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FDR Press Conference #160, Little White House, Warm Springs, Nov. 23, 1934


Press Conference Held at the Little White House,
Warm Springs, Ga., Nov. 23, 1934

(Eleanor Roosevelt and Rexford Tugwell were present)

ROOSEVELT: Now, first of all, have you any questions before we talk about other things off the record?

Q: Are you encouraged by the outlook for foreign trade?

ROOSEVELT: Oh, I think it is generally picking up. All the figures show that it is picking up. If you want, I will talk to you for a minute off the record on foreign trade because there has been such a lot of perfect nonsense. As a perfect example, take cotton. We are down in the cotton country now and it is something we use all the time. There are definite efforts being made by—what is the name of that firm in Atlanta? Anderson Clayton (?)—that type of businessman, who is a dealer in buying and selling cotton—mind you,  this is off the record, every bit of it—there is a real effort being made by the dealers in cotton to maintain the total volume of cotton. In other words, if they get a fifteen million bale crop to sell, they obviously, as commission men, make more money than if they sell ten million bales of cotton. It is a little like the stock market operations. If you have an average of fifteen million shares a day, you can support three hundred brokerage firms, but if you only have an average of five hundred shares a day, you cannot support as many brokerage firms. Obviously, they want more and more shares dealt in on the Stock Exchange. Obviously, firms like Anderson Clayton like to see fifteen and twenty million bale crops because it is money in their pockets. Now, these people are spreading the rumor that are cotton exports are falling off for the reason that the price is so much above the world price that other countries cannot buy our cotton. Therefore, they are in favor of cheaper cotton.

Their general, I won’t say “theory,” because they know better—their general effort is to sell the idea to the public that if we have six-cent cotton European countries would buy a good deal more of our cotton. Of course, that is about 98% nonsense. There is about 2% truth. If we do have cheaper cotton, probably we would sell a little more, but only a little more.

Why is the export sale of American cotton decreasing? There are two very simple reasons. The first is that on the other side they are going more and more to substitutes. If you can get that thing out of the State Department when you get home, there is no reason why you should not have a story about it. Breck Long sent home about a month ago a very interesting story from Italy showing that Italy, with government help, had been experimenting on a new cloth made out of 10% cotton and 90% wood fibre. This year they manufactured out of that substitute cotton cloth about two million kilos, which is a lot of cotton. It is roughly about five million pounds of this new cloth. It is a process akin to the rayon process. They take the wood fibre with 10% of cotton and stick it into the rayon process and then they take it out after about half an hour through the rayon process and put it into a new process of their own. Probably Italy will be able to get the cost of that new cloth down sufficiently in the course of the next year or two so that they will buy very little of our cotton. Today, Italy takes about a million bales a year. Assuming that this new cloth is a success, it means they will take only one hundred thousand bales instead of a million.

Now, that is only one country that would be doing it. But why is Italy doing it? For all sorts of reasons, the first being that Italy has no exchange with which to buy cotton. She hasn’t any money to send out of Italy. Obviously, she wants to keep her money home.

The same thing applies to Germany. Hitler today is wearing a suit made of 90% fibre and 10% cotton. It is a damn good-looking suit and he points it out with pride to every American that comes.

The most important reason for these substitutes is lack of exchange, because all of those countries have been importing more than they have been exporting and therefore they haven’t the money to buy goods on the outside.

Then, there is another reason, and that is that a very large number of nations today who have been buying British cotton cloth and American cotton cloth and so forth, also Czechoslovakian cloth, have now started their own factories. Take Brazil, for example. After the war, in 1920 or 1921, Brazil imported all of its cotton goods. Today Brazil is making somewhere around 55 or 60% of its cotton goods. They are making their own shoes in Brazil for the first time.

Of course, while they are establishing their factories, it means we will be exporting a good deal of machinery, but once that new machinery is set up in Brazil and the Argentine, or any other country, as soon as that is set up and they have begun manufacturing, they will buy less and less of our own goods.

Now, what we are trying to do is to offset that by trying to get special agreements with different countries which are essentially on a barter basis. The thing has only been going on for a few months and it is helping in the sense that it is preventing the situation from getting worse.

I don’t think we can look forward to a vast volume of foreign trade, exports or imports, but at least, through these agreements, we can keep the situation from getting any worse,  and on some special lines we may be able to add a little here, there and some other place. Of course the total will amount to a great deal, but, so long as the other nations are headed for a self-sufficiency program, we are not likely to go back to the old figures unless there is an entire change of feeling all over the world.

Now, let us take it from another point of view. That was on manufactured goods. On foodstuffs, the European nations have almost all, up to quite recently, except Hungary and the Balkans, been importers of foodstuffs. Now, as you know, there has been an intensive drive all over Europe and England to raise their own foodstuffs. Why? There are a lot of reasons. In the first place, they don’t want to export the capital. In the second place, they want to be self-sufficient in case of war. They don’t want to be caught as Germany was caught in 1914. The German population nearly starved to death. Of course, all that means less demand for our food crops.

