Explore Freedom

Explore Freedom » The Nightmare of the New Deal, Part 1

FFF Articles

The Nightmare of the New Deal, Part 1

by

Part 1 | Part 2

The Forgotten Man: A New History of the Great Depression by Amity Shlaes (HarperCollins, 2007); 464 pages.

If you ask a random sample of Americans who know (or think they know) something about U.S. history to discuss the twin subjects of the Great Depression and the New Deal, most will say something like this: “The Depression hit the country because capitalism has a tendency to sometimes collapse, but luckily Roosevelt was elected and his brilliant New Deal policies got the economy moving again.”

That view is not just mistaken — it’s a key component of the statist mythology in America. So long as people think that they need a strong, interventionist government to protect them from the instability of capitalism, libertarianism will have a very hard time making any headway. People want prosperity. If they believe that big government is necessary for it, big government they will have.

With her new book, The Forgotten Man, Amity Shlaes has dealt a shattering blow to that mythology. Her lucid and highly readable book leaves the reader with the understanding that capitalism got a bum rap in the 1930s and that the New Deal, far from being brilliant, was a nightmare. Shlaes isn’t the first writer to try to set the historical record straight and undermine the fawning adulation usually given to Roosevelt, but her book may succeed more than all the others put together because it’s (a) nonacademic and (b) published by a major house. Except for die-hard statists, this book will at least cause readers to smirk next time they read that Franklin Roosevelt was one of our “great” presidents.

Shlaes begins diabolically, telling the heart-wrenching story of a young teenager who killed himself so that the rest of his impoverished family might have a little more to eat. Naturally, the reader starts to think, “That miserable bum Hoover — why didn’t he do something to improve conditions in the country?!” Then Shlaes springs the surprise: the event actually took place in late 1937, after Roosevelt had been president for nearly five years. The little-known truth (although painfully evident at the time) is that economic conditions had improved only slightly during Roosevelt’s first term and took a nosedive in the latter half of 1937, giving the nation a depression within a depression. While the United States had suffered through recessions in the past (always, Murray Rothbard has shown, owing to monetary bungling by the government), not one had lasted more than two years. Instead of hastening the normal recovery, the efforts of Hoover and Roosevelt had managed only to deepen and lengthen the misery while transforming the nation in terrible ways.

In the United States of 1929, the federal government played a very small role, employed very few people, and spent very little money. Most important, very few Americans looked to Washington, D.C., to solve “social problems.” Three years of interventionist policies under Hoover — Shlaes makes it clear that Hoover was anything but the dogmatic laissez-faire advocate he is usually said to have been — and five more under Roosevelt had turned America into a country where a nearly omnipotent government was everywhere, controlled by people who admired Stalin and Mussolini as models of forward-looking leaders. It was as if a person with a cold took a medicine that turned the cold into pneumonia and it brought on dementia as well.

As an aside, one can’t help wondering what the United States would be like today if, instead of turning to coercive, statist “remedies” for the Depression, Americans had drawn the correct conclusions and turned away from the bad policies they already had, especially high tariffs and central banking. America would be a much freer and more prosperous country today but for the intellectual blunders of the 1930s. Although Shlaes doesn’t indulge in any libertarian daydreaming, she does a good job of exposing those intellectual blunders. 

The bad guys

Shlaes’s narrative is driven along by an odd cast of characters. In fact, if there weren’t proof that these people really were as described, you might be inclined to say, “Naw — gotta be made up.” Mostly the book centers on the bad guys. They were all true believers in the notion that the time had come to remake American society along “progressive” lines — which is to say, replacing individual liberty and private property with central planning and bureaucratic control. Early on, we are introduced to the leftist pilgrims who went to visit the Soviet Union in 1927 and fell for communism like a teenage boy who falls for the first girl who kisses him. Among them was Columbia University economist Rexford G. Tugwell, who would later become one of Roosevelt’s closest advisors. He wrote that in contrast to the moribund America, the Soviet Union was “a stirring new life hardly yet come to birth.” These people were intellectuals infatuated with the glittering prospect of social perfection brought about by the firm but kindly hand of the state.

The main bad-guy role goes to Roosevelt himself, of course. Other writers have previously punctured the myth that he was a visionary mental giant who fortunately was on hand to lead the country in its time of despair. Shlaes reinforces the image of Roosevelt as merely a clever, conniving politician with one big asset, namely his great radio persona. Once he had sweet-talked his way into the White House — not a difficult task given that Herbert Hoover was a sourpuss political dud — his approach to policy was utterly clueless. He told the voters that he would be an experimenter in the 1932 campaign, but in office his experimenting was much like that of a child who is let loose in a chemistry lab and who thinks, ”Wouldn’t it be cool to try mixing some of this and some of this and see what happens?” Roosevelt and his subordinates tinkered and tampered constantly with the liberty and property of Americans. The federal budget grew and grew and regulations on business mushroomed, but the economy remained in the doldrums. It never dawned on the New Dealers that coercion is counterproductive.

Another group of bad guys is Roosevelt’s political cronies. A hallmark of modern politics in America is the use of cronies to shape public opinion by creating good news where there really isn’t any and pinning the blame for bad news on scapegoats. Those tactics were perfected in Roosevelt’s first term. Shlaes points out, for example, that the federal government hired lots of artists whose job it became to do everything they could to extol the New Deal. The Federal Theater Project, for example, dramatized the evils of electric power companies and suggested that governmental ownership along Tennessee Valley Authority lines would be the people’s salvation. And photographers were paid to seek out scenes that would cast a favorable light on the New Deal. Bill Clinton didn’t invent the “continuing campaign” — Roosevelt did.

More of the bad guys in the book are Roosevelt’s henchmen who eagerly bad-mouthed and even prosecuted his opponents for spite and political advantage. The two most famous targets of Roosevelt’s attack dogs were Andrew Mellon, the wealthy former secretary of the treasury, and Samuel Insull, who had made a fortune by supplying electricity to Chicago — and lost almost everything following the stock-market crash. Income-tax charges were filed against both men, not because they had committed any clear violation of the difficult-to-understand IRS code (yes, even then: Shlaes includes a copy of a letter from Roosevelt himself to the IRS commissioner explaining that he couldn’t figure out how to calculate his own taxes), but just because the prosecutions helped inflame public opinion against those “economic royalists,” as Roosevelt liked to characterize people who had earned a lot of money.

Part 1 | Part 2

This article originally appeared in the December 2008 edition of Freedom Daily.

  • Categories
  • This post was written by:

    George C. Leef is the research director of the John W. Pope Center for Higher Education Policy in Raleigh, North Carolina. He was previously the president of Patrick Henry Associates, East Lansing, Michigan, an adjunct professor of law and economics, Northwood University, and a scholar with the Mackinac Center for Public Policy.