The Mythology of Roosevelt and the New Deal by Robert Higgs

[Stephane Budge]

The Great Depression was a watershed in American history. Soon after
Herbert Hoover assumed the presidency in 1929, the economy began to
decline, and between 1930 and 1933 the contraction assumed
catastrophic proportions never experienced before or since in the
United States. Disgusted by Hoover’s inability to stem the collapse,
in 1932 the voters elected Franklin Delano Roosevelt, along with a
heavily Democratic Congress, and set in motion the radical
restructuring of government’s role in the economy known as the New
Deal.

With few exceptions, historians have taken a positive view of the New
Deal. They have generally praised such measures as the massive relief
programs for the unemployed; the expanded federal regulation of
agriculture, industry, finance, and labor relations; the establishment
of a legal minimum wage; and the creation of Social Security with its
old-age pensions, unemployment insurance, and income supplements for
dependent children in single-parent families, the aged poor, the
physically handicapped, and the blind. In the construction of the
American regulatory and welfare state, no one looms larger than FDR.

For this accomplishment, along with his wartime leadership, historians
and the general public alike rank Franklin D. Roosevelt among the
greatest of American presidents. Roosevelt, it is said repeatedly,
restored hope to the American people when they had fallen into despair
because of the seemingly endless depression, and his policies “saved
capitalism” by mitigating its intrinsic cruelties and inequalities.

This view of Roosevelt and the New Deal amounts to a myth compounded
of ideological predisposition and historical misunderstanding. In a
1936 book called The Menace of Roosevelt and His Policies, Howard E.
Kershner came closer to the truth when he wrote that Roosevelt

took charge of our government when it was comparatively simple, and
for the most part confined to the essential functions of government,
and transformed it into a highly complex, bungling agency for
throttling business and bedeviling the private lives of free people.
It is no exaggeration to say that he took the government when it was a
small racket and made a large racket out of it.[1]

As this statement illustrates, not everyone admired FDR during the
1930s. Although historians have tended to view Roosevelt’s opponents
as self-interested reactionaries, the legions of “Roosevelt haters”
actually had a clearer view of the economic consequences of the New
Deal. The nearly 17 million men and women who, even in Roosevelt’s
moment of supreme triumph in 1936, voted for Alf Landon could not all
have been plutocrats.

Prolonging the Depression

The irony is that even if Roosevelt did help to lift the spirits of
the American people in the depths of the depression—an uplift for
which no compelling documentation exists—this achievement only led the
public to labor under an illusion. After all, the root cause of the
prevailing malaise was the continuation of the depression. Had the
masses understood that the New Deal was only prolonging the
depression, they would have had good reason to reject it and its
vaunted leader.

In fact, as many observers claimed at the time, the New Deal did
prolong the depression. Had Roosevelt only kept his inoffensive
campaign promises of 1932—cut federal spending, balance the budget,
maintain a sound currency, stop bureaucratic centralization in
Washington—the depression might have passed into history before his
next campaign in 1936. But instead, FDR and Congress, especially
during the congressional sessions of 1933 and 1935, embraced
interventionist policies on a wide front. With its bewildering,
incoherent mass of new expenditures, taxes, subsidies, regulations,
and direct government participation in productive activities, the New
Deal created so much confusion, fear, uncertainty, and hostility among
businessmen and investors that private investment, and hence overall
private economic activity, never recovered enough to restore the high
levels of production and employment enjoyed in the 1920s.

In the face of the interventionist onslaught, the American economy
between 1930 and 1940 failed to add anything to its capital stock: net
private investment for that eleven-year period totaled minus $3.1
billion.[2] Without capital accumulation, no economy can grow. Between
1929 and 1939 the economy sacrificed an entire decade of normal
economic growth, which would have increased the national income 30 to
40 percent.

The government’s own greatly enlarged economic activity did not
compensate for the private shortfall. Apart from the mere
insufficiency of dollars spent, the government’s spending tended, as
contemporary critics aptly noted, to purchase a high proportion of
sheer boondoggle. In the words of the common-man’s poet, Berton
Braley,

A dollar for the services

A true producer renders—

(And a dollar for experiments

Of Governmental spenders!)

A dollar for the earners

And the savers and the thrifty—

(And a dollar for the wasters,

It’s a case of fifty-fifty!).[3]

Under heavy criticism, FDR himself eventually declared that he was
“not willing that the vitality of our people be further sapped by the
giving of doles, of market baskets, by a few hours of weekly work
cutting grass, raking leaves, or picking up papers in the public
parks.”[4] Nevertheless, the dole did continue.