It is not our fault. It is not because of high prices. Not a bit. It is entirely because those nations have a definite policy to become self-sufficient, both in agriculture and industry. We are just up against and we are doing the best we can to save what is left. I think that is the easiest way to explain the general foreign trade situation.

Q: Before you go on to the off the record you were speaking about, may I ask a question about Mr. O’Connor? Is he going out? Has he resigned?

ROOSEVELT: Which Mr. O’Connor?

Q: J.F.T. O’Connor.

ROOSEVELT: I thought you meant Basil. Has he resigned? No.

Q: He has not? The reason I asked was because there was a question as to whether he had been asked to resign?

ROOSEVELT: I haven’t heard a word about it since I left. He still has everything under advisement.

Q: Mr. President, is there anything you can tell us on the record concerning the visit of your various power officials here today?

ROOSEVELT: They are members of some kind of committee, I could not tell you the name of it, that has on it somebody from the Federal Trade Commission, somebody from T.V.A., somebody from Interior and one or two from the Power Commission, and they were just working and have been working—I think the whole thing came out last Spring—working on a general survey of the power situation, and they are going to talk with me about that tonight.

Q: Is that your National Resources Committee?

ROOSEVELT: No, it is separate from that. It relates only to power.

MR. TUGWELL: Manly can tell them about it. I have forgotten the name of the committee too.

ROOSEVELT: It is one of the inter-departmental committees to report on the general situation.

Q: With recommendations for legislation?

ROOSEVELT: Yes, and policy.

Q: Still on the record, does that visit here mean that you have in mind any new moves of a concrete nature in the immediate future in connection with what you were telling us the other day?

ROOSEVELT: This has nothing to do with the trip or T.V.A. or anything like that, except in so far as it relates to general power policy.

Q: To get back just for a moment to foreign trade, when you were talking about cotton, was that off the record?

ROOSEVELT: Yes. I don’t think the time is ripe. I just gave you that in order that you might understand the thing in case somebody talks to you.

MR. TUGWELL: We have in the Department of Agriculture samples of that stuff if the boys want to see it.

ROOSEVELT: There is no reason why you shouldn’t get a good story on it. The Department of Agriculture is getting it tested by the Bureau of Standards. Breck Long told me that the stuff feels like cotton and wears like cotton and the only catch is that if you send it to the laundry, they had better not boil it. If it boils it disintegrates into pulp. You can wash it in water up to 200 degrees but not to 212 degrees.

Q: on one of our $35-suits, what would it cost in that material?

ROOSEVELT: They haven’t got it down below the cost of a cotton suit, but expect to in the next year on large scale production.

Any old fibre mixed with wood pulp does it. There is an outlet, perhaps, in the future, for Georgia pine in addition to newsprint paper.

Q: Do the engineers think that one is a good equivalent of the other?

ROOSEVELT: They think it is.

Q: What sections of the United States would be affected?

ROOSEVELT: It means—this is off the record—it means, quite frankly, that instead of exporting six or seven million bales a year we will have a very large portion of that export cut off and a large portion of the cotton-growing states will have to turn to other things.

Cason Callaway takes pride in saying that he has thoroughly investigated agriculture in Georgia. You could grow anything in Georgia except corn and cotton, and yet those are the two things that the state grows. There is a lot of that.

Q: Do you think that European countries can be self-sustaining and self-sufficient?

ROOSEVELT: Well, of course it depends a little bit on the country. I will give you two examples: Austria and England cannot grow enough foodstuffs to maintain their population. Without any question, I think that is true. There are forty million people in England, which is more than the acreage will support. It is the same way in Austria. On the other hand, countries like Hungary produce more than sufficient to support their population. But they have practically no manufactures. Taking Europe as a whole, they can come pretty close to being self-sustaining. With the surplus of wheat in the Balkan States you would come very close to making up for the deficiencies of wheat in England and Austria and certain parts of Germany.

Q: Where are we going to export our surplus, then?

ROOSEVELT: This is still off the record. That brings up a thing which is going to appear this Winter. George Peel believes in the old McNary-Haugen Bill and many other people do. It, in effect, would say to the cotton growers and wheat farmers of the country, “Go ahead and waste—go ahead and plant all the wheat you want and we will fix a price for the domestic consumption. We will fix a price for the portion of your crop consumed in this country.”

Let us say, in the case of cotton, if will run to fifteen million bales with unrestricted growing. We can use nine million bales in this country. That would be paid a fixed price for the nine million bales. We would pick some figure and pay them that much for the nine million bales. The other six-fifteenths we will take and dump on the rest of the world. That is the McNary-Haugen theory and, as I said, George Peek still believes in it.

Now, of course, that brings up the difficulty of saying to the other nations, “We are going to dump these six million bales of cotton on you at any old figure.” You see the implications? It is a little risky to say that to the rest of the world. They may put up barriers against it.

Q: It means, then, intensifying the crop production program?

