In the absence of economic freedom, the visible economy rests upon the foundations of an underground economy.
Chapter 44
Call Money Rates
It was against this background that call money rates jumped to 12% during the first week of March. This happened after Dr. Kenneth Phillips signed an affidavit stating that his patient Al Capone was too ill to answer a March 6 grand jury summons for questioning on January’s Chicago Heights raids. That same day, Arnold Rothstein’s old bodyguard, Thomas “Fatty” Walsh was killed at the Miami Biltmore.[1] Rothstein’s stockbroker friend George Graham Rice, already on trial since January for stock fraud was indicted March 8 for income tax evasion—for which his attorney, former judge Rockwood, was already headed for prison.[2]
President Hoover unexpectedly announced that his planned Commission on Law Enforcement would look at all laws, not just prohibition of narcotics and alcohol.[3] President Hoover enjoyed lunch with Texas’ driest Senator, Morris Sheppard. Also invited was New York Representative Hamilton Fish Jr.—perhaps the most active pusher for Draconian narcotics legislation.
Call rates remained stable at 6% as Hoover announced March 12 that no further oil leases on government land would be forthcoming in the aftermath of the Teapot Dome scandal. This was the day Al Capone had been rescheduled to appear before the grand jury and didn’t.[4] Then a former Ohio State Treasurer was convicted March 13 of conspiracy to bribe a federal officer. Investigation into the murder of Rothstein associate Thomas “Fatty” Walsh, continued, and Rothstein’s good buddy Sidney Stajer was finally true-billed on a narcotics violation. The Stajer arrest had been kept out of the newspapers for eight months, and even now newspapers resorted to misspelling his name. Brewer John J. Dunn, and four others were indicted for income tax evasion, and call rates resumed their steady climb through March 19.[5]
After a meeting with Attorney General William Mitchell, Hoover assured the press he did not plan any dramatic prohibition raids, but did intend to work inexorably “week by week, year by year, as rapidly as possible, to build up the enforcement of the laws of the United States, whether they relate to prohibition or narcotics or any other subject.” Newsmen who had heard the President solemnly assure farm representatives back in January that the special session would be called for the benefit of agriculture, were puzzled when Mr. Hoover added that it was “for this purpose in large degree that I called the extra session of Congress.” Prohibition and narcotics laws were enforced by US Treasury agents, and “any other subject” simply had to include the income tax law.[6]
By now there was a dawning suspicion that by “certain agricultural commodities” Hoover really meant sugar and possibly opium. As Secretary of Commerce Hoover was paid to monitor the recent increases in the domestic corn and beet sugar markets. Of course the former Food Czar of wartime prohibition could certainly guess the purpose of all that yeast. Hoover’s strategy appears to have been twofold: one side of the pincer movement was to enact as prohibitive a tariff on sugar as possible. With supplies from abroad thus curtailed, the job of cracking down on domestic sugar and yeast producers—throttling off moonshine liquor at the source—would be easier. All of this depended on Congress promptly and obediently passing the tariff revisions to Hoover’s specifications. Hoover repeated his intentions in his April 16 message to Congress, again with no hint that he was concerned with the sugar rates and little else.[7]
Hoover had another meeting March 19—this one with Commissioner Doran and Levi G. Nutt of the narcotics section. Article 22 of the League’s Geneva Opium Convention of 1925 required treaty nations to turn in statistics on narcotic and drug production, manufactures, consumption and stocks before the end of March each year. It is a safe bet this information was studied by major participants in narcotics production, traffic and enforcement.
The following day brought the filing of opinions in the Illinois Alcohol case, along with the issuance of 33 subpoenas. That same day Al Capone finally appeared before the federal grand jury at Chicago eight days late. The Federal Reserve Board—by now caught between hostile Congressmen and increasing brokers’ loans—was also in a meeting nervously fretted over by brokers and bankers. Just as nervously fretted over were the additional 17 subpoenas issued March 21 and 22 in connection with the Illinois Alcohol case, bringing the total to 51 in three days.[8] But other meetings on the high seas and in an Aurora, Illinois home carried more explosive portent.
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[1] (Bergreen 1994 325) (CT 3/22/30 2)
[2] (NYT 3/3/29 19; 3/8/29 14:4; 3/26/29 33)
[3] (Hoover 1930 1976 639)
[4] (Myers & Newton 1936, 375-376) (Schoenberg 1992 223)
[5] (NYT 3/12/29 31; 3/15/29 12)
[6] (Hoover 1929 1974 732, 36, 5, 77)
[7] (WSJ 1/21/29) (Hoover 1929 1974 75, 77)
[8] (Docket 11070 4)
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