Repost: "Did Franklin Roosevelt’s New Deal Lift the United States Out of the Depression?"

I do a lot of reading. Most of it is fiction I admit, but not all.  A couple of years ago, I read a book by Thomas Woods titled, “33 Questions about American History You’re Not Supposed to Ask.” After I finished, I wrote several reviews on segments discussed in the book.  One of those was about the myth that FDR saved America from the Great Depression.  To my Father, this myth was gospel.  My studies of that portion of history when I was in college lead me to believe otherwise.  Woods affirmed my opinions.

Here is that  review again.  With Obama in the White House, it’s pertinent to review the mistakes and errors of the past. This was originally posted on May 21, 2009.

I’ve posted previously about some of the historical myths debunked in this book. For the previous posting, go HERE. This time, I’d like to address the myth: “Did Franklin Roosevelt’s New Deal Lift the United States Out of the Depression?”

This is a myth long perpetrated by democrats, liberals, statists and the unions. The depression began in 1929 with the famous stock market crash. The root cause was the indebtedness of some key corporations (sound familiar?). When they could no longer service their debt and declared bankruptcy, that action triggered other bankruptcies when those debts went unpaid. The fact was that for some time, credit had been extended far in excess to the assets used for collateral for that debt. (Ring any bells? Can we say “sub-prime” mortgages and the credit extended to those who wouldn’t have qualified for those mortgages without the arm-twisting of the financial industry by Congress? Fanny Mae? Freddy Mack?)

The popular thinking of the time was Keynesian Economics and that theory was adopted by Herbert Hoover. The gist of the theory was that there was insufficient spending and cash in the economy (just like the current stimulus bills passed by our democrat congress.) The remedy chosen by Hoover was wage supports. Needless to say, this didn’t work and the depression deepened and Roosevelt was elected.

For you history buffs, there was another depression in 1920 just after WW1 with a crash just as severe as the one in 1929. However, that time there was no government interference and the economy recovered in less than a year.

When Roosevelt entered office, he continued all the programs created by Hoover but changed their names. Roosevelt and congress enacted two new programs, the National Industrial Recovery Act and the National Recovery Administration. The purpose of these two acts was wage and price controls. An idea copied from Benito’s Mussolini’s Fascist government.
This was the beginning of the “New Deal”. The New Deal wasn’t a single piece of legislation but a series of acts creating new bureaucracies, regulations, additional central control of industry and the economy that collectively were the components of the New Deal.

The basic premise of the New Deal was that government could control the economy better than natural capitalistic economic forces. As an aside, if you review all the depressions that have occurred in American history, you find that governmental meddling either caused the depression or delayed the recovery of that depression.

From Woods…

If the word fascism seems over the top, consider that NRA head Hugh Johnson (who once referred to the administration he led as a “Holy Thing…the Greatest Social Advance Since the Days of Jesus Christ [1]” gave Secretary of Labor Frances Perkins a copy of Rallaello Viglione’s The Corporate State, a book that looked sympathetically on Mussolini’s policies in Italy.[2]

The National Industrial Recovery Act and the National Recovery Administration were later declared unconstitutional, fortunately for us. Post-analysis found that the policies enacted by the NRA during it’s short life deepened the depression and weaken the economy by blocking the free enterprise forces that would have created a better business environment and would have lead to the end of the depression. In short, the early components of the New Deal stopped the recovery from the depression and actually caused the depression to continue and get worse!

Again, from Woods…

Each New Deal program had its negative effests, but the collective effect was also substantial. Ohio University economists Richard Vedeer and Lowell Gallaway summed it up: “The Great Depression was very significantly prolonged in both its duration and its magnitude by the impact of the New Deal programs. The impact of all these multitudinous measures—industrial, agricultural, financial, monetary and other—upon a bewildered industrial and financial community was extraordinarily heavy. We must add the effect of continuing disquieting utterances by the President. He had castigated the bankers in his inaugural speech. He had made a slurring comparison of bankers in a speech in the summer of 1934.” That the private sector could survive and even show early signs of recovery “in the midst of so great a disorder is an amazing demonstration of the vitality of private enterprise.

Re-read that last paragraph of the events of Roosevelt first year in office and compare it with the actions and works of Barack Obama since his inauguration in 2009. You would think they both had the same speech writer.

The New Deals admirers assure us that FDR’s massive spending projects provided jobs and economic stimulus. True, government make-work projects benefit those who get the jobs. But we need to take the analysis further than this single obvious step. When considering the likely outcome of some economic policy, we cannot focus only on the short-term effects on its alleged beneficiaries. It is necessary to think about the long-term effect on the entire economy.

 

These programs did not simply divert jobs from some people to others, or capital from some projects to others, in a zero-sum game. They destroyed wealth and made society worse off. In the private sector, resources must be employed in line with consumer preferences if entrepreneurs wsh to see a profit. If they do not employ resources according to consumer desires, they make losses and must either change their business plans or see the rest of their capital slip out of their hands.

Every action of the New Deal was aimed to hinder free enterprise and those engaged in free enterprise. The purpose was to create agencies of central control to force economic trends in the direction they thought would benefit them and their acolytes. Free enterprise and capitalism is the mortal enemy of those who favor state control, the statists, socialists, Marxists who cannot abide a free and open economy and personal liberty.

The Myth:
Franklin Roosevelt lifted the country out of the Depression and saved American capitalism from its own internal flaws. At the very least he gave people hope at a time of despair.

The Truth:
As a growing body of scholarship continues to show, the New Deal actually prolonged the Depression and crippled American capitalism.

In all honesty, the Depression did not end until the advent of World War 2 when much of the available work force was inducted into the Military services and took them out of the job pool. In fact, the Depression continued for a year after the end of the War as the returning veterans re-entered the job pool. But that is another story.

[1] On these conferences, see Shaffer, In Restraint of Trade; see also Eisner, From Warfare State to Welfare State, 128-33.

[2] For a critique of this system and its spiritual cousins, the medieval guilds, see Thomas E. Woods, Jr., The Church and the Market (Lanham, Md.: Lexington, 2005).

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