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Mackinac Center for Public Policy 1

Great Myths of the Great Depression

GREATDEPRESSION

These and othermyths are

dispelled by thefacts in this essay

by economistLawrence W.

Reed.PRESIDENT HOOVERbelieved government shouldplay no role in the economy.

GOVERNMENT PROGRAMS helped lowerunemployment by putting many Americansto work.

FRANKLIN ROOSEVELT’S “NewDeal” saved America from thefailure of free-market capitalism.

Lawrence W. Reedby:Written

Mackinac Center for Public Policy2




Many volumes have been writtenabout the Great Depression of 1929-1941 and its impact on the lives of mil-lions of Americans. Historians, econo-mists, and politicians have all combedthe wreckage searching for the “blackbox” that will reveal the cause of thislegendary tragedy. Sadly, all too manyof them decide to abandon their search,finding it easier perhaps to circulate ahost of false and harmful conclusionsabout the events of seven decades ago.Consequently, many people today con-tinue to accept critiques of free-marketcapitalism that are unjustified and sup-port government policies that are eco-nomically destructive.

How bad was the Great Depres-sion? Over the four years from 1929 to1933, production at the nation’s facto-ries, mines, and utilities fell by morethan half. People’s real disposable in-comes dropped 28 percent. Stock pricescollapsed to one-tenth of their pre-crashheight. The number of unemployedAmericans rose from 1.6 million in 1929to 12.8 million in 1933. One of everyfour workers was out of a job at theDepression’s nadir, and ugly rumors ofrevolt simmered for the first time sincethe Civil War.

“The terror of the Great Crash hasbeen the failure to explain it,” writeseconomist Alan Reynolds. “People wereleft with the feeling that massive eco-nomic contractions could occur at anymoment, without warning, withoutcause. That fear has been exploited eversince as the major justification for vir-tually unlimited federal intervention ineconomic affairs.” 1

Old myths never die; they just keepshowing up in college economics and

political science textbooks. With onlyan occasional exception, it is there youwill find, decked in all its arrogant splen-dor, what may be the twentieth century’sgreatest myth: Capitalism and the free-market economy were responsible forthe Great Depression, and only govern-ment intervention brought aboutAmerica’s economic recovery.

A Modern Fairy Tale

Students today are frequentlytaught that unfettered free enterprisecollapsed of its own weight in 1929,paving the way for a decade-long eco-nomic depression full of hardship andmisery. The story is typically presentedas follows: An important pillar of capi-talism, the stock market, crashed anddragged America into depression.President Herbert Hoover, an advocateof “hands-off,” or laissez-faire, eco-nomic policy, refused to use the powerof government to intervene in theeconomy and conditions worsened asa result. It was up to Hoover’s succes-sor, Franklin Delano Roosevelt, to ridein on the white horse of government in-tervention and steer the nation towardrecovery. The apparent lesson to bedrawn is that capitalism cannot betrusted; government needs to take anactive role in the economy to save usfrom catastrophe.

But those who propagate this ver-sion of history might just as well top offtheir remarks by saying, “AndGoldilocks found her way out of the for-est, Dorothy made it from Oz back toKansas, and Little Red Riding Hoodwon the New York State Lottery.” Thepopular account of the Depression as

GREAT MYTHS OF THE GREAT DEPRESSION

outlined above belongs in a book of fairytales and not in a serious discussion ofeconomic history, as a review of the factsdemonstrates.

The Great, Great,Great, Great Depression

To properly understand the eventsof the time, it is factually appropriate toview the Great Depression as not one,but four consecutive depressions rolledinto one. Professor Hans Sennholz haslabeled these four “phases” as follows:2

I. The Business Cycle

II. The Disintegration of the WorldEconomy

III. The New Deal

IV. The Wagner Act

The first phase explains why thecrash of 1929 happened in the first place;the other three show how governmentintervention kept the economy in a stu-por for over a decade. Let’s considereach one in turn.

PHASE I: THEBUSINESS CYCLE

The Great Depression was notthe country’s first depression, thoughit proved to be the longest. Severalothers preceded it.

• In 1819, after three years ofcurrency inflation caused by the fed-

by Lawrence W. Reed



erally chartered Second Bank of theUnited States, the economy fell apart.

• The slump of 1836-37 occurredas the inflationary distortions of thecentral bank era were liquidatedwhen President Andrew Jackson pre-vented the re-charter of the SecondBank, calling it a “money monster.”

• In 1857 the economy re-trenched after a decade of money andcredit expansion on behalf of stategovernments that had forced theirdebt obligations onto the state bank-ing systems.

• In 1873, a post-Civi l Wardownturn followed the excesses ofthe government’s rampant “green-back” inflation.

• The Panic and Depression of1893-95 hit the country after Con-gress force-fed the economy for yearswith depreciating silver and papernotes.

• And in 1921, a brief but sharptumble took place after several yearsof credit and currency expansion toaccommodate the spending for WorldWar I.

The common thread woventhrough all of these earlier debacleswas disastrous manipulation of themoney supply by government. Forvarious reasons, government policieswere adopted which ballooned thequantity of money and credit in theeconomy. A boom resulted, followedlater by a painful day of reckoning.None of these depressions, however,lasted more than four years and mostof them were over in two. The ca-lamity that began in 1929 lasted atleast three times longer than any ofthe country’s previous depressionsbecause the government compoundedits monetary errors with a series ofharmful interventions.

Pumping Up the Volume

Most monetary economists, par-ticularly those of the “Austrian School,”have observed the close relationship be-tween money supply and economic ac-tivity. When government inflates themoney and credit supply, interest ratesat first fall. Businesses invest this “easymoney” in new production projects anda boom takes place in capital goods. Asthe boom ma-tures, businesscosts rise, inter-est rates readjustupward, andprofits aresqueezed. Theeasy-money ef-fects thus wearoff and the mon-etary authorities,fearing price in-flation, slow thegrowth of, oreven contract,the money sup-ply. In eithercase, the ma-nipulation isenough to knockout the shaky supports from underneaththe economic house of cards.

This basic business cycle outlineapplies as perfectly to the events of the1920s as it does to all of the earlierboom-bust cycles in U. S. history. Thefingerprints on the door to the Great De-pression belong primarily to the “moneymonster” of the twentieth century: theFederal Reserve System, known also asthe “Fed.”

One of the most thorough and me-ticulously documented accounts of theFed’s inflationary actions prior to 1929is America’s Great Depression by Pro-fessor Murray Rothbard. Using a broadmeasure that includes currency, demandand time deposits, and other ingredients,

Rothbard estimated that the money sup-ply was bloated by more than 60 per-cent from mid-1921 to mid-1929.3

Reckless money and credit expan-sion constituted what economist Ben-jamin M. Anderson called “the begin-ning of the New Deal”4 —the name forthe better-known but highly interven-tionist policies that would come laterunder President Franklin Roosevelt. Themonetary authorities were actively ma-

nipulating the economy, partly to stimu-late a boom at home and partly to assistthe Bank of England in its professeddesire to maintain pre-World War I ex-change rates.

