Remembering 'The Forgotten Man'

Amity Shlaes, author of a new history of the Great Depression, talks about Franklin D. Roosevelt's baleful economic legacy, the growth of government, and the death of classical liberalism.

Nick Gillespie from the January 2008 issue

(Page 2 of 4)

reason: You note that there were similarities between Hoover and Roosevelt, at least in the early stages of dealing with the Depression. Obviously, FDR was a lot more successful as a politician, but he and Hoover shared certain types of mentalities and even certain policy inclinations. Talk about what Hoover did wrong and how Roosevelt built on that.

Shlaes: Hoover was a good man, and electing him was like electing Bill Gates or Mike Bloomberg, or electing some other capitalist figure as president. In 1928 the country said, “We want a businessman to rationalize our country.” There was nothing wrong with some aspects of that, but Hoover had the wrong temperament. He had been Coolidge’s secretary of commerce and he did have an enormous talent for organizing humanitarian efforts, such as the relief effort for the Great Flood of 1927, which ravaged areas along the Mississippi River. Before that, he’d been very successful in business. The voters thought, “Let’s get somebody from the private sector as president and bring that success to government.” But government is a different animal than the private sector. Hoover was an engineer. He was a control freak. He would rather have control than do what was right. That’s a harsh thing to say, but you see it happening over and over again.

When the stock market crashed in 1929, he did some bad things. One was he called business leaders together and said, “Don’t drop wages or prices.” He didn’t give business a free rein to handle the downturn. In 1930 he signed the Smoot-Hawley Tariff, which raised tariffs to historically high levels. That sent a terrible international signal.

It was in the Republican Party’s platform to like tariffs; Republicans liked tariffs at that point. It was wrong, but they did. They thought a high tariff was good for business. It’s not good for business generally; it’s just good for the certain businessman who has the influence with politicians.

Hoover probably knew better. He had lived in London; he had lived in Asia. He was a man who had generated significant economic growth in his businesses. He had a thousand professors—even some from his own university, Stanford—write to him saying, “Don’t sign this tariff; it’s bad.” And yet he signed it.

Hoover does get blamed for something that he doesn’t deserve. People today say, “Oh, he ought to have spent as a Keynesian would, and the government would have made the economy grow.” We want to remember that the government was very small when he was president. The federal government was smaller than state and local governments at the time. It spent something like the equivalent of 2 percent or 3 percent of gross domestic product. Now it’s 18 percent to 20 percent.

reason: What was happening at the Federal Reserve?

Shlaes: The Fed was young. It had only been founded in the 1910s. They didn’t really know what they were doing. Neither Roosevelt nor Hoover understood that the country was in a deflation, that they were having a money drought. Bank problems were a large factor too. I don’t think they really understood what was going on with money or that you could create more money. They were in the gold standard culture. But there was a professor whom I came to know and like in the period, Irving Fisher. He would go around and say, basically, “There must be more money!”

Some towns realized this. They made their own money. They manufactured it. In the book, you can see pictures of the scrip that they created. It often had a moral component. In Salt Lake City, they had a currency called the “valor.”

The Fed should have made money easier to obtain. The concept that we have today—much of this book is history, not economics—of open market economics, where the government buys bonds or sells bonds to soak up money from the economy, was not especially developed at that time. And the gold standard functioned differently anyhow. If you want to make an argument against the gold standard, this is the example. The Depression was the Hurricane Katrina of gold standard policy. The absolute worst picture you can get of the gold standard is this period, because people did go hungry.

reason: Hoover had a terrible four years and got smoked in the ’32 election by FDR, who, among other things, also lifted Prohibition.

Shlaes: Right. That was part of the sale, the knowledge that Roosevelt would do that. He always had a gift for the voters. In the ’32 election, he gave liquor. (And there were significant revenues that came with legalizing liquor.) In the ’36 election, he gave spending.

He also created the Securities and Exchange Commission, which I’m generally in favor of. This is not a totally libertarian book. I think it’s OK to have the Fed and OK to have the SEC and OK to have clear rules in the game.

reason: Because they limit the uncertainty, which in the end is worse than even a bad policy that’s certain?