ROOSEVELT: It means carrying it along on a definite, orderly procedure. In other words, the first year we plowed under 25% of the crop in 1933. The next year, this year, we restricted it by 40%. This coming year we will restrict it by 25%, probably. Probably that will be enough.

Q: Can we write that?

ROOSEVELT: No, you cannot write that. It has to come out of Washington.

The following year, we cannot tell. If our exports fall off, we may have to go back to 40%, and eventually we may have to cut the unlimited acreage down to 50%. But probably not. Probably the domestic consumption in this country will be sufficient to take care of 60% of a fifteen million bale crop, as far as you can tell for a number of years ahead. You take this State and any other cotton-growing state, and if they get twelve or fifteen cents a pound for a60% crop, they are pretty well off financially. All you have to do is to see the South today compared to what it was two years ago. It seems to work from the standpoint of economics.

Q: I feel I am doing a lot of talking here, but the other day you spoke of power and there are a lot of interpretations on it. Purely—

ROOSEVELT: (interposing) Oh, the interpretations are all pure. (laughter)

Q: Do you mind telling us what your ideas are regarding the private power companies?

ROOSEVELT: All right, I will give you something on that, but this has to be off the record because I don’t want to be in the position of interpreting what I said. (laughter)

It is a perfectly simple thing. Two years ago, in this room, you were here Fred—

MR. STORM: I was here.

ROOSEVELT: We spent an hour and a half. I think it was in January, 1933, and we had been down with Norris to see the Norris Dam. (Perhaps the President should have said Wilson Dam). And I had said up there publicly that we were going ahead with the development of Muscle Shoals. That is all I said at that time publicly. We came down here and we had this talk in which I outlined what developed into T.V.A.

The easiest way of putting it is this: Any of you who live in, let us say, a prosperous rural section of the State of New York, if you come down here into the average rural section of any of the Southern states, you are immediately struck by what looks like poverty, real poverty. You cannot get away from it. In the first place, you have the Negro problem. In the second place, you have what they used to call the “poor white” problem. The standard of living is absolutely and totally different from what it is in the prosperous areas of the West or of the North. That is very well illustrated by the survey that Harry Hopkins made of one or two counties where he found that three out of four families in these counties have never slept on a mattress. That is almost unbelievable. I told that last Summer to somebody in New York and he said, “I don’t believe it!” I said, “It is true; you don’t know the conditions in the South.” Now, that applies because of the fact that the average family in the South only sees, in the way of cash, perhaps a couple of hundred dollars a year and a great many don’t see that. The result is that the taxing power is almost nil. This State cannot raise money for education because there is nothing to tax. Am I right on that?

Q: Do you want to tell them about the future population?

ROOSEVELT: Now, right along with that is something we have been talking about and it will come out probably in the course of the next couple of weeks. The figures show that in the course of the next fifty years the majority of the people of the United States will be descended from Southern stock. That is an extraordinarily interesting fact. In other words, in the North and in the cities, the increase in population has stopped. It practically has stopped. Practically all the increase in population in this country today is in the South. Now, a couple of generations of that means that the majority of people will have Southern blood. That is an interesting fact and we have got to consider what the population is going to be in fifty years.

We have got to raise the standard of education; they are perfectly terrible. The standards of living are low. Yet here is probably as fine a stock, human stock, as you can find anywhere in the United States. It is going to dominate the United States in the course of a couple of generations and what is it going to be like? That is looking at it from a national point of view.

Now for the T.V.A. I can put it this way: Power is really a secondary matter. What we are doing there is taking a watershed with about three and a half million people in it, almost all of them rural, and we are trying to make a different type of citizen out of them, not what they would be under present conditions. Now that applies not only to the mountaineers, we all know about them, but it applies to the people around Muscle Shoals. Do you remember that drive over to Wheeler Dam the other day? You went through a county of Alabama where the standards of education are lower than almost any other county in the United States, and yet that is within twenty miles of the Muscle Shoals Dam. They have never had a chance. All you had to do was to look at the houses in which they lived. Heavens, this section around here is 1000% compared with that section we went through. The homes through here are infinitely better.

So T.V.A. is primarily intended to change and to improve the standards of living of the people of the Valley. Power is, as I said, a secondary consideration. Of course it is an important one because, if you can get cheap power to these people, you hasten the process of raising the standard of living.

The T.V.A. has been going ahead with power, yes, but it has been going ahead with probably a great many other things besides power and dam building. For instance, ,take fertilizer. You talk about a “yardstick of power.” Harcourt Morgan is running the fertilizer end of it and at Muscle Shoals he is turning out, not a nitrate—the plant was originally built for nitrate plant—but he is turning out a phosphate. He is conducting a very fine experiment with phosphate of lime. They believe that for this whole area around here, and that would include this kind of soil around here, phosphate of lime is the best thing you can put on land in addition to being the cheapest.