The flood of money drove interestrates down, pushed the stock market todizzy heights, and gave birth to the“Roaring Twenties.” The economy washaving a party, the Federal Reserve wasspiking the punch, and a good time washad by almost all.

Few could read the handwriting onthe wall. Relatively stable prices in the1920s masked the monetary inflationto a considerable extent and lulledmany people into thinking that the situ-ation was sustainable. Substantial cuts

UNEMPLOYMENT SKYROCKETED after Congress raised tariffs andtaxes in the early 1930s and stayed high as policies of the Rooseveltadministration discouraged investment and recovery during the restof the decade.



in income tax rates enacted in theCoolidge years spurred investment andreal economic growth, which in turnyielded a burst of technological ad-vancement and entrepreneurial discov-eries of cheaper ways to produce goods.This explosion in productivity offsetmuch of the Fed’sinflationary impacton prices (with thenotable exceptionsof stocks andFlorida land).

But the distor-tions and bad in-vestments beingfostered by themonetary inflationwould sooner orlater have to be cor-rected. Every arti-ficial money andcredit expansion in-troduces imbal-ances in economicrelationships thatsend false signalsand set the economyup for an eventual fall—a fall that isonly made worse when governmentshifts its policy from one of monetaryease to monetary contraction.

The Bottom Drops Out

By late 1928, it was becomingclear that the Federal Reserve was tak-ing the punch away from the party. Itchoked off the money supply andraised interest rates. For example, thediscount rate (the rate the Fed chargesmember banks for loans) was in-creased four times, from 3.5 percentto 6 percent, between January 1928and August 1929. For the next threeyears, the Fed presided over a moneysupply that actually shrank by 30 per-cent! This deflation following the in-flation wrenched the economy from

tremendous boom to colossal bust. Afew observers argue that this horren-dous deflation was the Fed’s intent allalong, but most economists believethat the Fed badly miscalculated. Theresult is a manifest failure of govern-ment monetary policy in either case.

The most comprehensive chronicleof the monetary policies of the periodcan be found in the classic work ofNobel Laureate Milton Friedman and hiscolleague Anna Schwartz, A MonetaryHistory of the United States, 1867-1960.Friedman and Schwartz argue conclu-sively that the contraction of the nation’smoney supply by one-third betweenAugust 1929 and March 1933 was anenormous drag on the economy andlargely the result of seismic incompe-tence by the Fed. The death in October1928 of Benjamin Strong, a powerfulfigure who had exerted great influenceas head of the Fed’s New York districtbank, left the Fed floundering withoutcapable leadership—making bad policyeven worse.5

At first, only the “smart” money—the Bernard Baruchs and the JosephKennedys who watched things like

money supply—saw that the party wascoming to an end. Baruch actually be-gan selling stocks and buying bonds andgold as early as 1928; Kennedy did like-wise, commenting, “only a fool holdsout for the top dollar.”6

The masses of investors eventuallysensed the change in Fed policy and thenthe stampede was underway. In a spe-cial issue commemorating the 50th an-niversary of the stock market collapse,U. S. News & World Report described itthis way:

Actually the Great Crash was by nomeans a one-day affair, despite frequentreferences to Black Thursday, October24, and the following week’s BlackTuesday. As early as September 5,stocks were weak in heavy trading, af-ter having moved into new high groundtwo days earlier. Declines in early Oc-tober were called a “desirable correc-tion.” The Wall Street Journal, predict-ing an autumn rally, noted that “somestocks rise, some fall.”

Then, on October 3, stocks sufferedtheir worst pummeling of the year. Mar-gin calls went out; some traders grewapprehensive. But the next day, pricesrose again and thereafter seesawed fora fortnight.

The real crunch began on Wednesday,October 23, with what one observercalled “a Niagara of liquidation.” Sixmillion shares changed hands. The in-dustrial average fell 21 points. “Tomor-row, the turn will come,” brokers toldone another. Prices, they said, had beencarried to “unreasonably low” levels.

But the next day, Black Thursday, stockswere dumped in even heavier selling . . .the ticker fell behind more than 5 hours,and finally stopped grinding out quota-tions at 7:08 p.m.7

At their peak, stocks in the DowJones Industrial Average were selling for

PEOPLE WHO ARGUE that the free-market economy collapsedof its own weight in the 1930s seem utterly unaware of the criticalrole played by the Federal Reserve System’s grossmismanagement of money and credit.



19 times earnings—somewhat high, buthardly what stock market analysts regardas a sign of inordinate speculation. Thedistortions in the economy promoted bythe Fed’s monetary policy had set thecountry up for a recession, but other poli-cies and impositions to come would soonturn the recession into a full-scale di-saster. Congress was playing with fireat the same time stocks were taking abeating: On the very morning of BlackThursday, the nation’s newspapers re-ported that the political forces for highertrade-damaging tariffs were makinggains on Capitol Hill. The stock marketcrash was only a symptom—not thecause—of the Great Depression: Themarket rose and fell in almost direct syn-chronization with what the Fed and Con-gress were doing.

Buddy, Can YouSpare $40 Million?

Black Thursday shook Michiganharder than almost any other state.Stocks of auto and mining companieswere hammered. Auto production in1929 reached an all-time high ofslightly more than five million ve-hicles, then quickly slumped by twomillion in 1930. By 1932, near thedeepest point of the Depression, theyhad fallen by another two million tojust 1,331,860—down an astonishing75 percent from the 1929 peak.

Thousands of investors every-where, including many well-knownpeople, were hit hard in the 1929crash. Among them was WinstonChurchill. He had invested heavilyin American stocks before the crash.Afterward, only his writing skills andpositions in government restored hisfinances.

Clarence Birdseye, an early de-veloper of packaged frozen foods, soldhis business for $30 million and put

all his money into stocks. He waswiped out.

William C. Durant, founder ofGeneral Motors, lost more than $40million in the stock market and woundup a virtual pauper. (GM itself stayedin the black throughout the Depressionunder the cost-cutting leadership ofAlfred P. Sloan.)

Jesse Livermore, one of the big-time speculators of the era, shot him-self. A few others did the same orjumped from windows: The suiciderate rose until 1932.

Though the modern myth claimsthat the free market “self-destructed”in 1929, the wild manipulation of thecurrency by the Federal Reserve showsthat government, far from a disinter-ested bystander, was the principal cul-prit of the stock market crash.

PHASE II:DISINTEGRATIONOF THE WORLD

ECONOMYIf this crash had been like previ-

ous ones, the hard times would haveended in three years at the most, andlikely sooner than that. But unprec-edented political bungling insteadprolonged the misery for over 10years.

Unemployment in 1930 averageda mildly recessionary 8.9 percent, upfrom 3.2 percent in 1929. It shot uprapidly until peaking out at more than25 percent in 1933. Until March of1933, these were the years of Presi-dent Herbert Hoover—the man thatanti-capitalists depict as a championof noninterventionist, laissez-faireeconomics.

