of our government are really codefendents with the munitions industry and the profiteers,” he exclaimed, having only recently become sensitive to the degree of government complicity in international arms sales.⁸³

Refusing to let the administration steal its thunder, the Nye Committee came out with more headline-grabbing exposés. The du Ponts remained in Nye’s crosshairs. Alger Hiss revealed more evidence of untrammeled greed. The Washington Post headlined one December 1934 front-page article “800% War Profit Told at Inquiry; Du Pont Deal Up.” Hiss released a list of companies involved in various aspects of war production and the gaudy returns on their investments. He also released names of the 181 individuals who reported incomes exceeding $1 million in 1917 and noted that 41 of them had appeared for the first time. The list included six du Ponts, four Dodges, three Rockefellers, three Harknesses, two Morgans, two Vanderbilts, two Whitneys, and only one Mellon.⁸⁴

The more blood Nye drew, the shriller the attacks on the committee became. The Chicago Tribune condemned the committee’s method of damning witnesses as “unjust, dishonorable, and disgusting.”⁸⁵ But support for the investigation remained strong. Nye met with Roosevelt in late December. The committee had received over 150,000 friendly letters by that point. Afterward, Nye assured reporters that he had mistaken Roosevelt’s motives. The president was entirely behind the investigations, he said, and no new legislation would be forthcoming until the investigation had run its course.⁸⁶

Members of the committee tried to warn the public about what they feared was an impending European war. Pope thought it “paradoxical” that governments around the world were aiding munitions manufacturers. Countries, he regretted, “seem to be in the grip of some monster that is driving them to destruction. Preparations for the next war are feverishly under way. That it is inevitable is widely assumed.”⁸⁷

In early February 1935, Representative John McSwain of South Carolina introduced legislation that would freeze prices at the level they were at on the day war was declared. Baruch and Johnson both testified on behalf of the legislation and both opposed Nye’s more sweeping nationalization proposals.

Meanwhile, at the hearings, Eugene Grace, president of Bethlehem Steel Corporation and the Bethlehem Shipbuilding Corporation, admitted that his company’s profits jumped from $6 million before the war to $48 million once the war started and that he had received personal bonuses of $1,575,000 and $1,386,000. Senator Bone aggressively questioned him about Treasury Department charges that “Bethlehem profits… were unconscionable and unjust,” the subject of an $11 million suit that had been tied up in the courts for years.⁸⁸

In February, the committee weighed a request to open up a new line of inquiry. The annual convention of the Department of Superintendence of the National Education Association (NEA) heard a powerful indictment of the “insidious influences” of press magnate William Randolph Hearst by former president of the American Historical Association Charles Beard. Beard claimed that Hearst “has pandered to depraved tastes and has been an enemy of everything that is noblest and best in our American tradition.” According to the Times, when Beard finished, the thousand educators in attendance “rose to their feet and applauded for several minutes.” The association passed a resolution declaring that NEA members had been “shocked and outraged by the iniquitous greed for profits on the part of American munitions manufacturers [as] has been revealed in all the grossness of their corruption by the Nye Committee.” The resolution called upon the committee to also investigate “the propaganda in newspapers, schools, motion pictures and radio carried forward to increase the fear of war and promote the sale of munitions,” specifically including the Hearst newspapers. Nye responded that such an investigation did fall within the purview of his committee and requested more information. But, after further consideration, he decided against the inquiry.⁸⁹

In late March, a Senate bill to ban war profits started to take shape. The New York Times described it as “a plan that is admittedly the most radical in the history of the government.” The Washington Post concurred, describing it as “a plan so drastic in its confiscatory features that six months ago it would have been scoffed at…. It went beyond anything that Senator Gerald P. Nye, dapper chairman and most radical member of the committee, ever thought of recommending.” Staff researcher John Flynn laid it out for committee members, who met with the president to discuss it. Roosevelt surprised them by responding positively. Secretary of State Cordell Hull, however, advised Roosevelt against supporting any specific legislation eliminating war profits.