Buying Votes

In this madness, the New Dealers had a method. Despite its economic
illogic and incoherence, the New Deal served as a massive vote-buying
scheme. Coming into power at a time of widespread destitution, high
unemployment, and business failures, the Roosevelt administration
recognized that the president and his Democratic allies in Congress
could appropriate unprecedented sums of money and channel them into
the hands of recipients who would respond by giving political support
to their benefactors. As John T. Flynn said of FDR, “it was always
easy to interest him in a plan which would confer some special benefit
upon some special class in the population in exchange for their
votes,” and eventually “no political boss could compete with him in
any county in America in the distribution of money and jobs.”[5]

In buying votes, the relief programs for the unemployed, especially
the Federal Emergency Relief Administration, the Civilian Conservation
Corps, and the Works Progress Administration, loomed largest, though
many other programs promoted the same end. Farm subsidies, price
supports, credit programs, and related measures won over much of the
rural middle class. The labor provisions of the National Industrial
Recovery Act and later the National Labor Relations Act and the Fair
Labor Standards Act purchased support from the burgeoning ranks of the
labor unions. Homeowners supported the New Deal out of gratitude for
the government’s refinancing of their mortgages and its provision of
home-loan guarantees. Even blacks, loyal to the Republican Party ever
since the Civil War, abandoned the GOP in exchange for the pittances
of relief payments and the tag ends of employment in the federal work-
relief programs. Put it all together and you have what political
scientists call the New Deal Coalition—a potent political force that
remained intact until the 1970s.

Inept, Arrogant Advisers

Journalists titillated the public with talk of Roosevelt’s “Brain
Trust”—his coterie of policy advisers before and shortly after his
election in 1932, of whom the most prominent were the Columbia
University professors Raymond Moley, Rexford Guy Tugwell, and Adolph
A. Berle. In retrospect it is obvious that these men’s ideas about the
causes and cure of the depression ranged from merely wrongheaded to
completely crackpot.

Like most other New Dealers, they viewed the collapse of prices as the
cause of the depression, and therefore they regarded various means of
raising prices, especially cartelization and other measures to
restrict market supply, as appropriate in the circumstances. Raise
farm prices, raise industrial prices, raise wage rates, raise the
price of gold. Only one price should fall, namely, the price (that is,
the purchasing power) of money. Thus, all favored inflation and, as a
means to this end, the abandonment of the gold standard, which had
previously kept inflation more or less in check.

Subsequent advisers, the “happy hot dogs” (after their mentor and
godfather, Harvard law professor Felix Frankfurter), such as Tom
Corcoran, Ben Cohen, and James Landis, who rose to prominence during
the mid-1930s, had no genuine economic expertise. But they contributed
mightily to FDR’s swing away from accommodating business interests and
toward assaulting investors as a class, whom he dubbed “economic
royalists” and blamed for the depression and other social evils.

Early and late, the president’s advisers shared at least one major
opinion: that the federal government should intervene deeply and
widely in economic life; that government spending, employing, and
regulating, all directed by “experts” such as themselves, could repair
the various perceived defects of the market system and restore
prosperity while achieving greater social justice. Even at the time,
many thoughtful onlookers found the overweening arrogance of these
deluded policy advisers to be their most distinctive trait. As James
Burnham wrote of them in his 1941 book, The Managerial Revolution,
“they are, sometimes openly, scornful of capitalists and capitalist
ideas. . . . They believe that they can run things, and they like to
run things.”[6] More recently, even a sympathetic left-liberal
historian, Alan Brinkley, wrote that the hardcore New Dealers embraced
government planning “with almost religious veneration.”[7]

The Misleading Analogy of War

Many of the New Dealers, including FDR himself (as assistant secretary
of the navy), had been active in the wartime administration of Woodrow
Wilson. Ruminating on how to deal with the depression, they seized on
an analogy: the war was a national emergency, and we dealt with it by
creating government agencies to control and mobilize the private
economy; the depression is a national emergency, and therefore we can
deal with it by creating similar agencies. Hence arose a succession of
government organizations modeled on wartime precedents. The
Agricultural Adjustment Administration resembled the Food
Administration; the National Recovery Administration resembled the War
Industries Board; the Reconstruction Finance Corporation (created
under Hoover but greatly expanded under Roosevelt) resembled the War
Finance Corporation; the National Labor Relations Board resembled the
War Labor Board; the Tennessee Valley Authority resembled the Muscle
Shoals project; the Civilian Conservation Corps resembled the army
itself. The list went on and on.

In his first inaugural speech, Roosevelt declared, “we must move as a
trained and loyal army willing to sacrifice for the good of a common
discipline.” He warned that should Congress fail to act to his
satisfaction, he would seek “broad executive power to wage a war
against the emergency as great as the power that would be given me if
we were in fact invaded by a foreign foe.” However stirring the
rhetoric, this approach to dealing with the depression rested on a
complete misapprehension. The requisites of successfully prosecuting a
war had virtually nothing in common with the requisites of getting the
economy out of a depression. (Moreover, the President and his
supporters greatly overestimated how successful their wartime measures
had been—the war had ended before the many defects of those measures
became widely understood.)