“The greatestspending administrationin all of history”

Did Hoover really subscribe to a“hands off the economy,” free-marketphilosophy? His opponent in the1932 election, Franklin Roosevelt,didn’t think so. During the campaign,Roosevelt blasted Hoover for spend-ing and taxing too much, boosting thenational debt, choking off trade, andputting millions on the dole. He ac-cused the president of “reckless andextravagant” spending, of thinking“that we ought to center control of ev-erything in Washington as rapidly aspossible,” and of presiding over “thegreatest spending administration inpeacetime in all of history.”Roosevelt’s running mate, John NanceGarner, charged that Hoover was“leading the country down the path ofsocialism.”8 Contrary to the modernmyth about Hoover, Roosevelt andGarner were absolutely right.

The crowning folly of the Hooveradministration was the Smoot-HawleyTariff, passed in June 1930. It came ontop of the Fordney-McCumber Tariff of1922, which had already put Americanagriculture in a tailspin during the pre-ceding decade. The most protectionistlegislation in U. S. history, Smoot-Hawley virtually closed the borders toforeign goods and ignited a vicious in-ternational trade war. Professor BarryPoulson describes the scope of the act:

The act raised the rates on the entirerange of dutiable commodities; for ex-ample, the average rate increased from20 percent to 34 percent on agriculturalproducts; from 36 percent to 47 per-cent on wines, spirits, and beverages;from 50 to 60 percent on wool andwoolen manufactures. In all, 887 tar-iffs were sharply increased and the actbroadened the list of dutiable com-modities to 3,218 items. A crucial part



of the Smoot-Hawley Tariff was thatmany tariffs were for a specific amountof money rather than a percentage ofthe price. As prices fell by half or moreduring the Great Depression, the effec-tive rate of these specific tariffsdoubled, increasing the protection af-forded under the act.9

Smoot-Hawley was as broad as itwas deep, affecting a multitude of prod-

ucts. Before its passage, clocks hadfaced a tariff of 45 percent; the act raisedthat to 55 percent, plus as much as an-other $4.50 per clock. Tariffs on cornand butter were roughly doubled. Evensauerkraut was tariffed for the first time.Among the few remaining tariff-freegoods, strangely enough, were leechesand skeletons (perhaps as a political sopto the American Medical Association, asone wag wryly remarked).

Tariffs on linseed oil, tungsten, andcasein hammered the U. S. paint, steel,and paper industries, respectively. Morethan 800 items used in automobile pro-duction were taxed by Smoot-Hawley.Most of the 60,000 people employed in

U. S. plants making cheap clothing outof imported wool rags went home job-less after the tariff on wool rags rose by140 percent.10

Officials in the administration andin Congress believed that raising tradebarriers would force Americans to buymore goods made at home, which wouldsolve the nagging unemployment prob-lem. But they ignored an important prin-

ciple of international commerce: Tradeis ultimately a two-way street; if foreign-ers cannot sell their goods here, then theycannot earn the dollars they need to buyhere. Or, to put it another way, govern-ment cannot shut off imports without si-multaneously shutting off exports.

You Tax Me, I Tax You

Foreign companies and their work-ers were flattened by Smoot-Hawley’ssteep tariff rates and foreign govern-ments soon retaliated with trade barri-ers of their own. With their ability tosell in the American market severely

hampered, they curtailed their purchasesof American goods. American agricul-ture was particularly hard hit. With astroke of the presidential pen, farmersin this country lost nearly a third of theirmarkets. Farm prices plummeted andtens of thousands of farmers went bank-rupt. A bushel of wheat that sold for$1.00 in 1929 was selling for a mere 30cents by 1932.

With the collapse of agriculture,rural banks failed in record numbers,dragging down hundreds of thousandsof their customers. Nine thousandbanks closed their doors in the UnitedStates between 1930 and 1933. Thestock market, which had regainedmuch of the ground it had lost sincethe previous October, tumbled 20points on the day Hoover signedSmoot-Hawley into law and fell al-most without respite for the next twoyears. (The market’s high, as mea-sured by the Dow Jones IndustrialAverage, was set on September 3,1929, at 381. It hit its 1929 low of198 on November 13, then reboundedto 294 by April 1930. It declined againas the tariff bill made its way towardHoover’s desk in June and did not bot-tom out until it reached a mere 41 twoyears later. It would be a quarter-cen-tury before the Dow would climb to381 again.)

The shrinkage in world tradebrought on by the tariff wars helped setthe stage for World War II a few yearslater. In 1929, the rest of the world owedAmerican citizens $30 billion.Germany’s Weimar Republic was strug-gling to pay the enormous reparationsbill imposed by the disastrous Treaty ofVersailles. When tariffs made it nearlyimpossible for foreign businessmen tosell their goods in American markets, theburden of their debts became massivelyheavier and emboldened demagogueslike Adolf Hitler. “When goods don’tcross frontiers, armies will,” warns anold but painfully true economic maxim.

PRESIDENT HERBERT HOOVER is mistakenly presented in standard history texts as alaissez-faire president, but he signed into law so many costly and foolish bills that one ofFranklin Roosevelt’s top aides later said that “practically the whole New Deal wasextrapolated from programs that Hoover started.”



Free Marketsor Free Lunches?

Smoot-Hawley by itself should layto rest the myth that Hoover was a freemarket advocate, but there is even moreto the story of his administration’s in-terventionist mistakes. Within a monthof the stock market crash, he convenedconferences of business leaders for thepurpose of jawboning them into keep-ing wages artificially high even thoughboth profits and prices were falling.Consumer prices plunged almost 25 per-cent between 1929 and 1933 whilenominal wages on average decreasedonly 15 percent—translating into a sub-stantial increase in wages in real terms,a major component of the cost of doingbusiness. As Hillsdale College econo-mist Richard Ebeling notes, “The ‘high-wage’ policy of the Hoover administra-tion and the trade unions . . . succeededonly in pricing workers out of the labormarket, generating an increasing circleof unemployment.”11

Hoover dramatically increasedgovernment spending for subsidy andrelief schemes. In the space of one yearalone, from 1930 to 1931, the federalgovernment’s share of GNP soared from16.4 percent to 21.5 percent.12 Hoover’sagricultural bureaucracy doled out hun-dreds of millions of dollars to wheat andcotton farmers even as the new tariffswiped out their markets. His Recon-struction Finance Corporation ladled outbillions more in business subsidies.Commenting decades later on Hoover’sadministration, Rexford Guy Tugwell,one of the architects of FranklinRoosevelt’s policies of the 1930s, ex-plained, “We didn’t admit it at the time,but practically the whole New Deal wasextrapolated from programs that Hooverstarted.”13

In September 1931, with the moneysupply tumbling and the economy reel-ing from the impact of Smoot-Hawley,

the Fed imposed the biggest hike in itsdiscount rate in history. Bank depositsfell 15 percent within four months andsizable, deflationary declines in thenation’s money supply persisted throughthe first half of 1932.

Compounding the error of high tar-iffs, huge subsidies, and deflationarymonetary policy, Congress then passedand Hoover signed the Revenue Act of1932. It doubled the income tax for mostAmericans; the top bracket more thandoubled, going from 24 percent to 63percent. Exemptions were lowered; theearned income credit was abolished; cor-porate and estate taxes were raised; newgift, gasoline, and auto taxes were im-posed; and postal rates were sharplyhiked.