Now, at once the fertilizer companies, the national Fertilizer Association that gets our figures, I believe (laughter), they say, “Are you going into the fertilizer business?” The answer is a very simple one. The plant is primarily an experimental plant. That is the primary purpose. Therefore, they are going to take this year a thousand acres of Government land, which is worn out land, typical of the locality, and they are going to use this phosphate of lime on this thousand acres and show what can be done with the land. They are going to give a definite demonstration. They will compare it with the other fertilizers, putting them in parallel strips, and they will see which works out best and at the lowest cost and, by having the large plant which they have, they will be able to figure out what is a fair price for the best type of fertilizer.

Having done that and having figured out the fair price, it becomes a process of education and if the farmers all through that area can be taught that that type of fertilizer at X number of dollars a ton is the best thing for them to use, then it is up to the National Fertilizer Association and its affiliated companies to meet that price. Now, that is the real answer, and we hope that they will meet that price, adding to it, to the cost of manufacture, a reasonable profit. We will know what the cost of manufacture is, and it is very easy to say what a reasonable profit is. Now, if those gentlemen fail to avail themselves of this perfectly magnificent opportunity to conduct a sound business and make a profit, well, it is just too bad. Then somebody well get up in Congress and say, “These fellows are not meeting their opportunities and the farmers will have to have the fertilizer and of course we will have to provide it.” But I, for one, hope that that day will never come. Now, that is not holding a big stick over them at all. It is saying to them, “Here is your opportunity. we go down on our knees to you, asking you to take it.”

Q: Just a little guiding light.

ROOSEVELT: In other words, what we are trying to do is something constructive to enable business—

MRS. ROOSEVELT: An intimation. (laughter)

ROOSEVELT: No, it is not even an intimation. No, it is a generous offer. Now coming down to power. You take the example of Corinth we went through the other day. In Corinth, without Government assistance—they did it themselves—they had a county electric power association and they used to buy their juice from the Mississippi Power Company. The T.V.A., because they were on a through line to Tupelo, the T.V.A. came along and stepped in as a middleman, and still bought the power from the Mississippi Power Company, at a lower cost per kilowatt, but on the agreement with the Mississippi Power Company that they would take more juice. The result was that the Mississippi Power Company gets the same gross profit as they were getting before, but selling more power. Then the T.V.A., merely acting as middleman, without any profit to itself, turns around and sells it to the county electric power association. That part of it does not change the existing situation at all. The Mississippi Power Company merely gave a lower rate to the Alcorn County people, but they did it via the T.V.A. instead of direct. It was merely a bookkeeping matter. It does not cost the T.V.A. anything and they do not receive anything.

Now the Alcorn County people, that is the Alcorn County Electric Power Association, did a very interesting thing. There they had Corinth, which is a good-sized town, and they found they could distribute in Corinth—these are not accurate figures—they found they could distribute household power at about two cents a kilowatt hour. But if they were to run an electric line out to a farm, they would have to charge three cents. In other words, the farmer would have to pay more.

What did the Corinth people do? They said, “We can get cheaper power than the farmer, but we think he should have the same rates as we are getting.” Voluntarily they agreed to take and to pay for two and a half cent power which enabled the farmer to get two and a half cent power. That is an extraordinary thing. That is community planning. Now, there was no reason in God’s world why the Mississippi Power Company could not have gone to Corinth and said the same thing, no reason in the world. They just never thought of it. They could have done the same thing. But it was the T.V.A that went down and sold the idea to the people in that county and said, “Let us have a uniform power rate for the man next to the powerhouse and the same rate for the man who lives twenty-five miles up the Valley. We don’t want to concentrate any more people in Corinth. We want to increase the rural population.”

The result of that operation is that they are increasing—they have more nearly doubled the consumption of power. Furthermore, they have gone ahead and formed another association, tied up with this county one, by which people can buy refrigerators and electric cook-stoves and all the other gadgets at a figure which is somewhere around 60 or 70% of what they are paying before.

Now, the process behind what they were paying before amounted to this: A subsidiary of the Mississippi Power Company in the business of selling refrigerators, generally owned—I am just saying this as a mean aside—generally owned by the son of the president of the power company—there is a lot of that nepotism—would go around and say, “We will sell you a refrigerator. The cost is two hundred dollars. You can pay for it over thirty months. The total cost to you at the end of thirty months will be three hundred dollars.” In other words, it was a hundred dollars extra. They did not say that, but that is what it amounted to. In other words, they were selling them the thing at two hundred dollars and they were making an average of 18 to 20% on that sale during this thirty months.

Now, who else profits? That selling corporation of course made not only its 15 or 20%, but also made quite a lot on what they had paid for the machine. They had probably paid a hundred and seventy-five dollars for the machine. Now, who did they buy it from? They did not buy it from the General Electric or the Westinghouse. They bought it from the middleman and he also made a twenty-five dollar profit on it, and the General Electric Company only got a hundred and fifty dollars for the machine. Therefore, when the consumer paid three hundred dollars, it was just one hundred percent more than the General Electric Company got for the machine.

