"Fraud and collusion"

CXXVI

Born in the lean years of Franklin Roosevelt’s first Administration (1933-1937) the New Deal is primarily memorable for its great expansion of Federal power into the daily lives of American citizens. Not since the Civil War --- not even during Theodore Roosevelt’s Square Deal --- had government grown so much and been so proactive. We live with the New Deal today. Social Security, Medicare, Medicaid, Supplemental Security Income, Unemployment Insurance and Disability Insurance all had their start, or their antecedents in the New Deal. The Federal Reserve was born. So were a veritable slew of temporary agencies --- the National Recovery Act (NRA), the Works Progress Administration (WPA), the Civilian Conservation Corps (CCC), and scores of others. 

Walter Folger Brown, 49^th U.S. Postmaster General, being sworn in before the Black Committee. Brown was suavely confident on the stand and took pains to educate Senator Black. It was all business as usual and no one had exceeded their authority or done anything untoward, he claimed. Yet, to the Committee, it all felt wrong somehow    

Less well remembered is the New Deal’s focus on combating government waste. The unregulated years of The Republican Decade, especially Warren G. Harding’s foreshortened Administration, had been ridden with payola scandals, the most famous of which was Teapot Dome that involved Pan-Am Petroleum. Calvin Coolidge had inherited Harding’s Presidency upon the former’s death, and he had not made any major changes to Harding’s staff, preferring to retain them all. By 1933, the government was larded with pork-barrel legislation that grossly benefited certain Congressional Districts to the utter detriment of others. Roosevelt was determined to trim the fat and redress the imbalance. 

In 1933, the Postmaster Generalship was still the most politically powerful office in the President’s Cabinet, and FDR had appointed James Aloysius Farley to the office. Farley was a New York State machine politician who had helped Roosevelt become President. He was a Catholic, one of the first to hold national office, and was despised for it. He was also Chairman of the Democratic National Committee, and his foes accused him of constant conflicts of interest in handling the two powerful offices at once. 

 

James A. Farley. 50^th U.S. Postmaster General

Among the first acts of Farley’s Postmaster Generalship was what was intended to be a routine review of all airmail contracts. What Farley found gave him nightmares. Everywhere he looked he found evidence of influence-peddling and corporate favoritism by his two predecessors in the Office, Harry S. New, and Walter Folger Brown. There was even a Pan Am Clipper named for New! 

Harry S. New, 48^th U.S. Postmaster General

Farley, the new broom, tried to clean house quietly. He did not want to embarrass President Roosevelt nor besmirch the Post Office Department, but a talkative employee in his cups made the mistake of blabbing office gossip to a Hearst newsman and a scandal was born. 

As soon as news of the mess at the Post Office Department made it into print, Congress jumped on the bandwagon. A series of Hearings were called by Senator Hugo Black of Alabama. 

The soft-spoken but hard hitting Black had been a County Prosecutor in his salad days, and retained the ability to put a painful question in a painless way. Black, a former Klansman and Dixiecrat, had seen the Liberal light. Representing one of the poorest States of the former Confederacy, Black had a convert’s zeal. He wanted fairness and justice above all --- in his years to come on the Supreme Court he would become the Court’s most ardent voice for Civil Rights and was the ultimate Free Speech absolutist.

The Hearings of the Black Committee (as it became known) were eye-opening. The main subject was the provenance of the domestic Contract Air Mail (CAM) Routes.

 

Senator Hugo Black

Black subpoenaed the head of every domestic airline he could reach (he, however, excluded Juan Trippe, the Foreign Air Mail (FAM) Routes, and Pan American from his inquiries). They came to Washington --- on the whole a self-satisfied, complacent, and intolerably wealthy lot --- loudly protesting their innocence. They admitted to corporate salary and benefit packages, to pensions and to perqs that could support scores of Depression-era families in high style. Black was aghast.

Not only did the airline moguls own the planes, they owned the aircraft factories and they owned the airports, and they owned the oil refineries that made the petroleum products that kept their ships in the air. Black was amazed at the casualness of it all --- millions of dollars in stock traded for routine favors, interlocking Boards of Directors, even sisters given in morganatic marriages meant to cement an airline’s dominance in a merger. 

Other men, like the Braniff brothers of Oklahoma, testified to the fact that they were perennial outsiders, excluded from what was largely an Eastern Establishment Republican men’s club.

   

Crying foul on redirect, the airline moguls insisted it was all just business. They were insistent that they had done no wrong anywhere along the way, forgetting Balzac’s dictum that Behind every great fortune there is a crime.