Can any serious scholar observe theHoover administration’s massive eco-nomic intervention and, with a straightface, pronounce the inevitably deleteri-ous effects as the fault of free markets?

PHASE III: THENEW DEAL

Franklin Delano Roosevelt wonthe 1932 presidential election in a land-slide, collecting 472 electoral votes tojust 59 for the incumbent HerbertHoover. The platform of the Demo-cratic Party, whose ticket Rooseveltheaded, declared, “We believe that aparty platform is a covenant with thepeople to be faithfully kept by the partyentrusted with power.” It called for a25-percent reduction in federal spend-ing, a balanced federal budget, a soundgold currency “to be preserved at allhazards,” the removal of governmentfrom areas that belonged more appro-priately to private enterprise, and anend to the “extravagance” of Hoover’sfarm programs. This is what candidateRoosevelt promised, but it bears no re-

AMERICANS VOTED for FranklinRoosevelt in 1932 expecting him to adhereto the Democratic Party platform, whichcalled for less government spending andregulation.

semblance to what President Rooseveltactually delivered.

Washington was rife with both fearand optimism as Roosevelt was swornin on March 4, 1933—fear that theeconomy might not recover and opti-mism that the new and assertive presi-dent just might make a difference. Hu-

morist Will Rogers captured the popu-lar feeling toward “FDR” as he as-sembled the new administration: “Thewhole country is with him, just so hedoes something. If he burned down theCapitol, we would all cheer and say,well, we at least got a fire started any-how.”14

“Nothing tofear but fear itself”

Roosevelt did indeed make a dif-ference, though probably not the sort ofdifference for which the country hadhoped. He started off on the wrong footwhen, in his inaugural address, heblamed the Depression on “unscrupu-lous money changers” and said nothing



about the role of the Fed’s mismanage-ment and little about the follies of Con-gress that had contributed to the prob-lem. As a result of his efforts, theeconomy would linger in depression forthe rest of the decade. Adapting a phrasefrom nineteenth-century writer HenryDavid Thoreau, Roosevelt famouslydeclared in his inaugural address that,“We have nothing to fear but fear itself.”But as Professor Sennholz explains, itwas FDR’s policies to come that Ameri-cans had genuine reason to fear:

In his first 100 days, he swung hard atthe profit order. Instead of clearingaway the prosperity barriers erected byhis predecessor, he built new ones ofhis own. He struck in every known wayat the integrity of the U. S. dollarthrough quantitative increases andqualitative deterioration. He seized thepeople’s gold holdings and subse-quently devalued the dollar by 40 per-cent.15

Frustrated and angered thatRoosevelt had so quickly and thor-oughly abandoned the platform onwhich he was elected, Director of theBureau of the Budget Lewis W. Dou-glas resigned after only one year on thejob. At Harvard University in May1935, Douglas made it plain thatAmerica was facing a momentouschoice:

Will we choose to subject ourselves—this great country—to the despotism ofbureaucracy, controlling our every act,destroying what equality we have at-tained, reducing us eventually to thecondition of impoverished slaves of thestate? Or will we cling to the libertiesfor which man has struggled for morethan a thousand years? It is importantto understand the magnitude of the is-sue before us . . . . If we do not elect tohave a tyrannical, oppressive bureau-cracy controlling our lives, destroyingprogress, depressing the standard of liv-ing . . . then should it not be the func-

tion of the Federal government under ademocracy to limit its activities to thosewhich a democracy may adequatelydeal, such for example as national de-fense, maintaining law and order, pro-tecting life and property, preventing dis-honesty, and . . . guarding the publicagainst . . . vested special interests?16

New Dealing fromthe Bottom of the Deck

Crisis gripped the banking systemwhen the new president assumed officeon March 4, 1933. Roosevelt’s actionto close the banks and declare a nation-

wide “banking holiday” on March 6(which did not completely end until ninedays later) is still hailed as a decisiveand necessary action by Rooseveltapologists. Friedman and Schwartz,however, make it plain that this sup-posed cure was “worse than the disease.”The Smoot-Hawley tariff and the Fed’sunconscionable monetary mischief wereprimary culprits in producing the con-

ditions that gave Roosevelt his excuseto temporarily deprive depositors of theirmoney, and the bank holiday did noth-ing to alter those fundamentals. “Morethan 5,000 banks still in operation whenthe holiday was declared did not reopentheir doors when it ended, and of these,over 2,000 never did thereafter,” reportFriedman and Schwartz.17

Congress gave the president thepower first to seize the private goldholdings of American citizens and thento fix the price of gold. One morning,as Roosevelt ate eggs in bed, he andSecretary of the Treasury HenryMorgenthau decided to change the ra-tio between gold and paper dollars.After weighing his options, Rooseveltsettled on a 21-cent price hike because“it’s a lucky number.” In his diary,Morgenthau wrote, “If anybody everknew how we really set the gold pricethrough a combination of lucky num-bers, I think they would be fright-ened.”18 Roosevelt also single-handedly torpedoed the London Eco-nomic Conference in 1933, which wasconvened at the request of other majornations to bring down tariff rates andrestore the gold standard.

The federal government and itsreckless central bank had already mademincemeat of the gold standard by theearly 1930s. Roosevelt’s rejection of itremoved most of the remaining impedi-ments to limitless currency and creditexpansion, for which the nation wouldpay a high price in later years in the formof a depreciating currency. SenatorCarter Glass put it well when he warnedRoosevelt in early 1933: “It’s dishonor,sir. This great government, strong ingold, is breaking its promises to pay goldto widows and orphans to whom it hassold government bonds with a pledge topay gold coin of the present standard ofvalue. It is breaking its promise to re-deem its paper money in gold coin ofthe present standard of value. It’s dis-honor, sir.”19

ROOSEVELT WAS a spellbinding speakerand an inspiration to many. Unfortunately,historians with a statist bias have assessedhis 12 years in office more in terms of thehigh-sounding rhetoric than by actualresults.



Though he seized the country’sgold, Roosevelt did return booze toAmerica’s bars and parlor rooms. Onhis second Sunday in the WhiteHouse, he remarked at dinner, “I thinkthis would be a good time for beer.”20

That same night, he drafted a messageasking Congress to end Prohibition.The House approved a repeal measureon Tuesday, the Senate passed it onThursday and before the year was out,enough states had ratified it so thatthe 21st Amendment became part ofthe Constitution. One observer, com-menting on this remarkable turn ofevents, noted that of two men walk-ing down the street at the start of1933—one with a gold coin in hispocket and the other with a bottleof whiskey in his coat—the manwith the coin would be an up-standing citizen and the man withthe whiskey would be the outlaw.A year later, precisely the reversewas true.

In the first year of the NewDeal, Roosevelt proposed spend-ing $10 billion while revenueswere only $3 billion. Between1933 and 1936, government ex-penditures rose by more than 83percent. Federal debt skyrock-eted by 73 percent.

