Wednesday, April 5, 2017

Some More Truth About The New Deal

The Mythology of Roosevelt and the New Deal
by Robert Higgs

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
Hoover's 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
government's 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 oldage 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.

As this statement illustrates, not everyone admired
FDR during the 1930s. Although historians have tended
to view Roosevelt's 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 Roosevelt's 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 depression -- an uplift for which no
compelling documentation exists -- this 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 1932 -- cut federal spending, balance
the budget, maintain a sound currency, stop
bureaucratic centralization in Washington -- the
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 elevenyear 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 government's own greatly enlarged economic
activity did not compensate for the private
shortfall. Apart from the mere insufficiency of
dollars spent, the government's spending tended,
as contemporary critics aptly noted, to purchase
a high proportion of sheer boondoggle. In the
words of the common-man's 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,
    It's 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.

Buying Votes

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 government's refinancing
of their mortgages and its provision of homeloan
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 Coalition -- a potent political
force that remained intact until the 1970s.

Inept, Arrogant Advisers Journalists titillated
the public with talk of Roosevelt's "Brain
Trust" -- his 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 men's 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

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
FDR's 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

Early and late, the president's 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

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 been -- the
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 politician -- which is to say, he was devious,
manipulative, and mendacious -- Roosevelt 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 savior -- as 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 didn't 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 country's 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 Authority -- all 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
be -- and 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

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
people's 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," Independent
     Review, Spring 1997, pp. 561-90.
  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 Bumham's
     book. See The Collected Works ofF. A. Hayek,
     vol. X (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. 77-78.
 10. Quoted in ibid., p. 15.
 11. H.L. Mencken, On Politics: A Carnival of Buncombe
     (Baltimore: Johns Hopkins University Press, 1996), p. 335

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