ISSUE 11 Did the New Deal Prolong t he Great Depression? YES:Burton W. Folsom, Jr., from NewDeal or RawDeaI?How FDR's LegacyHasDamagedAmerica(Simon& Schuster,2008) Economic NO: RogerBiles,from A NewDeaIfor theAmericanPeople(Northern Illinois University Press,1991) ISSUESUMMARY YES: ProfessorBurton W. Folsom,Jr., arguesthe New Deal prolonged the GreatDepressionbecauseits antifreemarketprogramof spendingto certainbanks,railroads, high taxesand special-interest farmers,and veteranscreatedan antibusinessenvironment of regime uncertaintY. NO: Professorof history RogerBiles contends that, in spite of its minimal reforms and nonrevolutionary programs,the New Deal createda limited welfarestatethat implementedeconomicstabilizersto avert another depression. rrtl

I he catastrophetriggered by the 7929 Wall Street debaclecrippled the American economy,deflatedthe optimistic future most Americansassumed to be their birthdght, and ripped apartthe valuesby which the country'sbusifarms,and governmentswere run. During the next decade,the inertia neSSeS, of the GreatDepressionstifledtheir attemptsto make endsmeet. The world depressionof the 1930s began in the united States.The omnipotenceof Americanproductivity,the ebullient Americanspirit, and the self-deludingthought "it can't happen here" blocked out any consideration of an economic collapsethat might devastatethe capitalist economy and threatenU.S.democraticgovernment. All aspectsof American societytrembled from successive iolts; there were Thosewho 7932. more by 9 million and people in 1930 4 million unemployed was no secuflty There for scrip. worked pay or cuts took had not lost their iobs declined. stocks failed or when banks lost forever were savings for thosewhose wheat, destroyed farmers and down, shut industry halted, Manufacturing of millions were there Worse, loss. at a them sell than rather corn, and milk freight on nation the roaming the cities from homelessAmericans-refugees

234

trains, victims of the drought or the Dust Bowl seeking a new life farther west, and hobo children estranged from their parents. Business and government leaders alike seemed immobilized by the economic giant that had fallen to its knees. Herbert Hoover, the incumbent president at the start of the Great Depression, attempted some relief programs. However, they were ineffective considering the magnitude of the distress.The President's attempts at voluntary cooperation between business and labor to avoid layoffs or pay increasesbroke down by the severity of the depression in mid-1931. Hoover went further than previous presidents in using the power of the federal government, but efforts were too small and too late. As governor of New York, Franklin D. Roosevelt (who was elected president in 1932) had introduced some relief measures,such as industrial welfare and a comprehensive system of unemployment remedies, to alleviate the social and economic problems facing the citizens of the state. Yet his campaign did little to reassurehis critics that he was more than a rich boy who wanted to be the president. In light of later developments Roosevelt may have been the only presidential candidate to deliver more programs than he actually promised. The New Deal attempted to jump-start the economywith dozens of recovery and relief measures. On inauguration day, FDR told the nation "the only thing we have to fear is fear itself." A bank holiday was immediately declared. Congress passed the Emergency Banking Act, which pumped Federal Reserve notes into the malor banks and stopped the wave of bank failures. Later banking acts separated commercial and investment institutions, and the Federal Deposit Insurance Corporation (FDIC) guaranteed people's savings from a loss of up to $2,500 in member banks. A number of relief agencieswere set up that provided work for youth and able-bodied men on various state and local building projects. Finally the TennesseeValley Administration (TVA) was created to provide electricity in rural areasnot serviced by private power companies. In 1935 the Supreme Court ended the First New Deal by declaring both the Agriculture Adjustment Administration and National Recovery Act unconstitutional. In response to critics on the left who felt that the New Deal was favoring the large banks, big agriculture, and big business, FDR shifted his approach in 1935. The Second New Deal created the Works Project Administration (WPA), which became the nation's largest employer in its eight years of operation. Social Security was passed,and the government guaranteed monthly stipends for the aged, the unemployed, and dependent children. Labor pressured the administration for a collective bargaining bill. The Wagner Act established a National Labor Relations Board to supervise industry-wide elections. The steel, coal, automobile, and some garment industries were unionized as membership tripled from 3 million in 1933 to 9 million in 1939. Did the New Deal prolong the Great Depression? Burton F. Folsom, Jr., argues in the affirmative becauseits alphabet soup agencies (all with three letters) created an antibusiness environment that reiected free market capitalism with special-interest spending financed by high taxes. Roger Biles contends its programs were nonrevolutionary and its reforms minimal. Nevertheless, he argues, the New Deal created a limited welfare state that implemented economic stabilizers to avert another deoression.

239

YES+)

Burton W. Folsom, Jr.

New Deal or Raw Deal? How FDR's Economic LegacY Has Damaged America The Making of the Myth: FDR and the New Deal treasuryand one On May g, 7g3g,Henry Morgenthau,Jr', the secretaryof the He po-"rfuI men iriAmerica, had a startling confessionto make. or,n" ran who -ort remarkableadmissionbefore the influential Democrats made this beforehis fellow the Houseways and Meanscommittee. As he baredhis soul Democrats,Morgenthaumayhaveponderedtheironyofhissituation' The source Herehe was_a maior iabinet head,a man of greatauthoritv PresidentFranklin of his power, of course,was his intimate friendship with neighbor, close Delano Roosevelt.Morgenthau was the president'slongtime of the treasconfldant, and-wouldle for over a decade-his loyal secretary ury.Fewmenknewthepresidentbetter,talkedwithhimmore'ordefended wasone of only him more faithfully. EleanorRooseveltonce saidMorgenthau wrong and he two men who could tell her husband "categorically" that 1as forth at and get awaywith it. Rooseveltand Morgenthauliked to banter back and lunch' for cabinet meetings,passeach other secretnotes,meet regularly and himself photo of talk frequenuy"onitre phone. Morgenthau cherisheda inscription: the presidentin a car,sideby side,friendsforever,with Roosevelt,s "To^Henry,"it read,"from one of two of a kind'" But in May 7939,Morgenthauhad a problem' The GreatDepression-the not only most devastating economii catastrophe in American history-was Unemployment'for example'the persisting,in somewaysit wasgettingw^orse' th' 20 percentmark' HerewasMorgenthau' ir"rrio.rr?onth had againpassea of statisticson the the secretaryof the treasury an expert on finance' a fount the presidentof the Americaneconomyduring'the 1g3bs;his best friend was public policy decisions United Statesand trre aulhor of the New Deal; key hadtogothroughMorgenthautogetahearing'Andyet'withallthispower' and the New Morgerithau felt helplesi. After almost two full terms of Roosevelt candidly Deal,hereareMorgenthau,sstartlingwords_his confession_spoken beforehisfellowDemocratsontheHouseWaysandMeansCommittee:

Has Damaged-Americaby !9{9n From New DeaI or Raw Deal? How FDR'sEconomicLegacy 15' 245-252' Copyrigtt-o-2008 by w. Folsom, Jr. (rtrresrrorJiJirlo"t, ioosl, Pp' 1-8, r2,i4" permission of rhreshold Editions, a Burton w Folsom, lr. nir iigt tr r"r"rrr.d. Reprinted by Inc' Schuster, & division of Simon

240

YES / Burton W. Folsom, Jr.

