Federal Aid and Bailouts
I wanted to share a large excerpt from Mormonism in Transition. Given our current political climate of Federal aid and bailing out companies, Freedman’s book on the world being flat, the LDS church’s investments in the mall and apartments near Temple Square, and Mormons featured frequently in political discourse, I thought this example from history had a lot to say about all of these topics. I’d love to hear your thoughts after reading (It’s long):
“Discussion began in November 1901 between Havemeyer’s representatives and church officials with a view to the purchase of half the assets of the Utah Sugar Company. At first some of the church leaders, such as Anthon H. Lund, were opposed to the undertaking. Elder Lund believed that it would be best to build and expand with home capital. Havemeyer pressed the church, however, by threatening to open a competing company. At a meeting on November 23,1901, the directors agreed to negotiate and they sold a half interest. In 1907 an agreement between the Utah Sugar Company, the Idaho Sugar Company, and the Western Idaho Sugar Company created the Utah-Idaho Sugar Company (U & I), also part of the sugar trust but with church leaders as principal directors.
Increasingly, the church leaders began to see that what had been thought of as a necessity in 1901 had become antithetical to the interests of the community. In 1903 the Amalgamated Sugar Company under Charles W. Nibley and David Eccles began planning the construction of a sugar factory at Lewiston in Cache Valley. Havemeyer’s representatives complained because they considered this breaking the agreement to allow the trust to control the market. Lund, however, thought that a more important question with which church leaders had to wrestle was what would happen “if the people should get an idea that President Smith would hinder our people from starting industries for fear of the Trust.” Nevertheless, in an apparent attempt to placate American Sugar, Nibley allowed the trust to buy a share in the factory.
Upset with Nibley’s actions, David Eccles complained to Joseph F. Smith. President Smith recognized the trap in which both the church and the people of Utah had fallen. He concluded, however, that acceding to the wishes of the sugar trust was, paradoxically, the only way that church members could have any control. He was convinced that to resist would place the church in “the unenviable position of discriminating against our people in the north end of Cache and prolonging a most disastrous conflict between yourselves [Amalgamated] and them [the sugar trust].”
The church’s cooperation with the sugar trust combined with [apostle] Reed Smoot’s position on the Senate Finance Committee, which wrote tariff legislation, caused considerable adverse criticism. The central issues were spelled out in an article by Judson Williver in Hampton’s Magazine. According to Welliver, the tariff, which Smoot supported, added two cents to the price of every pound of sugar consumed by the American people, a cost of $100 to $125 million per year. He attributed the protariff votes of Republican senators from Utah, Idaho, Wyoming, Oregon, and Nevada to the influence of the church. In May 1909 Senator Alexander S. Clay of Georgia went as far as to claim that Joseph F. Smith had himself fixed sugar beet prices in return for $20,000.
That the church leaders had supported subsidies and high tariffs for sugar was true. That they controlled the votes of senators of six states or that Joseph F. Smith could himself fix the price of sugar was fantasy. Nevertheless, the charges were serious enough that Congress investigated sugar prices and price fixing policy. Church leaders appeared at least twice to testify on tariff and sugar related matters. In April 1910 Joseph F. Smith went to Pueblo, Colorado, under summons to appear as a witness. Again in June 1911 both Joseph F. Smith and Charles W. Nibley appeared before the Hardwick Committee then investigating the sugar trust.
Church leaders thought the stability of sugar prices and subsidies through tariff important. In an article in the Independent, Reed Smoot argued that such subsidies were necessary to keep “people employed, and at a wage rate sufficient to allow them to live in accordance with the standard established in the particular country in which they reside.” The American standard of living, highest in the world, could only be maintained, Smoot insisted, by a tariff that would allow industry to maintain its present wage scale.
