Power Without Principle

Bernard Baruch: The Adventures of a Wall Street Legend, by James Grant, New York: Simon and Schuster, 376 pp., $19.95

The life and career of Bernard M. Baruch (1870–1965) have proved to be of continuous interest to Americans for two main reasons. First, Baruch was fabulously wealthy, and the fabulously wealthy are always of keen interest to those who have less—particularly when, as in Baruch's case, they manage to live lavishly even during periods like the 1930s, when almost everyone else has been reduced to poverty. Second, Baruch exerted considerable political influence, especially in the White House, for more than three decades of American life. And as James Grant's new biography of the financier makes clear, it is the second of these reasons that most deserves our reconsideration.

About Baruch's great wealth, there seems really to be little worth saying. All the evidence suggests that he came by it, not through the application of any sort of superior wisdom or knowledge, but through a combination of good luck and having the right contacts in the right places. As Grant tells the story, Baruch was an inveterate gambler, a man who was always placing bets—on horses, roulette wheels, golf games, bridge games, and presidential elections, as well as on the prices of securities. And he seems to have gone into most of his investments in business with the same attitude he brought to the track or the casino. He often knew little or nothing about the businesses themselves, and cared to know nothing. His interest was purely in the way the numbers came out at the end. He invested in railroads long after they had entered their long decline, because of his fondly remembered boyhood enthusiasm for trains. And he passed up an opportunity to acquire total control of the firm that later became Gulf Oil, because his gambler's hunches instructed him otherwise.

If his record overall was any better than what hunches and gambler's luck could have produced by themselves, then the difference was made up by what today would be called "insider trading." In Baruch's heyday on the stock market, "fraud and 'active or intentional' concealment of information were illegal," Grant writes, "but directors and other insiders could generally trade as they liked with the knowledge uniquely at their disposal." And Baruch, a naturally amiable and gregarious man, pursued a lifelong policy of cultivating not only his fellow investors and stock traders, but also businessmen, politicians, and journalists—anyone who might know anything that might be useful to him.

Thus, Baruch became rich. By the time he was 30, this first-generation American, the son of a modestly prosperous physician, had made his first million. But he soon found that wealth wasn't enough. He also wanted power. So he went to Washington.

"When he arrived in Washington," Grant writes (the year was 1917), "the public debt was less than $3 billion, personal income tax rates were trifling and national economic planning was alien to American experience. On his departure, in 1919, the public debt totaled $25 billion, tax rates in the top bracket had climbed by more than tenfold to 73 percent and federal control of economic life was a firmly established precedent." Many of these changes were due directly to Baruch's efforts. It may seem "curious," Grant says, "that Baruch, an investor and speculator, should help to suppress free markets. He did so, full time…devoting himself to the transformation of capitalism into a kind of war socialism. This experience he called the greatest of his life."

The war that supposedly justified these economic controls was World War I. The war was enormously expensive. "In fiscal years 1918 and 1919," Grant writes," [the government] spent some $43 million a day, more than any other warring power and enough (as the War Department subsequently observed) to have financed the Revolutionary War for a thousand years at eighteenth century prices. Part of this money was raised by non-inflationary means—via taxation and borrowing from people's savings—but another part the Federal Reserve printed. Thus from 1917 to 1920, the level of credit created by the Federal Reserve grew by $3 billion."

"It developed," Grant writes, "that the Administration's plan was to raise politically expedient sums in taxes, to inflate the money supply as necessary and to mask the effects of inflation through selective price controls. Broadly speaking, the work of suppressing inflation was given to the War Industries Board," whose chairman was Bernard Baruch.

Baruch did not merely devote the war years to "deciding…how much ought to be produced, by whom and at what price." He, in fact, devoted the rest of his life to an attempt to impose government economic planning as a permanent feature of American life. Scarcely more than a decade after the war, he was helping to mastermind creation of the National Recovery Administration, a New Deal undertaking patterned more or less directly on the old War Industries Board. In the 1940s, according to Grant, he was urging President Roosevelt to adopt "all-out federal controls. In the first place, he said, the government ought to be able to direct industrial traffic according to the needs of national defense.…It followed logically that price controls were also essential, he went on, because if prices were free to go up, rich buyers could divert raw materials from defense production merely by paying more for them. He insisted, moreover, that price controls must be all-encompassing, not 'piecemeal.'" In the early 1950s, Baruch responded to North Korea's invasion of South Korea by proposing what Grant calls "his usual emergency prescription: controls on wages, prices and profits; rationing; a tax boost double the size of the Administration's suggestion." And all along, he advocated other government interventions: in the '20s, he supported Prohibition; in the '30s and '40s, conscription; in the '50s, national health insurance; in the '60s, the war in Vietnam.

Yet throughout his public career, Baruch consistently in his public statements decried government controls and advocated individual freedom. "I believe that the government should mind its own business," he wrote in 1930.

I believe that the people who are least governed are best governed. You cannot make people temperate by passing the Prohibition law and you cannot make manufacturers prosperous by putting up a tariff wall which because of reciprocal action will drive our manufacturers into other countries.…I do not believe that any makeshift economic measures which attempt to lift out any part of the population by their boot-straps is a part of governmental action. It will fail as the Prohibition law has failed. The people should be free to work out their own problems.

Yes, this was the same Bernard Baruch who advised president after president to militarize the American economy; the same Bernard Baruch who "believed," according to Grant, "that so long as the Soviet threat persisted there was nothing to do but put the nation's affairs on a quasi-war footing." The man was amazing. "As he endorsed federal health insurance, conscription, peacetime wage-price controls and a national priorities board," Grant writes of Baruch, "he issued stinging denunciations of socialism and of the oppression of the individual by the state."

What is one to think of a man whose actions are so at odds with his words? What else can one conclude except that such a man really has no principled beliefs of any kind, but only pays lip service to those he guesses will win him the widest popularity, while he works to advance his actual values?

What Bernard Baruch actually worked to advance was the concentration of power in government. Was power the only thing he really believed in all along? There were those who saw him in those terms, of course. Among them was President Harry Truman, who wrote in 1946 that Baruch "wants to run the world, the moon and maybe Jupiter—but we'll see."

Incredibly, James Grant does not see Bernard Baruch in this way. He prefers to evade the conclusion to which all his own evidence seems so inescapably to lead him. For Grant, a former Barron's columnist who now publishes his own financial newsletter, Baruch is best understood as having neither fixed principles nor a hidden agenda of any other kind. "He could change his mind as easily on public issues," Grant says, "as he could about common stocks. He sincerely espoused some libertarian principles, but if a stray left-wing scheme happened to catch his fancy he saw nothing wrong with advocating that either."

But no matter. It is far less important that a reporter understand the implications of his findings than that he compile those findings with thoroughness and present them vigorously and readably. All this Grant has done, and we are free to see the meaning in Baruch's story that Grant has missed and to take heed.

Contributing Editor Jeff Riggenbach is executive producer of the Reason Foundation's daily radio program, "Perspective on the Economy."