Shlaes: Yes. But there were other things that he did in his first 100 days, and that was the problem. Central to it was changing the economics of agriculture and saying, “We will pay you not to produce. We will limit supply, either by plowing under or limiting acreage”—that sort of thing.

reason: Where did his farm policy come from? FDR always talked about helping people, but what he did was actually set price floors at a time when people were going hungry. This isn’t exactly what the typical FDR devotee fully understands.

Comments

drawnasunder|12.18.07 @ 3:17PM|#

But I thought only a neanderthal would question the wisdom of the New Deal...
http://bloggingheads.tv/diavlogs/7325?in=00:03:11

|12.18.07 @ 3:25PM|#

I saw this one, and many of the other Afterwords. My only beef with AfterWords is that lately it has become a show where you have someone who writes a book and then someone who agrees with the orientation the book takes sitting around and talking. I would much prefer to have Nick interviewing the author of Nickel and Dimed. Or better yet have him interview someone who shares some of his orientation and disagrees on much of it as well. That would produce better debate and discussion imo.

|12.18.07 @ 3:41PM|#

Great book brilliant writer. Schlaes shows how intellectually bankrupt American Universities are. Here she writes a truly incitful and free thinking history of one of the most important events of the 20th Century and Schlaes is a journalist who works for a think tank. What are the chances something like the Forgotten Man would come out of an Ivy League history department? Zero.

|12.18.07 @ 3:51PM|#

Baleful economic legacy? Excuse me, who would want to exchange places with anyone in the good old days of Coolidge prosperity? (Unless you really really miss the 12-hour day.) Read David Kennedy's Freedom From Fear if you want a good picture of the New Deal, with all its faults and failures. As for Amity's selective hatchet job, she finds all of the warts, and none of the triumphs.

|12.18.07 @ 4:07PM|#

John | December 18, 2007, 3:41pm | #
Great book brilliant writer. Schlaes shows how intellectually bankrupt American Universities are. ... What are the chances something like the Forgotten Man would come out of an Ivy League history department? Zero.

You it's a damn good thing that she didn't, you know, graduate from any "ivy legue, intellectively bankrupt university" like Yale.

|12.18.07 @ 4:07PM|#

Triumphs? What triumphs? The fruits of the New Deal produced the seeds that grew to be Johnson's Great Society programs and interventionist foriegn policy. These boondoggles are with us to this day and are bankrupting us.

|12.18.07 @ 4:10PM|#

"You it's a damn good thing that she didn't, you know, graduate from any "ivy legue, intellectively bankrupt university" like Yale."

Your missing the point. She may have gone to school there but she doesn't teach there does she? Universities have become so intellecutally stiffling and leftists, the important thinkers don't work there anymore and have moved to the private sector and think tanks. We live in a world where a classical liberal like Schlaes or main line Democrat like Larry Summners can't work for a top university. That is sad.

|12.18.07 @ 4:12PM|#

As for Amity's selective hatchet job, she finds all of the warts, and none of the triumphs.

Please name the truimphs? The worse years of the depression were in 1937 and 1938. The New Deal turned what should have been a severe two or three year recession into the worst economic catastrophe in US history. There isn't a single economic triumph of the New Deal.

|12.18.07 @ 4:50PM|#

Vanneman,

In the interview, Shlaes did acknowledge the need for and, and longterm success of the SEC and the Federal Reserve.

Shannon Love|12.18.07 @ 5:16PM|#

I have a recurring nightmare in which the National Recover Administration never ended and in which Huey Long beat Roosevelt in 1936. America then slides into a genteel fascism.

I find it ironic that the very success of large corporation in organizing (rationalizing) production on a vast scale seemed to inspire almost all the collectivism of that era. Its like someone today said, "look at Walmart, look at Apple Computer, let's design our society around the same practices!" A lot of really smart people seemed to assume that because certain methods worked on the scale of a large corporation that they would work on the vastly larger scale of entire countries. It's really strange when you look at it from that perspective.

ace|12.18.07 @ 5:19PM|#

"What follows is an edited transcript of that program, which can be viewed online at reason.tv"

aaaaand can't find it. linkage, anyone?

|12.18.07 @ 6:21PM|#

Shannon Love

I always thought that America got a genteel fascism with Roosevelt. Actually I called it a benign fascism and I think it persisted until the 70s.

The movement to freer markets has tended to soften the fascism. On the other hand the rise of the security state and the nanny state have made it a tad harsher.