Smoot’s concerns went far beyond the sugar business and included other industries of importance to Utah and the mountain West. From his seat on the Senate Finance Committee, he was “in a position to protect the interests of our sugar, our wool, our cattle, our hides, and our lead, and in fact every industry that brings wealth to our state.” In 1913, when the Democratic party took power in Congress and opposed subsidies to many of the interests Smoot supported, he and others from Utah were quick to respond. The Democratic-sponsored Underwood-Simmons Tariff bill, he said, “threatens disaster to many American industries as complete as we had under the last Democratic tariff law [the Wilson-Gorman Act of 1894].” He thought that “there is no longer any question about the injury to the sugar industry, wool industry” and to the wages which support America’s high standard of living. Moreover, the bill was a sectional one, placing commodities from the mid- and far West on the free list and keeping many southern commodities, such as rice, under protection. Smoot and other Republicans were not alone in this view. Western Democrats like James H. Moyle and Progressives like Stephen H. Love took a similar protariff stance. In its final form, the Underwood-Simmons Act of 1913 reduced the sugar tariff from 1.67 cents to 1.25 cents per pound, placing it on the free list after May 1, 1916. Partly as a result of the act and partly because markets were closed at the outbreak of the First World War in 1914, sugar prices and Utah and Idaho stock values dropped to their lowest point since the depression of the 1890′s.
At virtually the same time as the price drop, the House of Representatives reopened its investigation of Havemeyer’s American Sugar Refining Company. The church leadership, fearing the possible closing of the factories, authorized the presiding bishop, Charles W. Nibley, to repurchase 25 percent of the capital stock of the Amalgamated Sugar Company and the sugar trust’s holdings in the Utah-Idaho Sugar Company.
After the war expanded in intensity and the British blockade made competition from continental Europe impossible, this purchase seemed to have been a stroke of genius. The value of U & I stock rose from seven dollars in April 1914 to twenty-nine dollars in November 1916. Under these conditions the company expanded its operations, opening a number of new plants in Utah, Idaho, Oregon, and Washington. Amalgamated opened plants in Wyoming, California, and Utah. The expansion was costly but undoubtedly seemed warranted by conditions during the war. Sugar prices were controlled by the United States Food Administration but markets were plentiful. Price controls lasted approximately two and one-half years, then the price skyrocketed. Between 1918 and May 1920 the price of raw sugar climbed from nine cents to twenty-three cents per pound.
Beyond this, the two companies cooperated in various ways. A director of Amalgamated and president for one year (1914), Joseph F. Smith was president of U & I after the purchase and Anthon H. Lund succeeded as Amalgamated president (1914-1920), so the directorates of the two companies virtually interlocked. The two boards of directors met in December 1916 and agreed to divide their territory on a line between Honeyville and Deweyville in Box Elder County. In addition, the companies agreed together at times on the setting of prices for beets and sugar.
The control of production by Utah-Idaho and Amalgamated led to conflicts with other companies. In June 1919 a complaint was filed before the Federal Trade Commission charging U & I and Amalgamated with conspiracy in restraint of trade under the Sherman Anti-Trust Act. A second suit in May 1920 charged U & I with asking excessive prices for sugar. These conflicts caused bitterness against a number of general authorities, particularly Charles W. Nibley, presiding bishop and general manager of U & I, who was indicted as well.
Since the church was heavily involved in the two companies, beet farmers came to the First Presidency complaining about the management. On March 4, 1920, members of a delegation told the First Presidency that they would refuse to plant beets at the current company prices. The First Presidency discussed the situation, and Anthon H. Lund took their views to the Amalgamated directors. After several offers were made and rejected, on March 13 the companies agreed to offer twelve dollars per ton, the highest to that time, and to split the profits if the market price increased.
By late in World War I, both companies were faced with problems of liquidity. Amalgamated had watered its stock considerably and the capital behind each bag of U & I sugar increased from $8.35 in 1915 to $25.46 in 1919, partly the result of investment designed to avoid high wartime taxes. Pressure from banks and from the Havemeyer interests forced reorganizations of the Amalgamated company leadership in 1918 and 1919. In 1920 Amalgamated reduced its nominal capitalization, probably in a move to squeeze some of the water from its stock, and during the year undertook reorganizational measures to try to satisfy its creditors, including the church and the Havemeyers. By May 1920 sugar prices had begun to fall. Both U & I and Amalgamated sank into difficulties. By December 23 the First Presidency agreed to allow U & I to use church-owned Hotel Utah and ZCMI bonds as collateral for funds to meet payments to beet farmers. At the same time, the company had more than two million sacks of sugar on hand, which it could sell only at a loss.
In the meantime, the suits against U & I and the indictment of the church’s presiding bishop cause considerable controversy. Reed Smoot was particularly concerned about the political implications for the Republican party and his senatorial candidacy, and he urged President Grant to make a statement at general conference “on the Sugar question” in Nibley’s defense. On October 7, 1920, President Grant read a prepared statement to the Twelve saying that an indictment did not mean guilt and asking members of the church to withhold judgment against Bishop Nibley. A number of the Twelve, including Stephen L. Richards, Anthony W. Ivins, Charles W. Penrose, and James E. Talmage, opposed the statement, but all agreed to leave the matter to President Grant’s discretion. At the opening session of the conference he read the statement. Some of the Democratic members of the Twelve were quite dissatisfied with it.