A Pure Political Opportunist

Roosevelt did not trouble himself with serious thinking. Flynn
referred to an aspect of his character as “the free and easy manner in
which he could confront problems about which he knew very little.”[8]
Nor did he care that he knew very little; his mind sailed on the
surface.

Fundamentally he was without any definite political or economic
philosophy. He was not a man to deal in fundamentals. . . . The
positions he took on political and economic questions were not taken
in accordance with deeply rooted political beliefs but under the
influence of political necessity. . . . He was in every sense purely
an opportunist.[9]

An indifferent student and later a wealthy, handsome, and popular
young man about town, FDR had distinguished himself mainly by his
amiable and charming personality. A born politician—which is to say,
he was devious, manipulative, and mendacious—Roosevelt had a flair for
campaigning and for posturing before and propagandizing the public.
Though millions hated him with a white-hot passion, there is no
gainsaying that far more loved him, and millions regarded him as a
savior—as the New York Times editorialized on June 18, 1933, “the
Heaven-sent man of the hour.”[10]

If demagoguery were a powerful means of creating prosperity, then FDR
might have lifted the country out of the depression in short order.
But in 1939, ten years after its onset and six years after the
commencement of the New Deal, 9.5 million persons, or 17.2 percent of
the labor force, remained officially unemployed (of whom more than 3
million were enrolled in emergency government make-work projects).
Roosevelt was a masterful politician, but unfortunately for the
American people subjected to his policies, he had no idea how to end
the depression other than to “try something” and, when that didn’t
work, to try something else. His ill-conceived, politically shaped
experiments so disrupted the operation of the market economy and so
discouraged the accumulation of capital that they impeded the full
recovery that otherwise would have occurred. His followers revered him
then, and many people revere him still, as a great leader. But what
does it avail a lost and thirsty man if his leader only wanders about
in the desert?

Legacies

Although Roosevelt and the New Dealers failed to end the depression,
they succeeded in revolutionizing the institutions of American
political and economic life and changing the country’s dominant
ideology. Even today, 60 years after the New Deal ran out of steam,
its legacies remain, still hampering the successful operation of the
market economy and diminishing individual liberties.

One need look no further than an organization chart of the federal
government. There one finds such agencies as the Export-Import Bank,
the Farm Credit Administration, the Rural Development Administration
(formerly the Farmers Home Administration), the Federal Deposit
Insurance Corporation, the Federal Housing Administration, the
National Labor Relations Board, the Rural Utility Service (formerly
the Rural Electrification Administration), the Securities and Exchange
Commission, the Social Security Administration, and the Tennessee
Valley Authority—all of them the offspring of the New Deal. Each in
its own fashion interferes with the effective operation of the free
market. By subsidizing, financing, insuring, regulating, and thereby
diverting resources from the uses most valued by consumers, each
renders the economy less productive than it could be—and all in the
service of one special interest or another.

Once the New Deal had burst the dam between 1933 and 1938, ample
precedent had been set for virtually any government program that could
gain sufficient political support in Congress. Limited constitutional
government, especially after the Supreme Court revolution that began
in 1937, became little more than an object of nostalgia for classical
liberals.

But in the wake of the New Deal, the ranks of the classical liberals
diminished so greatly that they became an endangered species. The
legacy of the New Deal was, more than anything else, a matter of
ideological change. Henceforth, nearly everyone would look to the
federal government for solutions to problems great and small, real and
imagined, personal as well as social. After the 1930s, opponents of a
proposed federal program might object to its structure, its personnel,
or its cost, but hardly anyone objected on the grounds that the
program was by its very nature improper to undertake at the federal
level of government.

“People in the mass,” wrote H.L. Mencken, “soon grow used to anything,
including even being swindled. There comes a time when the patter of
the quack becomes as natural and as indubitable to their ears as the
texts of Holy Writ, and when that time comes it is a dreadful job
debamboozling them.”[11] Six decades after the New Deal, Americans
overwhelmingly take for granted the expansive, something-for-nothing
character of the federal government established by the New Dealers.
For Democrats and Republicans alike, Franklin Delano Roosevelt looms
as the most significant political figure of the twentieth century.

But however significant his legacies, Roosevelt deserves no reverence.
He was no hero. Rather, he was an exceptionally resourceful political
opportunist who harnessed the extraordinary potential for personal and
party aggrandizement inherent in a uniquely troubled and turbulent
period of American history. By wheeling and dealing, by taxing and
spending, by ranting against “economic royalists” and posturing as the
friend of the common man, he got himself elected time after time. But
for all his undeniable political prowess, he prolonged the depression
and fastened on the country a bloated, intrusive government that has
been trampling on the people’s liberties ever since.