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Monetary Central Planning and the State, Part 13: FDR’s New Deal

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Part 1 | Part 2 | Part 3 | Part 4 | Part 5 | Part 6 | Part 7 | Part 8 | Part 9 | Part 10 | Part 11 | Part 12 | Part 13 | Part 14 | Part 15 | Part 16 | Part 17 | Part 18 | Part 19 | Part 20 | Part 21 | Part 22 | Part 23 | Part 24 | Part 25 | Part 26 | Part 27 | Part 28 | Part 29 | Part 30 | Part 31 | Part 32 | Part 33 | Part 34 | Part 35 | Part 36 | Part 37 | Part 38 | Part 39 | Part 40 | Table of Contents

In July 1932, one month after accepting the Democratic Party’s nomination for the office of president of the United States, Franklin Delano Roosevelt delivered a campaign radio address to the nation. He focused on the extravagant spending policies of Herbert Hoover’s administration and the federal budget deficits it had created: “Let us have the courage to stop borrowing to meet continuing deficits,” Roosevelt said. “Revenues must cover expenditures by one means or another. Any government, like any family, can, for a year, spend a little more than it earns. But you know and I know that a continuation of that habit means the poorhouse.”

In 1930, the Hoover administration ran a budget surplus by increasing federal tax revenues by more than 5%, even as the economy was experiencing its first year of the Depression. But in 1931, as revenues fell by 25% in the face of falling business receipts and personal incomes, the federal government ran a budget deficit to cover 13% of its expenditures. In 1932, the deficit spending massively increased even further, representing almost 60% of federal expenditures. Between 1929 and 1932, the accumulated federal debt rose by 15% under Herbert Hoover’s administration.

At the Democratic national convention in June 1932, where FDR was nominated for president of the United States, the Democratic Party issued a platform promising a way out of the Great Depression. The party stated: “We believe that a party platform is a covenant with the people to be faithfully kept by the party entrusted with power.”

Having made that pledge, the Democratic Party offered a program for recovery that promised, among other things:

“1.An immediate and drastic reduction of government expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance, to accomplish a saving of not less than twenty-five percent in the cost of federal government.

“2.We favor maintenance of the national credit by a federal budget annually balanced on the basis of accurate executive estimates of revenues.

“3.We advocate a sound [gold] currency to be preserved at all hazards.

“4.The removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest.

“5.We condemn the extravagance of the [federal] Farm Board, its disastrous action which made the government a speculator of farm products, and the unsound policy of restricting agricultural products to the demands of domestic markets.

“6.We condemn the Hawley-Smoot Tariff Law, the prohibitive rates of which have resulted in retaliatory action by more than forty countries, created international economic hostility, destroyed international trade, driven our factories into foreign countries, robbed the American farmer of his foreign markets, and increased the cost of production.”

The Democratic Party platform stated:

“In conclusion, to accomplish these purposes and to recover economic liberty we pledge the nominees of this convention the best efforts of a great party whose founder [Thomas Jefferson] announced the doctrine which guides us now in the hour of our country’s need: Equal rights for all; special privileges for none.”

In November 1932, Franklin Roosevelt was elected president of the United States, winning 30% more of the popular vote than Herbert Hoover and 472 of the Electoral College votes to Hoover’s 59.

But from the day FDR took the presidential oath of office on March 4, 1933, he moved America in a direction exactly opposite of the promised “covenant with the people to be faithfully kept by the party entrusted with power.” In his inaugural address, Roosevelt told the American people:

“If we are to go forward we must move as a trained and loyal army willing to sacrifice for the good of the common discipline, because, without such discipline, no progress is made, no leadership becomes effective…. I assume unhesitatingly the leadership of this great army of our people, dedicated to a disciplined attack upon our common enemies…. The people of the United States … have registered a mandate that they want direct, vigorous action. They have asked for discipline and direction under leadership. They have made me their present instrument of their wishes. In the spirit of the gift I take it.”

He hoped that his commandership over the American people would be compatible with the traditional American constitutional order. “But it may be that an unprecedented demand and need for undelayed action may call for temporary departure from the normal balance of public procedure.” He would ask Congress for “broad executive power to wage a war against the [economic] emergency as great as the power that would be given me if we were in fact invaded by a foreign foe.” But in the event that the Congress refused to give him these special executive powers, he threatened darkly: “I will not evade the clear course of duty that will then confront me.”

In the same month that he took over the presidential office, Franklin Roosevelt published a book of his speeches that was entitled Looking Forward. The blueprint of all that was to come was clearly laid out. America had grown big and powerful during its first 150 years, but its development had included a great deal of “haphazardness” and “waste” that “could have been prevented by greater foresight and by a larger measure of social planning.”

