The Great Depression was a watershed in American history. Soon after Herbert Hoover assumed the presidency in 1929, the economy began to decline, and between 1930 and 1933 the contraction assumed catastrophic proportions never experienced before or since in the United States. Disgusted by Hoovers inability to stem the collapse, in 1932 the voters elected Franklin Delano Roosevelt, along with a heavily Democratic Congress, and set in motion the radical restructuring of governments role in the economy known as the New Deal.
With few exceptions, historians have taken a positive view of the New Deal. They have generally praised such measures as the massive relief programs for the unemployed; the expanded federal regulation of agriculture, industry, finance, and labor relations; the establishment of a legal minimum wage; and the creation of Social Security with its old-age pensions, unemployment insurance, and income supplements for dependent children in single-parent families, the aged poor, the physically handicapped, and the blind. In the construction of the American regulatory and welfare state, no one looms larger than FDR.
For this accomplishment, along with his wartime leadership, historians and the general public alike rank Franklin D. Roosevelt among the greatest of American presidents. Roosevelt, it is said repeatedly, restored hope to the American people when they had fallen into despair because of the seemingly endless depression, and his policies saved capitalism by mitigating its intrinsic cruelties and inequalities.
This view of Roosevelt and the New Deal amounts to a myth compounded of ideological predisposition and historical misunderstanding. In a 1936 book called The Menace of Roosevelt and His Policies, Howard E. Kershner came closer to the truth when he wrote that Roosevelt
took charge of our government when it was comparatively simple, and for the most part confined to the essential functions of government, and transformed it into a highly complex, bungling agency for throttling business and bedeviling the private lives of free people. It is no exaggeration to say that he took the government when it was a small racket and made a large racket out of it.1
As this statement illustrates, not everyone admired FDR during the 1930s. Although historians have tended to view Roosevelts opponents as self-interested reactionaries, the legions of Roosevelt haters actually had a clearer view of the economic consequences of the New Deal. The nearly 17 million men and women who, even in Roosevelts moment of supreme triumph in 1936, voted for Alf Landon could not all have been plutocrats.
Prolonging the Depression
The irony is that even if Roosevelt did help to lift the spirits of the American people in the depths of the depressionan uplift for which no compelling documentation existsthis achievement only led the public to labor under an illusion. After all, the root cause of the prevailing malaise was the continuation of the depression. Had the masses understood that the New Deal was only prolonging the depression, they would have had good reason to reject it and its vaunted leader.
In fact, as many observers claimed at the time, the New Deal did prolong the depression. Had Roosevelt only kept his inoffensive campaign promises of 1932cut federal spending, balance the budget, maintain a sound currency, stop bureaucratic centralization in Washingtonthe depression might have passed into history before his next campaign in 1936. But instead, FDR and Congress, especially during the congressional sessions of 1933 and 1935, embraced interventionist policies on a wide front. With its bewildering, incoherent mass of new expenditures, taxes, subsidies, regulations, and direct government participation in productive activities, the New Deal created so much confusion, fear, uncertainty, and hostility among businessmen and investors that private investment, and hence overall private economic activity, never recovered enough to restore the high levels of production and employment enjoyed in the 1920s.
In the face of the interventionist onslaught, the American economy between 1930 and 1940 failed to add anything to its capital stock: net private investment for that eleven-year period totaled minus $3.1 billion.2 Without capital accumulation, no economy can grow. Between 1929 and 1939 the economy sacrificed an entire decade of normal economic growth, which would have increased the national income 30 to 40 percent.
The governments own greatly enlarged economic activity did not compensate for the private shortfall. Apart from the mere insufficiency of dollars spent, the governments spending tended, as contemporary critics aptly noted, to purchase a high proportion of sheer boondoggle. In the words of the common-mans poet, Berton Braley,
A dollar for the services
A true producer renders
(And a dollar for experiments
Of Governmental spenders!)
A dollar for the earners
And the savers and the thrifty
(And a dollar for the wasters,
Its a case of fifty-fifty!).3
Under heavy criticism, FDR himself eventually declared that he was not willing that the vitality of our people be further sapped by the giving of doles, of market baskets, by a few hours of weekly work cutting grass, raking leaves, or picking up papers in the public parks.4 Nevertheless, the dole did continue.
In this madness, the New Dealers had a method. Despite its economic illogic and incoherence, the New Deal served as a massive vote-buying scheme. Coming into power at a time of widespread destitution, high unemployment, and business failures, the Roosevelt administration recognized that the president and his Democratic allies in Congress could appropriate unprecedented sums of money and channel them into the hands of recipients who would respond by giving political support to their benefactors. As John T. Flynn said of FDR, it was always easy to interest him in a plan which would confer some special benefit upon some special class in the population in exchange for their votes, and eventually no political boss could compete with him in any county in America in the distribution of money and jobs.5
In buying votes, the relief programs for the unemployed, especially the Federal Emergency Relief Administration, the Civilian Conservation Corps, and the Works Progress Administration, loomed largest, though many other programs promoted the same end. Farm subsidies, price supports, credit programs, and related measures won over much of the rural middle class. The labor provisions of the National Industrial Recovery Act and later the National Labor Relations Act and the Fair Labor Standards Act purchased support from the burgeoning ranks of the labor unions. Homeowners supported the New Deal out of gratitude for the governments refinancing of their mortgages and its provision of home-loan guarantees. Even blacks, loyal to the Republican Party ever since the Civil War, abandoned the GOP in exchange for the pittances of relief payments and the tag ends of employment in the federal work-relief programs. Put it all together and you have what political scientists call the New Deal Coalitiona potent political force that remained intact until the 1970s.