We went to the General Electric Company and said, “Will you give us your wholesale rate on machines?” They said, “Sure.” And we went to all the other refrigerator manufacturers so as to have a complete line, and then we said to these householders, “You can buy this for a hundred and fifty dollars plus a five dollar handling charge, paying for it over thirty months at 5% interest instead of 18%.” The net result is that instead of paying three hundred dollars, he pays a hundred and seventy-five or a hundred and eight dollars. His installment cost is at 5% instead of 18%. He gets it at the wholesale price, which the Mississippi Power Company could have done exactly as well as the T.V.A. In other words, we are teaching them something.

Q: Who is Corinth getting its power from now?

ROOSEVELT: Mississippi Power Company.

Q: I don’t quite understand the power company getting its same profit. Mr. Ruble, who runs a department store down there, told us that the building had its bill cut from sixty dollars a month to forty dollars and he doubled his consumption.

ROOSEVELT: That is the point, what do they do? Suppose they were selling—well, let us put it in algebra. Suppose they were selling X kilowatt hours times Y cents per kilowatt hour. The total receipts of the company amounted to Z. Now, we come in and tell these local people that if they will buy 2X kilowatts times 1/2Y—in other words, half the price—you will still have Z. In other words, if he sells twice as much power at half the cost, the gross will be exactly the same at the end of the month. Now, that is what we have been trying to do.

I don’t know the consumption back in Corinth, but in Tupelo we estimated it would take a year at a three-cent rate running down to one, instead of a rate starting at six cents and running down to three, we figured it would take a year for the consumption power to double. Actually, it took only four months. The consumption of power in Tupelo has doubled in four months.

The result is that the local company has an even bigger gross in way of receipts than it had before, and yet the consumer of that power, whether shopkeepers or farmers or householders or anything else, they are getting their electricity for less than half the price, about 45%, of what they were paying before.

Q: Isn’t there a considerable change in the cost of having to step up its power production to meet a demand like that?

ROOSEVELT: Very little. The only overhead is when you get an extension of rural lines. There you have a larger inspection force to watch the lines. That is about all.

Then we are doing a third thing along the same lines. The Power Companies did a perfectly silly thing for them to do when it came to rural electrification. They put out all kinds of specifications for rural lines that were perfectly out of the question. Well, there was a certain rural line we wanted here in Warm Springs, and the specifications of the Power Company called, as I remember it, for 35-foot poles, white oak, that had to come from North Georgia. They had to be hauled here by railroad. Then I think they charged eighty dollars for the transmission line into the farmhouse. The net result is that a line for five or six farmers would cost somewhere on the average of four or five hundred dollars. That is a pretty big debt for a farmer to assume. Then they said to him, along the same line as the refrigerator, “You can pay that over a number of years with a small charge for interest.” The interest ran from 18 to 20%.

What we are trying to do is to build a rural line which will be substantial. We will put in transformers actually at cost from the electric supply company,  the General Electric Company, or the Westinghouse, and then let the farmer pay for his power line at five per cent instead of 18 or 20%. It means that on the average he can put in his power line for about 60% of what it costs the other way.

Now, we come back to the old simile we used before. I hope the proper power company officials will accept this free education that the Government is giving them. It is a fine offer and a grand chance. If they come in and do it right with a reasonable profit on their actual cost, that is all we are asking. No threat, no intimidation.

Q: Or else?

ROOSEVELT: No “or else.”

Q: This association which is furnishing the current, buying it from the Mississippi Power Company, is it a paying proposition?

ROOSEVELT: Sure. And there was no reason in God’s world why the Mississippi Power Company could not have done the same thing and have gotten the same results. Listen to the results: In three months, June, July and August, the operating revenues were $17,847. That was in three months so you see what a small proposition it is. The expenses for operating, maintenance and expense, including energy purchase—was $5,826.00, or exactly 33% of the gross revenues. Then, in addition to that, they had general administrative expenses and new business expenses—that meant pushing it and pushing the commercial end—of $2,094, or 12%. Then they had taxes and of course, as I remarked the other day, some people do not admit taxes. They are paying to the City $1,508 in taxes, or 8% of their gross. Then they charged to depreciation $1,232, or 7%. They had to pay on interest, interest on the money they borrowed to get this thing going, $964 or 5%. They paid 5% interest.

Their total expenses and deductions came to $11,625 or 65% of their gross receipts. Well, that looks like a good picture. It left them a balance available for new construction and retirements to be applied on the debt, 35% of the gross. Now, that is as pretty a financial set-up as I know of anywhere. In fact, it is so pretty that if it keeps up and they use some of that 35% right along to retire the money they borrowed, they will be in a position to reduce their rates below what they are today. There is no question about it, and they will still have some for new construction.

Q: In Atlanta the Georgia Power Company runs its auxiliary plant in Atlanta with gas. It buys gas from Mississippi, makes electricity from gas—converts the gas into electricity—and sells it at a profit. They use twenty million cubic feet a day.