In the first six months of 1921 the price of sugar declined from $7.40 to $5.47, and the companies’ financial problems deepened. In January Charles W. Nibley and William H. Wattis of Amalgamated failed to secure money to finance the payment to beet growers because of unfavorable bank terms. The church helped in securing funds and invested more of its money in the companies. But these loans merely refinanced long-term obligations; cash was still needed to pay beet growers. On October 11, on the suggestion of Stephen L. Richards, the executive committee of U & I agreed that Richards, Heber J. Grant, E. O. Howard of Walker Bank (who was also War Finance Committee Chairman for Utah), and Henry H. Rolapp would visit Washington to try to secure the financing. On October 18, in a meeting with Eugene Meyer of the War Finance Corporation, the committee received $10 million to establish a sugar finance corporation which could lend funds to the two sugar companies. Legal details were left to Richards. Heber J. Grant was particularly pleased at the negotiation of this federal loan. In his diary on October 18, 1921, he wrote that “the psychological effect will be very valuable. The very fact that the government of the United States has seen fit to help the beet sugar industry to the extent of ten million dollars in Utah and Idaho alone… will have a very salutary effect in strengthening the confidence of the public in the beet sugar industry generally.”
Still, U & I continued to sink into further difficulty, and the church increased its investment to try to save the company. In 1921 the church purchased 150,000 shares of U & I stock from Charles W. Nibley with $200,000, plus $300,000 worth of Hotel Utah 7 percent bonds. By September 1930 the bonds were selling above par, while the U & I stock was being quoted at fifty cents per share. The church had sustained a paper loss of $425,000 on this transaction alone. Between 1918 and 1928 the company was forced to close five plants in Utah, three in Washington, and one in Idaho; still U & I lost money every year between 1925 and 1930. Amalgamated paid no dividends during the 1920′s.
In early 1922 it looked as though the situation might improve. The efforts of Heber J. Grant and other church business leaders had saved U & I and Amalgamated from financial ruin. Ironically, some people complained that the church had profited on the U & I sugar deal, when in fact it had required virtually all of Heber J. Grant’s time and energy and the church’s free capital and goodwill to save the company. By late August 1922 Heber J. Grant could write that there had “been a wonderful improvement” in the condition of the two sugar companies in which the church was “heavily interested.” The obligations of the church to eastern bankers had been cancelled, and the church was in debt only to local banks. By the latter part of 1922 the obligations to the War Finance Corporation were cancelled.
By the late 1920s the companies were again in financial difficulty, and the sugar trust pressed both to rejoin in controlling the market. Marriner Eccles of Amalgamated attempted at first to avoid this in August 1929 by asking Heber J. Grant for a gentleman’s agreement that each would give first right of refusal to the other on the sale of stock in either company. President Grant said that he could not do this, since the purchase of outstanding Amalgamated stock would cost the church $800,000 to $900,000–money it did not have. On August 24 President Grant met with the officers of American Sugar Refining Company. They offered to purchase his Amalgamated stock at a rate of one share of American for eight shares of Amalgamated. He thought that this was a good proposition, but he had to tell them that he would be forced to wait since he was only trustee for the stock and would have to consult with his counselors and the Twelve.
In August 1929 U & I still faced considerable financial difficulty. Heber J. Grant went east to renew the loans necessary to pay for sugar beets during the fall harvest. He found no difficulty in Chicago, but in New York neither Irving Trust nor Guaranty Trust was anxious to lend money. Chase National Bank agreed to handle the whole account, provided the company would agree to issue acceptances. The money market in the heady days of mid-1929 was so strong that brokers wanted some readily discountable securities which they would use to lend more money. After these problems, Heber J. Grant, Reed Smoot, and Stephen H. Love went again to the federal government for assistance for the two companies. Turning to the Federal Farm Relief Board, they requested a loan of $5 million to pay for the beets. Some problems arose and two weeks later Heber J. Grant was in San Francisco meeting with R. B. Motherwell of Wells Fargo bank and in Los Angeles at several banks securing additional financing.
