One of the less-known threads in the story of how American navigated from the market crash of October 1929 to the start of FDR's administration in 1933 involves the long-standing quarrel between two former business partners, Henry Ford and James Couzens. Their long-running dispute made the dark days of 1930-33 even more terrible and more dramatic, and directly set the stage for many of the Roosevelt-era sound bites that decorate contemporary history of the Depression.
At the inception of Ford Motor Co., Couzens had been Ford's general manager and represented the provider of capital for the infant company, a local Detroit coal dealer named Malcomson. He was also the driving force who commercialized the Ford car, over the objection of Henry Ford, a perfectionist and inveterate tinkerer who would continuously improve his creation. Eventually Henry Ford bought out his partners and forced Couzens out of the company as well, leaving the Ford family in control and a less than cordial relationship between the two men.
The conflict between Ford and Couzens highlights the 19th-century, hard-money view of Henry Ford, who literally ran Ford Motor Co. on a cash basis until he ended his day-to-day control of the operations. It also shows the desperate attempts by Hoover to keep some of the nation's most important banks afloat in the dark days of February and March of 1933, when banks in many states in the country were forced to close.
In his final months in office after the election of FDR, Hoover attempted to enlist the help of Henry Ford to support several insolvent banks in Detroit. These were banks where the Ford family kept much of its wealth, all in cash deposits, and in which Edsel Ford had already invested despite his father's opposition. Edsel Ford was an intelligent, enlightened individual who understood the real and symbolic significance of his family's wealth — and what the failure of the Detroit banks would mean to the larger community.
On the Sunday before Lincoln's Birthday in 1933, Treasury Undersecretary Arthur Ballantine attempted to convince Ford to put more financial support behind the Detroit banks. Hoover even telephoned Ford on Feb. 12 and spoke with the auto king for almost an hour. Hoover went to bed believing that he had turned Ford around, but awoke the next day to learn that a banking holiday had been declared by the governor of Michigan.
The day before Ford's meeting with Ballantine, the Detroit Free Press had carried an interview with Couzens, Ford's estranged former business partner who became senator from Michigan after leaving Ford Motor Co. Couzens stated that the weak banks should be allowed to go under and, after a general moratorium, the stronger banks would be allowed to reopen. When Clifford Longley, Ford Co.'s counsel and a director of Guardian Trust Co., reported Couzens' remarks, Henry Ford replied: "For once in his life, Jim Couzens is right." Ford would ultimately refuse to help Hoover and the Detroit banks, and even threatened to withdraw his money the following Tuesday, setting the stage for the bank holiday in Michigan that would ripple across the U.S. in the weeks leading up to FDR's inauguration.
On Feb. 14, 1933, all banks in the state of Michigan were closed for eight days by order of Governor William A. Comstock. This began a domino effect that would lead to the final collapse of the nation's banking and financial system three weeks later. Michigan was forced to default on its bonds and the state government was crippled, an event that rippled through the savings and balance sheets of individuals and companies around the world. The home mortgages of many workers from the automobile factories went unpaid, taxes were not collected and the local economy began a forced contraction as businesses large and small shriveled without access to cash.
Auto traffic on the streets of Detroit dwindled. Horses reappeared in large numbers. The stock prices of the major steel, oil, automobile makers and other companies tumbled. As the historians of the era have documented, more value was destroyed in the early 1930s than in the 1929 market crash.
On March 4, 1933, President Franklin Roosevelt took office. Most of the nation's banks were closed and panic ruled the streets of American cities and towns. New York, which held out almost a month after the bank crisis began in Michigan, declared a bank holiday on the morning of Inauguration Day. Terrified citizens were lined up outside New York banks as the new president took his oath of office.
Ten days after FDR's inauguration, he ordered an extended bank holiday. Even as the stronger banks in the nation gradually were allowed to reopen, the banks in Detroit remained closed.
Almost a million individuals and businesses in Michigan were cut off from their funds for over a month and the larger depositors of the banks — including Henry Ford — were compelled to wait for the liquidation of the insolvent banks.