FDR's Raw Deal Exposed

Chicago Sun-Times ^ | 9.30.03 | Thomas Roeser

[Cathryn Crawford]

FDR's Raw Deal Exposed

August 30, 2003

BY THOMAS ROESER

For 70 years there has been a holy creed--spread by academia until accepted by media and most Americans--that Franklin D. Roosevelt cured the Great Depression. That belief spurred the growth of modern liberalism; conservatives are still on the defensive where modern historians are concerned.

Not so anymore when the facts are considered. Now a scholar at the libertarian Cato Institute has demonstrated that (a) not only did Roosevelt not end the Depression, but (b) by incompetent measures, he prolonged it. But FDR's myth has sold. Roosevelt, the master of the fireside chat, was powerful. His style has been equaled but not excelled.

Throughout the New Deal period, median unemployment was 17.2 percent. Joblessness never dipped below 14 percent, writes Jim Powell in a preview of his soon-to-be-published (by Crown Forum) FDR's Folly: How Franklin Roosevelt and His New Deal Prolonged the Great Depression. Powell argues that the major cause of the Depression was not stock market abuses but the Federal Reserve, which contracted the money supply by a third between 1929 and 1933. Then, the New Deal made it more expensive to hire people, adding to unemployment by concocting the National Industrial Recovery Act, which created some 700 cartels with codes mandating above-market wages. It made things worse, ''by doubling taxes, making it more expensive for employers to hire people, making it harder for entrepreneurs to raise capital, demonizing employers, destroying food . . . breaking up the strongest banks, forcing up the cost of living, channeling welfare away from the poorest people and enacting labor laws that hit poor African Americans especially hard,'' Powell writes.

Taxes spiraled (as a percentage of gross national product), jumping from 3.5 percent in 1933 to 6.9 percent in 1940. An undistributed profits tax was introduced. Securities laws made it harder for employers to raise capital. In ''an unprecedented crusade against big employers,'' the Justice Department hired 300 lawyers, who filed 150 antitrust lawsuits. Winning few prosecutions, the antitrust crusade not only flopped, but wracked an already reeling economy. At the same time, a retail price maintenance act allowed manufacturers to jack up retail prices of branded merchandise, which blocked chain stores from discounting prices, hitting consumers.

Roosevelt's central banking ''reform'' broke up the strongest banks, those engaged in commercial investment banking, ''because New Dealers imagined that securities underwriting was a factor in all bank failures,'' but didn't touch the cause of 90 percent of the bank failures: state and federal unit banking laws. Canada, which allowed nationwide branch banking, had not a single bank failure during the Depression. The New Deal Fed hiked banks' reserve requirement by 50 percent in July 1936, then increased it another 33.3 percent. This ''triggered a contraction of the money supply, which was one of the most important factors bringing on the Depression of 1938--the third most severe since World War I. Real GNP declined 18 percent and industrial production was down 32 percent.''

Roosevelt's National Recovery Administration hit the little guy worst of all, Powell writes. In 1934, Jacob Maged, a 49-year-old immigrant, was fined and jailed three months for charging 35 cents to press a suit rather rather than 40 cents mandated by the Fed's dry cleaning code. The NRA was later ruled unconstitutional. To raise farm prices, Roosevelt's farm policy plowed under 10 million acres of cultivated land, preventing wheat, corn and other crops from reaching the hungry. Hog farmers were paid to slaughter about 6 million young hogs, protested by John Steinbeck's The Grapes of Wrath. New Deal relief programs were steered away from the South, the nation's poorest region. ''A reported 15,654 people were forced from their homes to make way for dams,'' Powell writes. ''Farm owners received cash settlements for their condemned property, but the thousands of black tenant farmers got nothing.''

In contrast, the first Depression of the 20th century, in 1920, lasted only a year after Warren Harding cut taxes, slashed spending and returned to the poker table. But with the Great Depression, the myth has grown that unemployment and economic hardship were ended by magical New Deal fiat. The truth: The Depression ended with the buildup to World War II.

[WOSG]

Actually, I seem to recall reading that Stalin when younger was considering the seminary... the mind boggles.

[nicollo]

The most insiduous part of the FDR myth is the implication that the New Deal was good and 1920s Republicans were bad. It will be a fine day when Cool Cal gets more respect that FDR.