241,

We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have iust one interest, and if I am wrong . . . somebodyelsecan have my job. I want to seethis country prosperous.I want to seepeople get a job. I want to seepeople get enough to eat. We have never made good on our promises.. . . I say after eight years of this Administration we have just as much unem_ ployment as when we started.. . . And an enormous debt to bootl In these words, Morgenthau summarized a decade of disaster,especially during the years Rooseveltwas in power. Indeed averageunemployment for the whole year in 1939 would be higher than that in 1931, the year before Roosevelt captured the presidency from Herbert Hoover. Fully 17.z percent of Americans, or 9,480,000, remained unemployed in 1939, up from 16.3 percent, or g,020,000 in 1931. on the positive side, 1939 was better than1932 and 1933, when the Great Depression was at its nadir, but 1939 was still worse than 1931, which at that time was almost the worst unemployment year in u.S. history. No depression, or recession,had ever lasted even half this long. Put another way, if the unemployed in 1931 under Hoover would have been lined up one after the other in three separatelines side by side, they would have extended from Los Angeles acrossthe country to the border of Maine. In 1939, eight years later, the three lines of unemployed Americans would have lengthened, heading from the border of Maine south to Boston, then to New York City, to Philadelphia, to washington, D.c., and finally into virginia. That line of unemployed people from the border of Maine into virginia was mostly added when Roosevelt was president. we can visualize this hypothetical line of unemployed Americans, but what about the human story of their suffering. who were some of them, and what were they thinking? In the line at chicago, we would encounter salesman Ben Isaacs."Wherever I went to get a job, I couldn,t get no job,,, Isaacssaid of the prolonged depression. "I went around selling razor blades and shoe laces. There was a day I would go over all the streets and come home with fifty cents, making a sale. That kept going until 1940, practically." Letters to president Roosevelt tell other stories. For example, in chicago, a twelve-year-old chicago boy wrote the president, "we haven't paid the gas bill, and the electric bill, haven't paid grocery bill for 3 months. . . . My father he staying home. All the time he,s crying because he can't find work. I told him why are you crying daddy, and daddy said why shouldn't I cry when there is nothing in the house." In our hypothetical unemployment line at Latrobe, Pennsylvania, we might see the man who wrote in 1934, "No home, no work, no money. We cannot go along this way. They have shut the water supply from us. No means of sanitation. we cannot keep the children clean and tidy as they should be." From Augusta, Georgia,in 1935 came this letter to the president: "I am eating flour bread and drinking water, and no grease and nothing in the bread. . . . I aint even got bed[d]ing to sleep on. . . .,, But even he was better off than the man from Beaver Dam, virginia, who wrote the president, "We right now, have no work, no winter bed clothes. . . . Wife don't even have a winter coat. what are we going to do through these cold times coming on?Just looks we will have to freeze and starve together.,,

242

ISSUE 11 / Did the New Deal Prolong the Great Depression?

made the High unemployment was just one of many tragic areasthat of the tJnitedSfates,compiled 1930sa decadeof disaster.The Historicql Statistics stock market, by the census Bureau,fills out the rest of the grim picture. The The value #rri.tr picked up in the mid-1930s,had a collapselater in the decade' plummeted of all siocks dropped almost in half from 7937 to 1939. Car sales in any of the last one-third in those sameyears,and were lower in 1939 than Jrom 1937 to seven years of the 1g2O;.Businessfailures jumped 50 percent for any yearof 1g3g;iatent applicationsfor inventions were lower in 1939than the 1930s, the 1920s.Realestateforeclosures,which did decreasesteadilyduring decades' were still higher in 1939 than in arryyearduring the next two debt. The national spiraling the was iggos the in sign disaster Another government soon united Stateshad budget surplusesin 1930 and 1931,but The national debt taxes. from revenue outstripped fu, urr"d spendingballooned had more than stood at $16 billion in 1931;by the end of the decadethe debt debt during doubled to more than $40 billion. Put another way, the national thelasteightyearsofthelg30s,lessthanonedecade,grewmorethanithad to 1931,the in the pr"irio.r, 150 yearsof our country's existence.Ftom I776 wasmore than offspendingto support sevenwars and at leastfive recessions way,if christopher setuy trre debficquired during the 1g3os.Put yet another Columbus,onthatoctoberaaywtrenhediscoveredtheNewWorld,could the American havearrangedto put $100a minute in a specialaccountto defray debt,bylg:shisaccountwouldnotyethaveaccumulatedenoughcashtopay words, if we for lusi the national debt acquiredin the 1930salone. In other debt account, *.r" to pay $100 a minute (in rssos dollars)into a special'30s wewouldneedmorethan450yearstoraiseenoughmoneytopayoffthedebt of that decade. TheeconomictravailoftheNewDealyearscanalsobeseenintheseven Much of our govconsecutiveyearsof unbalancedtrade from 1934 to 1940' of wheat, shirts, ernment spendingduring the decadewent to prop up prices prices,made steel,and other exportsiwhich in turn, becauseof the higher to 1970, only them less desirableas exports to other countries.From 1870 duringthedepressionyearsplustheyearl8SSdidtheUnitedStateshavean unfavorablebalanceof trade. Hardtimesareoftenfollowedbysocialproblems'TheUnitedStatesin dropped the 1930swas no exception. For example,the American birthrate decade' that inireased only 7 pelcent in sharply, and the country's population -192os, and higher by contrast,the birthrate was During the more p,o,p.,o'' the country'spopulation increased16 percent' of the 1930s For many Americans,the prolonged Great Depression 1934] becamea time of death.As one eighty-year-oldwrote, "Now [December herded being there are a lot of us [who] will choosesuicidein preferenceto with heq agreed Americans of thousands Apparently, into the poor house.;, high throughout becausesuicidesincreasJfr o^ igZg to 1930 and remained after prolonged life on gave up who people the were sad the 1930s.Equally fall, reckless despair and tbok ih"i, lirr", *o." tnbtty, through an accidental hit record numbers driving, or being hit by a train. All three of thesecategories of deathsper capitaduring the New Deal years'

YES/ Burton W. Folsom, Jr.

243

The lossof the will to live was alsoreflectedin life expectancyduring the 1930s.When Franklin Rooseveltbecamepresident in 1933, life expectancy in the United Stateswas 63.3 years.Since 1900,it had steadilyincreasedsixteen yeals-almost half a year each year of the first third of the twentieth century. In 7940,however,after more than sevenyearsof the New Deal, life expect;ncy had dropped to 62.9 years. Granted, the slight decline during . th-se yearswas not consistent-two of the sevenyears showed an increase over 1933.But the steadyincreasein life expectancyfrom 1900 to 1933 and from 1940 to the end of the century was clearly interrupted only during the New Deal years. The halt in improved life expectancyhit blackseven harderthan whites. In 1933,black Americanscould expectto live only 54.7yeals,but in 1940that had droppedto 53.1years.Both beforeand afterthe GreatDepression,the gap in life eipectancybetweenblacksand whites had narrowed,but from 1933to 1940it aitually widened.Strongindicationsarethat blackssufferedmore than first term aspresident. whites during Roosevelt's the wreckagefrom the 1930sand say, "okay, survey might Someone the thirties was a disaster.But since the Great of decade whole maybe the doesn't that diminish America's catastrophe, a worldwide was Depression did, of course,rock most Depression Great The numbers?" bad for its blame than others in limiting better performed nations some but worldr of the the Leagueof Nations Fortunately, growth. economic restoring and damage on industrial pro1930s the throughout nations many from data collected the United States How did taxes. and debt, national unemployment, duction, key indexes of these four all in answer: The countries? other with compare Most studied' nation other any than worse almost poorly, very did the U.S. the United than better Depression Great the weathered Europe of nations Statesdid. In a decadeof economicdisaster,such as the 1930s,a declinein morality is a significantdanger.If recordnumbersof peopleare hungry, out of iobs, and taxed higher than ever before, will the charity, honesty, and integrity necessaryto hold a society together begin to crumble as well? The Histori' of the united Sfafesoffers some help in answeringthis question' cal Statistics slightly during the 1930s.Therewere more than 10,000 increased Homicides times from 1900 to 1.960,and all sevenyearswere seven year only murdersa this decaderoughly doubled:almost 300,000were during Arrests in the 1930s. increased,reachinga peak of almost 600,000 steadily this and \932, made in as well, especiallyduring the late 1930s,and increased rates Divorce in 1939. almost doubled,although casesof gontreated syphilis of cases of the number constant. roughlY were orrhea Statisticscan't tell the whole story of the chanSingmores of the 1930s. Many persons openly threatened to steal-or thought about stealing-to alsoled to "jumping Joblessness mate enAsmeet during the GreatDepression. R' S.Mitchell just country. roam the to or elsewhere work find to trains" either young men that Senate U.S. the before testified Railroad Pacific of the Missouri on theserides, criminals" "hardened encountered jumped often trains who Historical youths. ThLe these of character on the influence" who were a "bad