Inept, Arrogant Advisers
Journalists titillated the public with talk of Roosevelts Brain Trusthis coterie of policy advisers before and shortly after his election in 1932, of whom the most prominent were the Columbia University professors Raymond Moley, Rexford Guy Tugwell, and Adolph A. Berle. In retrospect it is obvious that these mens ideas about the causes and cure of the depression ranged from merely wrongheaded to completely crackpot.
Like most other New Dealers, they viewed the collapse of prices as the cause of the depression, and therefore they regarded various means of raising prices, especially cartelization and other measures to restrict market supply, as appropriate in the circumstances. Raise farm prices, raise industrial prices, raise wage rates, raise the price of gold. Only one price should fall, namely, the price (that is, the purchasing power) of money. Thus, all favored inflation and, as a means to this end, the abandonment of the gold standard, which had previously kept inflation more or less in check.
Subsequent advisers, the happy hot dogs (after their mentor and godfather, Harvard law professor Felix Frankfurter), such as Tom Corcoran, Ben Cohen, and James Landis, who rose to prominence during the mid-1930s, had no genuine economic expertise. But they contributed mightily to FDRs swing away from accommodating business interests and toward assaulting investors as a class, whom he dubbed economic royalists and blamed for the depression and other social evils.
Early and late, the presidents advisers shared at least one major opinion: that the federal government should intervene deeply and widely in economic life; that government spending, employing, and regulating, all directed by experts such as themselves, could repair the various perceived defects of the market system and restore prosperity while achieving greater social justice. Even at the time, many thoughtful onlookers found the overweening arrogance of these deluded policy advisers to be their most distinctive trait. As James Burnham wrote of them in his 1941 book, The Managerial Revolution, they are, sometimes openly, scornful of capitalists and capitalist ideas. . . . They believe that they can run things, and they like to run things.6 More recently, even a sympathetic left-liberal historian, Alan Brinkley, wrote that the hardcore New Dealers embraced government planning with almost religious veneration.7
The Misleading Analogy of War
Many of the New Dealers, including FDR himself (as assistant secretary of the navy), had been active in the wartime administration of Woodrow Wilson. Ruminating on how to deal with the depression, they seized on an analogy: the war was a national emergency, and we dealt with it by creating government agencies to control and mobilize the private economy; the depression is a national emergency, and therefore we can deal with it by creating similar agencies. Hence arose a succession of government organizations modeled on wartime precedents. The Agricultural Adjustment Administration resembled the Food Administration; the National Recovery Administration resembled the War Industries Board; the Reconstruction Finance Corporation (created under Hoover but greatly expanded under Roosevelt) resembled the War Finance Corporation; the National Labor Relations Board resembled the War Labor Board; the Tennessee Valley Authority resembled the Muscle Shoals project; the Civilian Conservation Corps resembled the army itself. The list went on and on.
In his first inaugural speech, Roosevelt declared, we must move as a trained and loyal army willing to sacrifice for the good of a common discipline. He warned that should Congress fail to act to his satisfaction, he would seek broad executive power to wage a war against the emergency as great as the power that would be given me if we were in fact invaded by a foreign foe. However stirring the rhetoric, this approach to dealing with the depression rested on a complete misapprehension. The requisites of successfully prosecuting a war had virtually nothing in common with the requisites of getting the economy out of a depression. (Moreover, the President and his supporters greatly overestimated how successful their wartime measures had beenthe war had ended before the many defects of those measures became widely understood.)
A Pure Political Opportunist
Roosevelt did not trouble himself with serious thinking. Flynn referred to an aspect of his character as the free and easy manner in which he could confront problems about which he knew very little.8 Nor did he care that he knew very little; his mind sailed on the surface.
Fundamentally he was without any definite political or economic philosophy. He was not a man to deal in fundamentals. . . . The positions he took on political and economic questions were not taken in accordance with deeply rooted political beliefs but under the influence of political necessity. . . . He was in every sense purely an opportunist.9
An indifferent student and later a wealthy, handsome, and popular young man about town, FDR had distinguished himself mainly by his amiable and charming personality. A born politicianwhich is to say, he was devious, manipulative, and mendaciousRoosevelt had a flair for campaigning and for posturing before and propagandizing the public. Though millions hated him with a white-hot passion, there is no gainsaying that far more loved him, and millions regarded him as a savioras the New York Times editorialized on June 18, 1933, the Heaven-sent man of the hour.10
If demagoguery were a powerful means of creating prosperity, then FDR might have lifted the country out of the depression in short order. But in 1939, ten years after its onset and six years after the commencement of the New Deal, 9.5 million persons, or 17.2 percent of the labor force, remained officially unemployed (of whom more than 3 million were enrolled in emergency government make-work projects). Roosevelt was a masterful politician, but unfortunately for the American people subjected to his policies, he had no idea how to end the depression other than to try something and, when that didnt work, to try something else. His ill-conceived, politically shaped experiments so disrupted the operation of the market economy and so discouraged the accumulation of capital that they impeded the full recovery that otherwise would have occurred. His followers revered him then, and many people revere him still, as a great leader. But what does it avail a lost and thirsty man if his leader only wanders about in the desert?