As for the Depression itself, the Fed had an opportunity to halt it before it started. In that sense, the Fed did cause the Great Depression.

The Great Depression ought to have been the Panic of '29. But for the Fed, the Smoot-Hawley tariff, and Hoover and Congress, it would have been a short recession that followed just another real estate and stock bubble, albeit one of the worst. The reaction to the market panic caused the Depression. If we must name a name, let it be Hoover, although I doubt he could have done much of anything given the tariff and the tight money supply. (I believe that Hoover got a general tax cut in '31, and by then the Fed was loose on money, but both were too little, too late, and not sustained)

It is important to state clearly that conservativism and the free market did not cause the Great Depression. Republican rule and implimentation of conservative, free market principles during the 1920s freed the economy to grow and to spread prosperity at unprecedented levels. The '29 crash was no more caused by conservativism than FDR'socialism fixed the Depression.

We must give LiberalLarry this -- well half of it:

Roosevelt's contribution was as much psychological as anything else. He was a fresh face trying new things. Sometimes that's the best humanity can expect.

Larry, FDR put a smile on socialism and sold it to the public at the cost of their own welfare. He was a master politician and spinner. For example, remember the name for his limousine? -- "The Sunshine Special." The best that can be said for him regarding the Depression is that he smiled his way through it.

----

Ohioan, good posts. I'd only add to your comment about FDR's confiscation of gold -- hard money was the old Democrat and populist bogeyman. Some combination of the late 19th Century panics is what the Great Depression should have been, especially the Panic of 1894. That one was caused by a high tariff and mandatory government purchase of silver and set prices thereon. It was stupid then, and it was stupid in 1933.

[WOSG]

Okay. I am confused. I saw a NOVA report *this week* on Venona, then I saw the link, even replied ... then noticed it link was posted in Feb 2002 ... A Rerun NOVA?

Here's a list of Venona-related Soviet spies:

http://www.unc.edu/depts/diplomat/AD_Issues/amdipl_15/platt_15.html


The authors claim that Americans identified by the Venona transcripts to be Soviet agents were members of the Moscow-controlled CPUSA, an “auxiliary” of Soviet intelligence, whose active collaboration facilitated Stalin’s espionage offensive against the U.S. Fueled with an “ideological affinity for the Soviets,” these idealistic Marxist-Leninists betrayed what they considered a “morally illegitimate” American capitalist system. Few defected or renounced Communism, even after Stalin’s purges and 1939 pact with Hitler.

According to the Venona decryptions, Stalin’s agents included:

* Lauchlin Currie, senior White House aide to FDR, who alerted the NKVD (Soviet intelligence) to FBI investigations of its top agents.
* Martha Dodd, licentious daughter of the American ambassador to Berlin, whose passionate affair with the first secretary of the Russian embassy included passing confidential diplomatic correspondence to Moscow.
* Alger Hiss, chief of the State Department’s Office of Special Political Affairs, who accompanied Roosevelt to Yalta in 1945 and chaired the founding conference of the UN. This senior assistant to the secretary of state gave Soviet military intelligence diplomatic cables concerning Axis threats to Soviet security.
* Laurence Duggan, head of the State Department’s Division of American Republics and the secretary of state’s personal adviser for Latin America, who gave the NKVD Anglo-American plans for the invasion of Italy.
* Michael Straight, a family friend and protege of President and Mrs. Roosevelt who was recruited into the NKVD by Soviet spy Anthony Blunt while attending Cambridge University.
* Harry Dexter White, assistant secretary of the Treasury, U.S. director of the IMF, senior adviser to the American delegation at the founding conference of the UN, who facilitated employment for Soviet sources in his department.
* Harold Glasser, vice-chairman of the War Production Board and assistant director of the Treasury’s Office of International Finance, who gave the NKVD a State Department analysis of Soviet war losses.
* Gregory Silvermaster, a Treasury economist whose spy network provided Moscow with prodigious amounts of War Production Board data on arms, aircraft, and shipping production.
* Victor Perlo, chief of the Aviation Section of the War Production Board whose spy ring supplied the Soviets with aircraft production figures and included a Senate staff director.
* Judith Coplon, Justice Department analyst who alerted Moscow to FBI counterintelligence operations.
* Duncan Lee, descendant of Robert E. Lee and senior aide to OSS chief William J. Donovan, who became the NKVD’s senior source in American intelligence; he divulged secret OSS operations in Europe and China.
* William Weisband, NSA linguist who informed Moscow that the Venona Project had deciphered its messages.