244

ISSUE 11 / Did the New Deal Prolong the Great Depression?

Statisticsfurther shows that deaths to trespasserson lailroads were at their highest everduring the depressionyearsof 1933to 1936.

Roosevelt and the Historians Did the New Deal, rather than helping to cure the Great Depression, actually help prolong it? That is an important question to ask and ponder. Almost all hisioiians of the New DeaI rank Roosevelt as a very good to great president and the New Deal programs as a step in the right direction. with only a few exceptions, historians lavish praise on Roosevelt as an effective innovator, and on the New Deal as a set of programs desperately needed and very helpful to the depressednation. An example of this adulation is the appraisal by Henry Steelecommager and Richard B. Morris, two of the most distinguished American historians of the twentieth century. Commager, during a remarkable career at Columbia University and Amherst College, wrote over forty books and became perhaps the bestselling historian of the century. From the first year of Roosevelt'spresidency, Commager lectured and wrote articles in defense of the New Deal. Richard Morris, his junior partner at Columbia, was a prolific author and president of the American Historical Association. Here is Commager and Morris's assessmentof Roosevelt and the New Deal: The character of the Republican ascendancy of the twenties had been pervasively negative; the character of the New Deal was overwhelmTThisnation asksfor action, and action, now," Roosevelt ingly posiilve. inaugural address, and asked fot "power to wage war first in his said againstthe emergency."' . ' It is the stuff of good history, this-a leadership that was buoyant and dynamic; a large program designedto enable the government to catch up with a generation of lag and solve the problems that crowded uponi t;apeopl equi ckenedi ntoresol uti onandsel f-confidence; a .ritio.r brought to realize its responsibilities and its potentialities. How it lends itself to drama! The sun riseson a stricken field; the new leader raisesthe banner and waves it defiantly at the foe; his followers crowd about him, armies of recruits emerge from the shadows and throng into the ranks; the bands play, the flags wave, the almy moves forward, and soon the sound of battle and the shouts of victory are heard in the distance.In perspectivewe can seethat it was not quite like that, but that was the way it seemedat the time. commager and Morris's assessment highlights four main points of defense for Roosevelt and the New Deal that have been adopted by most historians for the last seventy years: first, the 1920s were an economic disaster; second, the New Deal programs were a corrective to the 792Os,and a step in the right direction; third, Roosevelt (and the New Deal) were very popular; and fourth, Roosevelt was a good administrator and moral leader' These four points constitute what many historians call "the Roosevelt legend.,, Since the works of Arthur M. Schlesinger,Jr., and william Leuchtenburg

I

YES/ Burton W Folsom, Jr.

245

have been essential in shaping and fleshing out this view of Roosevelt, I will quote from them liberally. . . . In fact, the most recent Schlesinger poll (1996) ranks Roosevelt and Lincoln as the greatest presidents in U.S. history. He and his New Deal have become American idols. As Conlin writes, "From the moment F. D. R. delivered his ringing inaugural address-the clouds over Washington parting on cue to let the March sun through, it was obvious that he was a natural leader." Even before Roosevelt died, Conlin notes, "he was ranked by historians as among the greatest of the chief executives. . . . No succeeding generation of iudges has demoted him." Leuchtenburg concludes, "Few would deny that Franklin Delano Roosevelt continues to provide the standard by which every successor has been, and may well continue to be, measured." Of course, historians are often nigglers and all students of Roosevelt and his presidenry have some complaints. What's interesting is that most of these complaints are that Roosevelt should have done more than he did, not less. "The havoc that had been done before Roosevelt took office," Leuchtenburg argues, "was so great that even the unprecedented measures of the New Deal did not suffice to repair the damage." Therefore, to Leuchtenburg and others, the New Deal was only " ahaltway revolution" that should have gone further. Some historians say FDR should have done more deficit spending during the recession of 7937; some chide him for not supporting civil rights more strongly; some point to abuse or corruption in some of the programs; and some say he should have done much more to redistribute wealth. The New Deal was, many historians conclude, a conservative revolution that saved capitalism and preserved the existing order. Some New Deal historians of the 1980s, 1990s, and 2OO0s-loosely called the "constraints school"-argue that the New Deal did promote many needed changes, but that Roosevelt was constrained in what he could accomplish and therefore he did as much reform as circumstances would permit. These recent criticisms of Roosevelt and the New Deal slightly alter but do not diminish the Roosevelt legend. The four points of defense are currently intact, and are usually found in most histories of the New Deal and in virtually all of the American history textbooks today. . . . After his 1996 presidential poll, Schlesingerwas more confident in Roosevelt than ever. Of the thirty-two experts consulted, thirty-one gave FDR the highest rating of "Great" and one ranked him "Near Great," the second highest rating. "For a long time FDR'stop standing enraged many who had opposed his New Deal," Schlesinger wrote. "But now that even Newt Gingrich pronounces FDR the greatest president of the century, conservatives accept FDR at the top with stoic calm." Along these lines, historian David Hamilton, who edited a book of essayson the New Deal, observed, "Conservative critiques [of the New Deal] have drawn less attention in recent years. . . ." In other words, according to Schlesinger and many historians, the debate is over as the Roosevelt legend is established even among conservative historians. The historical literature tends to support Schlesinger.The books and articles on Roosevelt and the New Deal are now so extensive, however, that it is almost impossible to read it all. Historian Anthony Badger has come as close as any modern historian to mastering the New Deal literatute, and his book lhe

246

ISSUE 1,1/ Didthe New Deal Prolong the Great Depression?

