15 Franklin Delano Roosevelt’s New Deal: From Economic Fascism to Pork-Barrel Politics Thomas J. DiLorenzo

Before the massive government intervention of the 1930s, all recessions were short-lived. The severe depression of 1921 was over so rapidly, for example, that Secretary of Commerce Herbert Hoover, despite his interventionist inclinations, was not able to convince President Harding to intervene rapidly enough; by the time Harding was persuaded to intervene, the depression was almost over. . . . When the stock market crash arrived in October 1929, Herbert Hoover, now the president, intervened so rapidly and so massively that the market adjustment process was paralyzed, and the Hoover-Roosevelt New Deal policies managed to bring about a permanent and massive depression.

—Murray N. Rothbard

America’s Great Depression

The biggest economic myth of the twentieth century is the notion that President Franklin D. Roosevelt’s unprecedented peacetime economic interventions “got us out of the Great Depression” and thereby “saved capitalism” from itself.[1] This tale was repeated frequently during the 1990s by the former Speaker of the U.S. House of Representatives, Newt Gingrich (R-Ga.), who said that FDR “did bring us out of the Depression” and was therefore “the greatest figure of the twentieth century.”[2] Virtually every U.S. history book repeats this falsehood, despite readily-available evidence to the contrary.

In reality, FDR’s economic policies made the Great Depression much worse; caused it to last much longer than it otherwise would have; and established interventionist precedents that have been a drag on economic prosperity and a threat to liberty to this day

What Recovery?

Despite a doubling of federal government expenditures from 1933 (Roosevelt’s first year in office) to 1940, the creation of dozens of new federal programs, and the direct employment of some ten million Americans in government “relief” jobs, the economy was basically no better off in 1938 than it was in 1933. Indeed, as will be discussed below, it was precisely because of all these programs and expenditures that the Great Depression dragged on until after World War II.

Table 1 shows the official U.S. unemployment rate from 1929—the year of the stock market crash—until 1940. As seen here, unemployment remained extraordinarily high for the first three years of FDR’s first term.

Table 1
U.S. Unemployment Rate (Percent of Civilian Labor Force), 1929–1940
Year	Unemployment Rate
1929	3.2%
1930	8.7
1931	15.9
1932	23.6
1933	24.9
1934	21.7
1935	20.1
1936	16.9
1937	14.3
1938	19.0
1939	17.2
1940	14.6

Source: U.S. Department of Commerce, Historical Statistics of the United States (Washington, D.C.: U.S. Government Printing Office, 1961), p. 73.

A short and shallow recovery was followed by the “Roosevelt recession” of 1938, where the unemployment rate shot back up from 14.3 percent to 19.0 percent in a single year as a result of what economist Benjamin Anderson called a “sudden, extraordinarily severe and precipitous break both in the volume of business and in stock market prices running through autumn 1937 and into spring 1938.”[3] There were more than ten million unemployed Americans in 1938, compared to eight million in 1931, the year before Roosevelt’s election.

The average rate of unemployment during the 1933–1940 period was 17.7 percent—more than five times the 1929 level. In terms of unemployment, FDR never did “end” the Great Depression. (Conscripting millions of men and sending them to an overseas war subjected them to a fate much worse than temporary unemployment.)

Table 2
Per Capita GNP, 1929–1940
Year	Per-Capita GNP
1929	$857
1930	772
1931	721
1932	611
1933	590
1934	639
1935	718
1936	787
1937	846
1938	794
1939	847
1940	916

Source: U.S. Department of Commerce, Historical Statistics of the United States (Washington, D.C.: U.S. Government Printing Office, 1961), p. 139.

The government’s own per-capita GNP statistics also reveal that, in terms of aggregate production, there was no recovery until after World War II was ended and a massive reduction in government expenditures and employment occurred. As seen in Table 2, per-capita GNP did not recover to its 1929 level until 1940, and even then, just barely so. Moreover, by 1940 government statistics on GDP were virtually useless as a basis of determining the extent, if any, of economic recovery; much of the U.S. economy was being redirected toward wartime production, and the economic data were distorted by price controls.