But, given the president’s backing, committee members decided to put their proposals into legislative form. The tentative provisions included a tax of 100 percent on all incomes over $10,000 and hefty taxes on lower incomes, a 50 percent tax on the first 6 percent of corporate profits and 100 percent on profits over 6 percent, drafting corporate officials into the army, shuttering all stock exchanges for the duration of the war, prohibiting all commodity speculation, and commandeering of all essential industries and services. Flynn told the committee, “The profits in war, the spiraling of prices, the uncivilized scrambling for the shameful fruits of national disaster, can be prevented in only one way, and that is to prevent inflation at the beginning. In 1917 and 1918 we had our war and we sent the bill to our children and grandchildren. In the next war we must resolve, as intelligent as well as civilized beings, that while one part of the population—the army—fights in the field, the other part, that stays at home, will pay the bills.”⁹⁰

The slightly amended Flynn proposal was introduced as the Emergency Wartime Act in early April. The bill would mandate government seizure of all profits above 3 percent and all individual earnings above $10,000. Nye commented, “The bill is drastic because war is a drastic thing. The tax collector who comes for one man’s money is not nearly so solemn and forbidding as the draft officer who knocks at another man’s door and calls for his young son.”⁹¹

When the House was ready to vote on the more moderate McSwain bill, pandemonium broke out. Opposition rang down from all sides. The New York Times reported, “Antiwar sentiment so swept the House that the original McSwain proposal was amended beyond recognition.” Amendments included an excess war profits tax of 100 percent, government control of the financial and material resources of the country, and conscripting officials in industry, commerce, transportation, and communications.⁹² The bill passed the House with provisions to draft all men between the ages of twenty-one and forty-five but with conscription of management officials stripped out. The bill was framed so that it would be easy to add provisions from the more radical Nye bill in the final version.

Arthur Krock inveighed against both bills in the New York Times. “The McSwain bill,” he charged, “is colored with pacifism, the Nye bill with syndicalism, socialism or communism… the two measures seek to discourage war by providing the certainty that the well-to-do would be ruined when war was declared. Only labor and passive objectors have been treated with consideration. All the provisions of the bills are designed to prevent limiting the wage or strikes of the one and the conscription of the other.”⁹³ Baruch also weighed in against features of the Nye bill, claiming it would increase inflation, paralyze war production, and leave the country defenseless against a major attack. Nye accused Baruch of being business’s mouthpiece and not really wanting to eliminate war profits.⁹⁴

Nye introduced his bill in the Senate in early May as an amendment to the McSwain War Profits Bill. He promised that this would be only the first of several bills to come out of his committee, explaining, “We believe the opinion of the American people is behind this bill. We think that now, when the whole world is troubled by rumors of wars, is the time to serve notice on our own people and on the world that America does not intend to use another war as an instrument to make a foolish and futile effort to make a few people rich.”⁹⁵

The committee presented three resolutions to the Senate. One prohibited making loans to warring nations or their citizens. A second denied passports to citizens entering war zones. And a third embargoed arms shipments to warring nations if such shipments might involve the United States in conflicts. The Senate Foreign Relations Committee approved the first two measures and was debating the third when Hull convinced committee members to keep U.S. options open in dealing with other nations. With the developing Ethiopia crisis on their minds, they decided to reconsider all three measures before finalizing their actions.

When Congress adjourned in September, the differences between the House and Senate versions of the war profits bill had not yet been resolved. That was a relief to the Chicago Tribune, which called it a “communistic defense act” that in the event of war would allow the president to “communize the American nation as completely as Lenin communized Russia.”⁹⁶

At that point, with pressure building for dramatic action, Wilson’s former Secretary of War Newton Baker threw a monkey wrench into the proceedings. He responded to a letter to the New York Times by William Floyd, the head of Peace Patriots, by denying that there had been any discussion of protecting private U.S. commercial or financial interests in the run-up to the United States’ entry into the World War and averred that “America’s safety from future wars cannot be secured by muzzling bankers or disabling munitions makers.”97 Four days later, banker Thomas Lamont wrote, challenging Floyd’s evidence and blaming German aggression, not U.S. commercial interests, for U.S. entry.⁹⁸

These very issues formed the crux of renewed committee investigations in early 1936. Was it true that the House of Morgan and other Wall Street firms had pushed the United States to war in order to recoup the enormous sums they had lent to the Allies? Both sides readied for the battle. The much-anticipated showdown occurred on January 7, when J. P. Morgan appeared before the committee along with his partners Lamont and George Whitney, as well as Frank Vanderlip, a former president of National City Bank. John W. Davis came along as Morgan’s counsel. The committee moved the hearings to the Caucus Room of the Senate Office Building in order to accommodate the record number of requests for seats. Nye Committee researchers had been poring over the books and files of the banking behemoth for almost a year, examining more than 2 million letters, telegrams, and other documents. The night before the hearings, the firm invited reporters to its forty-room suite at the Shoreham Hotel for an off-the-record background briefing by Lamont and Whitney. Nye took to the radio to lay out his position to a national audience. “After we had started stretching our American neutrality policy to accommodate commercial interests to the extent of permitting loans,” he reasoned, “the Allied powers were never in doubt as to what America would ultimately do. They knew what we didn’t seem to realize, namely that where our pocketbook was, there would we and our hearts ultimately be.”