He talked Congress into cre-ating Social Security in 1935 andimposing the nation’s first com-prehensive minimum wage law in1938. While Roosevelt to this daygets a great deal of credit for thesetwo measures from the general pub-lic, many economists have a differ-ent perspective. The minimum wagelaw prices many of the inexperienced,the young, the unskilled, and the dis-advantaged out of the labor market.(For example, the minimum wageprovisions passed as part of anotheract in 1933 threw an est imated500,000 blacks out of work).21 Andcurrent studies and estimates reveal

that Social Security has become sucha long-term actuarial nightmare thatit will either have to be privatized orthe already high taxes needed to keepit afloat will have to be raised to thestratosphere.

Roosevelt secured passage of theAgricultural Adjustment Act (AAA),which levied a new tax on agriculturalprocessors and used the revenue tosupervise the wholesale destructionof valuable crops and cattle. Federalagents oversaw the ugly spectacle ofperfectly good fields of cotton, wheat,and corn being plowed under (themules had to be convinced to trample

the crops; they had been trained, ofcourse, to walk between the rows).Healthy cattle, sheep, and pigs wereslaughtered and buried in massgraves. Secretary of AgricultureHenry Wallace personally gave theorder to slaughter six million babypigs before they grew to full size. Theadministration also paid farmers forthe first time for not working at all.Even if the AAA had helped farmersby curtailing supplies and raisingprices, it could have done so only byhurting millions of others who had to

TO MANY AMERICANS, the National RecoveryAdministration’s bureaucracy and mind-numbingregulations became known as the “National Run Around.”

pay those prices or make do with lessto eat.

Blue Eagles, Red Ducks

Perhaps the most radical aspect ofthe New Deal was the National Indus-trial Recovery Act (NIRA), passed inJune 1933, which created a massivenew bureaucracy called the NationalRecovery Administration. Under theNRA, most manufacturing industrieswere suddenly forced into govern-ment-mandated cartels. Codes thatregulated prices and terms of sale

briefly transformed much of theAmerican economy into a fascist-style arrangement, while the NRAwas financed by new taxes on thevery industries it controlled.Some economists have estimatedthat the NRA boosted the cost ofdoing business by an average of40 percent—not something a de-pressed economy needed for re-covery.

The economic impact of theNRA was immediate and power-ful. In the five months leading upto the act’s passage, signs of re-covery were evident: factory em-ployment and payrolls had in-creased by 23 and 35 percent, re-spectively. Then came the NRA,shortening hours of work, raising

wages arbitrarily, and imposing othernew costs on enterprise. In the sixmonths after the law took effect, in-dustrial production dropped 25 per-cent. Benjamin M. Anderson writes,“NRA was not a revival measure. Itwas an antirevival measure . . . .Through the whole of the NRA periodindustrial production did not rise ashigh as it had been in July 1933, be-fore NRA came in.”22

The man Roosevelt picked to di-rect the NRA effort was General Hugh



“Iron Pants” Johnson, a profane, red-faced bully and professed admirer ofItalian dictator Benito Mussolini. Thun-dered Johnson, “May Almighty Godhave mercy on anyone who attempts tointerfere with the Blue Eagle” (the offi-

cial symbol of the NRA, which one sena-tor derisively referred to as the “Sovietduck”). Those who refused to complywith the NRA Johnson personally threat-ened with public boycotts and “a punchin the nose.”

There were ultimately more than500 NRA codes, “ranging from the pro-duction of lightning rods to the manu-facture of corsets and brassieres, cover-ing more than 2 million employers and22 million workers.”23 There werecodes for the production of hair tonic,dog leashes, and even musical comedies.A New Jersey tailor named Jack Magidwas arrested and sent to jail for the“crime” of pressing a suit of clothes for35 cents rather than the NRA-inspired“Tailor’s Code” of 40 cents.

In The Roosevelt Myth, historian JohnT. Flynn described how the NRA’s parti-sans sometimes conducted “business”:

The NRA was discovering it could notenforce its rules. Black markets grew

up. Only the most violent police meth-ods could procure enforcement. InSidney Hillman’s garment industry thecode authority employed enforcementpolice. They roamed through the gar-ment district like storm troopers. Theycould enter a man’s factory, send himout, line up his employees, subjectthem to minute interrogation, take overhis books on the instant. Night workwas forbidden. Flying squadrons ofthese private coat-and-suit police wentthrough the district at night, batteringdown doors with axes looking for menwho were committing the crime ofsewing together a pair of pants at night.But without these harsh methods manycode authorities said there could be nocompliance because the public was notback of it.24

The Alphabet Commissars

Roosevelt next signed into lawsteep income tax rate increases on thehigh brackets and introduced a five-per-cent withholding tax on corporate divi-dends. He secured another tax increasein 1934. In fact, tax hikes became a fa-vorite policy of Roosevelt for the next10 years, culminating in a top incometax rate of 90 percent. Senator ArthurVandenberg of Michigan, who opposedmuch of the New Deal, lambastedRoosevelt’s massive tax increases. Asound economy would not be restored,he said, by following the socialist no-tion that America could “lift the lowerone-third up” by pulling “the upper two-thirds down.”25 Vandenberg also con-demned “the congressional surrender toalphabet commissars who deeply be-lieve the American people need to beregimented by powerful overlords in or-der to be saved.”26 Those alphabet com-missars spent the public’s money like itwas so much bilge.

Roosevelt’s Civil Works Adminis-tration (CWA) hired actors to give freeshows and librarians to catalog ar-

THIS 1989 PHOTO is of a bridge built from 1936-41 as part of a Works ProgressAdministration (WPA) project in Coleman County, Texas. Many Americans saw such projectsas helpful, without considering their high cost and the corruption that plagued the program.

MICHIGAN SENATOR Arthur Vandenbergargued that a sound economy could not berestored through FDR’s punitive tax andregulatory measures.



chives. It even paid researchers tostudy the history of the safety pin, hired100 Washington workers to patrol thestreets with balloons to frighten star-lings away from public buildings, andput men on the public payroll to chasetumbleweeds on windy days.

The CWA, when it was started inthe fall of 1933, was supposed to be ashort-lived jobs program: Rooseveltassured Congress in his State of theUnion message that any new such pro-gram would be abolished within a year.“The federal government,” said thepresident, “must and shall quit thisbusiness of relief. I am not willing thatthe vitality of our people be furtherstopped by the giving of cash, of mar-ket baskets, of a few bits of weeklywork cutting grass, raking leaves, orpicking up papers in the public parks.”Harry Hopkins was put in charge of theagency and later said, “I’ve got fourmillion at work but for God’s sake,don’t ask me what they are doing.” TheCWA came to an end within a fewmonths but was replaced with anothertemporary relief program that evolvedinto the Works Progress Administra-tion, or WPA, by 1935. It is knowntoday as the very government programthat gave rise to the new term, “boon-doggle,” because it “produced” a lotmore than the 77,000 bridges and116,000 buildings to which its advo-cates loved to point as evidence of itsefficacy.27

With good reason, critics often re-ferred to the WPA as “We PiddleAround.” In Kentucky, WPA workerscatalogued 350 different ways to cookspinach. The agency employed 6,000“actors” though the nation’s actors’union claimed only 4,500 members.Hundreds of WPA workers were usedto collect campaign contributions forDemocratic Party candidates. In Ten-nessee, WPA workers were fired if theyrefused to donate two percent of theirwages to the incumbent governor. By

1941, only 59 percent of the WPA bud-get went to paying workers anything atall; the rest was sucked up in adminis-tration and overhead. The editors ofThe New Republic asked, “Has[Roosevelt] the moral stature to admitnow that the WPA was a hasty and gran-diose political gesture, that it is awretched failure and should be abol-ished?”28 The answer to that question,unfortunately, was no: The last of theWPA’s projects was not eliminated un-til July of 1943.