ROOSEVELT: Do you know, about gas—Ickes told me this on the train the other day—there is going to waste every year in the Texas oil fields $72,000,000 worth of gas. It is just escaping into the air. Now, if that gas were turned into electricity, think of what it would mean to Texas. That is $6,000,000 worth of gas a month.

Q: They pipe the gas into Atlanta from Mississippi.

Q: If that much is going to waste in Texas, what is the gas wasted on Capitol Hill? (Laughter)

ROOSEVELT: That would run the District, anyway. It might cut the District tax rate.

Q: The trouble is that it is non-convertible gas.

ROOSEVELT: Now, coming back to the point, this statement shows a balance available for construction and retirement of 35% of the gross. If you were to analyze the financing of most of the private power companies, you will find that in the majority of cases they have been following the pernicious rule of the railroads. They get out a twenty or thirty-year bond issue and they don’t start a sinking fund, but when the bonds mature they don’t pay them off. For example, in the paper yesterday morning, there is one company that is seeking to refund an issue of bonds which were issued twenty years ago. That is what has hurt the railroads. The railroads never paid off a single bond when it matured. They never set up a sinking fund.

The New York Central Railroad, which runs through our place at Hyde Park, issued in 1842 some 7% gold construction bonds with which they built the railroad from New York to Albany. My great-grandfather was so keen to see that railroad built, so that he would not have to go by steamboat from Hyde Park to New York, that he took five of those bonds. My mother owns them today, owns the lineal descendants of those five bonds. To be sure, they are only 3 1/2’s now, but it is the first mortgage bond that has never been paid off and it is 92 year since my great-grandfather bought them. That is why railroads go broke. On the last bond issue the maturity date was put at the year 2001. How silly. That is why it is time to teach Wall Street some very simple elementary lessons in finance. It is true, isn’t it?

Q: Do you think Wall Street can learn?

ROOSEVELT: Oh, yes, but it will take some time. They will learn a lot in two years.

Q: The logical question that raises is, can the average private utility undergo the reorganization necessary to cut the rates and take advantage of the opportunity given them?

ROOSEVELT: Only if they reorganize. Of course, we all know they do a lot of talking about widows and orphans. Now, whose fault is it? I will give you an example: A certain friend of mine, who makes or perhaps saves two or three thousand dollars a year, started in about 1928 to put aside a savings fund, realizing that some day he would get old and could not work any more. Wanting a little more than 4%, he went to two banks in New York City, the most reputable, old-fashioned banks he could find. I was partly responsible and told him where to go. As a result, today he finds that the fifteen or twenty thousand dollars he put in is invested, about two-thirds, in bonds of utilities, not stocks, but bonds. What kind of utilities? Holding companies, all of them holding companies, none of them operating companies. He was advised to buy the bonds of these holding companies as the best form of investment he could get. They were 6% and 7% bonds and he bough them at 102, ,103 and 104. The result is that he has lost over half of the savings that he put into those bonds.

Now, why are they selling at 40? For the simple reason that you have to find out what is behind them. That starts you back over a chain. Let us take Associated Gas & Electric, as an example, of Commonwealth & Southern, or any of the big holding companies. They followed the same principle that Insull did, exactly the same thing, and it was considered honest on those days by a lot of people. Those bonds have printed on them that behind them is so much stock. Let us call the first company the A Company, and their bonds state that they have so much stock in B Company, C Company, D Company, in the treasury of A Company, as security of these bonds. Then you analyze and you ask, what is the common stock of B, C and D Companies? You will find that they are holding companies. And you will also find that they have outstanding certain bonds which are backed by the common stocks of E, F, G, H and I Companies. And then you will come down to those companies and perhaps they are operating companies or perhaps they are holding companies too. Sometime you get the pyramid of the holding company principle up to the fourth dimension. You come down to the fact that even the first holding company has as security for its bonds the common stock of, let us say, the Meriwether County Electric Light Company organized in the year 1900. Now, when the Meriwether County Electric Light Company was organized, how did they do that? They got Mr. Peters, of the bank in Manchester, and Dr. Peters and Judge Revell, of Greenville, all of them, to put in, in cash, $1,000 apiece. For that $1,000 they received a thousand dollar bond. In addition to that they received ten shares of common stock. And then, later on, when they were merged into the Georgia Railway Power and Light Company—these are all fictitious—

Q: You couldn’t follow them out?

ROOSEVELT: No, you couldn’t, they went through six or eight different processes. So each of them has a bond and also ten shares of common, and the common were not represented by property since it was merely a possible equity, because they had raised enough by bonds to build this local plant entirely. In other words, the ten shares were water in the first instance. In the first reorganization he got a new bond, also ten shares of preferred and ten shares of common, which was water, and on the next reorganization with a holding company he got his bond and twenty shares of preferred and twenty shares of common. There is one man who put in a thousand dollars into one of these little local electric light companies about 1900, and today his thousand dollars is twenty thousand dollars, although he has never done a damn thing to make it worth twenty thousand dollars.