New Deal: The DepressionYears,1933-1940 is an essential tool to the modern historian trying to sort out all the writing on the subiect. Badger looks fondly at Schlesingerand Leuchtenburg, the two key historians to shape the historical writing on the New Deal: At a time when there were few specialist monographs, both authors [Schlesinger and Leuchtenburg] displayed a remarkably sure touch in identifying the critical issuesat stakein the most diverseNew Deal activities. Both demonstratedan enviable mastery of a vast range of archival material. No one is ever likely to match the richnessof Schlesinger's dramatic narrative.No one is ever likely to produce a better one volume treatment of the New Deal than Leuchtenburg's. Thus, the Roosevelt legend seems to be intact. And as long as it is intact, the principles of public policy derived from the New DeaI will continue to dominate American politics. As historian Ray Allen Billington noted, the New Deal "established for all time the principle of positive Sovelnment action to rehabilitate and preserve the human resourcesof the nation." Yet, as we have seen/ there is that nagging observation in 1939 by Henry Morgenthau, the secretary of the treasury, the friend of Roosevelt's and the man in the centel of the storm. With great sadness,he confessed,"We are spending more than we have ever spent before and it does not work. . . . We have never made good on our promises." Since national unemployment during the previous month of April 1939 was 2O.7 percent, Morgenthau's admission has the ring of truth to it' Is it possible that the Roosevelt legend is really the Roosevelt myth?. . .

What Finally Did End the Great Depression If Roosevelt's New Deal programs did not break the Great Depression, then what did? Most historians have argued that America's entry into World War II was the key event that ended it. Federal spending drastically increased as twelve million U.S. soldiers went to war, and millions more mobilized in the factories to make war material. As a result, unemployment plummeted and, so the argument goes, the Great Depression receded' William Leuchtenburg, who has written the standard book on the New ,,The real impetus to recovery was to come from rapid, large-scale Deal, claims, spending.,, Roosevelt, according to Leuchtenburg, was reluctant to take this step. when, at last, Pearl Harbor was bombed, "The war proved that massive spending under the right conditions produced full employment." Recently, David M. Kennedy, in his Pulitzer Prize-winning book on Roosevelt, echoed Leuchtenburg's argument. "Roosevelt," Kennedy insisted, "remained reluctant to the end of the 1930s to engage in the scale of compensatory spending adequate to restore the economy to pre-Depression levels, let alone expand it." At the end of his book, Kennedy concluded, "It was a war that had brought [Americans] as far as imagination could reach, and beyond, from the ordeal of the Great Depression. . . ." More specifically, "The huge

a YES / Burton W. Folsom, Jr.

247

expenditures for weaponry clinched the Keynesian doctrine that government spending could underwrite prosperity. . . ." Economists, Keynes notwithstanding, have always been less willing to believe this theory than historians. F.A. Hayek, who won the Nobel Prize in economics/ argued against this view in 7944 in The Road to Serfdom.Economist Henry Hazlitt, who wrote for the New York Times during the Roosevelt years, observed, "No man burns down his own house on the theory that the need to rebuild it will stimulate his energies." And yet, as historians and others viewed World War II, "they see almost endless benefits in enormous acts of destruction. They tell us how much better off economically we all are in war than in peace. They see 'miracles of production' which it requires a war to achieve." Thus, in Hazlitt's argument, the United Statesmerely shifted capital from private markets, where it could have made consumer goods, to armament factories, where it made tanks, bombs, and planes for temporary use during war. Along these lines, economist Robert Higgs has observed, "Unemployment virtually disappeared as conscription, directly and indirectly, pulled more than 12 million potential workers into the armed forces and millions of others into draft-exempt employment, but under the prevailing conditions, the disappearance of unemployment can hardly be interpreted as a valid index of economic prosperity." A supporting point for this idea is that real pdvate investment and real personal consumption sharply declined during the war. Stock market prices, for example, in 7944 were still below those of 1939 in real dollars. If not World War II, what did end the Great Depression? This question is still open to research and original thinking. Higgs argues," It is time for economists and historians to take seriously the hypothesis that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of regime uncertainty in the minds of investors." Roosevelt,as we have seen,regularly attacked business and steadily raised income tax rates, corporate tax rates, and excise taxes during the 1930s. He added the undistributed profits tax and conducted highly publicized tax casesthat sent many investors to prison. During World War II, Roosevelt softened his rhetoric against businessmen, whom he needed to wage the war, but he did issue an executive order for a 100 percent tax on all personal income over $25,000. When Roosevelt died, and Tiuman became president, the hostile rhetoric toward businessmen further declined and no new tax hikes were added. During the waq in fact, Roosevelt had switched from attacking rich people to letting big corporations monopolize war contracts. Under Truman, businessmen were even more optimistic. They expanded production, and the U.S. economy was thus able to absorb the returning soldiers and those who had previously worked to make war equipment. That, in a nutshell, is Higgs's thesis, and he has two persuasivepieces of evidence on his side. First, many leading industrialists of the 1930s openly explained how the president's efforts to tax and regulate were stifling the nation's economic expansion. For example, Lammot Du Pont, who revolutionized the textile industry in the 1940s with the invention of nylon, was one of many businessmen who complained about Roosevelt'spolicies. "fJncertainty rules the tax situation, the labor situation, the monetary situation, and

248

ISSUE 11 / Did the New Deal Prolong the Great Depression?

Pont practicallyeverylegalcondition under which industry must operate,"Du on limits new protestedin 1937.i'Are new restrictionsto be placedon capital, prontst . . . It is impossibleto even guessat the answers'" Second,Higgscitespolldatathatshowasharpincreaseinoptimismabout the businessafter Rooseveltdied and Truman becamepresident.For example, on attitudes of polling AmericanInstitute of Public opinion (AIPO)did solid AIPO example, for businessand its findings are impressive.In March 7939, adminaskeda national samplJ, "Do you think the attitude of the Roosevelt as twice than More istration toward businessis delayingbusinessrecovery?" ,,no.,, ,,yes,' mOnth one In May 7945,however, as iaid many respondentssaid asked,"Do you think Truman will pollsters AIPO tire death, after Rooievelt,s was?"on be more favorableor lessfavorabletoward businessthan Roosevelt Fortune and Forbes this poll, Truman had eight times more yesesthan nos. was meant that also iid polls of businessmenand found similar results.What thereby and production that aftei the war, American businessmenexpanded was absorbedinto the workforcethe returning soldiers.The GreatDepression over at last. othernationsrecoveredfromtheGreatDepressionmorequicklythan collected did the United states.During the late 1930s,the Leagueof Nations on industrial statisticsfrom the United Stites and from many other nations Deal crerecovery.Much of that data support the idea that Roosevelt'sNew a recovery as atedeconomicuncertaintyand wasin fact uniquely unsuccessful depresof the program. In the table below,we can seesomeof the aftermath of its one-third lost iiori *lttrin a depressionin 7937, when the stock market 1939 early in but value.During late 1938,the united Stateshad somerecovery, per20 reached recoveryagain lagged.By May 1939, unemployment again the of first the from cent, indus-trial production had fallen about 10 percent have we than more yeat, andHenry Morgenthauconfessed,"We are spending everspentbeforeand it doesnot work'" .'.TheU.S'economywasinatailspinsixyearsafterFDRbecamepreside onesstudand the country sufferedmore unemployment than most of the other ied by the Leagueof Nations. Somehistorians,tryingtodefendRoosevelt,pointoutthatunemploy1937, which ment in the United Statei slightly dropped eachyear from 1933 to 25'2 perwas someprogressin fighting the Depression'Unemployment suggests and in 1936, percent cent in 7933,Z}percent iitgE+,20.3 percentin 1935,17 andhigh 14.3 percent inlgzl. That 14.3 percent,however,is alarmingly of American outsideof the 1930s-was only exceededfor a brief period in all during uncertainty history during the Panicof 139-3.What's worse,the business term' first his secondterm stifledthat modestrecoveryof Roosevelt's Tobefaiqifwedescribethedownwardmoveofunemploymentduring flrst term, we must presentthe steadyupward move of unemployRoosevelt's mentduringmostofhis'".o''dterm.Unemploymentwasl5.0percentin 1938, Septembert-g:e, ts't percentinJanuary 7937,\7,4 percentinJanuary 18.7percentinJanuary1939,and2o'TpetcentinAprillg3g.Thus,morethan the stockmarsix yearsafter Roosevalttoot office, and almost ten yearsafter ketcrashofTg2g,unemploymenttoppedthe20pelcentmark.TheLeagueof

YES/ Burton W. Folsom, Jr.