Roosevelt has been lauded forhis “job-creating” acts such as theCWA and the WPA. Many peoplethink that they helped relieve the De-pression. What they fail to realize isthat it was the rest of Roosevelt’stinkering that prolonged the Depres-sion and which largely prevented thejobless from finding real jobs in thefirst place. The stupefying roster ofwasteful spending generated by thesejobs programs represented a diversionof valuable resources to politicallymotivated and economically counter-productive purposes.

A brief analogy will illustrate thispoint. If a thief goes house to houserobbing everybody in the neighbor-hood, then heads off to a nearby shop-ping mall to spend his ill-gotten loot,it is not assumed that because hisspending “stimulated” the stores at themall he has thereby performed a na-tional service or provided a generaleconomic benefit. Likewise, when thegovernment hires someone to catalogthe many ways of cooking spinach, histax-supported paycheck cannot becounted as a net increase to theeconomy because the wealth used topay him was simply diverted, not cre-ated. Economists today must stillbattle this “magical thinking” everytime more government spending isproposed—as if money comes notfrom productive citizens, but ratherfrom the tooth fairy.

“An astonishing rabbleof impudent nobodies”

Roosevelt’s haphazard economicinterventions garnered credit frompeople who put high value on the ap-pearance of being in charge and “do-ing something.” The great majority ofAmericans were patient: They wantedvery much to give this charismatic po-lio victim and former New York gov-ernor the benefit of the doubt. ButRoosevelt always had his critics, andthey would grow more numerous as theyears groaned on. One of them was theinimitable “Sage of Baltimore,” H. L.Mencken, who rhetorically threw ev-erything but the kitchen sink at thepresident. Paul Johnson sums upMencken’s stinging but often-humor-ous barbs this way:

Mencken excelled himself in attackingthe triumphant FDR, whose whiff offraudulent collectivism filled him withgenuine disgust. He was the ‘Fuhrer,’the ‘Quack,’ surrounded by ‘an aston-ishing rabble of impudent nobodies,’ ‘agang of half-educated pedagogues,nonconstitutional lawyers, starry-eyeduplifters and other such sorry wizards.’His New Deal was a ‘political racket,’a ‘series of stupendous bogus miracles,’with its ‘constant appeals to class envyand hatred,’ treating government as ‘amilch-cow with 125 million teats’ andmarked by ‘frequent repudiations ofcategorical pledges.’29

Signs of Life

The American economy was soonrelieved of the burden of some of theNew Deal’s worst excesses when the Su-preme Court outlawed the NRA in 1935and the AAA in 1936, earningRoosevelt’s eternal wrath and derision.Recognizing much of what Rooseveltdid as unconstitutional, the “nine old



men” of the Court also threw out other,more minor acts and programs whichhindered recovery.

Freed from the worst of the NewDeal, the economy showed some signsof life. Unemployment dropped to 18percent in 1935, 14 percent in 1936, andeven lower in 1937. But by 1938, it wasback up to 20 percent as the economyslumped again. The stock marketcrashed nearly 50 percent between Au-gust 1937 and March 1938. The “eco-nomic stimulus” of Franklin Roosevelt’sNew Deal had achieved a real “first”: adepression within a depression!

PHASE IV: THEWAGNER ACT

The stage was set for the 1937-38collapse with the passage of the NationalLabor Relations Act in 1935—betterknown as the “Wagner Act” and orga-nized labor’s “Magna Carta.” To quoteHans Sennholz again:

This law revolutionized American la-bor relations. It took labor disputes outof the courts of law and brought themunder a newly created Federal agency,the National Labor Relations Board,which became prosecutor, judge, andjury, all in one. Labor union sympa-thizers on the Board further pervertedthis law, which already afforded legalimmunities and privileges to laborunions. The U. S. thereby abandoned agreat achievement of Western civiliza-tion, equality under the law.

The Wagner Act, or National LaborRelations Act, was passed in reactionto the Supreme Court’s voidance ofNRA and its labor codes. It aimed atcrushing all employer resistance to la-bor unions. Anything an employermight do in self-defense became an “un-fair labor practice” punishable by the

Board. The law not only obliged em-ployers to deal and bargain with theunions designated as the employees’representative; later Board decisionsalso made it unlawful to resist the de-mands of labor union leaders.30

Armed with these sweeping newpowers, labor unions went on a mili-tant organizing frenzy. Threats, boy-cotts, strikes, seizures of plants, andwidespread violence pushed produc-tivity down sharply and unemploy-ment up dramatically. Membershipin the nation’s labor unions soared:By 1941, there were two and a halftimes as many Americans in unionsas had been the case in 1935. Histo-rian William E. Leuchtenburg, him-self no friend of free enterprise, ob-

served, “Property-minded citizenswere scared by the seizure of facto-ries, incensed when strikers interferedwith the mails, vexed by the intimi-dation of nonunionists, and alarmedby flying squadrons of workers who

marched, or threatened to march,from city to city.”31

An UnfriendlyClimate for Business

From the White House on the heelsof the Wagner Act came a thunderousbarrage of insults against business.Businessmen, Roosevelt fumed, wereobstacles on the road to recovery. Heblasted them as “economic royalists”and said that businessmen as a class were“stupid.”32 He followed up the insultswith a rash of new punitive measures.New strictures on the stock market wereimposed. A tax on corporate retainedearnings, called the “undistributed prof-

its tax,” was levied. “These soak-the-rich efforts,” writes economist RobertHiggs, “left little doubt that the presi-dent and his administration intended topush through Congress everything theycould to extract wealth from the high-

AT THE NADIR of the Great Depression, half of American industrial production was idle asthe economy reeled under the weight of endless and destructive policies from both Republicansand Democrats in Washington.



income earners responsible for makingthe bulk of the nation’s decisions aboutprivate investment.”33

During a period of barely twomonths during late 1937, the market forsteel—a key economic barometer—plummeted from 83 percent of capacityto 35 percent. When that news embla-zoned headlines, Roosevelt took an ill-timed nine-day fishing trip. The NewYork Herald-Tribune implored him toget back to work to stem the tide of therenewed Depression. What was needed,said the newspaper’s editors, was a re-versal of the Roosevelt policy “of bit-terness and hate, of setting class againstclass and punishing all who disagreedwith him.”34

Columnist Walter Lippmann wrotein March 1938 that “with almost no im-portant exception every measure he[Roosevelt] has been interested in forthe past five months has been on tend-ing to reduce or discourage the produc-tion of wealth.”35

As pointed out earlier in this essay,Herbert Hoover’s own version of a“New Deal” had hiked the top marginalincome tax rate from 24 to 63 percent in

1932. But he was a piker compared tohis tax-happy successor. UnderRoosevelt, the top rate was raised at firstto 79 percent and then later to 90 per-cent. Economic historian BurtonFolsom notes that in 1941 Roosevelteven proposed a whopping 99.5-percentmarginal rate on all incomes over$100,000. “Why not?” he said when anadvisor questioned the idea.36

After that confiscatory proposalfailed, Roosevelt issued an executiveorder to tax all income over $25,000 atthe astonishing rate of 100 percent. Healso promoted the lowering of the per-sonal exemption to only $600, a tacticthat pushed most American familiesinto paying at least some income taxfor the first time. Shortly thereafter,Congress rescinded the executive order,but went along with the reduction ofthe personal exemption.37

Meanwhile, the Federal Reserveagain seesawed its monetary policy,first up in the middle of the decade, thendown by 1937, then up sharply throughAmerica’s entry into World War II. Aroller coaster monetary policy isenough by itself to produce a rollercoaster economy.