Morgan released a nine-page statement denying such allegations. It read, “We call particular attention to the secured nature of these loans, because there has been an impression fostered in certain quarters to the effect that the Allied loans were worthless unless America entered the war; that the holders of these loans urged our Government into the war ‘to make the loans good.’ There was nothing in the facts remotely justifying this fantastic theory. The loans were always good. No one feared for their safety.” The statement argued that U.S. business was already thriving from supplying the Allies and there was no material advantage to having the United States enter the war.⁹⁹

Losing the debate could have enormous consequences. Nye and Clark recognized that the evidence presented about U.S. entry into the past war could determine the fate of the important neutrality bill they were introducing that week.

At that first hearing, the committee released documents showing that President Wilson had sided with Secretary of War Robert Lansing over Secretary of State William Jennings Bryan’s sharp opposition and decided to allow bankers to float loans to belligerents in 1914, long before the policy change was publicly announced. Before adjourning, Senator Clark asked one last question of Vanderlip: “Do you think Great Britain would have paid her debts if she had lost the war?” Vanderlip replied, “Yes, even had she lost the war she would have paid.”¹⁰⁰

In subsequent hearings, Nye and other committee members endeavored to show that the United States had never been neutral in the war and that German submarine warfare was just the pretext Wilson seized upon as an excuse to intervene. Nye dropped one last bombshell: he alleged that Wilson learned about the Allies’ secret treaties before the United States entered the war and then “falsified” the record by telling members of the Senate Foreign Relations Committee that he had found this out only later, at Versailles.

The Nye Committee investigations showed that Wilson had, in effect, lied the country into war. He had undermined neutrality by allowing loans and other support to the Allies, deliberately exaggerated claims of German atrocities, and covered up the fact of his knowledge of the secret treaties. Far from being a war to further democracy, it had been a war to redivide the spoils of empire.

Aspersions on the integrity of Woodrow Wilson proved to be the final straw for many Senate Democrats, who rose in fevered denunciations of the committee chairman in what the Washington Post described as “a tornado of protest and resentment.” Senator Tom Connally of Texas led the charge, declaring, “I do not care how the charges were made; they are infamous. Some checker-playing, beer-drinking back room of some low house is the only place fit for the kind of language the Senator from North Dakota, the chairman of the committee—this man who is going to lead us out toward peace—puts into the record about a dead man—a great man, a good man, and a man who, when alive, had the courage to meet his enemies face to face and eye to eye.” Connally accused Nye and the committee of an “almost scandalous effort to besmear and besmut the records of America in the World War.” The controversy split the committee itself. Two of the members, Senators Pope and George, left the hearing in protest. Pope returned and read a statement in which he and Gregory expressed resentment at “any effort to impugn the motives of Woodrow Wilson and to discredit his great character.” They regretted that the purpose of the investigation was being lost sight of and feared that the chance of securing “remedial legislation” was slipping away. They questioned the integrity of the committee’s investigation: “Such efforts to disparage Wilson and Lansing… disclose the bias and prejudice with which the investigation is being carried on.” They made it clear that they were not resigning from the committee and would return for a vote on the final report. Another committee member, Senator Vandenberg, added that he, too, admired Wilson but that economic motives had provided “an inevitable and irresistible impulse” for getting the United States into the war. He wanted to make sure that never happened again and said he took pride in what the committee had accomplished: “History has been rewritten in the last 48 hours. It is important that history should be revealed in all its nakedness, no matter what it shows.” Nye assured Pope and George that he had no malice toward Wilson and had even voted for him in 1916, promising to persevere “as long as there is a possibility of lessening the chances of our being drawn into war.”¹⁰¹

The bloodletting continued the next day in the Senate. Seventy-eight-year-old Carter Glass of Virginia, who had served as Wilson’s secretary of the Treasury in the last months of his administration, accused Nye of an “infamous libel,” an “unspeakable accusation against a dead President, dirt-daubing the sepulchre [sic] of Woodrow Wilson.” Pounding his hand on the desk so hard that blood spurted all over his papers, Carter cried out, “Oh, the miserable demagogy, the miserable and mendacious suggestion, that the House of Morgan altered the neutrality course of Woodrow Wilson!” Nye finally got his chance to respond on the floor of the Senate. He said that what surprised him was that there had not been “an earlier concerted effort” to stop his committee’s work and that the hostility only became apparent with the appearance of Morgan and his partners. He offered no apologies, instead reading letters and documents that, he reiterated, showed that “the United States entered the war knowing the spoils had been agreed upon. Yet we were told news of secret treaties came as a bombshell at the peace conference.”¹⁰²