Huey Long beating Roosevelt in 1936 would have led to full-blown fascism, but probably not the level that Mussolini gave the Italians.

|12.18.07 @ 6:30PM|#

Somehow Hong Kong magically survived the Asian Economic crisis and deflation just fine. In fact, one could call deflation "falling prices", and "things" getting "cheaper".

Clemsonuee|12.18.07 @ 7:14PM|#

I read Kennedy's Freedom From Fear. I didn't find most of his arguments that convincing. And I really don't think that the New Deal is what ended the 12 hour workday. (Of course I say this as we are just hitting the point where my job gets busy and 12 hour days will look pretty nice.)

This reminds me of an argument I had with a friend of mine who claims that the New Deal "created the middle class". When I questioned that thought he told me that it was "accepted historical fact" and that it wasn't even debatable. I should add that he takes most of his historical fact from the above mentioned Freedom From Fear. I told him that one historian making a claim and having his history professor in college agree doesn't mean that everyone agrees with it.

|12.18.07 @ 8:05PM|#

Read the book. Made me hate FDR even more, and I already considered him by far the worst president we've ever had. The best part was the story about the chicken farmers taking down the polished lawyers.

Anyone who reads this book and still reveres FDR and modern liberalism has rocks in their head.

|12.18.07 @ 8:47PM|#

Just think of how much worse and more frequent depressions are now than before the New Deal.

Oh, wait...

|12.18.07 @ 8:56PM|#

The New Deal turned what should have been a severe two or three year recession into the worst economic catastrophe in US history.

The fact that the Depression was just as long and just as deep across the world puts the lie to this claim.

Juan|12.18.07 @ 9:04PM|#

The fact that the Depression was just as long and just as deep across the world puts the lie to this claim.

Wouldn't it do the same to the claim that the ND ended the Depression?

If you ask me, the big difference is a Fed that actually knows what it's doing.

|12.18.07 @ 9:12PM|#

Alan-

Excuse me, who would want to exchange places with anyone in the good old days of Coolidge prosperity? (Unless you really really miss the 12-hour day.)

Coolidge - I can work 12 hrs/day, 5 days/wk for $60/wk (3 oz gold @ $20/oz)- or,

Roosevelt - I can work 8 hrs/day, 5 days/wk for $40/wk (1.14 oz gold @ $35/oz) + 20 Hrs/wk at "time and a half" (.86 oz gold)-- total 2 oz gold! (50% "paycut"! "Man of the People"!)

Please note that I'm still assuming a "$1/hr wage"- though wages might tend to drop during the worst financial crisis in history...)- and that I also added the "overtime-cost" for the extra 20 hrs/wk of "unneeded labor" despite the lack of demand due to the Depression.

|12.18.07 @ 9:18PM|#

The New Deal turned what should have been a severe two or three year recession into the worst economic catastrophe in US history.

The fact that the Depression was just as long and just as deep across the world puts the lie to this claim.

Proves nothing of the sort, joe. The major economies were simultaneously flirting with greater levels of socialism, and engaging in greater trade protectionism, and in general acting like economic idiots, in an intertwined world where the U.S. was a big player that could drag down others. If a bunch of people all get hooked on heroin at the same time, and they all start dying soon afterward, would you then conclude that the heroin you personally took wasn't causing your health to decline because, hey, look at all my friends dying, it must be a group thing dragging us down, not the heroin at all?

|12.18.07 @ 9:24PM|#

Juan,

Anybody who claims that the New Deal ended the Depression is obviously wrong.

FDR's policies were a life preserver during the Depression, and the ones that have survived have allowed the economy to function better and avoid additional depressions, but the Great Depression was ended by a combination of the business cycle and World War Two.

prolefeed,

Once you accept your faith-based premise, your conclusions follow logically from them. I'll grant you that.

|12.18.07 @ 9:40PM|#

Once you accept your faith-based premise, your conclusions follow logically from them. I'll grant you that.

Yes, making an argument based on facts and actually reading and understanding the arguments in the book being discussed can best be described as "faith-based", joe. And dismissing arguments by calling them "faith-based" without actually addressing the points raised is proof that you've "won" an argument, right?