While Haynes and Klehr acknowledge that there were “sensible [security] reasons” for keeping Venona secret (so secret that even President Truman lacked direct knowledge of it), they argue that “This decision denied the public the incontestable evidence afforded by the messages of the Soviet Union’s own spies.” Proof of Soviet espionage and “American Communist participation” based on the testimony of defectors was “inherently more ambiguous than the hard evidence of the Venona messages.” If Venona had been made public, they maintain, government investigations and prosecutions of Communist party members would have been more defensible. The guilt of the Rosenbergs would have been indisputable and the innocence of secretaries of state Dean Acheson and George C. Marshall would have been clearly established. Manhattan Project director J. Robert Oppenheimer’s Communist background and indifference to possible Soviet infiltration of Los Alamos (until 1943) would have been verified, but so would Moscow’s failure to recruit him as an agent.

Paradoxically, the success of the Venona secret has skewed our understanding of the Cold War. Haynes and Klehr are correct to note that those histories of the Stalinist era that belittle the Soviet threat have indeed “perpetuated many myths that have given Americans a warped view of the nation’s history.” Hopefully, these invaluable Venona files will help us see more clearly just how much of a threat Soviet espionage and Communist subversion posed to American security. The much-desired opening of all Russian intelligence archives dealing with this period would go far in doing just that.

[nicollo]

I was writing my no. 222 when you posted no. 220. Agreed that Smoot-Hawley was a Republican instrument and that it represented convservative orthodoxy of the time. Yes, the Republicans were wrong on the tariff. (Note, though, that it did not contribute to the '29 Crash, since it came later.)

Amazingly, the Republicans of 1980 gave us the highest ever tariff and the Silver Act.

[nicollo]

Smoot-Hawley was a factor in the stock market crash of '29 but the market had regained it's pre-crash levels by the summer of '31. That's when the banks started to fail due to the massive crop failures of '30, and by '33 when the Fed began it's monetary contraction the banks that were left couldn't stand the strain and folded.

Just to correct this about the stock prices, do note:

[gatorbait]

Liberal Larry wails thusly:
"Roosevelt's contribution was as much psychological as anything else. He was a fresh face trying new things. Sometimes that's the best humanity can expect."


Sort of like Robespierre and Lenin,right?

Humanity does expect better. The Left sings a lovely siren song,though, and society ends as did the sailors who heeded it.....on the rocks, shipwrecked and doomed.

[gatorbait]

As well, economics was and is largely propaganda. In my college days - the '60s - economists were still teaching that unemployment was an impossibility in a free-market economy. Things haven't improved much.

Was this at Lumumba University?

[gatorbait]

Interestingly Jews in Stalin's Russia did much better than in most of Europe.


Did they now? Sorry, that washes poorly.

[liberallarry]

If we're lucky the gator will get you next time out.

[x]

If Roosevelt had left office in 1941 he'd have been regarded as a poor or mediocre President who hadn't been able to lick the Depression. To be sure, leaders in other countries hadn't been able to do so either, and perhaps no leader could have been able to do so without imposing militarism or dictatorship, but it was WWII and Hitler that made FDR a "great President," rather than an unsuccessful or barely adequate one.

Today's libertarians are too overconfident and dogmatic, though. The government could well have been overthrown and a more overt dictatorship established in the 1930s. Even if our political order was secure, Roosevelt did provide those in other parts of the world with hope that popular government could prevail in an age when its prospects looked dim, and thus helped to prevent even greater chaos and tyranny in the world.

It's nice to say that we know the policies that would have solved or cured the Great Depression, but spirits were so low and hopelessness so wide spread that even the best policies were likely to fail. If we ever again face an economic situation that looks as dire and intractable and threatening to the very idea of representative government as the Great Depression did, we may understand how someone as flawed as Roosevelt earned such respect in his day.

The deepest objection to FDR is that he didn't give a sign that his sometimes wild and dubious improvisations were just that -- desperate and often poorly planned and ill-thought out attempts to cope with pressing economic problems. If he had, it would be easier to give him credit for what he was able to do, without accepting a dubious economic philosophy. Though Roosevelt was more or less making it up as he went along, he had to give the impression that he had the blueprint for the future in order to win support from a worried public. As that blueprint comes to look more and more inadequate and mistaken, FDR's reputation will decline, though never to the point where today's libertarians would consign it.

