How FDR Made the U.S. Depression Worse
By Robert Higgs - thanks to the Mises Institute
http://www.mises.org (graphics
added):
Franklin Roosevelt "did bring us out of the Depression," Newt
Gingrich told a group of Republicans after the recent election, and that
makes FDR "the greatest figure of the 20th century."
 As
political rhetoric, the statement is likely to come from someone who
does not support a market economy. The New Deal, after all, was the
largest peacetime expansion of federal government power in this century.
Moreover, Gingrich's view that FDR saved us from the Depression is
indefensible; Roosevelt's policies prolonged and deepened it.
There's no doubt that Roosevelt changed the character of the American
government--for the worse. Many of the reforms of the 1930s remain
embedded in policy today: acreage allotments, price supports and
marketing controls in agriculture, extensive regulation of private
securities, federal intrusion into union-management relations,
government lending and insurance activities, the minimum wage, national
unemployment insurance, Social Security and welfare payments, production
and sale of electrical power by the federal government, fiat money--the
list goes on.
 Roosevelt's
revolution began with his inaugural address, which left no doubt about
his intentions to seize the moment and harness it to his purposes. Best
remembered for its patently false line that "the only thing we have to
fear is fear itself," it also called for extraordinary emergency
governmental powers.
The day after FDR took the oath of office, he issued a proclamation
calling Congress into a special session. Before it met, he proclaimed a
national banking holiday--an action he had refused to endorse when
Hoover suggested it three days earlier.
Invoking the Trading with the Enemy Act of 1917, Roosevelt declared
that "all banking transactions shall be suspended." Banks were permitted
to reopen only after case-by-case inspection and approval by the
government, a procedure that dragged on for months. This action
heightened the public's sense of crisis and allowed him to ignore
traditional restraints on the power of the central government.
In their understanding of the Depression, Roosevelt and his economic
advisers had cause and effect reversed. They did not recognize that
prices had fallen because of the Depression. They believed that the
Depression prevailed because prices had fallen. The obvious remedy,
then, was to raise prices, which they decided to do by creating
artificial shortages. Hence arose a collection of crackpot policies
designed to cure the Depression by cutting back on production. The
scheme was so patently self-defeating that it's hard to believe anyone
seriously believed it would work.
The goofiest application of the theory had to do with the price of
gold. Starting with the bank holiday and proceeding through a massive
gold-buying program, Roosevelt abandoned the gold standard, the bedrock
restraint on inflation and government growth. He nationalized the
monetary gold stock, forbade the private ownership of gold (except for
jewelry, scientific or industrial uses, and foreign payments), and
nullified all contractual promises--whether public or private, past or
future--to pay in gold.
 Besides
being theft, gold confiscation
didn't work. The
price of gold was increased from $20.67 to $35.00 per ounce, a 69%
increase, but the domestic price level increased only 7% between 1933
and 1934, and over rest of the decade it hardly increased at all. FDR's
devaluation provoked retaliation by other countries, further strangling
international trade and throwing the world's economies further into
depression.
Having hobbled the banking system and destroyed the gold standard, he
turned next to agriculture. Working with the politically influential
Farm Bureau and the Bernard Baruch gang, Roosevelt pushed through the
Agricultural Adjustment Act of 1933. It provided for acreage and
production controls, restrictive marketing agreements, and regulatory
licensing of processors and dealers "to eliminate unfair practices and
charges." It authorized new lending, taxed processors of agricultural
commodities, and rewarded farmers who cut back production.
The objective was to raise farm commodity prices until they reached a
much higher "parity" level. The millions who could hardly feed and
clothe their families can be forgiven for questioning the nobility of a
program designed to make food and fiber more expensive. Though this was
called an "emergency" measure, no President since has seen fit to
declare the emergency over.
Industry was virtually nationalized under Roosevelt's National
Industrial Recovery Act of 1933. Like most New Deal legislation, this
resulted from a compromise of special interests: businessmen seeking
higher prices and barriers to competition, labor unionists seeking
governmental sponsorship and protection, social workers wanting to
control working conditions and forbid child labor, and the proponents of
massive spending on public works.
The legislation allowed the President to license businesses or
control imports to achieve the vaguely identified objectives of the act.
Every industry had to have a code of fair competition. The codes
contained provisions setting minimum wages, maximum hours, and "decent"
working conditions. The policy rested on the dubious notion that what
the country needed most was cartelized business, higher prices, less
work, and steep labor costs.
To administer the act, Roosevelt established the National Recovery
Administration and named General Hugh Johnson, a crony of Baruch's and a
former draft administrator, as head. Johnson adopted the famous Blue
Eagle emblem and forced businesses to display it and abide by NRA codes.
There were parades, billboards, posters, buttons, and radio ads, all
designed to silence those who questioned the policy. Not since the First
World War had there been anything like the outpouring of hoopla and
coercion. Cutting prices became "chiseling" and the equivalent of
treason. The policy was enforced by a vast system of agents and
informers.
Eventually the NRA approved 557 basic and 189 supplementary codes,
covering about 95% of all industrial employees. Big businessmen
dominated the writing and implementing of the documents. They generally
aimed to suppress competition. Figuring prominently in this effort were
minimum prices, open price schedules, standardization of products and
services, and advance notice of intent to change prices. Having gained
the government's commitment to stilling competition, the tycoons looked
forward to profitable repose.
