Wall Street History
JFK and U.S. Steel
John F. Kennedy was inaugurated on January 20, 1961. His
speech that day is one of the great oratorical moments in
presidential history. Here is the climax:
"In the long history of the world, only a few generations have
been granted the role of defending freedom in its hour of
maximum danger. I do not shrink from this responsibility; I
welcome it. I do not believe that any of us would exchange
places with any other people or any other generation. The
energy, the faith, the devotion which we bring to this endeavor
will light our country and all who serve it, and the glow from the
fire can truly light the world.
And so, my fellow Americans, ask not what your country can do
for you; ask what you can do for your country.
My fellow citizens of the world, ask not what America will do
for you, but what together we can do for the freedom of man."
The Dow Jones Industrial Average closed at 634.37 that day. At
the start of the JFK administration there was an internal dispute
over the budget. He had appointed two Republicans to frontline
economic positions; Treasury Secretary Douglas Dillon and
Federal Reserve Chairman William McChesney Martin. Dillon
and others resisted deficits because they were worried about
inflation and the weakness of the dollar. On the other side,
leading economists such as Paul Samuelson and Walter Heller
focused on achieving economic growth through the use of fiscal
stimulants and were unafraid of deficits. In 1961 JFK came
down on the side of the budget balancers, for he accepted
conventional thinking, recognized the power of fiscal
conservatives in Congress and could not reconcile tax cuts,
proposed by economists, with his public theme of sacrifice.
Wall Street and the business community in general were pleased.
The Dow Jones peaked at 723.54 on March 15, 1962, about 14%
higher than when JFK took office. But the confidence in the
administration''s policies was soon shattered that spring as
Kennedy became embroiled in a bitter controversy with U.S.
In August 1961, Walter Heller, chairman of the Council of
Economic Advisers, warned Kennedy that a steel strike or a
sharp rise in the price of steel or steelworkers'' wages, or both,
was the greatest single threat to economic stability during his
presidency. "Steel can upset the applecart all by itself," Heller
JFK worked hard with U.S. Steel''s chairman, Roger Blough, and
the union president, David McDonald. Inflation, then running at
a 2.5 percent annual pace (compared to 1.4 percent during
Eisenhower''s second term), was foremost on Kennedy''s mind.
U.S. Steel, accounting for more than one quarter of American
steel production, traditionally set the pay scales for the other
eleven steel companies. In February 1962, JFK pressured both
sides to begin negotiations for a new contract that would become
effective in June - on the theory that the earlier they began, the
less chance there was for a strike, and the sooner they had a
contract, the less chance that it would be inflationary.
On March 31, Secretary of Labor, Arthur Goldberg (yes, "Bar
Chat" fans, the same Arthur Goldberg who later represented Curt
Flood) reported that U.S. Steel and the United Steelworkers
union had just agreed to a new contract that would raise
employee wages and benefits by less than 2.5 percent. That
supposedly meant no steel strike and no increase in steel prices.
Kennedy was ecstatic. He worked out a statement which he read
to Blough and McDonald: "The settlement you have announced
is both forward looking and responsible. It is obviously non-
inflationary and should provide a solid base for continued price
The contract was signed April 6. On April 10, Roger Blough
asked to see the President. He handed the President a statement
that had just been given to the press. U.S. Steel was raising the
price of the company''s steel products by an average of about 3.5
percent, the first increase in nearly four years. Kennedy was
furious. "You double-crossed me," he yelled at Blough. Later
JFK told Goldberg, "He f----- me. They f----- us and we''ve got
to try to f--- them." [Source: Richard Reeves, see below].
The Dow Jones stood at 695 and didn''t move substantially the
next few days as five companies, led by Bethlehem Steel,
announced pricing schedules identical to those of U.S. Steel. On
April 11, Kennedy issued an angry statement which said in part:
"The simultaneous and identical actions of U.S. Steel and other
leading steel corporations, increasing steel prices by some six
dollars a ton, constitute a wholly unjustifiable and irresponsible
defiance of the public interest.
In this serious hour in our nation''s history, when we are
confronted with grave crises in Berlin and Southeast Asia, when
we are devoting our energies to economic recovery and stability,
when we are asking Reservists to leave their homes and families
for months on end and servicemen to risk their lives and asking
union members to hold down their wage requests; at a time when
restraint and sacrifice are being asked of every citizen, the
American people will find it hard, as I do, to accept a situation in
which a tiny handful of steel executives whose pursuit of private
power and profit exceeds their sense of public responsibility can
show such utter contempt for the interests of one hundred eighty-
five million Americans."
JFK and his brother, Attorney General Robert Kennedy, mounted
their campaign. Robert went after the six companies who had
agreed to raise prices. "We''re going for broke," Bobby said as
he unleashed the FBI on the steel executives. Agents showed up
at their homes and offices as a case was built for price fixing.
[And Nixon was bad?!].
By April 13 executives at Inland Steel and Kaiser Steel
announced that they would not raise prices. It also seemed that
U.S. Steel was starting to bend under the pressure. Then
Bethlehem Steel announced it was rescinding its increases. By
the end of the day, U.S. Steel relented and rescinded, as well.
Chicago economist Milton Friedman said "It brings home
dramatically how much power for a police state resides in
Washington." Others called it "quasi-Fascism." The Los
Angeles Times compared JFK to Mussolini.
The stock market, after failing to react much to the crisis, began
to have serious doubts about the administration''s stance towards
business. By May 18, the Dow had fallen to the 650 level. On
May 19, however, there was a little diversion. JFK was
celebrating his birthday 10 days early at a Democratic National
Committee gala at Madison Square Garden. Jack Benny said of
the President, who was sitting on stage in a rocking chair puffing
on a cigar, "The amazing thing to me is that a man in a rocking
chair could have such a young wife." Jackie was in Virginia.
Marilyn Monroe was at the "World''s Most Famous Arena."
Monroe was literally sewn into a $5,000 flesh-colored, flesh-
pressing gown, with nothing underneath but a rather awesome
body. "Happy Birthday to you, Happy Birthday to you, Happy
Birthday, Dear Mr. Pres-i-dent. Happy Birthday to you."
Kennedy melted. [There''s a lot more to this story but perhaps
it''s more appropriate for an episode or two of "Bar Chat"].
The Dow Jones closed at 611.88 on May 25. On Monday the
28th, all hell broke loose. Call it mistrust of JFK''s policies
toward business or a delayed response to the President''s attack
on U.S. Steel, regardless, the New York Times headline said it
all, "Stock Prices Dive In Sharpest Loss Since 1929 Break"
The Dow dropped from 611 to 573 before finishing at 576.93. It
was the fifth busiest day in history and the ticker was 141
minutes late! It looked like a true crisis.
Next week, recovery.and the Republicans take over.
[Primary Sources: "President Kennedy: Profile of Power," by
Richard Reeves; "The Presidents," by Henry Graff]