Bernard Baruch: The Adventures of a Wall Street Legend

James Grant, “Bernard Baruch: The Adventures of a Wall Street Legend” Simon & Schuster, 1983, 331 pps

Bernard Baruch: a name I have come across many times in my reading; a name of such familiarity that when I came across this book in the library, I was puzzled on reflection that I really could not recall much about the man other than that he had been a Wall Street speculator and advisor to Presidents. So, of course, I read the book and filled in this knowledge gap; if you have a similar itch, read it for entertainment. Baruch died in 1965 at the age of 94

According to author Grant, Dorothy Parker once said that two things confused her: the theory of the zipper and the exact function of Bernard Baruch. Grant ignores the zipper intricacies but attempts to define the exact function of Baruch. He establishes that, contrary to legend, Baruch did not foresee the 1929 Crash. His financial assets fell from $22 million to about $16 million by 1931. He was far from being one of America’s richest men but the belief that he was lent credence to his advice on matters of finance as well as about anything else—albeit, his advice was seldom followed. Baruch, after his WWI stint as head of the United States War Industries Board comes across as a male Washington hostess, sponsoring dinners and shooting trips on the mighty and basking in their presence. He was not inclined to think along ideological lines and reluctant to incur the disfavor of anyone who occupied the White House.

My Notes:

Pg. 9: Baruch, in 1903, gave up a lucrative partnership in a Wall Street brokerage firm in order to invest and speculate with his own money. He succeeded brilliantly. He remained a private investor until the First World War, when he took on the task of managing the United States War Industries Board, an agency that sought to reorder the market economy with a kind of makeshift central planning.

Pg. 47: Until 1914 no Federal Reserve System existed. There was no Securities and Exchange Commission, no federal insurance of bank deposits, and no federal law to segregate commercial and investment banking. Most significantly, there was no federal income tax, except for the short-lived statute that was struck down by the Supreme Court in 1895.

Pg. 156: When Baruch arrived in Washington for WWI, 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.

Pg. 162: Argument against wartime controls as a method to control inflation and direct production: Ludwig von Mises, a professor of the Austrian school, prescribed a first step of financing as much of the cost of a war as possible out of taxed, thereby reducing civilian consumption and expanding the purchasing power of the Army and the Navy. Since incomes would suffer and the demand for civilian goods would decline, businessmen would spontaneously converge on the growth market of armaments. Baruch had always said that voluntary conversion would be too slow. Von Mises countered that if prices were allowed to run their course, sizable profits would accrue to the firms that converted fastest. For that reason, he maintained, conversion would be lightning fast, and production would soar. Because business would be governed by market forces, no government planning apparatus would have to be built, and if the war were financed by savings and taxes, there would be little or no inflation.

Pg. 176: U.S. WWI overall industrial production hit its peak in May 1917 and gently declined through the war. Although an Expeditionary Force of more than two million men was raised, trained, equipped and shipped to France, only 100 of the 2,250 artillery pieces that they fired in actin were actually made in America, and the air corps that was supposed to blacken the skies of Europe essentially amounted to 3,227 De Havilland 4 observation and day-bombing aircraft, of which only 1,885 ever crossed the Atlantic.

Pg. 191: Suggestions for German WWI reparations ran as high as $120 billion. Arguments went on and on, the compromise that did emerge bore faint resemblance to the Americans original proposal ($15 billion). No definite sum would be fixed until 1921. In the end Germany careened into hyperinflation and Nazism and wound up paying just $5billion, of which half was borrowed from America.

Pg. 270: On February 18, 1935, the Supreme Court, by a vote of 5-4, upheld the government’s contention that its sovereign power to define and redefine the value of money counted for more than contracts between individuals. (So much for contracts specifying payment in gold).