249

lndustriol Production in the United States Dote (1929 = 100) lu n e 19 3 8

65

DecemberI 938

87

lanuary 1939

85

FebruaryI939

82

M a r c h1 9 3 9

82

A p r i l1 9 3 9

77

May 1939

77

l u n e 19 3 9

81

'l Sources:Leagueof Nations, WorldEconomicSurvey,1938/39 (Ceneva,1939), 110-1 .

Nations study, which tried to explain the poor performance of the U.S. economy, cited the "uneasy relations between business and the [Roosevelt]Administration." As Yale economist Irving Fisher bluntly wlote Roosevelt, "You have also delayed recovery." why was the performance of the u.S. economy-especially relative to other nations-so miserable? What were some of the ingredients in America's unique "regime uncertainty"? The first place to start is tax policy. One reason that the United States lagged behind other countries in recovery from the Great Depression is that Roosevelt strongly emphasized raising revenue by excise taxes. According to another League of Nations studt the U.S. increased its revenue from excise taxes more lapidly than did any of the other nine nations surveyed. Britain and France, for example, decreasedtheir dependency on excise taxes from 7929 to 1938. Japan, Germany, Italy, and Hungary did increase their excise revenues, but only slightly. The United States,however, had a whopping 328 percent increase in excise revenue from 1929 to 1938. "The very large increasesof yield [in tax revenue] which are shown in the case of Belgium [310 percent] and the united States [328 percent] are due to substantial increases in the rate of dtJty," the study concluded' Since these taxes fell heavier on lowel incomes, that may have contributed to the poorer rate of recovery from the Great Depression by the United States. Other tax problems contributed to "regime uncertainty." Corporate taxes went up, the estatetax was increased to a top rate of 70 percent, and the United States alone among nations passed an undistributed profits tax. Businessmen watched the top rate of the federal income tax increase ftom 24 to 63 percent in 1932 under Hoover and then to 79 percent in 1935 undel Roosevelt. The president regularly castigated businessmen and threatened to raise rates further. On Aprll 27 ,1942, Roosevelt issued an executive order that would tax all personal income over $25,000 at 100 percent. All "excess income," the president argued/should go to win the war." Furthermore, Roosevelt'suse of the IRS

250

ISSUE 11 / Did the New Deal Prolong the Great Depression?

to prosecutewealthy Americans,especiallyRepublicans,createdincentivesfor buiinessmento shift their investmentsinto areasof lessertaxation' All of this created"regime uncertainty," and the Great Depressionpersistedthroughout the 1930s.As we have seenin the Leagueof Nations study,in 7929the United Stateshad the lowest level of unemployment of any of the sixteennations surveyed.The U.S.dropped to eighth placeby 1932,eleventh placein 7937, and then to thirteenth placein 1938. spendingcreated special-interest In retrospect,we cin seethat Roosevelt's subsidies'That, special for voters groups of all insatiabledemandsby almost the federal example, for RFC, the Under in itself, createdregimeuncertainty. had price AAA the then railroads; and to banks governmentmadespecialloans spewere demanding mines silver of operators Jupportsfor farmers;soon the used Roosevelt seen, have we as level, one product. At ciit rrigrrpricesfor their these iubiidies as political tools to reward friends and punish enemies'But beyond that, wherewould the line be drawn?Who would get specialtaxpayer suLsidiesand who would not? As Walter Waters,who led the veterans'march on washington in 1.932,observed,"I noticed, too, that the highly organized lobbiesin Washingtonfor specialindustrieswereproducingresults:loanswere being grantedto their specialinterestsand theselobbiesseemedto justify their of the iusticeor iniustice of their existence.Personallobbying paid, regardless demand." Rooseveltbecametrapped in a debt spiral of special-interestspending. He often did not try to escapebecauseof the political benefitsreceivedwhen he supportedsubsidybills to targetedinterestgloups. In 1935,when the veteranscame clamoring again for a specialsubsidy,Rooseveltcast only a tepid veto-how could he .justify the cash to all the other groups,but deny the veterans?Therefore,an obliging congressvoted the veteransa specialbonus of $2 billion-a sum exceeding6 percent of the entire national debt. As the observed,"Here is a superbexampleof how a powerful st.LouisPost-Dispatch minority, in this casethe veterans'organizations,has been able ' ' ' to win Congressover to a proposition in defianceof logic, good senseand justice." such an unwarranted subsidywas, the editor feared,a "grave defect in our system.,,we can better understandHenry Morgenthau'sfrustrationin May 1939' He could lust aseasilyhave said,"We have tried spendingand it createsfrantic lobbying and a never-endingcycleof more spending'"

No

Roger Biles

A New Deal for the American People ,,All of the -fl,t the close of the Hundred Days, Franklin D. Roosevelt said, proposals and all of the legislation since the fourth day of March have not been 1'usta collection of haphazard schemes, but rather the orderly component parts of a connected and logical whole." Yet the president later described his approach quite differently. "Take a method and try it. If it fails admit it frankly and try another. But above all, try something." The impetus for New Deal legislation came from a variety of sources, and Roosevelt relied heavily at various times on an ideologically diverse group of aides and allies. His initiatives reflected the contributions of, among others, Robert Wagner, Rexford Tirgwell, Raymond Moley, George Norris, Robert LaFollette, Henry Morgenthau, Marriner Eccles,Felix Frankfurter, Henry Wallace, Harry Hopkins, and Eleanor Roosevelt. An initial emphasis on recovery for agriculture and industry gave way within two years to a broader-based program for social reform; entente with the business community yielded to populist rhetoric and a more ambiguous economic program. Roosevelt suffered the opprobrium of both the conservatives, who vilified "that man" in the White House who was leading the country down the sordid road to socialism, and the radicals, who saw the Hyde Park aristocrat as a confidence man peddling piecemeal reform to forestall capitalism's demise. Out of so many contradictory and confusing circumstances, how does one make senseof the five years of legislative reform known as the New Deal? And what has been its impact on a half century of American life?1 A better understanding begins with the recognition that little of the New Deal was new, including the use of federal power to effect change. Nor, for all of Roosevelt's famed willingness to experiment, did New Deal programs usually originate from vernal ideas. Governmental aid to increasefarmers'income, propounded in the late nineteenth century by the Populists, surfaced in Woodrow Wilson's farm credit acts. The prolonged debates over McNary-Haugenism in the 1920s kept the issue alive, and Herbert Hoover's Agricultural Marketing Act set the stage for further federal involvement. Centralized economic planning, as embodied in the National Industrial Recovery Act, flowed directly from the experiences of Wilson's War Industries Board; not surprisingly, Roosevelt chose Hugh Johnson, a veteran of the board, to head the National Recovery Administration. Well established in England and Germany before the First World War, social insurance appeared in a handful of states-notably Wisconsin-before

From A NewDeaIfor theAmericanPeopleby RogerBiles(NorthernIllinois UniversityPress, 1991).CopyrightO 1991by NorthernIllinoisUniversityPress. Reprintedby permission.

