My history studies have concentrated mostly on late 18th and 19th century American history with some smatterings of 20th century history depending on where my interest takes me from time to time. I have periods where I allow my curiosity to drive where my research takes me, which is particularly easy to do with internet access. It can be a bit problematic, however, because of a lack of primary sources of information with most of it hearsay. Sometimes propaganda can be so well produced that it is difficult to discern it from the truth; and those are things that I categorize as possibility, but of which no one can ever be certain.
A couple of days ago I was studying political philosophy and I stumbled upon a story about Smedley Butler, a highly decorated Marine General, involved in nearly every military conflict from the Spanish American War through the Great War, and a candidate for Commandant of the Marine Corps who blew the whistle on a plot to overthrow the US government and install a dictator during the FDR administration.
The story starts in 1924 with dissatisfaction on the part of some military veterans groups over the lack of pensions for the veterans of the Great War. The result of the political process surrounding the pension issue was that bond certificates were issued to the veterans that were redeemable in 20 years; payment of approximately $1,000 plus compound interest to each veteran starting in 1944.
During the onset of the Great Depression, veterans groups began demanding that their bonds be allowed to mature much earlier than planned, with most preferring immediate maturity. The government refused and veterans organized mass protests in Washington D.C., refusing to leave until they received their due. President Hoover dispatched General MacArthur to deal with the veterans groups and try to get them to leave. While MacArthur was dealing the protests, the effort turned ugly as the temporary shelters that dotted the capitol were burned and riots broke out with a handful killed and several injured. It was a terrible PR disaster from which Hoover would never recover.
Franklin Roosevelt was elected President in 1932. After his inauguration, he took the United States off the gold standard, voiding gold-based contracts, which was met with considerable contempt by those who had amassed a great deal of wealth.
It is said that a plot to overthrow the administration was devised by people who were financially backed by those who opposed repeal of the gold standard, and that they planned to install a dictator who would be friendly to their interests, implementation of a sort of corporate-fascist economic model. Smedley Butler was chosen by this group because he had argued the cause of the veterans demands during the protests to receive their pensions early; they admired and trusted him, and the group needed the veterans to form a force of arms by which to overpower the administration and assert authority over it. Their plan was to install Butler as the Secretary of Internal Affairs, making all internal decisions regarding economics, such as reinstating the gold standard and revalidating gold contracts, leaving Roosevelt as nothing but a figure head.
Smedley Butler, however, was a loyal patriot and blew the whistle. Although, he blew the whistle on the plot in its early stages, and there was little evidence that could be traced back to specific people who might have been backing the plot. After a few months of congressional investigation into the matter, it was deemed as possibility that there might have been an actual revolutionary plot, but there was not any hard evidence suggesting that it was anything other than idle musings by radicals.
I generally would not pursue this any farther, but I find it interesting that one of the first things this group wanted from Mr. Butler was to take over what is now the VFW by giving a speech about the evils and injustice of going off the gold standard; and I see a possible connection to the preference for tight money today. Some propagandists, possibly suffering from Bush derangement syndrome, connect George Walker Bush’s grandfather, Prescott Bush who was a tycoon and a Senator from Connecticut, to this conspiracy to overthrow the Roosevelt administration; although there is no evidence linking him to it. Prescott Bush was, however, an unabashed critic of the policy frequently asserting that the value of the dollar should remain constant (something that is impossible even under the gold standard, an ignored reality along with the bigness of government required in order to assure maintenance of a commodity standard – but I won’t argue that here) and I wonder how much influence that had concerning economic policies of GW.
As you may already know, a prominent member of GW’s economic team was Glenn Hubbard who climbed in influence by telling people what they want to hear, much of it regarding prudent monetary policy with an emphasis on the influence of supply side policies in economic performance. Mr. Hubbard was active in choosing candidates for nomination to important posts, such as Treasury Secretary and members of the Board of Governors of the Federal Reserve including Chairman Bernanke. In addition, the Bush administration had a great deal of difficulty retaining Treasury Secretaries. When President Obama took office, at least half of the Board of Governors seats were vacant.