Similar problems developed again in 1930. In this case the church agreed to subordinate to the interests of the banks the $750,000 owed it by U & I. Anthony W. Ivins said that he “did not regard this as a safe loan, or one that it is proper for the church to make,” but the company was in such poor shape that the banks insisted before they would agree to advance the money needed to pay farmers for the fall beet crop. By December 1930 the company was simply unable to meet its obligations. Both Orval Adams and Anthony W. Ivins believed that the best solution was for the company to pass into the hands of a friendly receiver where the debts could be scaled down. Heber J. Grant opposed this since he believed it would reflect negatively upon the church. Grant felt that for the church to guarantee the company’s loans was preferable to receivership. After further financial difficulty during the winter of 1930-1931, the church ended in early January guaranteeing $1.3 million in U & I obligations. Difficulties continued as the depression deepened. The church again loaned money to U & I in 1931, and the company reduced wages and laid off employees. In addition, it sold its Canadian property, allowing payment on outstanding bonds. In 1932 and 1933 the company took various measures to solve its credit problems until the passage of the Sugar Act of 1934 divided the market between domestic and foreign producers and guaranteed U & I a market for its product.
The Sugar Act was in a sense the culmination of a series of measures designed to overturn the Underwood-Simmons Tariff Act and return protection to domestic producers. Competition with locally produced sugar came from Cuba and the Philippines and, after the war, from the revived European beet producers. Under these conditions, it is not surprising that most westerners would favor a high protective tariff on sugar and other western products. Although nationally the Democratic party had generally stood for a revenue tariff, Democrats from the mountain West usually favored protection for commodities produced in the region. In January 1914, reinforced by the traditional Mormon argument for the promotion of home industries, William H. King went to Washington to lobby against a reduction in the tariff on sugar and wool. During early 1921 Congress had under consideration an emergency tariff act designed to change the basis of the Underwood Act and protect American business in general against dumping–particularly western cattle, sheep, meat, wool, and sugar. Reed Smoot was one of the leaders in the move, and most of the citizens of the state seem to have agreed.
During the 1920s, with business difficulties and failures and constant pressure on the church’s assets, church leaders were constantly at the door of the federal government asking for aid, particularly for the sugar industry. Assistance in 1921 from the War Finance Corporation was followed by an increased tariff on sugar in 1922 with the Fordney-McCumber Act, which helped protect the domestic market from outside competition, and with Federal Farm Board loans in the late twenties. In March 1923 Reed Smoot, Heber J. Grant, and Charles W. Nibley had met with the United States tariff board on the sugar question. In 1924 a number of citizens in the eastern United States complained loudly at the high price of sugar and blamed Smoot and the LDS church for the situation. The Deseret News defended the tariff, claiming that the already distressed sugar companies would be forced into bankruptcy if more sugar were imported at lower prices.
The situation continued to worsen during the late 1920s and into 1930 as Congress moved to increase the tariff. In August 1927 Heber J. Grant met with Reed Smoot to discuss the problem of Cuban and Philippine sugar, which seemed to be hurting the American industry. Pressure on Smoot, who was chairman of the Senate Finance Committee considering the Smoot-Hawley Tariff Act, worked its toll. In August 1929 Smoot returned to Utah, having lost more than thirty pounds from the strain. Shortly before the vote on the sugar schedule of the tariff, a visit of Heber J. Grant to Reed Smoot caused a national uproar when Senator John J. Blaine of Wisconsin urged the Senate to declare him a sugar lobbyist. Smoot denied the charge on the Senate floor, but he nevertheless suggested that President Grant telegraph William H. King asking him to vote for the Smoot-Hawley Act on the ground that farmers were doomed to distress if they were not helped.
After the passage of the Smoot-Hawley Act, numerous economists and others complained at the high tariff wall which the United States had built. On the other hand, the church leadership and the inter-mountain economy were faced with a practical problem. How were those farmers who raised beets to continue to feed their families if they could not continue to sell beets, and what would happen to the church and the economy of the mountain West if the two large sugar companies were to fail? In 1929 the church expended slightly more than $900,000 for its entire educational program. The amount which U & I owed the church was $1.3 million and, in addition, the church owned $700,000 in company stock. Failure of U & I or Amalgamated would have been a disaster not only for the people but for the church itself. It is no wonder that Heber J. Grant, in public pronouncements such as his radio address on January 31, 1930, urged the people of Utah to use Utah-made goods and home manufacture as a means of dealing with unemployment.”