The star witness at the Black Committee Hearings was Walter Folger Brown, Farley’s immediate predecessor, who proved to be singularly cool and unflappable on the stand. Brown began his testimony by reminding the Senate committee that the Kelly Act (which controlled U.S. air mail operations) specifically excluded the Postmaster General from Congressional oversight for those selfsame operations. However, he was willing, as a gentleman, to answer any questions the Committee members might have . . .

Black asked Brown if he was supposed to have awarded the CAM routes by competitive bidding to the lowest bidder?

Well, yes, came the answer, but the Kelly Act --- as amended by Congress, Brown emphasized ---  also gave him discretion to disregard those rules if it was in the best interests of establishing and maintaining the most efficient airmail service possible. Did it make sense, Brown asked his questioner, to award a contract to the lowest bidder if the lower price meant that the service provider would cut corners and be inefficient? Really, Brown said, he was just trying to provide the finest possible service to the citizens of the United States. And the service he’d established had been undeniably efficient.

It was inescapable logic, at least on paper.

Well, how then were the carriers selected if not by bid?

Simple, came the answer, by reviewing the operational records of the various airlines who applied for the routes. The line with the best record got the route as a rule. 

The airlines never peddled influence or tried to sell themselves? 

Of course they did, came the breezy answer. If a company wanted the route they had to present a good argument as to why they should have it. 

And money never changed hands? Or favors?

Certainly not, was the slightly miffed reply. What did the Committee think? These gentlemen of the airlines were, well, gentlemen, and gentlemen do not discuss lucre. If anyone did, they were excluded from consideration (with that stentorian assertion, Brown rid himself of the complaints of Braniff, Delta and the other, smaller regional carriers).  

What about the so-called Spoils Conference? 

Brown responded with a sniff that that was a muckraker’s name. Nevertheless, it only made sense to allow the airlines themselves to decide which routes they could handle most effectively. Again, it was his task as Postmaster General to provide the finest possible service to the citizens of the United States. And he believed he’d done so. 

Didn’t his approach involve favoritism to select airlines?

Ridiculous, Brown retorted, though gently. Didn’t giving a contract to an unsuitable carrier constitute a form of inverse favoritism?  If an airline needed a CAM Route to remain competitive it wasn’t functioning very well, was it?  Was it the task of the United States government to prop up failing businesses? 

Black went further afield:  Why had Pan American named an airplane after Postmaster General New?

You’ll have to ask Juan Trippe came the response. 

Did you ever hear of the New York, Rio de Janeiro and Buenos Aires Line?

I thought this Hearing addressed CAM Routes, not FAM matters, but yes, I have heard of NYRBA. 

Had NYRBA applied for FAM Routes?

Yes, but the same rules applied. Pan American had an established record of efficiency. NYRBA was a new company, an unknown factor. 

By denying NYRBA the FAM Routes didn’t you participate in its destruction? 

Of course not, Brown said with just a touch of heat. NYRBA had shown itself to be a non-viable enterprise, and had been the subject of a friendly merger with Pan American --- 

Brown reiterated his mantra yet again just before he left the stand. If there had been Teflon in those days, Brown would have been coated in it:

My only task as Postmaster General was to provide the finest possible service to the citizens of the United States. And I believe I did so. 

Senator Black dramatically announced findings of “fraud and collusion” between the airlines and the Hoover Administration. The Republicans blasted back that the whole thing had been a partisan circus. 

Only one Hoover Administration officer, William MacCracken, the Commissioner of Federal Aviation, was ever prosecuted (despite the fact that most of the CAMs in question had been awarded before his appointment under Harry S. New). Eventually, MacCracken was cleared on appeal and the “fraud and collusion” findings of the Black Committee were disregarded.

Still, FDR accepted the Black Committee’s recommendation to void all CAM Route contracts. On February 9, 1934, the CAM contracts were declared null and void by Executive Order and the Army Air Corps was designated to carry the air mails. 

Charles Lindbergh was one of the parade of witnesses asked to testify at the Black Committee Hearings. He was an unfriendly witness and warned the Committee not to tamper with the airlines lest the U.S. airmail system collapse   

Although Pan American was not impacted by the Executive Order (which only concerned CAM contracts) the Black Hearings, with their questions about NYRBA and the Clipper General New, struck too close to home. Jim Farley, stung by Walter Folger Brown’s bravura performance, and seeking retribution for the easy way the Republicans had overall evaded censure, began digging into the sediment of Pan Am’s FAM Route history. And, as a result, he almost brought Pan Am down.