Two days later, Nye informed Morgan and his partners that they need not appear as scheduled the following week for further examination. The committee had hit a roadblock, and the prospects of Senate appropriation of the $9,000 needed to continue its work looked bleak. He accused his detractors of using the Wilson issue as a “smoke screen.” Their real intention, he insisted, was to “seize upon any weapon and resort to any subterfuge to kill legislation which threatens the bloody profits to be made from war.”¹⁰³

To everyone’s surprise and Nye’s delight, the hearings were not aborted. On January 30, the Senate unanimously approved $7,369 to finish the probe. Even Connally reversed his previous position and voted for the added funding, but he urged the committee to stick to living people and not invade the “cemeteries and catacombs” of the dead.104 The New York Times explained the Senate’s change of heart: “When Wilsonians resentful of slurs against their World War chieftain threatened to interrupt the inquiry by stripping it of funds, mail sacks on Capitol Hill bulged with letters urging that the full story of 1914–18 be told. That demonstration of an antiwar mood explains why an inquiry which had provoked more bitterness than any similar affair in many years was allowed to survive.” The Times credited the committee with having already achieved “notable reforms.” “It helped to place on the books a statute requiring munitions makers to obtain licenses and report all shipments to the State Department. It resulted in the framing of bills to remove exorbitant profits from the arms and shipbuilding industries, and it is expected that these proposals will eventually become law in one form or another. But its major accomplishment is the churning of public opinion on the subject of war, peace and profits.”¹⁰⁵

During the final sessions, representatives of the House of Morgan did their best to fend off charges that their loans to the Allies had influenced U.S. participation in the war. The New York Times headlined its February 5 article “Morgan Leaves Happy, ‘Cleared’ by Friend Nye.” The Times breathed a sigh of relief. It titled its February 9 editorial “An Inquiry Ends Well.” The committee’s efforts to show that Morgan had made “enormous profits out of the sale of munitions” and had “used its powerful influence” to secure American entry were completely discredited, the Times noted, and “the inquiry ended on a sort of jovial note of congratulation between MR. MORGAN and his ‘friend NYE.’” The editorial concluded, “Such an outcome is of great public benefit…. It is easy to imagine the disturbing effect if a contrary result had been reached. People would despairingly have concluded that there was something rotten in the whole banking business.”¹⁰⁶

Nye immediately took issue with the Times’ portrayal. “There is not a single member of the Senate committee of inquiry that believes that the inquiry has afforded a clean bill of health for the banking house of Morgan.” Although Morgan couldn’t be blamed for inducing U.S. entry into the war to protect its investments, Nye noted that it was “altogether fair to say that these bankers were in the heart and center of a system that made our going to war inevitable.” Once Wilson allowed Morgan to become banker to the Allies, Nye added, “the road to war was paved and greased for us.”¹⁰⁷

Dramatic evidence that the committee hearings were having the desired impact appeared in a Gallup Poll released on March 7. When asked, “Should the manufacture and sale of war munitions for private profit be prohibited?” 82 percent of Americans responded yes and only 18 percent no. The strongest support came from Nevada, where 99 percent favored abolishing profits. The weakest came from Delaware, the home of Du Pont, where only 63 percent answered affirmatively. George Gallup reported that since the company had begun polling the previous October, only old-age pensions had received more support in any of its surveys. Gallup quoted a grocer in western Pennsylvania who said, “The profit system in munitions has been leading us to war for generations.”¹⁰⁸ Even Nye had considered such ideas farfetched when he began his hearings seventeen months earlier. “I thought,” he admitted, “that nationalization of munitions manufacturers was about the wildest idea we had under consideration.”¹⁰⁹ The Washington Post, among others, congratulated Nye and his committee for educating the public on “the abuses which have developed in the munitions trade and… the relation between war and the accessibility of arms.”¹¹⁰ The next day, Eleanor Roosevelt, speaking in Grand Rapids, Michigan, called for taking all profits out of the munitions industry. The New York Times, which had so recently come to the defense of Morgan and the munitions manufacturers, did not even report that the Gallup Poll had been released.