The banker who does the merging gets a lot of common stock and dumps it off on the market. Now what Charlie (Mr. Hurd) said was right. I don’t like the expression “squeezing the water out,” but if the utility companies in this country could recapitalize on the bass of the money put into them, every one of them would be making a profit today and every one of them could reduce the rates.

Q: You mean the money spent on plant?

ROOSEVELT: Yes. I don’t mean the money spent on Consolidated Gas in New York.

Q: But a lot of people have taken their money and gotten out.

ROOSEVELT: And a lot of widows and orphans are holding the bag, having been persuaded by the best banks in New York City to buy that kind of bonds, which is not all honest.

Q: The answer is that they hold the bag anyway, so that in reorganization it would not make any difference.

ROOSEVELT: In a reorganization it is just too bad about people badly advised. It is not the Government’s fault. In other words, somebody is bound to get hurt. There isn’t any question about it.

It is a very simple proposition. Suppose, for the sake of argument, you can save the consumers of power one hundred million dollars at the rate of two hundred dollars a year. That would be five million people who would actually benefit in a year. They would benefit from that kind of saving through cheaper power. You would hurt a lot of people. You might hurt twenty or thirty or forty thousand people in benefiting five hundred thousand of five million. But, after all, that is one thing that Government cannot do, and that is to protect widows and orphans against bum advice they had on investing.

Q: As a matter of opinion, how long do you think it is going to take to accomplish this reorganization?

ROOSEVELT: I think it will come gradually. I think a great many of them will do it voluntarily.

Q: How would they go about it? Would there be a receivership?

ROOSEVELT: People are not going to be as badly hurt as they think. Most of them are listed on the Curb. Well, Electric Bond & Share, for instance—there are an awful lot of people who own that. Here are the quotations: Of course, it is all water, Electric Bond & Share is all water. It represents nothing but equities. The common stock is selling at seven or eight dollars a share. The 5% preferred is selling at 31. The 6% preferred is selling at 37.

Let us take Associated Gas & Electric, which an awful lot of people bought. It is selling at fifty cents a share. You can see that the loss is already established for most of these holding companies. Take Niagara Hudson. That is practically all water. It is selling at $3.75 a share. In other words, the loss is there already.

Q: What is Commonwealth & Southern?

ROOSEVELT: Commonwealth & Southern is selling at $1.12 a share. The high for the year has been $3.75. As you can see, the people who bought that have had their loss already.

Q: They could not lose anything much?

ROOSEVELT: Take Cities service, it is selling at $1.60 and the preferred is selling at $13.75. The 7% preferred is selling at $14 a share. There you are.

Q: The widows and orphans can use that for wallpaper.

Q: They have used lots of other things for wallpaper in the past too, haven’t they?

ROOSEVELT: To give you a thought, what we are after primarily is to improve the standard of living for the country as a whole.

Q: And power is merely one of the things?

ROOSEVELT: Merely one of the things. Better homes, slum clearance, better roads, they all tie in together. Better education is very, very important.

I think I told you the story about the first year I was down here, when a young man came up to the porch with his cap in his hand and said, “Can I speak to you, Mr. Roosevelt?” I said, “Yes, come up, son. What can I do for you?” He said, “Will you do a great favor for us?” I said, “What do you want?” He said, “We are having our school commencement next week and we would be awfully glad if you would come over and give the prizes.” I said, “Delighted to. Are you the president of the graduating class?” He said, “No, sir; I am the principal of the school.” I said, “My God, man, how old are you?” He said, “I am nineteen.” “Have you been to college?” “Oh, yes; I finished my Freshman year at Athens, Georgia.”

There was a fine boy who got enough money to finish his Freshman year and then he had to go back and get money for the next term. It would take him eight years to get through college. I said to him, “How much are you being paid?” He told me that he had 150 children and that he was getting paid, as principal, board and lodging and $400 a year. He told me that he had three people teaching with him and that they were just local girls, which meant that they had never had anything, probably, except a local high school education.

Think of the enormous population being brought up that way, and yet, off the record, the Governor of Georgia is still in favor of the one-room teacher, the one-room school.

Q: Do you think it is necessary to go ahead with the Tennessee Valley experiment on a national scale to bring about the plans you have outlined?

ROOSEVELT: Not the same kind of governmental power development if the other fellows will do it. They have every chance in the world to do it.

You take a simple example: Eight miles over here to the eastward is a place called the Cove where they make the best corn liquor in Georgia.

Q: The best is none too good. (Laughter)

ROOSEVELT: Throw him out. (Laughter) Now, in the Cove the Georgia Power Company owns one of the most favorable power sites in the state. They can turn out at that power site something between forty and fifty thousand kilowatts at a cost of less than half a cent. They have owned it for fifteen years and they bought the whole power site for a total of fifteen thousand dollars. In other words, they bought it as a farm lot. They have sought in other years to carry it on their books for a million dollars. It is an undeveloped power site and I think the old Public Service Commission of this State allowed them to do it for a while.

Further up, where we are going to picnic, is a place where they can develop 30,000 KW and I think they paid fifteen or eighteen thousand dollars for all the land comprising that site. They have a grand chance to make cheap electricity for the whole region and we are just giving them the opportunity as well as showing them how.