25r

252

ISSUE 11 / Did the New Deal Prolong the Great Depression?

the federalgovelnment becameinvolved. Similarly,New Deal labor reform took its cuesfrom the path-breakingwork of state legislatures.Virtually alone in its originality, compensatoryfiscal policy seemedrevolutionary in the 1930s.Signifi=cantly,howwer, Rooseveltembraceddeficit spending quite late after other disappointing economic policiesand never to the extent Keynesianeconomists aavisea.congress and the public supported the New Deal, in part, becauseof its origins in successfulinitiatives attemptedearlierunder different conditions. Innovativeor not, the New Dealclearlyfailedto restoreeconomicprosperity. As late as 1938unemployrnentstoodat 19.1percentand two yearslater at 14.6percent.Only the SecondWorld War,which generatedmassiveindustrial production, put the majority of the Americanpeopleback to work. To be sure, partial economic lecovery occurred. From a high of 13 million unemployed in 1933,the number undel Roosevelt'sadministration fell to 11.4million in 1,934,70.6 million in 1935, and 9 million in 1936. Farm income and manufacturing wagesalso rose, and as limited as these achievementsmay seem in retrospect,they provided sustenancefor millions of people and hope for many more. Yet Roosevelt'sresistanceto Keynesianformulas for pump priming ptaceOimmutable barriers in the way of lecovery that only war could demolish. At a time calling for drastic inflationary methods, Rooseveltintroduced programseffectingthe oppositeresult.The NRArestrictedproduction,elevated prices,and reducedpurchasingpowel, all of which were deflationary in effect' the SocialSecurityAct's payroll taxestook money from consumersand out of circulation.The federalgovernment's$4.43billion deficit in fiscalyear 1936, impressiveas it seemed,was not so much greatelthan Hoover's$2.6 billion shortfall during his last year in office.As economistRobertLekachmannoted, ,,The'great spender'wasin his heart a true descendantof thrifty Dutch Calvinist forebears."It is not certain that the application of Keynesianformulas would have sufficedby the mid-1930sto restoreprospe-rity,but the president's cautious deflationary policies clearly retardedrecovery'2 Although New Deal economicpoliciescameup short in the 1930s,they implanted several"stabilizets" that have been more successfulin averting unoth.. such depression.The Securitiesand ExchangeAct of t934 established government supervision of the stock market, and the Wheeler-RayburnAct allowed the Securitiesand ExchangeCommissionto do the samewith public utilities. Severelyembroiledin controversywhen adopted,thesemeasures have become mainstays of the American financial system.The Glass-Steagall BankingAct forcedthe separationof commercialand investmentbanking and broadenedthe powers of the FederalReserveBoard to change interest rates and limit loans for speculation.The creationof the FederalDepositInsurance Corporation (FDIC)increasedgovelnment supervisionof statebanks and signifiiantly loweredthe number of bank failures'Suchsafegualdslestoredconfldence in the discredited banking system and establisheda film economic foundation that performedwell for decadesthereafter' The New Deal was also responsiblefor numerousother notable changes in Americanlife. Section7(a)of the NIRA, the wagner Act, and the FairLabor StandardsAct transformedthe relationshipbetweenworkersand businessand breathedlife into a troubled labor movement on the vergeof total extinction.

NO / Roger Biles

253

In the space of a decade government laws eliminated sweatshops, severely curtailed child labor, and established enforceable standards for hours, wages, and working conditions. Further, federal action eliminated the vast majority of company towns in such industries as coal mining. Although Robert Wagner and FrancesPerkins dragged Roosevelt into labor's corner, the New Deal made the unions a dynamic force in American society. Moreoveq as Nelson Lichtenstein has noted, "by giving so much of the working class an institutional voice, the union movement provided one of the main political bulwarks of the Roosevelt Democratic party and became part of the social bedrock in which the New Deal welfare state was anchored."3 Roosevelt's avowed goal of "cradle-to-grave" security for the American people proved elusive, but his administration achieved unprecedented advancesin the field of social welfare. In 1938 the president told Congress: "Government has a final responsibility for the well-being of its citizenship. If private co-operative endeavor fails to provide work for willing hands and relief for the unfortunate, those suffering hardship from no fault of their own have a right to call upon the Government for aid; and a government worthy of its name must make fitting response." The New Deal's safety net included low-cost housing; old-age pensions; unemployment insurance; and aid for dependent mothers and children, the disabled, the blind, and public health services. Sometimes disappointing because of limiting eligibility requirements and low benefit levels, these social welfare programs nevertheless firmly established the principle that the govemment had an obligation to assistthe needy. As one scholar wrote of the New Deal, "More progress was made in public welfare and relief than in the three hundred years after this country was first settled."4 More and more government programs, inevitably resulting in an enlarged administrative apparatus and requiring additional revenue, added up to a much greater role for the national government in American life. Coming at a time when the only Washington bureaucracy most of the people encountered with any frequency was the U.S. Postal Service, the change seemed all the more remarkable. Although many New Deal programs were temporary emergency measures,others lingered long after the return of prosperity. Suddenly, the national government was supporting farmers, monitoring the economy, operating a welfare system, subsidizing housing, adjudicating labor disputes, managing natural resources, and providing electricity to a growing number of consumers. "What Roosevelt did in a period of a little over 72 years was to change the form of government," argued journalist Richard L. Strout. "Washington had been largely run by big business, by Wall Street. He brought the government to Washington." Not surprisingly, popular attitudes toward government also changed. No longer willing to accept economic deprivation and social dislocation as the vagaries of an uncertain existence, Americans tolerated-indeed, came to expect-the national government's involvement in the problems of everyday life. No longer did "government" mean just "city hall."s The operation of the national government changed as well. For one thing, Roosevelt's strong leadership expanded presidential power, contributing to what historian Arthur Schlesinger,Jr., called the "imperial presidency." Whereas Americans had in previous years instinctively looked first to Capitol Hill, after Roosevelt

254

$SUE 11 / Did the New Deal Prolong the Great Depression?

