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.

[liberallarry]

Two different approaches. I prefer ours.

[liberallarry]

That's just wacky

I wonder. Certainly the bottom 10% pays nothing. Probably the bottom 15%. How much can they earn and still pay nothing but FICA? How much is left after FICA and other taxes are paid? $500 a month? $1000 a month?

[Cronos]

That is a "fact" from the Nazi propaganda that current anti-Semites keep alive. The Marx family was Jewish, indeed. Euther Karl's father or grandfather converted out of Judaism. As happens to many converts, Karl Marx became a vicious anti-Semite. For Nazis, it was not a religion or conduct that mattered: the "Jewish blood" of Marx, no matter how anti-Semitic (he despised Russians, too, incidentially --- how ironic) he was, made him Jewish in the eyes of the Nazis.

Thank you!

If I remember correctly, he thought that Marxism should have started in industrial countries like Britain or Germany, richtig?

[MrLeRoy]

The drug war is another product of the New Deal.

Amen!

[Ohioan]

Marx WAS a Jew, so how could he do what you say?

Marx's thoughts on Capitalism and the Jews are a matter of record. The only reason that they are not familiar to you, is because the Left has tried to create a fake dichotomy, in which the Nazis (one branch of Socialist thought) are supposed to be the Right--which they never were--and the Communists are supposed to be the Left--which indeed they were--with the Left being supposedly more tolerant than the make-believe right. Of course, the Nazis had to settle for second fiddle in the intolerance game compared to the Bolshevik Communists.

But the fact is that Hitler's scapegoating of the Jews was taken from Marx's play book. Marx blamed the "evils" of Capitalism on a Jewish mindset, and also proposed to his followers the tactic of focusing on a single enemey--a scape goat for the ills of society--as a rallying point. That is precisely what Hitler did. (See The Lies of Socialism for a further discussion of all of this, in the context of Socialist tactics and mythology.)

Your premise is also flawed. While Marx's family had been Jewish, his father had converted to Christianity. But that is not relevant to Karl, who was an athiest, and the dedicated foe to all religion.

William Flax Return Of The Gods Web Site

[liberallarry]

The number of Americans living below the poverty line increased by more than 1.3 million last year...the total percentage of people in poverty increased to 12.4 percent from 12.1 percent in 2001 and totaled 34.8 million. At the same time, the number of families living in poverty went up by more than 300,000 in 2002 to 7 million from 6.6 million in 2001...in 2001, a family of two adults and two children would have to have made less than $17,960 a year to be ranked as living below the poverty level. For a single person under the age of 65 the poverty line was roughly $9,200 a year.

from Census Shows Ranks of Poor Rose by 1.3 Million

Interesting.

[texasbluebell]

>>>> Is there any record of anyone actually starving during the depression?

I thought I'd check through a book I haven't read yet, for this.

Freedom From Fear by the noted historian David M. Kennedy covers the years 1929 to 1945.

The following describes Lorena Hickok's travels throughout part of Appalachia. She was a friend of Eleanor Roosevelt, and reported back to the WH on her findings:

Kennedy writes: "...Men who had once loaded tons of coal per day grubbed around the base of the tipple for a few lumps of fuel to heat a meager supper--often nothing more than 'bulldog gravy' made of flour, water, and lard. The miner's diet, said United Mine Workers president John L. Lewis, 'is actually below domestic animal standards.'"

"...the miners struck Hickock as a singularly pathetic lot. "'Some of them have been starving for eight years', she reported to Hopkins. 'I was told there are children in West Virginia who never tasted milk!'"

She visited a mining camp: 'Some miners' families, said Hickok, 'had been living for days on green corn and string beans--and precious little of that. And some had nothing at all, actually hadn't eaten for a couple of days. At the Continental Hotel in Pineville [Kentucky] I was told that five babies up one of those creeks had died of starvation in the last ten days...'"

[texasbluebell]

David M. Kennedy (the author of the book quoted in my previous comment) himself had interesting things to say about the depression years.

I heard him speak once (sat in on one of his lectures) and he spoke of how his father had worked lumbering (I'm pretty sure that's what it was) in the Pacific Northwest when the depression had hit.

The lumber camp closed down, no work to be had, but Kennedy's father stayed on alone with his wife, living at the camp, no one else lived there or anywhere nearby.

Kennedy was born at the camp, where they spent the next 10 or so years, living out at the camp all alone in the forest, where they were able to eke out their survival by hunting I suppose, and getting what they could from the land.

I found it a very interesting story, the way he told it. It really made the depression years real. He's got the reputation of being a fabulous teacher, which I gathered from the one time I heard him speak.