Did you read the book and follow the well-documented trail of destruction FDR's brain-dead policies left in their wake? Or would that interfere with your faith-based premise that Democrats Are Always Good TM?

|12.18.07 @ 9:44PM|#

I wish some of you knew some basic economics. Minimum wage laws and taxes on labor like social security (FDr's policies by the way) made the Depression worse. Raise the price of something and guess what people buy less of it. Der. God Almighty it is so basic. FDR prolonged the Depression to keep the voters dependent on him and the Democratic Party. Oh, he was folksy and could manipulate the masses with his newfound radio broadcasts alright. Read Monetary History of the United States by Friedman and Anna Schwartz folks. The Fed biffed it and FDR's disastrous economics only prolonged the Depression.

|12.18.07 @ 9:48PM|#

FDR's policies were a life preserver during the Depression

Which policies discussed in the book are you claiming were a "life preserver", joe? The arbitrary changes that paralyzed investment? The wage and price controls? Forbidding people from selecting which chickens they wanted to purchase? The raising of taxes? Telling people what crops they could raise? Setting minimum sizes for fruit, and forcing everything else to be dumped in a landfill, at a time when people were starving? etc.

Read the effing book already.

Juan|12.18.07 @ 10:32PM|#

I'll speak good things of one New Deal policy: Ensuring bank deposits.

|12.19.07 @ 9:16AM|#

I have my own problems with FDR, in particular his obstructive attitude towards impeding the Nazi genocide. But what all the FDR-bashers or free market critics miss is this: he transformed the economy of the entire continent. Think of America's south before the TVA: a medieval level existence, impenetrable malaria-ridden swamps, hookworm; who here would like to go back to the US before Coulee Dam, before the St. Lawrence Seaway, before the TVA? I argue that it was precisely these mammoth foundational projects that set the stage for and permitted the productivity explosion by which we overwhelmed both Germany (with Soviet help of course) and Japan. Therefore: some large mistakes may have been made, but let's not throw out the baby with the bathwater. The power companies wouldn't string wire to rural areas as there was no profit in it, as they saw it. At some point government action is necessary, not just to set the rules but to lay the productive foundation level of the national economic system through infrastructure initiatives. . This is the national-system idea, which goes back through our national discussion to Hamilton's bank plan, and further back to Colbert's dirigism.
John Doba
Houston

Russ 2000|12.19.07 @ 1:19PM|#

who here would like to go back to the US before Coulee Dam, before the St. Lawrence Seaway, before the TVA?

My guess is anyone who frets over global warming or lives in upstate New York.

The Toast Will Rise Again|12.19.07 @ 2:15PM|#

Think of America's south before the TVA

Yes, let's congratulate the yankees for rebuilding the backwards south after they destroyed it. What everybody needs after a good boot-crushing is lots of government spending. It worked for Germany!

I have a better idea: go back to antebellum South, get rid of Lincoln, and see how bad it would have been to have more confederation and less union.

fishmonger|12.19.07 @ 2:20PM|#

"I have great faith in the individual, and I think it's time for a re-evaluation of the [term] liberal in America."

Fair enough, I now declare that "liberal" = "classic liberal" and that those who we used to call liberal will now be called SOCIALIST or MARXIST.

"I'm an old-fashioned liberal, and a lot of this book is about the death of that kind of liberalism-liberalism in the European sense."

Before Shlaes gets all wet over European liberals she may want to remember that it was their policies that set the conditions for the economic woes that spread from Europe to the rest of the world thus morphing into the Great Depression.

fishmonger|12.19.07 @ 2:25PM|#

John Doba,

Actually the Soviet Union "overwhelmed" Germany with our help and not the other way 'round.

|12.19.07 @ 2:47PM|#

"he transformed the economy of the entire continent."

I don't consider it much of a transformation when the unemployment rate stayed above 10% until WWII.

|12.19.07 @ 5:47PM|#

Just for the record the St Lawrence Seaway was a creature of the 1950s and the Eisenhower Administration. And grand public works projects were already underway before the Roosevelt Administration.

The is no reason to believe the same kind of projects would not have been undertaken if Hoover had won in '32. After all, they didn't call him the "Great Engineer" for nothing.

Actually, he was called the "Great Engineer" not just because of his boosting of great projects but also because people believed that he could also engineer the creation of a new kind of society. See, the "do-nothing president" was actually a hell of an interventionist.