In April, the Nye Committee issued its long-awaited third report. It concluded, “While the evidence before this committee does not show that wars have been started solely because of the activities of munitions makers and their agents, it is also true that wars rarely have one single cause, and the committee finds it to be against the peace of the world for selfishly interested organizations to be left free to goad and frighten nations into military activity.”¹¹¹ Four of the seven members of the committee—Nye, Clark, Pope, and Bone—called for outright government ownership of the munitions industry. The minority—George, Barbour, and Vandenberg—called for “rigid and conclusive munitions control.”¹¹² But the bill to remove the profits from war had been assigned to a subcommittee chaired by Connally, one of Nye’s biggest critics. There it languished, and when it was finally introduced in watered-down form, it failed to get the requisite votes. Similar bills introduced by Nye and others over the next five years also failed to gain traction.

Among the issues raised by the hearings that continue to rankle investigators is U.S. businessmen’s contribution to Germany’s economic and military revitalization long after they had become aware of the repugnant nature of Hitler’s regime. Since 1933, Hitler had been imprisoning and murdering Communists, Social Democrats, and labor leaders. His vicious anti-Semitism was apparent, although the campaign to exterminate the Jews was still several years away. Close ties between U.S. businessmen and bankers and their German counterparts had been forged in the years prior to Hitler’s rise to power. U.S. loans, largely organized by the Morgan and Chase banking interests, propped up the faltering German economy of the 1920s. IBM, headed by Thomas Watson, purchased a controlling interest in the German firm Dehomag. Sloan’s General Motors purchased German car manufacturer Adam Opel between 1929 and 1931. Ford increased investment in its German subsidiary, Ford Motor Company Aktiengesellschaft, declaring that this move would build a bridge between countries.¹¹³ Watson shared that vision. “World Peace through World Trade!” he was fond of proclaiming.¹¹⁴

World peace, however noble, was no more the capitalists’ primary concern than was achieving wealth and power through a competitive marketplace. Through a dizzying array of formal and informal business agreements, a network of multinational corporations based in the United States, England, and Germany colluded to capture markets and control prices. A trade agreement reached in Düsseldorf between the Federation of British Industries and Reichsgruppe Industrie was announced in March 1939, proclaiming, “It is agreed that it is essential to replace destructive competition, wherever it may be found, by constructive cooperation designed to foster world trade to the mutual benefit of Great Britain, Germany, and all other countries.”¹¹⁵ It was only after the war that most observers became aware how extensive such arrangements had been. As Theodore Kreps of Stanford University observed in May 1945, “The word ‘cartel’ has recently been catapulted from the obscure technical jargon of economic treatises to the front pages of daily newspapers.”¹¹⁶ Typical of these arrangements, Edsel Ford sat on the board of the German chemical firm IG Farben’s U.S. subsidiary, General Aniline and Film, while Farben General Manager Carl Bosch sat on the board of Ford’s European subsidiary. Similar arrangements tied together Farben, Du Pont, GM, Standard Oil, and Chase Bank.

After meeting Hitler in 1937, Watson dutifully and credulously relayed the führer’s message to a gathering of the International Chamber of Commerce in Berlin: “There will be no war. No country wants war, no country can afford it.”¹¹⁷ A few days later, on his seventy-fifth birthday, he accepted the Grand Cross of the German Eagle, which Hitler bestowed on him for the welcome assistance that Dehomag’s punch-card machines were providing the German government in tabulating its 1930 census and, as a result, identifying Jews. Dehomag’s counting machines represented an unprecedented breakthrough in the organization of data that later, when the company was under Nazi control, helped make the trains to Auschwitz run on time.

Henry Ford also attested to Hitler’s pacific intentions. On August 28, 1939, just four days prior to the invasion of Poland, Ford assured the Boston Globe that Hitler was just bluffing. The Germans “don’t dare have a war and they know it,” he said. A week later, after the German invasion had begun, he had the temerity to remark to a friend, “There hasn’t been a shot fired. The whole thing has just been made up by Jew bankers.”¹¹⁸