I don’t know why those BoG seats were vacant, some of them being partial terms, or why the Treasury had a revolving door on it during Bush’s term in office. Treasury Secretary Snowe’s reputation has been tarred, and I think I could write that one off as having nothing to do with the administration itself, but the evidence of continuing difficulty in keeping important posts filled is compelling toward administration policy and heavy-handedness by which it was applied. The Federal Reserve is supposed to be independent from politics, but I don’t necessarily have much confidence in that mere illusion separating elitists from getting what they want. When I look at the data for NGDP growth that shows a switch in character that coincides with the beginning of the Bush administration, and factoring in the rather malleable public character displayed by Bernanke in recent years, I find it hard to believe any of the poor economic performance since the turn of the century that culminated in a severe recession triggered by a deflationary episode a coincidence.
It’s true I have no hard evidence to support my musing and may never expend the intellectual energy to explore the possibilities further. This post just identifies some smoke bellowing over the history of the Bush administration, and is not meant to do anything other than that.
[Update] Some cleanup of my information:
Glenn Hubbard was not the Chairman of the Council of Economic Advisers when Chairman Bernanke was selected as Fed Chairman. His tenure on the Council was from 2001-2003. It is stated in Mr. Hubbard’s Wikipedia entry that he was a contender in the nomination for Fed Chairman, but ultimately was passed up. He went back to the Columbia Business School in 2004, where he remains today. There is little other information about him in the entry, especially regarding the circumstances under which he left the Council.
Greg Mankiw was the Council Chairman from 2003-2005, succeeded by Harvey Rosen who held that position from February to June of 2005. Mr. Rosen was succeeded by Ben Bernanke who left the post in order to become Chairman of the Federal Reserve in 2006.
An article in The New York Times from 2005 describes Mr. Bernanke’s appointment to Chairman of the Federal Reserve thus:
In settling on Mr. Bernanke, President Bush avoided embroiling himself in another confirmation fight at a time when Republicans and Democrats alike are questioning his nomination of Harriet E. Miers to the Supreme Court. But in doing so, he essentially chose a candidate who would satisfy others — investors on Wall Street, lawmakers in Congress — more than himself or his Republican base.
Mr. Bernanke was not the first choice of ardent supporters of supply-side economics, who favor deep tax cuts and tight monetary policy as the best medicine to strengthen the economy. They tended to favor R. Glenn Hubbard, an architect of Mr. Bush’s sweeping tax cuts and one of the leading candidates. Others in the White House leaned toward Martin S. Feldstein, a Harvard economist who served as President Ronald Reagan’s chief economic adviser.
Apparently, the Bush administration was willing to forgo the supply-side economics for tight money instead in appointing Mr. Bernanke. The article goes on to explain the situation in which Bernanke will be taking office as Fed Chairman:
Mr. Greenspan is scheduled to preside over three more meetings of the Fed committee that sets the benchmark short-term interest rate before he retires at the end of January. Based on the price of a futures contract tied to Fed policy, investors are expecting three more rate increases, pushing the target rate to 4.5 percent from the current 3.75 percent, before the Fed pauses or stops altogether.
But that could leave Mr. Bernanke facing a quandary as he takes over at the March 28 meeting. At exactly the moment he is trying to establish himself as an inflation fighter and his independence from the Bush administration, Mr. Bernanke — if he endorses the pause in raising interest rates that many in the markets expect — could appear to be moving in the opposite direction.
”It’s important for the chairman that the Fed doesn’t err on inflation, especially at the beginning,” said Laurence H. Meyer, a former Fed governor and now vice chairman of Macroeconomic Advisers, a forecasting firm.
Indeed, in a sign that investors might already be worrying about inflation, the yield on the 10-year Treasury note yesterday rose to its highest level since April. Since Monday morning, when word began circulating that Mr. Bernanke would be named, the yield has risen to 4.53 percent, from 4.38 percent.
Then it continues by describing the value of philosophy in the choice of Fed Chairman:
Mr. Bernanke is very familiar with the problem. As both an academic and former Fed governor, he focused on the importance of the Fed’s anti-inflation credibility. ”The benefit of appointing a hawkish central banker,” he said in a speech last year, ”is the increased inflation-fighting credibility that such an appointment brings.”
This explained President Jimmy Carter’s seemingly incongruous choice of Paul A. Volcker, whose hawkish stance on inflation Mr. Carter did not share and whose moves as Fed chairman hurt his re-election bid, Mr. Bernanke said in the same speech.
This is odd. We know where core inflation comes from in the first place and it is quite peculiar that one would assume the stance of being a hawk for the sake of it when headline inflation is out of sorts. Given the kinds of financial reporting that has been going on over the last few years, I don’t necessarily have much reliance on what is said in this article, but it perhaps might be more indicative of what actually occurred as a result of Bernanke’s ascendency than not.