Although Roosevelt and the New Dealers failed to end the depression, they succeeded in revolutionizing the institutions of American political and economic life and changing the countrys dominant ideology. Even today, 60 years after the New Deal ran out of steam, its legacies remain, still hampering the successful operation of the market economy and diminishing individual liberties.
One need look no further than an organization chart of the federal government. There one finds such agencies as the Export-Import Bank, the Farm Credit Administration, the Rural Development Administration (formerly the Farmers Home Administration), the Federal Deposit Insurance Corporation, the Federal Housing Administration, the National Labor Relations Board, the Rural Utility Service (formerly the Rural Electrification Administration), the Securities and Exchange Commission, the Social Security Administration, and the Tennessee Valley Authorityall of them the offspring of the New Deal. Each in its own fashion interferes with the effective operation of the free market. By subsidizing, financing, insuring, regulating, and thereby diverting resources from the uses most valued by consumers, each renders the economy less productive than it could beand all in the service of one special interest or another.
Once the New Deal had burst the dam between 1933 and 1938, ample precedent had been set for virtually any government program that could gain sufficient political support in Congress. Limited constitutional government, especially after the Supreme Court revolution that began in 1937, became little more than an object of nostalgia for classical liberals.
But in the wake of the New Deal, the ranks of the classical liberals diminished so greatly that they became an endangered species. The legacy of the New Deal was, more than anything else, a matter of ideological change. Henceforth, nearly everyone would look to the federal government for solutions to problems great and small, real and imagined, personal as well as social. After the 1930s, opponents of a proposed federal program might object to its structure, its personnel, or its cost, but hardly anyone objected on the grounds that the program was by its very nature improper to undertake at the federal level of government.
People in the mass, wrote H.L. Mencken, soon grow used to anything, including even being swindled. There comes a time when the patter of the quack becomes as natural and as indubitable to their ears as the texts of Holy Writ, and when that time comes it is a dreadful job debamboozling them.11 Six decades after the New Deal, Americans overwhelmingly take for granted the expansive, something-for-nothing character of the federal government established by the New Dealers. For Democrats and Republicans alike, Franklin Delano Roosevelt looms as the most significant political figure of the twentieth century.
But however significant his legacies, Roosevelt deserves no reverence. He was no hero. Rather, he was an exceptionally resourceful political opportunist who harnessed the extraordinary potential for personal and party aggrandizement inherent in a uniquely troubled and turbulent period of American history. By wheeling and dealing, by taxing and spending, by ranting against "economic royalists" and posturing as the friend of the common man, he got himself elected time after time. But for all his undeniable political prowess, he prolonged the depression and fastened on the country a bloated, intrusive government that has been trampling on the peoples liberties ever since.
1. Quoted by Richard M. Ebeling, Monetary Central Planning and the State, Part XIV: The New Deal and Its Critics, Freedom Daily, February 1998, p. 15.
2. Robert Higgs, Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War, The Independent Review, Spring 1997, pp. 56190.
3. Even Steven, in Virtues in Verse: The Best of Berton Braley, selected and arranged by Linda Tania Abrams (Milpitas, Calif.: Atlantean Press, 1993), p. 70.
4. Quoted in John T. Flynn, The Roosevelt Myth (Garden City, N.Y.: Garden City Books, 1948), p. 86.
5. Ibid., pp. 127, 65.
6. Quoted by F.A. Hayek in a review of Burnhams book. See The Collected Works of F. A. Hayek, vol. X, Socialism and War (Chicago: University of Chicago Press, 1997), p. 251.
7. Alan Brinkley, The End of Reform: New Deal Liberalism in Recession and War (New York: Knopf, 1995), p. 47.
8. Flynn, p. 31.
9. Ibid., pp. 7778.
10. Quoted in ibid., p. 15.
11. H.L. Mencken, On Politics: A Carnival of Buncombe (Baltimore: Johns Hopkins University Press, 1996), p. 335
Robert Higgs is Senior Fellow in Political Economy at The Independent Institute and Editor at Large of the Institutes quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He has been a visiting scholar at Oxford University and Stanford University, and a fellow for the Hoover Institution and the National Science Foundation. He is the author of many books, including Depression, War, and Cold War.
Full Biography and Recent Publications
This article is reprinted with permission from The Freeman, September 1998. © Copyright 1998, the Foundation for Economic Education.