Still stinging from his earlier Su-preme Court defeats,Roosevelt tried in1937 to “pack” theSupreme Court witha proposal to allowthe president to ap-point an additionaljustice to the Courtfor every sitting jus-tice who hadreached the age of70 and did not retire.Had this proposalpassed, Rooseveltcould have immedi-ately appointed sixnew justices favor-able to his views, in-

creasing the members of the Court from9 to 15. His plan failed in Congress, butthe Court later began rubber-stampinghis policies after a number of opposingjustices retired. Until Congress killedthe packing scheme, however, businessfears that a Court sympathetic toRoosevelt’s goals would endorse moreof the old New Deal prevented invest-ment and confidence from reviving.

Robert Higgs draws a close con-nection between the level of privateinvestment and the course of theAmerican economy in the 1930s. Therelentless assaults of the Rooseveltadministration—in both word anddeed—against business, property, andfree enterprise guaranteed that thecapital needed to jump-start theeconomy was either taxed away orforced into hiding. When Roosevelttook America to war in 1941, he easedup on his anti-business agenda, but agreat deal of the nation’s capital wasdiverted into the war effort instead ofinto plant expansion or consumergoods. Not until both Roosevelt andthe war were gone did investors feelconfident enough to “set in motionthe postwar investment boom thatpowered the economy’s return to sus-tained prosperity.”38

SPECIAL POWERS GRANTED to organized labor with thepassage of the Wagner Act contributed to a wave of militant strikesand a “depression within a depression” in 1937.

PRESIDENT FRANKLIN ROOSEVELTdecried as selfish “economic royalists”those businessmen who opposed theburdensome taxes and regulations of his“New Deal.”



This view gains support in thesecomments from one of the country’sleading investors of the time, Lammotdu Pont, offered in 1937:

Uncertainty rules the tax situation, thelabor situation, the monetary situation,and practically every legal conditionunder which industry must operate.Are taxes to go higher, lower or staywhere they are? We don’t know. Islabor to be union or non-union? . . .Are we to have inflation or deflation,more government spending or less? . .. Are new restrictions to be placed oncapital, new limits on profits? . . . It isimpossible to even guess at the an-swers.”39

Many modern historians tend to bereflexively anti-capitalist and distrust-ful of free markets; they findRoosevelt’s exercise of power, consti-tutional or not, to be impressive and his-torically “interesting.” In surveys, amajority consistently rank Rooseveltnear the top of the list for presidentialgreatness, so it is likely they would dis-dain the notion that the New Deal wasresponsible for prolonging the GreatDepression. But when a nationally rep-resentative poll by the American Insti-tute of Public Opinion in the spring of1939 asked, “Do you think the attitudeof the Roosevelt administration towardbusiness is delaying business recov-ery?” the American people responded“yes” by a margin of more than two-to-one. The business community felteven more strongly so.40

Whither Free Enterprise?

On the eve of America’s entry intoWorld War II and 12 years after the stockmarket crash of Black Thursday, 10 mil-lion Americans were jobless. Roosevelthad pledged in 1932 to end the crisis,but it persisted two presidential termsand countless interventions later.

How was it that FDR was electedfour times if his policies were largely toblame? Ignorance and a willingness togive the president the benefit of thedoubt explain a lot. Roosevelt beatHoover in 1932 with promises of lessgovernment. He instead gave Ameri-cans more government, but he did sowith fanfare and fireside chats that mes-merized a desperate people. Bythe time they began to realize thathis policies were harmful, WorldWar II came, the people ralliedaround their commander-in-chief, and there was little desireto change the proverbial horsesin the middle of the stream byelecting someone new.

Along with the holocaust ofWorld War II came a revival oftrade with America’s allies. Thewar’s destruction of people andresources did not help the U. S.economy, but this renewed tradedid. A reinflation of the nation’smoney supply counteracted thehigh costs of the New Deal, butbrought with it a problem thatplagues us to this day: A dollarthat buys less and less in goodsand services year after year.Most importantly, the Truman adminis-tration that followed Roosevelt was de-cidedly less eager to berate and bludgeonprivate investors and as a result, thoseinvestors came back into the economyto fuel a powerful postwar boom. TheGreat Depression finally ended, but itshould linger in our minds today as themost colossal and tragic failure of gov-ernment and public policy in Americanhistory.

The genesis of the Great Depres-sion lay in the inflationary monetarypolicies of the U. S. government in the1920s. It was prolonged and exacer-bated by a litany of political missteps:trade-crushing tariffs, incentive-sappingtaxes, mind-numbing controls on pro-duction and competition, senseless de-

struction of crops and cattle, and coer-cive labor laws, to recount just a few. Itwas not the free market which produced12 years of agony; rather, it was politi-cal bungling on a scale as grand as thereever was.

Those who can survey the eventsof the 1920s and 1930s and blame free-

market capitalism for the economic ca-lamity have their eyes, ears, and mindsfirmly closed to the facts. Changing thewrong-headed thinking about this sor-did episode in American history is vitalto reviving faith in free markets and pre-serving our liberties. The nation man-aged to survive Roosevelt and his NewDeal quackery, and now the Americanheritage of freedom awaits a rediscov-ery by a new generation of citizens. Thistime we have nothing to fear but mythsand misconceptions.

THE SUPREME COURT came under attack byPresident Roosevelt because it declared importantparts of the “New Deal” unconstitutional. FDR’s “court-packing” scheme contributed to the resumption ofeconomic depression in 1937.



About the Authorand magazines including The Wall Street Jour-nal, Investor’s Business Daily, Policy Review,The Detroit News, the Detroit Free Press, anddozens of other publications in the U. S. andabroad. In addition, he has written or editedfive books and delivered over 800 speeches in40 states and 10 foreign countries. His inter-ests in political and economic affairs havetaken him as a freelance author to 54 coun-tries on six continents since 1985.

He is a member of the board of directorsand a past president of the State Policy Net-work, chairman of the board of trustees of theFoundation for Economic Education (FEE) inNew York, and a regular columnist for FEE’smonthly magazine, Ideas on Liberty.