the White House took center stage in Washington' At the same time, Congress and the president looked at the nation differently. Tiaditionally attentive only to one gioup (big business), policyrnakers in Washington began responding to other constituencies such as labor, farmets, the unemployed, the aged, and to a lesserextent, women, blacks, and other disadvantaged groups. This new "broker state,, became more accessibleand acted on a growing number of problems, but equity did not always result. The ablest, richest, and most experienced groups fared-best during the New Deal. NRA codes favored big business, and AAA benefits aided large landholders; blacks received relief and government jobs but not to the extent their circumstances merited. The long-term result, according to historianJohn Braeman, has been " abaTkanizedpolitical system in which private interests scramble, largely successfully,to harness governmental authority and/or draw upon the public treasury to advance their private agendas'"o Another legacy of the New Deal has been the Roosevelt revolution in politics. Urbanization and immigration changed the American electorate, ind a new generation of voters who resided in the cities during the Great Depression opted for Franklin D. Roosevelt and his party. Before the 1930s the DemocratJ of the northern big-city machines and the solid South uneasily coexisted and surrendered primacy to the unified Republican party. The New Deal coalition that elected Roosevelt united behind common economic interests. Both urban northerners and rural Southelners, aSwell as blacks, womenf and ethnic immigrants, found common cause in government action to shield them from an economic system gone hal'wire. By the end of the decade the increasing importance of the urban North in the Democratic party had already become ipparent. After the economy lecoveled from the disastrous depression, members of the Roosevelt coalition shared fewer compelling interests' Beginning in the 1960s, tensions mounted within the party as such issuesas race, patriotism, and abortion loomed larger. Even so, the Roosevelt coalition retained enough commitment to New Deal principles to keep the Democrats the nation's majority party into the 1980s.7 Yet for all the alterations in politics, government/ and the economy, the New Deal fell far short of a revolution. The two-party system survived intact, and neither fascism, which attracted so many followers in European states suffering from the same international depression, nor communism attracted much of a following in the United States. Vital government institutions functioned without intemrption and if the balance of powers shifted, the nation remained capitalistic; free enterprise and private ownefship, not socialism, emerged from the 1930s. A limited welfare state changed the meld of the public and private but left them separate. Roosevelt could be likened to the British conservative Edmund Burke, who advocated measured change to offset drastic alterations-"reform to preserve.'t The New Deal's great achievement was the application of just enough change to preserve the American political economy' lndicitions of Roosevelt's restraint emerged from the very beginning of the New Deal. Rather than assume extraordinary executive powers as Abraham Lincoln had done in the 1861 crisis, the president called Congress into special session. Whatever changes ensued would come through normal governmental activity. Roosevelt declined to assume direct control of the economy, leaving the

NO / Roger Biles

255

nation's resourcesin the hands of private enterprise. Resisting the blandishments of radicals calling for the nationalization of the banks, he provided the means for their rehabilitation and ignored the call for national health insurance and federal contributions to Social Security retirement benefits. The creation of such regulatory agencies as the SECconfirmed his intention to revitalize rather than remake economic institutions. Repeatedly during his presidency Roosevelt responded to congressional pressure to enact bolder reforms, as in the case of the National Labor Relations Act, the Wagner-Steagall Housing Act, and the FDIC. The administration forwarded the NIRA only after Senator Hugo Black's recovery bill mandating 3O-hour workweeks seemed on the verge of passage. As impressive as New Deal relief and social welfare programs were, they never went as far as conditions demanded or many liberals recommended. Fluctuating congressional appropriations, oscillating economic conditions, and Roosevelt'sown hesitancy to do too much violence to the federal budget left Harry Hopkins, Harold lckes, and others only partially equipped to meet the staggering need. The president justified the creation of the costly WPA in 1935 by "ending this business of relief." Unskilled workers, who constituted the greatest number of WPA employees, obtained but 60 to 80 percent of the minimal family income as determined by the government. Roosevelt and Hopkins continued to emphasize work at less than existing wage scalesso that the WPA or PWA never competed with free labor, and they allowed local authorities to modify pay rates. They also continued to make the critical distinction between the "deserving" and "undeserving" poor, making sure that government aided only the former. The New Deal never challenged the values underlying this distinction, instead seeking to provide for the growing number of "deserving" poor.created by the Great Depression. Government assumed an expanded role in caring for the disadvantaged, but not at variance with existing societal norms regarding social welfare. The New Deal effected no substantial redistribution of income. The Wealth Tax Act of 1935 (the famous soak-the-rich tax) produced scant revenue and affected very few taxpayers. Tax alterations in 1936 and 7937 imposed no additional burdens on the rich; the 1938 and 1939 tax laws actually removed a few. By the end of the 1930s less than 5 percent of Americans paid income taxes, and the share of taxes taken from personal and corporate income levies fell below the amount raised in the 1920s. The great change in American taxation policy came during World War II, when the number of income tax payers grew to 74 percent of the population. In 1942 Treasury SecretaryHenry Morgenthau noted that "for the first time in our history, the income tax is becoming a people's tax." This the New Deal declined to do.S Finally, the increased importance of the national government exerted remarkably little influence on local institutions. The New Deal seldom dictated and almost always deferred to state and local governments-encouraging, cajoling, bargaining, and wheedling to bring parochial interests in line with national objectives. As Harry Hopkins discovered, governors and mayors angled to obtain as many federal dollars as possible for their constituents but with no strings attached. Community control and local autonomy, conditions thought to be central to American democracy, remained strong, and Roosevelt understood the

256

ISSUE 11 / Did the New Deal Prolong the Great Depression?

need for firm ties with politicians at all levels. In his study of the New Deal's impact on federalism, James T. Patterson concludes: "For all the supposed power of the New Deal, it was unable to impose all its gUidelines on the autonomous forty-eight states. . . . What could the Roosevelt administration have done to ensure a mole profound and lasting impression on state policy and politics? Very little."e Liberal New Dealers longed for more sweeping change and lamented their inability to goad the president into additional action. They envisioned a wholesale purge of the Democratic party and the creation of a new organization embodying fully the principles of liberalism. They could not abide Roosevelt's toleration of the political conservatives and unethical bosses who composed part of the New Deal coalition. They sought racial equality, constraints upon the iouthern landholding class,and federal intrusion to curb the power of urban real estate interests on behalf of the inveterate poor. Yet to do these things would be to attempt changes well beyond the desires of most Americans' People pursuing remunerative jobs and the economic security of the middle classapproved of government aiding the victims of an unfortunate economic crisis but had no interest in an economic system that would limit opportunity. The fear that the New Deal would lead to such thoroughgoing change explains the seemingly irrational hatred of Roosevelt by the economic elite. But, as historian Barry Karl has noted, "it was characteristic of Roosevelt'spresidency that he never went as far as his detractors feared or his followers hoped."lo The New Deal achieved much that was Sood and left much undone. Roosevelt's programs were defined by the confluence of forces that circumscribed his admittedly limited reform agenda-hostile iudiciary; powerful congressional opponents; some of whom entered into alliances of convenience with New Dealers and some of whom awaited the opportunity to build on their opposition; the political impotence of much of the populace; the pugnacious independence of local and state authorities; the strength of people's attachment to traditional values and institutions; and the basic conservatism of American culture. Obeisance to local custom and the decision to avoid tampering with the fabric of American society allowed much injustice to survive while shortchanging blacks, women, small farmers' and the "unworthy" poor' Those who criticized Franklin Roosevelt for an unwillingness to challenge racial, economic, and gender inequality misunderstood either the nature of his electoral mandate or the difference between reform and revolution-or both. If the New Deal preserved more than it changed, that is understandable in a society whose people have consistently chosen freedom over equality. Americans traditionally have eschewed expanded government, no matter how efficiently managed or honestly administered, that imposed restraints on personal success-even though such limitations redressed legitimate grievances or righted imbalances. Parity, most Americans believed, should not be purchased with the loss of liberty. But although the American dream has always entailed individual successwith a minimum of state interference, the profound shock of capitalism's near demise in the 1930s undermined numerous previously unquestioned beliefs. The inability of capitalism's "invisible hand" to stabilize the market and the failure of the private sector to restore prosperity

NO / RogerBiles

257

leadership and centralized enhanced the consideration of stronger executive and their replacegovernments p1"""i"g. yet with the collapseof democratic to any threats sensitive keenly ment by totalitarian regimei, Americans_were delivery of their in breaking path to liberty. New DeaI pr?gru-,, frequently commitment strong a retained also outsideiormal chinnels, federalresources promising only temporary to local government and community control while Reconcilingthe necessary stability. disruptiJns prior to the return of economic with the local autonomy crises autfrority atihe federallevel to meet nationwide the salientchallenges of one been desirableto safeguardfreedomhas always

toAmericandemocracy.EvenafterNewDealrefinements,thesearchforth properbalancecontinues.