Private industry had to give up some of its freedom; agriculture had to be supervised and assisted by the government; public expenditures were needed to increase and reflect modern responsibilities of enlightened political authority, including social security, unemployment insurance, and workers’ compensation; competition, speculation, and banking required increased government regulation; the hours, wages, and conditions of work had to come under greater government control; income and spending power among groups in American society needed to be redistributed; massive public works projects had to be undertaken for the national betterment.

Taken all together, FDR said that the “spirit of my program” represented a “new deal” for America, involving “a changed concept of the duty and responsibility of government toward economic life.” He said that as part of this, “business must think less of its own profit and more of the national function it performs.” And the suppression of private interests to a common interest would “make possible the approach to a national economic policy which will have as its central feature the fitting of production programs to the actual probabilities of consumption” as considered appropriate by the new government planners.

During the next four years, Franklin Roosevelt’s New Deal implemented all of these proposals – in spite of the pledge made in the Democratic Party’s political platform of 1932. Instead of “an immediate and drastic reduction of government expenditures … to accomplish a saving of not less than twenty-five percent in the cost of federal government,” between 1933 and 1936, government expenditures rose by more than 83%. To cover this massive increase in government spending, Roosevelt’s administration ran huge budget deficits. In 1933, deficit financing covered 56.5% of government expenditures. For 1934, 1935, and 1936, the figures for deficit financing for were, respectively, 54.6%, 43%, and 52.3% of government expenditures. In four years, the federal government’s debt went from $19.5 billion in 1932 to $33.8 billion in 1936, representing a 73.3% increase.

Instead of ending the “disastrous action which made the government a speculator of farm products and the unsound policy of restricting agricultural products to the demands of domestic markets,” the federal government intervened in the affairs of the farming sector to a greater extent than ever before. On May 12, 1933, the Congress passed the Agricultural Adjustment Act (AAA), giving the government wide powers to fix the prices of farm products, purchase agricultural surpluses over an increasing number of crops, and pay farmers to reduce acreage in various lines of production.

On May 18, 1933, the Congress passed the Tennessee Valley Act, giving the federal government authorization for the undertaking of a massive public works project for the construction of dams and electrification in the southern states. It was nothing less than socialist planning for land use, conservation, and supplying of energy for a vast subsection of the country.

The AAA also gave the Roosevelt administration the authority to reduce the gold content and value of the dollar by up to 50%. Then, in contradiction to the promise that “a sound currency [would be] preserved at all hazards,” on June 5, 1933, Congress passed a resolution voiding the gold clause in all government and private contractual obligations, as well as requiring all Americans to turn in their privately held gold for Federal Reserve Notes, under penalty of confiscation and imprisonment.

Instead of a “removal of government from all fields of private enterprise,” on June 16, 1933, the Congress passed the National Recovery Act (NRA) providing for total federal government control of the industrial sectors of the U.S. economy. Mandatory “codes of fair competition” were established for each sector of the economy, establishing pricing and production regulations for almost every manufactured good in the country. Every retail store in America was encouraged to display the NRA “Blue Eagle” emblem in its store windows to assure people that the stores were “doing their part.”

On March 29, 1933, the Civilian Conservation Corps was established, putting government in the business of creating work for America’s youth. On May 12, 1933, the Unemployment Relief Act was passed, which later became the Works Progress Administration, which provided direct employment of millions on federal “public works” projects.

On July 5, 1935, the National Labor Relations Act was passed, making the federal government arbiter over the private workplace. The Minimum Wage Act was passed on June 25, 1938. The Social Security Act was passed on August 14, 1935, making government responsible for the retirement planning of the American people.

And rather than renounce “the prohibitive [tariff] rates” which had “resulted in retaliatory action by more than forty countries, created international economic hostility, [and] destroyed international trade,” the Roosevelt administration scuttled the London Economic Conference of June 1933 that could have reestablished stable foreign exchange rates on a gold basis and helped to end the tariff wars between nations. Instead, FDR sent a message to the London conference that the goal of his administration was to manipulate the U.S. dollar’s value for purposes of internal national planning.

Franklin Roosevelt changed the face of America. The planned economy was imposed on the United States. Every corner of the market was now under the supervision, control, and regulation of the federal government. An increasing number of Americans became directly and indirectly dependent upon the Washington for their employment and income. The era of big government had arrived in the United States.

Part 1 | Part 2 | Part 3 | Part 4 | Part 5 | Part 6 | Part 7 | Part 8 | Part 9 | Part 10 | Part 11 | Part 12 | Part 13 | Part 14 | Part 15 | Part 16 | Part 17 | Part 18 | Part 19 | Part 20 | Part 21 | Part 22 | Part 23 | Part 24 | Part 25 | Part 26 | Part 27 | Part 28 | Part 29 | Part 30 | Part 31 | Part 32 | Part 33 | Part 34 | Part 35 | Part 36 | Part 37 | Part 38 | Part 39 | Part 40 | Table of Contents

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    Dr. Richard M. Ebeling is the recently appointed BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He was formerly professor of Economics at Northwood University, president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).