Ford and Watson should both have known better. In 1937, Ford’s German subsidiary was manufacturing heavy trucks and troop carriers for the German Wehrmacht. In July 1939, the subsidiary changed its name to Ford-Werke. Farben, which was later convicted of crimes against humanity for operating the Buna rubber plant at Auschwitz and supplying the notorious Zyklon-B tablets used to exterminate Jews, owned 15 percent of the company. When the war started in 1939, Ford and GM still controlled their German subsidiaries, which dominated the German auto industry. Despite their subsequent disclaimers, they refused to divest themselves of their German holdings and even complied with German government orders to retool for war production, while resisting similar demands from the U.S. government to retool their factories at home. Sloan justified such behavior in March 1939, following the Nazi occupation of Czechoslovakia, based on the fact that the German operations were “highly profitable.” Germany’s internal politics, he insisted, “should not be considered the business of the management of General Motors.” Opel converted the 432-acre complex in Russelsheim to production of Luftwaffe warplanes, providing fully 50 percent of the propulsion systems for Germany’s JU-88 medium-range bombers while also helping to develop the world’s first jet fighter, the ME-262, which was capable of speeds a hundred miles per hour faster than the United States’ P-51 Mustangs. In appreciation of their efforts, the Nazi government decorated Henry Ford with the Grand Cross of the German Eagle in 1938, four months after Germany had annexed Austria, and similarly honored James D. Mooney, GM’s chief overseas executive, one month later. Ford’s parent company lost effective control of the company during the war years, when Ford-Werke supplied the regime with arms, employing prisoners from nearby Buchenwald concentration camp as slave labor. When a former prisoner Elsa Iwanowa brought suit against the company in 1998, the Ford Motor Company hired a small army of researchers and lawyers to whitewash its unscrupulous behavior and promote its preferred image as part of the “arsenal of democracy.” Just after the war, however, a report by U.S. Army investigator Henry Schneider called Ford-Werke an “arsenal of Nazism.”¹¹⁹ And, as Bradford Snell discovered during his congressional investigation into the monopolistic practices of the auto industry, through “their multinational dominance of motor vehicle production, GM and Ford became principal suppliers for the forces of fascism as well as for the forces of democracy.”¹²⁰

Henry Ford did more than supply trucks for the German military; he also helped the Nazis hone their hateful ideology. In 1921, he published a collection of anti-Semitic articles titled The International Jew, which was widely read by future Nazi leaders. He also sponsored the printing of a half-million copies of the Protocols of the Elders of Zion. The fact that the Protocols had been widely exposed as a forgery didn’t deter Ford. Baldur von Schirach, former head of the Hitler Youth organization and wartime governor of Nazi-occupied Vienna, testified at Nuremberg:

Hitler hung a portrait of Ford in his Munich office and confided to a Chicago Tribune reporter in 1923, “I wish I could send some of my shock troops to Chicago and other big American cities to help in the elections. We look on Heinrich Ford as the leader of the growing Fascist Party in America.” In 1931, he told readers of the Detroit News, “I regard Henry Ford as my inspiration.”¹²²

The Germans also drew inspiration from the ill-fated U.S. flirtation with eugenics and “racial hygiene” in the 1920s and 1930s. California paved the way in forced sterilizations, with more than a third of the sixty thousand performed, but other states were not far behind.¹²³ Rockefeller and Carnegie money helped fund the research that gave these efforts a patina of respectability. These developments did not go unnoticed in Germany. In Mein Kampf, Hitler lauded American leadership in the field of eugenics. He later informed his Nazi colleagues, “I have studied with great interest the laws of several American states concerning prevention of reproduction by people whose progeny would, in all probability, be of no value or be injurious to the racial stock.”¹²⁴

Among those states was Virginia, whose decision to sterilize a “feebleminded” young woman prompted the famous 1927 Supreme Court ruling in the case of Buck v. Bell. In writing the majority opinion, eighty-six-year-old Justice Oliver Wendell Holmes, a Civil War veteran, argued that Buck’s sacrifice of procreative freedom was comparable to soldiers sacrificing their lives in wartime: “We have seen more than once that the public welfare may call upon the best citizens for their lives. It would be strange if it could not call upon those who already sap the strength of the State for these lesser sacrifices… in order to prevent our being swamped with incompetence.” Holmes concluded, “It is better for the entire world, if instead of waiting to execute degenerate offspring for crime, or to let them starve for their imbecility, society can prevent those who are manifestly unfit from continuing their kind…. Three generations of imbeciles are enough.”¹²⁵ Although Virginia was second only to California in forced sterilizations, some felt it was not aggressive enough. In pushing the state legislature to broaden its sterilization law, Dr. Joseph DeJarnette complained in 1934, “The Germans are beating us at our own game.”¹²⁶

Although most U.S. companies doing business in Hitler’s Germany removed American officials in 1939 or 1940, control often remained in the hands of the same German businessmen who had run the companies as subsidiaries of U.S. firms. Profits, meanwhile, piled up in blocked bank accounts.

Prominent among the American capitalists with ties to Nazi counterparts was Prescott Bush, the father of one president and grandfather of another. Researchers have been trying for years to determine the precise nature of Bush’s ties to Fritz Thyssen, the wealthy German industrialist who played a crucial role in bankrolling Hitler, as revealed in his 1941 memoirs I Paid Hitler. Thyssen ultimately repudiated the Nazi dictator and was himself imprisoned.