Notes

Wander' eds'' Franklin 1. Otis L. Graham, Jr', and Meghan Robinson G' K' Hall' iii Lif, o"a Times:in Encyclopedic.]z;ew D. Roosevelt, $o1fon: ..Introduction,,, in Sitkoff, 1985), p. 285 (first,quotation); Harvard Sitloff, quotation)' Fifty YearsLater,p.5 (second ,,TheNew Deal asWatershed:The RecentLiterature,,' 2' RichardS.Kirkendall, (March 1968)' p' 847 (quotation)' lournal of'Americannittory 54 3.GrahamandW andeqFrankl i nD ' R oosevel t' H i sLi fe andTim es'p'228 (quotation). Deal"' p' Z2O (first quota4. Leuchtenburg, "The Achievement of the New tion);Patterson,America,sStruggleagainstPoverty,lg00-1980,p.56(seco quotation). 5.Louchhei m,TheMaki ngoftheN q' vD eaI:Thel nsi der sSpeak'p't 5 (quotation). of th^e^LiberalConsensus"' 6. John Braeman, "The New Deal: The Collapse t989)' p' 7 7' (Summer 20 Canadian Revianof American Studies

T.DavidBurner,ThePoliticsofProvincialism:TheDemocraticPartyinTransition, 19L8-1932(New York: Alfred A' Knopf' 1968)' (quotation)' 8. Mark Leff, The Limits of SymbolicReform'p' 287 g.JamesT.P atterson,TheN ew D eal andtheS tates:Feder alism inTr qnsit io Press'1969)' p' 2O2' iPrinceton: Princeton University l 0.B arryD .K arl ,The(JneasyS tate:Thet]ni tedS tates f r om 1915t o1945 (Chicago:University of Chicago Press'1983)' p' 124'

POSTSCRIPT Did the New Deal Prolong th e Great Depression? I- rofessorFolsomarguesthat the New Deal prolongeda depressionthat was startedin the late 1920s.Both the Hoover and Rooseveltadministrations,in his view abandonedfreemarket economicswhen it passedthe Smoot-Hawley Tariff Act in 1930 that createdhigh tariffs on 3,218 goods American industries neededfor their production, increasedpricesto the Americanconsumer and prevented Europeancountries from paying off their debts-Meanwhile the FederalReserveSystemcontinued to raiseinterestratesand that made it to borrow money.Folsomalsochallengesthe notion that harderfor businesses overproductionof consumergoodswas a maior proband underconsumption goeson to arguethat the New Deal itself with its then He lem into the 1920s. the sizeand power of the federalgovernment increased plograms shortsighted ending the depressionmore quickly. from country that preventedthe on severalgrounds. For example,he faulted be can Folsom,sanalysis crisisfacing the country on the the economic of enormity underestimatesthe wele rampant, farmersdeclared failures Bank inauguration. eve of Roosevelt's ,,farmholidays" and destroyedcropsto keepup prices,and an assassin tried to eat don't quipped, "People often Roosevelt As Miami. in kill the president-elect was the crisis to response immediate His day." eat every they in the long run, the "100 days"New Deal recoveryprograms. Folsom'scritique is basedon the conservativeassumptionsof the wellknown free-marketadvocatesMilton Friedmanand Anna JacobsonSchwartz, who argue in A MonetaryHistory of the united states,1867-1960 (Princeton University Press,1963) that the Great Depressionwas a governmentfailure, brought on primarily by FederalReservepoliciesthat abruptly cut the money supply.This view runs counter to those of PeterTemin, Did MonetaryForces (Norton, 1976);Michael A. Bernstein,The GreatDepresciuse the Depression? and EconomicChangein Americq(CambridgeUniversity sion:DelayedRecovery press,1987);and the readableand lively account of John Kenneth Galbraith, TheGreatcrash (HottghtonMifflin, 1955),which arguethat the crashexposed in the economythat causedthe depression. variousstructuralweaknesses unemployment was higher and industrial prothat argues Folsom also the decadeof the 1930sas comparedwith the throughout duction was lower goes evenfurther than almostall historiansand He Europe. nations of Western World War II and not the New Deal that it was that believe economistswho He usesthe argumentsof economistRobert Depression. Great got us out of the the massivedefrcitspendingduring the that explanation the Higgswho reiects increasedsavingsled to the economic and unemployment war that decreased 258

recovery after the war. According to Higgs, FDR'sprobusiness policy during the war and carried on by his successorPresident Harry Truman was the primary reason for the nation's recovery. Folsom's critique in large measure is based upon the arguments used by Roosevelt's Republican opponents in the 1930s. A number of books in the past two decades have given the free market argument against the New Deal. See Gary Dean Best, Pride, Prejudice ond Politics: " RooseveltversusRecovery,1933-1938 (Praeger,7990); Robert Eden, ed., The New Deal and Its Legacy:Critique and Reappralsal(Greenwood Press,1989); and Jim Powell, FDR's Folly: How Rooseveltand His New deal Prolonged the Great Depresslon (Crown Forum, 2003). Wall Street Journal writer Amity Shlaes wrote The Forgotten Man (Harper Collins, 2OO7),a highly publicized and widely reviewed controversial critique of New Deal programs. Finally Robert Higgs has a short concise essaycriticizing the New Deal among other liberal programs in Against Leviathan: Government Power and a Free Society (The Independent Institute, ZOO4).See also Higgs' important essayused by Folsom, "Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the Waq" IndependentReview,vo).. 1 (Spring, 7997). Historian Roger Biles argues that the New Deal was a nonrevolution compared to the economic and political changes that were taking place in communist Russia,fascist Italy, and Nazi Germany. The New Deal, in his view, was not so new. Social insurance appeared earlier in several states, notably Wisconsin. The economic planning embodied in the National Industrial Recovery Act extends back to President Wilson's World War I War Industries Board. The use of the federal government to aid farmers was begun with President Wilson's Farm Credit Act and continued during the Harding, Coolidge, and Hoover administrations. Although the recovery doesn't come about until World War II, Biles admits that the New Deal changed the relationship between the federal government and the people. The New Deal stabilized the banking industry and stock exchange. It ameliorated the relationship of workers with business and its support of the Wagner Act and the Fair Standard labor Act. Social Security provided a safety net for the aged, the unemployed, and the disabled. In politics, urbanization and immigration cemented a new Democratic coalition in 1936 with the conservative South around common economic interests until the 1980s when racial issuesand the maturing of a new suburban middle class fractured the Democratic majority. Biles' analysis basically agrees with the British historian Anthony Badger who argues in The New Deal (Hill and Wang, 1989) that the New Deal J. was a "holding operation" until the Second World War created the "political economy of modern America." Both Biles and Badger argue that once the immediate crisis of 1933 subsided, the opposition to the New Deal came from big business, conservative congressmen, and local governments who resisted the increasing power of the federal government. As the Office of War Information told Roosevelt, the American people's postwar aspirations were "compounded largely of 1929 values and the economics of the 1920s, leavened with a handover from the makeshift controls of the war." The most recent annotated bibliography is Robert F. Himmelberg, The Great Depressionand the New DeaI (Greenwood Press, 2001). Two important

259