But the initial enthusiasm evaporated when the NRA did not deliver,
and for obvious reasons. Even its corporate boosters began to object to
the regimentation it required. By the time the Supreme Court invalidated
the whole undertaking in early 1935, most of its
 former
supporters had lost their taste for it.
Striking down the NRA, Chief Justice Charles Evans Hughes wrote that
"extraordinary conditions do not create or enlarge constitutional
power." Congress "cannot delegate legislative power to the President to
exercise an unfettered discretion to make whatever laws he thinks may be
needed."
[Image above: USS Potomac, The Presidential Yacht. The previous
picture shows FDR fishing off his yacht - not too shabby for a
depression era]
Despite the decision, the NRA-approach did not disappear completely.
Its economic logic reappeared in the National Labor Relations Act of
1935, reinstating union privileges, and the Fair Labor Standards Act of
1938, stipulating regulations for wages and working hours. The
Bituminous Coal Act of 1937 reinstated an NRA-type code for the coal
industry, including price-fixing. The Works Progress Administration made
the government the employer of last resort. Using the Connally Act of
1935, Roosevelt cartelized the oil industry. Eventually, of course, the
Supreme Court came around to Roosevelt's way of thinking.
Yet after all this, the grand promise of an end to the suffering was
never fulfilled. As the state sector drained the private sector,
controlling it in alarming detail, the economy continued to wallow in
depression. The combined impact of Herbert Hoover's and Roosevelt's
interventions meant that the market was never allowed to correct itself.
Far from having gotten us out of the Depression, FDR prolonged and
deepened it, and brought unnecessary suffering to millions.
Even more tragic is the lasting legacy of Roosevelt. The commitment
of both masses and elites to individualism, free markets, and limited
government suffered a blow in the 1930s from which it has yet to recover
fully. The theory of the mixed economy is still the dominant ideology
backing government policy. In place of old beliefs about liberty, we
have
 greater
toleration of, and even positive demand for, collectivist schemes that
promise social security, protection from the rigors of market
competition, and something for nothing.
"You can never study Franklin Delano Roosevelt too much," Gingrich
says. But if we study FDR with admiration, the lesson we take away is
this: government is an immensely useful means for achieving one's
private aspirations, and resorting to this reservoir of potentially
appropriable benefits is perfectly legitimate. One thing we have to fear
is politicians who believe this.
-------------------------------------------
Robert Higgs, an adjunct scholar with the Mises Institute, is
research director of the Independent Institute
Stanley K. Schultz, Professor of History William P. Tishler,
Producer, provides a succinct list of some of FDR's 'alphabetic soup' -
http://us.history.wisc.edu/hist102/lectures/lecture19.html
The First Hundred Days
At the beginning of his administration, Roosevelt convened Congress
in a special session and launched the New Deal with an avalanche of
bills. Historians refer to this period as the "Hundred Days."
Roosevelt introduced a new notion of the presidency whereby the
president, not Congress, was the legislative leader. Most of the
bills he proposed set up new government agencies, called the "alphabet
soup" agencies because of their array of acronyms.
AAA (Agricultural Adjustment Act)
Designed to help American farmers by stabilizing prices and limiting
overproduction, the AAA initiated the first direct subsidies to farmers
who did not plant crops. The United States Supreme Court later declared
the AAA unconstitutional and an unnecessary invasion of private property
rights.
CCC (Civilian Conservation Corps)
A public works project, operated under the control of the army,
which was designed to promote environmental conservation while getting
young, unemployed men off city street corners. Recruits planted trees,
built wildlife shelters, stocked rivers and lakes with fish, and cleared
beaches and campgrounds. The CCC housed the young men in tents and
barracks, gave them three square meals a day, and paid them a small
stipend. The army's experience in managing and training large numbers of
civilians would prove invaluable in WWII. Wisconsin was a beneficiary of
the CCC; one of the organizations many local projects was trail
construction at Devil's Lake State Park.
TVA (Tennessee Valley Authority)
One of the most ambitious and controversial New Deal projects, the
TVA proposed building dams and power plants along the Tennessee River to
bring electric power to rural areas in seven states. Although the TVA
provided many Americans with electricity for the first time and provided
jobs to thousands of unemployed construction workers, the program
outraged many private power companies.
NIRA (National Industrial Recovery Act)
The NIRA established the NRA (National Recovery Administration) to
stimulate production and competition by having American industries set
up a series of codes designed to regulate prices, industrial output, and
general trade practices. The federal government, in turn, would agree to
enforce these codes. In return for their cooperation, federal officials
promised to suspend anti-trust legislation. Section 7A of the NIRA
recognized the rights of labor to organize and to have collective
bargaining with management. The NIRA was the most controversial piece of
legislation to come out of the Hundred Days and many of its opponents
charged it with being un-American, socialist, even communist, even
though it did not violate the sanctity of private property or alter the
American wage system.
Within two years, the Supreme Court declared the NIRA
unconstitutional.
Further Reading:
Did FDR remake the U.S.A. into the U.S.S.A.? Discussion:
The Measure
Of A Country – Communism or Capitalism?
See also Events Surrounding
the Great U.S. Depression
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