While incarcerated, Thyssen’s vast wealth was protected overseas, much of it by the investment firm of Brown Brothers Harriman, through the holding company Union Banking Corporation. The account was managed by senior partner Prescott Bush. In 1942, the U.S. government seized Union Banking Corporation under the Trading with the Enemy Act for its association with the Thyssen-owned Bank voor Handel en Scheepvaart NV of Rotterdam. The government also seized four other Thyssen-linked companies whose accounts Bush handled: the Holland-American Trading Company, the Seamless Steel Equipment Corporation, the Silesian-American Corporation, and the Hamburg-Amerika Line shipping company.¹²⁷

Following the war, most of this Nazi-tainted money was released. Union Banking Corporation shares were returned to Bush; Dehomag’s frozen profits were taken by IBM; and Ford and GM both reabsorbed their German subsidiaries—even receiving reparations for the European factories that had been destroyed by Allied bombing, up to $33 million in the case of GM.¹²⁸

These businessmen were not alone. Many American companies continued doing business with Nazi Germany right up to the Japanese attack on Pearl Harbor. As Ford Motor Company was happy to point out in its 2001 investigation into the activities of Ford-Werke, at the start of the war, 250 American firms owned more than $450 million worth of German assets, with 58.5 percent being owned by the top ten. Among the companies were familiar names like Standard Oil, Woolworth, IT&T, Singer, International Harvester, Eastman Kodak, Gillette, Coca-Cola, Kraft, Westinghouse, and United Fruit. Ford ranked sixteenth, holding only 1.9 percent of the total U.S. investment. Standard Oil and GM topped the list, holding 14 and 12 percent, respectively.¹²⁹

Many of these companies were represented by the corporate powerhouse law firm Sullivan and Cromwell, headed by future Secretary of State John Foster Dulles. His brother Allen Dulles, future head of the CIA, was a partner. Among their clients was the Bank for International Settlements (BIS), which had been set up in Switzerland in 1930 to channel war reparations between the United States and Germany.

After war was declared, the bank continued to offer financial services to the Third Reich. The majority of gold looted during the Nazi conquests of Europe ended up in BIS vaults, and the transfer of capital allowed the Nazis access to money that would have been normally trapped in blocked accounts under the Trading with the Enemy Act. Several Nazis and supporters were involved at high levels, including Hjalmar Schacht and Walther Funk, who both ended up in the dock at the Nuremberg trials, though Schacht was acquitted. American lawyer and chairman of the bank, Thomas McKittrick, facilitated the process, claiming “neutrality” but effectively aiding the Nazis. The BIS’s operations were so vile that Secretary of the Treasury Henry Morgenthau charged that twelve of the bank’s fourteen directors were “Nazi or Nazi-controlled.”¹³⁰

Chase, Morgan, Union Bank, and the Bank for International Settlements all managed to obfuscate their collaboration with the Nazis. Chase continued to work with Vichy France, a client state and intermediary of the Third Reich. Its deposits doubled during the war years. In 1998, Holocaust survivors sued the bank, claiming it held blocked accounts from that era.

While American capitalists piled up the earnings from their overseas investments and did everything possible to ingratiate themselves to the German government,¹³¹ Gerald Nye and his crack team of investigators succeeded brilliantly in revealing sordid truths about the influence and machinations of arms manufacturers and moneylenders, exposing the ugly reality hidden beneath the lofty refrains to which the GIs had marched off to war. But the hearings had two other effects that, with the wisdom of hindsight, we can justly regret. First, they tended to oversimplify the causes of the war. And, second, they reinforced the country’s isolationist tendencies at precisely the worst time imaginable—when U.S. influence might have helped avert disaster. The hearings justified the widespread belief that the United States should steer clear of entangling alliances and involvement in world affairs. For perhaps the only time in U.S. history, powerful antiwar sentiment was actually misplaced in light of the true threat to humanity posed by fascistic and other dangerous forces. Cordell Hull later wrote that the Nye Committee hearings had had the “disastrous effects” of catalyzing “an isolationist sentiment that was to tie the hands of the Administration just at the time when our hands should have been free to place the weight of our influence in the scales where it would count.”¹³² In January 1935, Christian Century observed, “Ninety-nine Americans out of a hundred would today regard as an imbecile anyone who might suggest that, in the event of another European war, the United States should again participate in it.”¹³³