The Mackinac Center for Public Policyis dedicated to improving the understandingof economic and political principles amongMichigan’s citizens, public officials, policymakers, and opinion leaders. Under Reed’s

leadership, the Center has emerged as the larg-est and most prolific of nearly 40 state-basedfree-market “think tanks” in America. Michi-gan Governor John Engler and his adminis-tration have cited the work of the MackinacCenter as being influential in shaping thestate’s public policy. More information aboutthe Mackinac Center and its publications canbe found on the World Wide Web atwww.mackinac.org.

Copyright © 2000, Mackinac Center forPublic Policy.

1 Alan Reynolds, “What Do We Know About the GreatCrash?” National Review, November 9, 1979, p. 1416.

2 Hans F. Sennholz, “The Great Depression,” The Free-man, April 1975, p. 205.

3 Murray Rothbard, America’s Great Depression (Kan-sas City: Sheed and Ward, Inc., 1975), p. 89.

4 Benjamin M. Anderson, Economics and the PublicWelfare: A Financial and Economic History of theUnited States, 1914-46, 2nd edition (Indianapolis:Liberty Press, 1979), p. 127.

5 Milton Friedman and Anna Jacobson Schwartz, AMonetary History of the United States, 1867-1960(New York: National Bureau of Economic Research,1963; ninth paperback printing by Princeton Univer-sity Press, 1993), pp. 411-415.

6 Lindley H. Clark, Jr., “After the Fall,” The Wall StreetJournal, October 26, 1979, p. 18.

7 “Tearful Memories That Just Won’t Fade Away,” U. S.News & World Report, October 29, 1979, pp. 36-37.

8 “FDR’s Disputed Legacy,” Time, February 1, 1982, p.23.

9 Barry W. Poulson, Economic History of the UnitedStates (New York: Macmillan Publishing Co., Inc.,1981), p. 508.

10 Reynolds, p. 1419.11 Richard M. Ebeling, “Monetary Central Planning and

the State—Part XI: The Great Depression and theCrisis of Government Intervention,” Freedom Daily(Fairfax, Virginia: The Future of Freedom Founda-tion, November 1997), p. 15.

12 Paul Johnson, A History of the American People (NewYork: HarperCollins Publishers, 1997), p. 740.

13 Ibid., p. 741.14 “FDR’s Disputed Legacy,” p. 24.15 Sennholz, p. 210.16 From The Liberal Tradition: A Free People and a

Free Economy by Lewis W. Douglas, as quoted in“Monetary Central Planning and the State, Part XIV:The New Deal and Its Critics,” by Richard M. Ebelingin Freedom Daily, February 1998, p. 12.

17 Friedman and Schwartz, p. 330.

18 John Morton Blum, From the Morgenthau Diaries:Years of Crisis, 1928-1938 (Boston: Houghton MifflinCompany, 1959), p. 70.

19 Anderson, p. 315.20 “FDR’s Disputed Legacy,” p. 24.21 Anderson, p. 336.22 Ibid., pp. 332-334.23 “FDR’s Disputed Legacy,” p. 30.24 John T. Flynn, The Roosevelt Myth (Garden City, N.Y.:

Garden City Publishing Co., Inc., 1949), p. 45.25 C. David Tompkins, Senator Arthur H. Vandenberg:

The Evolution of a Modern Republican, 1884-1945(East Lansing, MI: Michigan State University Press,1970), p. 157.

26 Ibid., p. 121.27 Martin Morse Wooster, “Bring Back the WPA? It

Also Had A Seamy Side,” Wall Street Journal, Sep-tember 3, 1986, p. A26.

28 Ibid.29 Johnson, p. 762.30 Sennholz, pp. 212-213.31 William E. Leuchtenburg, Franklin D. Roosevelt and

the New Deal, 1932-1940 (New York: Harper andRow, 1963), p. 242.

32 Ibid., pp. 183-184.33 Robert Higgs, “Regime Uncertainty: Why the Great

Depression Lasted So Long and Why Prosperity Re-sumed After the War,” The Independent Review, Vol-ume I, Number 4: Spring 1997, p. 573.

34 Gary Dean Best, The Critical Press and the New Deal:The Press Versus Presidential Power, 1933-1938(Westport, Connecticut: Praeger Publishers, 1993), p.130.

35 Ibid., p. 136.36 Folsom, Burton, “What’s Wrong With The Progres-

sive Income Tax?”, Viewpoint on Public Issues, No.99-18, May 3, 1999, Mackinac Center for PublicPolicy, Midland, Michigan.

37 Ibid.38 Higgs, p. 564.39 Quoted in Herman E. Krooss, Executive Opinion:

Endnotes

Mackinac Center for Public Policy140 West Main Street • P.O. Box 568

Midland, Michigan 48640(517) 631-0900 • Fax (517) 631-0964

www.mackinac.org • [email protected]

Lawrence W.Reed has been presi-dent of the MackinacCenter for PublicPolicy, a nonprofit,nonpartisan researchand educational insti-tute headquartered inMidland, Michigan,since its founding in1988.

Reed holds degrees in economics andhistory from Grove City College and SlipperyRock State University in Pennsylvania and anhonorary doctorate in public administrationfrom Central Michigan University. He taughteconomics at Northwood University from1977 to 1984, serving as chair of the depart-ment from 1982 to 1984.

Reed is author of over 800 columns andarticles which have appeared in newspapers

What Business Leaders Said and Thought on Eco-nomic Issues, 1920s-1960s (Garden City, N.Y.:Doubleday and Co., 1970), p. 200.

40 Higgs, p. 577.

Photo CreditsCover, Hoover, Library of Congress, Prints and Photo-

graphs Division [LC-USZ62-24155 DLC].Cover, WPA, Library of Congress, Prints and Photo-

graphs Division [AFC 1940/001: P003].Cover, Bridge, Library of Congress, Prints and Photo-

graphs Division, Historic American Buildings Sur-vey or Historic American Engineering Record, Re-production Number [HAER, TEX,42-VOS.V,4-].

Cover, Roosevelt, Franklin D. Roosevelt Library andMuseum.

Page 4, Unemployment, Michigan State Archives.Page 5, Federal Reserve Building, Library of Congress,

Prints and Photographs Division, TheodorHorydczak Collection [LC-H814-T-F03-003 DLC].

Page 7, Farm Relief Act, Library of Congress, NationalPhoto Company Collection, [LC-USZ62-111718DLC].

Page 8, Roosevelt, Library of Congress, Prints and Pho-tographs Division [LC-USZ62-117121 DLC].

Page 11, Bridge, Library of Congress, Prints and Pho-tographs Division, Historic American Buildings Sur-vey or Historic American Engineering Record, Re-production Number [HAER, TEX,42-VOS.V,4-].

Page 13, Steel Mill, Library of Congress, Prints andPhotographs Division, Theodor Horydczak Collec-tion [LC-H814-T-0601 DLC].

Page 14, Roosevelt, Franklin D. Roosevelt Library andMuseum.

Page 14, Strikers, Archives of Labor and Urban Af-fairs, Wayne State University.

Page 15, Supreme Court Building, Library of Congress,Prints & Photographs Division, FSA-OWI Collec-tion, [LC-USF34-005615-E DLC].

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