[eno_]

We also have more than 30 million recent immigrants. How many of that million "new" poor are only "new" because they waded across the Rio Grande?

[x]

Liberty magazine for Sept/Oct says that Colorado has a law mandating that tax rates not increase more than the growth of population plus the inflation rate. The politicians did all they could to defeat it. Liberty says it works. You might consider introducing such a measure at the state level. If it works in many states, someday people may demand that the federal government follow the same rule. For the time being and the forseeable future, though, government will bear responsibility for emergency situations (war, depression, disaster) that will drive up expenditures and taxes.

[conservatism_IS_compassion]

You stated:

FDR is the guy who failed to end the depression in two terms as president (he served three terms and was elected to a fourth). Despite the fact that Hitler took power in 1933, about the same time FDR took office, and the Japanese started their march about the same time, by the end of his second term when we were hit at Pearl Harbor FDR had done nothing to prepare us for war. Our guys were still training with sticks and our ships were sitting in harbor to save fuel.

I’m pretty far back in line if you’re looking for someone to promote the sainthood of FDR, but I recently read a book

Freedom's Forge:

How American Business Produced Victory in World War II
Arthur Herman

which presents an entirely different take on American preparedness. Stipulate that WWII ended the Depression, but by what mechanism? My #29 is a synopsis of what I learned earlier reading The New Dealers’ War. But Forge is informative about US preparedness policy during the two years or so between the start of British rearmament and the bombing of Pearl Harbor. During that period, the British (and until May 1940 the French) effort to obtain weaponry of all sorts and from wherever they might be available produced a spike in export business for American arms/aircraft businesses. After Dunkirk British ground forces were essentially unarmed, for example - and as the US Army was adopting the M-1 Garand, it was able to surplus a lot of Springfield rifles which were made for WWI but had never been shipped to Europe before Armistice Day and had been warehoused. These were sold to the British.

FDR was deeply worried about the possible fall of Britain, and Churchill did what he could to promote that. Including warning that if Britain fell, there was no knowing what Churchill’s successors might find it necessary to do with the Royal Navy. The point, in this discussion, is that American preparedness efforts were limited by a very antiwar public opinion, and what efforts were made were - in the early days - fully funded by British money. Until that ran out. Then FDR came up with Lend-Lease as a way of sidestepping public opposition. But the crucial fact is that in 1939 America not only was not prepared for war, it was unprepared to prepare for war. And FDR knew it. He had as under Secretary of the Navy during WWI seen the US utterly fail to produce weaponry and get it to the Front.

He knew that the US couldn’t afford to enter WWII in the same condition. So he called the one person who had impressed FDR during the WWI armaments fiasco - Bernard Baruch. When FDR asked him to organize an industrial preparedness program, Baruch demurred because of his age. Asked who he should tap for the job, Baruch replied, “Three names: Bill Knudsen, Bill Knudsen, and Bill Knudsen.” A former right hand man of Henry Ford, Knudsen had quit in a huff in 1920 - and been hired at a tenth of his previous salary by a struggling car maker named General Motors. He took over Chevrolet, and brought it from nowhere up to parity with Ford. So in American industry, no one had more respect than Bill Knudsen.

Knudsen accepted the mission, and was able to implement a plan whereby the US accumulated the machine tools (long pole in the tent) and facilities, as much as possible using British money until that ran out. The upshot was that when Pearl Harbor hit most of its actual military product of the preceding 2 years had gone to Britain. America was not armed, but it was prepared to rapidly arm itself. In short order military production was ramping up to such an extent that there were actual production cutbacks long before the end of WWII - and even well before V-E day. The facilities had been put in place or at least started, and everything was mass produced.

There is a very suspicious coincidence involved in that. When Knudsen took the job, he warned FDR that it would take18 months to prepare the necessary facilities and machinery. And the time from the Fall of France to the bombing of Pearl was only a little more than 18 months. Those who think that FDR deliberately provoked the Japanese attack could certainly use that as grist for their mill. I think there’s little doubt that FDR wanted to enter the war.

AND that FDR helped Stalin more than he had to. In that respect it was interesting to learn that because finished vehicles were about eight times more trouble to ship than the tonnage of their parts, GM actually built a truck assembly plant in Iran and shipped the truck components on the Liberty ships. In Iran the trucks were assembled, loaded with (other) military supplies, and the keys were handed to the Russian drivers to convoy through Iran to the USSR.

[marron]

Thanks for the post, very interesting.

I have always been amazed at the way we went from no fleet to the largest fleet the world had ever seen, in just a couple years time. Essentially no air force to the largest ever seen in months. It boggles the mind how quickly we did that. Your point that we had actually started to build our capabilities in support of Britain and Russia certainly is very much on point. It is the right answer. It is still I think unprecedented in history, the speed at which a broken economy spat out fleets and armies and rebuilt itself almost over night.