Q: None of this, I take it, is on the record?

ROOSEVELT: No, it is just so that when you talk about it in the future you will know all about it.

Q: Can’t we write this as background?

ROOSEVELT: I think not. You had better keep it. If you write anything at all it will look like trying to explain something.

Q: We don’t have to write it that way.

MRS. ROOSEVELT: You would have to go back to foreign trade. When you go back to foreign trade you are faced with the question of restricting production, which is practically what it comes down to, and when you face that, you face the fact that we are coming down to being self-supporting, eventually.

ROOSEVELT: Not necessarily; what I said was that we are trying to prevent it by agreement.

Q: That is in the off-the-record?

ROOSEVELT: There are certain things we cannot produce and certain things that Brazil cannot produce.

MR. TUGWELL: There are certain things on which we will always have an exchange.

MRS. ROOSEVELT: But, with all this before us, what we are basing that whole thing on is our theory of scarcity, because if everybody had everything he wanted, we could utilize all we can produce.

ROOSEVELT: Yes?

MRS. ROOSEVELT: Isn’t it again a question of how we are going to accomplish it? Isn’t it the medium of exchange that would make it possible?

ROOSEVELT: All of this is based on the assumption that consumption remains at the same level. On the other hand, if you can give a bigger purchasing power to the country—

MRS. ROOSEVELT: (interposing) How are you going to do that?

ROOSEVELT: It’s a very simple explanation. If you take the farmer who lives under such conditions that he gets one hundred dollars cash in the year, and if you can put him in a place where he will find decent living conditions and give him small factories to work in part of the time, so that he will get five hundred dollars cash a year, he has four hundred dollars more buying power. If you improve his condition, you improve his purchasing power.

MRS. ROOSEVELT: Hasn’t the medium of exchange got to be changed in some way, because there isn’t enough money in the world at the present time?

ROOSEVELT: What you mean by “money” is cash and credit. At the present time we have almost unlimited credit in this country.

MRS. ROOSEVELT: What I am getting at is a thing called the Douglas credit scheme, which says that if you have faith enough in human integrity, you can have unlimited credit, that nobody is back of anything, really, on its face value.

ROOSEVELT: You have plenty of credit in this country at the present time.

Q: Why isn’t it being used?

ROOSEVELT: Lots of reasons. The first is that a lot of them don’t want to put it up. They are afraid to put it out. The second is that people have been afraid to borrow. The third is that purchasing power ha snot gone up sufficiently as yet.

MRS. ROOSEVELT: Of course, you are teaching them a lesson that they should not put money into anything which actually does not purchase anything or represent a service. But I don’t think anyone knows just how to get credit. I think that is part of what is holding people up.

ROOSEVELT: It is educational. It takes years and years to do it. If I could take Bill Jones and say, “Look, Bill, you have a rotten farm. You ought to improve it. It will cost you two thousand dollars to improve that farm, but when you do you will be able to live off it, get everything you need, and make yourself a self-sustaining unit and you will get five hundred dollars a year in cash out of it.” Bill Jones will say, “No, I don’t want to do that.” It will take two or three years to educate Bill Jones.

Q: Don’t you think, Mr. President, that there has been a little more borrowing since election?

ROOSEVELT: It depends on what paper you are reading.

Q: Can’t we use this, what you said this afternoon about Tennessee Valley and before—can’t we use that?

ROOSEVELT: Instead of using it right now, jot your notes down and let me give you a hint. The National Resources Board preliminary report is coming out, and it ties right with it. Let me dig that up for you. Don’t use it today—use it for a Sunday story or a Monday story.

Q: These notes are worth a thousand dollars at least, minimum.

ROOSEVELT: Wait until you learn more about it. You don’t know enough about it to write a story.

Q: If Georgia goes into raising things for which her soil is suited, we might have an overproduction of things in the West?

ROOSEVELT: Not necessarily, because your consumption goes right up.

MRS. ROOSEVELT: In other words, one of the biggest things is decentralization of industry into farm districts.

ROOSEVELT: Let me give you an illustration. The Department of Agriculture has three diets, “A,” “B” and “C.” “A” is the diet that people ought to have. “B” is the diet that they can get along on all right. “C” is the insufficient diet. “C” is the diet they have. Now, check me on these figures. If we were on a “B” diet instead of a “C” diet, we would be using in this country thirty-five million more acres a year. That would be just on the improvement of the diet from “C” to “B.” If the whole nation lived on an “A” diet we would have to put in sixty million more acres into agriculture. That answers that.

Q: Mr. President, if you were going to write a story today for the morning papers, what would you write?

ROOSEVELT: I would write that the power people were all down here and were discussing power policy and legislation, just a preliminary talk.

MR. STORM: Thank you, Mr. President.

Complete Presidential Press Conferences of Franklin D. Roosevelt, Da Capo Press, New York, 1972, Vol. 4, #160.