Events in Europe would soon prompt some to reconsider. First Hitler repudiated the arms limitations imposed at Versailles. Then, in October 1935, Mussolini invaded Ethiopia. Hampered by recently passed neutrality legislation imposing an embargo on arms sales to all belligerents and a domestic population whose loyalties were sharply divided, with Italian Americans generally supporting Mussolini and African Americans supporting Ethiopia, the United States stayed on the sidelines. Nor did the international community strongly condemn the invasion. The League of Nations denounced the Italian aggression and looked to impose an oil embargo with potentially devastating consequences. The League’s Coordination Committee asked nonmember nations if they would comply. At the time, the United States supplied more than half the world’s oil. U.S. cooperation could have done much to deter fascist aggression. But Roosevelt, bowing to the isolationist sentiment at home, opted not to participate. Roosevelt instead announced a “moral embargo” on shipments of oil and other important resources. The “moral embargo” proved completely ineffectual as U.S. resource shipments to Italy nearly tripled over the next few months.¹³⁴ The League passed limited and toothless sanctions that it watered down out of deference to British and French timidity and fear of provoking Italy.

Mussolini’s gambit succeeded. Hitler and the Japanese concluded that Great Britain, France, and the United States had no stomach for war and would rather acquiesce than face military action. In January 1936, Japan walked out of the London Naval Conference and began an ambitious militarization program. In March 1936, German troops occupied the Rhineland. It was both Hitler’s big gamble and his big bluff. But it worked. He later admitted that armed resistance would have forced him to back down. “The forty-eight hours after the march into the Rhineland were the most nerve-wracking in my life,” he said. “If the French had then marched into the Rhineland, we would have had to withdraw with our tails between our legs, for the military resources at our disposal would have been wholly inadequate for even a moderate resistance.”¹³⁵

The feeble international response to the Spanish Civil War was even more disheartening. Fighting broke out in July 1936 as Francisco Franco’s forces set out to topple the elected Spanish government and establish a fascist regime. The republic had made enemies among U.S. officials and corporate leaders by its progressive policies and tight regulation of business. Some alleged Communist influence and expressed fear that a republican victory would result in Communist domination. American Catholics and church officials, angered by the republic’s aggressive anticlericalism, rallied to Franco’s support, as did Hitler and Mussolini, who provided abundant aid, including aircraft, pilots, and thousands of troops. Germany would use the war to test the weapons and tactics it later deployed against Poland and the rest of Europe. Stalin sent planes and tanks to the democratic forces but couldn’t come close to matching the massive assistance from Berlin and Rome. But Roosevelt did nothing to assist the Republican forces. Nor did Great Britain or France. The United States, following the British and French lead, banned the shipment of weapons to both sides, which weakened the beleaguered and outgunned government forces. Ford, GM, Firestone, and other U.S. businesses provided the fascists with trucks, tires, and machine tools. Texaco Oil Company, headed by pro-Fascist Colonel Thorkild Rieber, promised Franco all the oil he needed—on credit. Roosevelt, furious, threatened an oil embargo and slapped Texaco with a fine. But Rieber persisted undeterred, supplying oil to Hitler and being lionized in the pages of Life magazine.¹³⁶

Progressive Americans rallied to the republican cause. Surprisingly to some, it was antiwar stalwart Gerald Nye who led the Senate fight to send desperately needed arms to Republican forces. Some three thousand brave American volunteers went to Spain to battle the Fascists, traveling first to France and then sneaking across the Pyrenees into Spain. Four hundred fifty men formed the legendary Communist-backed Abraham Lincoln Brigade, which suffered 120 dead and 175 wounded. Paul Robeson, the extraordinarily talented African-American athlete, intellectual, actor, and singer, went to the battlefield to entertain the troops.

The fighting dragged on for three years. The republic fell in spring 1939, burying with it not only over 100,000 republican soldiers and 5,000 foreign volunteers but the hopes and dreams of much of humanity. By 1938, Roosevelt realized how foolish his policies had been and tried to send covert aid to the republic. It was too little too late. His policy had been “a grave mistake,” Roosevelt told his cabinet. He warned that they would soon all pay the price.¹³⁷

The world did little to impede Japanese aggression in China in 1937, though many onlookers were horrified at the reports of the fighting. Beginning with the Marco Polo Bridge incident in July 1937, fighting spread to other parts of the country. With Jiang Jieshi’s (Chiang Kai-shek’s) forces fleeing in retreat, Japan brutalized Chinese civilians. The atrocities, including an orgy of rape, looting, and murder, were most egregious in Shanghai and Nanjing.

With fascistic and militaristic forces on the march, the world was hurtling rapidly toward war. Motivated in some cases by sympathy for the fascists, in others by hatred of Soviet communism, and in others by fear of plunging into the same abyss that had caused such suffering in the previous world war, the Western democracies stood on the sidelines as Italy, Japan, and Germany set about to forcibly change the balance of global power.