When you realize our active declared participation in the war was only about three years time, what we did was miraculous. We took on two huge armies simultaneously that were well prepared to take us on, and beat them decisively, starting with nothing. No one in history has ever done what we did.

It doesn’t change what I think of FDR by much, except perhaps my last sentence is open for revision. I do give him credit for his decision to fight it all out and no holds barred. We haven’t seen a war president like that since him.

[conservatism_IS_compassion]

If you notice the subtitle of

Freedom's Forge:

How American Business Produced Victory in World War II
Arthur Herman

you’ll see that the book is an effort to debunk the "liberal” idea that the government made the military supplies which won the war. In this telling, the New Dealers were for doing exactly that - but FDR wasn’t willing to bet the whole country that they could do it. Walter Reuther saw the automakers getting contracts for military aircraft engines, and went to Washington with a couple of “experts” in tow, demanding that his union be given the same opportunity as Packard Motor, for example. Knudsen presented Reuther with the blueprints for an obsolescent (and relatively simple) engine, and told him to come back when he was ready with a specific plan. Sure enough, Reuther came back pretty fast, saying that the blueprints didn’t provide enough information, and they needed to see how the production was being done. Knudsen would have none of it; the plants were too busy to be answering foolish questions.

In general Knudsen was able, just by his own prestige, to prevent the New Dealers from taking over the production task, which they would have loved to do. FDR wanted to know that the job was done right, and that protected Knudsen while he did things like refusing to shut down auto production in favor of munitions until late. His point being, there was no point to shutting down the plants until you had money to pay the employees to make something else. If you did that, he pointed out, the high-skill people you needed most would find jobs elsewhere and you would not then have the manufacturing capability in that plant that you thought you had.

One thing that hadn’t been clear to me: I knew that the British had sent a huge dump of their most prized technology for production by the US. I had not known, tho, that that occurred long before Pearl Harbor. Packard was making Rolls Royce Merlin engines under license a year before that. Again, that explains the lead time for production preparation which America enjoyed before Pearl Harbor (but that also makes it even less understandable that it took so long to re-engine the P-51 with the Merlin, making it capable of the long-range bomber escort mission).

I can’t do justice to the book’s points, other than Knudsen’s point about how much production was lost to strikes even when the production in question was headed for the Soviet Union, and the union was Communist-run. But even at that, US production capacity was such that it was decided to ease off the pedal long before the end of the war. You would enjoy the book, and I recommend that you read it.

[conservatism_IS_compassion]

If you notice the subtitle of

Freedom's Forge:

How American Business Produced Victory in World War II
Arthur Herman

you’ll see that the book is an effort to debunk the "liberal” idea that the government made the military supplies which won the war. In this telling, the New Dealers were for doing exactly that - but FDR wasn’t willing to bet the whole country that they could do it. Walter Reuther saw the automakers getting contracts for military aircraft engines, and went to Washington with a couple of “experts” in tow, demanding that his union be given the same opportunity as Packard Motor, for example. Knudsen presented Reuther with the blueprints for an obsolescent (and relatively simple) engine, and told him to come back when he was ready with a specific plan. Sure enough, Reuther came back pretty fast, saying that the blueprints didn’t provide enough information, and they needed to see how the production was being done. Knudsen would have none of it; the plants were too busy to be answering foolish questions.

In general Knudsen was able, just by his own prestige, to prevent the New Dealers from taking over the production task, which they would have loved to do. FDR wanted to know that the job was done right, and that protected Knudsen while he did things like refusing to shut down auto production in favor of munitions until late. His point being, there was no point to shutting down the plants until you had money to pay the employees to make something else. If you did that, he pointed out, the high-skill people you needed most would find jobs elsewhere and you would not then have the manufacturing capability in that plant that you thought you had.

One thing that hadn’t been clear to me: I knew that the British had sent a huge dump of their most prized technology for production by the US. I had not known, tho, that that occurred long before Pearl Harbor. Packard was making Rolls Royce Merlin engines under license a year before that. Again, that explains the lead time for production preparation which America enjoyed before Pearl Harbor (but that also makes it even less understandable that it took so long to re-engine the P-51 with the Merlin, making it capable of the long-range bomber escort mission).

I can’t do justice to the book’s points, other than Knudsen’s point about how much production was lost to strikes even when the production in question was headed for the Soviet Union, and the union was Communist-run. But even at that, US production capacity was such that it was decided to ease off the pedal long before the end of the war. You would enjoy the book, and I recommend that you read it.

[marron]

Thank you and I will.