[nicollo]

For Taft, go here: http://freerepublic.com/focus/f-news/972294/posts?page=76#76

Well, it's a long story, but Taft indeed launched the 16th amendment. The book discussed in that thread tells the story.

[nicollo]

I've always been curious about Ford's "eccentric" beliefs. He was a hell of a smart guy...so I'm curious. Can you recommend any sources?

For a liberal, I'd recommend Allan Nevins' "Ford: The Times, the Man, the Company." (Nevins wrote the preface to JFK's "Profiles in Courage.") There's a new Ford bio out this year, although I haven't read it. I'm sure it's on Amazon.com.

Ford was your basic wacky, plain American guy with all his wackiness multiplied by hundreds of millions of dollars. His anti-semitism was typical of mid-western agrarians, who loathed all things New York and banks, particularly, blaiming the Jews, of course, for both. Ford displayed his anti-semitism much earlier than the 30s, starting back in the 1910s when he became a popular hero for the Model T.

[Paulus Invictus]

Are you saying that what history says about FDR is wrong? How is Polk or other presidents involved in this study? Enlighten me.

[GladesGuru]

I am now doing a video of a man who was present when Issac Folkov (sp) practiced riot techniques at Berkley which were then used to assure the election of Harry Bridges to the Longshoreman's union, when leading Hollywierd figures were at Communist Party meetings with Folkov, and even how a tall ship was used as a school ship for Communism (students from Harvard, Yale, Princeton).

Lots of Russian Communist influence in America is still to be discovered. Count on links to the enviro leadership of today, who are actualizing Warren Z. Foster's "American Soviet Government".

[ninenot]

Examine the philosophy underlying Libertarianism.

The Libertarians believe (or at least so I've been told) that "all that does not harm my neighbor is permissible." Thus, the Lib position on illegal drugs, which follows naturally.

OTOH, Christianity has NEVER held that to be true, as the understanding of mankind as a "community"--children/family of God---precludes violation of natural law. Same applies to homosexual relationships, and the Texas case was really a victory for Libertarianism--didn't hurt the neighbor, did it? and all sorts of other, ahh, moral peculiarities.

So much so that the line from Donne "...we are all a piece of the Main, a part of the Clod/therefore, do not ask for whom the bell tolls/it tolls for thee" is purely Christian in its meaning.

On the flip side, Libertarianism is not a philosophy which is 'other-oriented.' There is no 'preferential option for the poor' in Libertarianism, nor is any honor given to the words of Christ "...whatsoever you do for the least of My brethren, you do for Me."

Please understand that I don't for a moment think that you consciously agree with the Libertarian positions I have described. But the philosophy, to be consistent, must be a-theist. If there is NOT a brotherhood of mankind, there cannot be a Father/Lawgiver.

[liberallarry]

Thought about your comments carefully - then re-read some of the complaints about the Church.

Sometimes unfit or unscrupulous people gain positions of power in an institution. When these people speak or act it reflects badly on the institution - which may itself be quite good. Those within the institution can easily make the distinction. Those outside cannot.

When the institution is a church there's another difficulty; the teachings or scripture. The Church which propagates the teachings and the individuals who represent it may, over time, deviate from and/or misrepresent or even lie about the message they're supposed to teach (I'm thinking about the money-changers in the Temple). People suffering from such misrule may not be capable of - or even care about - understanding who or what's the real source of their misery.

That's how it now looks to me.

[ninenot]

These days, we'd call than an "anti-competitive practice."

[ninenot]

we know because in 2001-2003 we just survived such a downturn!

It ain't over yet, honey.

The recession continues un-abated in Wisconsin, despite the best efforts of 200,000 Harley-riders to spend Wisconsin back to the promised land.

But it DOES seem that the national numbers are heading in the right direction for a change.

[ninenot]

One more thing: this recession hit the Upper Midwest in 2000, not 2001. There was no "double-dip;" it was straight down from the very beginning.

[ninenot]

"...Republicans of 1980...highest tariff.."

Followed, after 1.5 years by the longest economic expansion in history....

until Clintoon and Newt Gingrinch stole Christmas and sold it to the Chinese.