Data on personal consumption expenditures tell the same story: There was no economic recovery. Table 3 shows that personal consumption expenditures were approximately 8 percent less in 1940 than they were in 1929.

Table 3
Personal Consumption Expenditures, 1929–1940 ($ billions)
Year	Total Consumption Expenditures
1929	$78.9
1930	70.9
1931	61.3
1932	49.3
1933	46.4
1934	51.9
1935	56.3
1936	62.6
1937	67.3
1938	64.6
1939	67.6
1940	71.9

Source: U.S. Department of Commerce, Historical Statistics of the United States (Washington, D.C.: U.S. Government Printing Office, 1961), p. 179.

There was also a massive reduction in private capital investment. From 1930 to 1940, net private investment was minus $3.1 billion, as Americans failed to add anything to their capital stock.[4] No economy can grow without capital accumulation. American manufacturing equipment had grown so obsolete that by 1940, 70 percent of all metalworking equipment was over ten years old, a 50 percent increase over the 1930 level of obsolescence.[5]

The American recovery from the Great Depression was also more sluggish and slower to emerge than in most European nations. By 1937, Great Britain’s unemployment rate had declined to 10.3 percent (4 percentage points below the U.S. rate), for example.[6]

It is foolish to argue that World War II ended the Great Depression, as most economists and historians have done. Sure, unemployment was virtually ended when more than twelve million men were conscripted into the armed services, but this cannot be interpreted as a return to prosperity. Consumer goods production was replaced by the production of military goods; price controls were pervasive; and rationing was imposed for consumer goods. Consequently, economic data on GNP and inflation during the war years are useless as barometers of economic health. As of 1940, the economy had not recovered from the Great Depression, and for the next six years economic data were essentially useless. Consumer welfare continued to decline during the war years.

It was not until 1947, when the wartime economic controls ended and government spending and employment levels fell dramatically, that prosperity was restored.[7] Federal government expenditures fell from $98.4 billion in 1945 to $33 billion by 1948, the first full year of genuine recovery.[8] Keynesian economists expected a two-thirds reduction in government spending to lead to another depression, and they were dead wrong. With the price controls and rationing schemes of the war years out of the way and with the dramatic reduction in government spending, the private economy quickly blossomed. Private-sector production increased by almost one-third in 1946 alone, as private investment boomed for the first time in eighteen years and corporate share prices soared.[9]

What Did FDR Do?: The “First New Deal”

Historians distinguish between FDR’s First New Deal (1933–1934) and his Second New Deal (1935–1938). Dozens of new federal laws and programs were initiated during the First New Deal, including the creation of the Civilian Conservation Corps, Federal Emergency Relief Administration, and Tennessee Valley Authority. But the crowning “achievements” of FDR’s first two years in office were the National Industrial Relations Act (June 16, 1933) and the Agricultural Adjustment Act (May 12, 1933).

In The Roosevelt Myth, John T. Flynn devotes his sixth chapter to “The Dance of the Crackpots,” which describes many of the quite literally crackpot ideas that were widely discussed in Washington during the early 1930s.[10] Unfortunately FDR adopted one of these crackpot ideas as the primary basis of his economic policy. The central idea was based on an interpretation of the Depression that had cause and effect exactly backward. The main cause of the Depression, FDR and his advisers believed, was low prices. The Depression did not cause low prices and wages, then contended; low prices and wages caused the Depression. Therefore, the “obvious solution” to the Depression was government-mandated price and wage increases (to ostensibly increase “purchasing power”), which is what the National Industrial Recovery Act (NIRA) and the Agricultural Adjustment Act attempted to do. The former act sought to cartelize virtually every industry in America under the auspices of the federal government (while suspending the antitrust laws); the latter act sought to do the same for agriculture.

The First New Deal was essentially a scheme to turn the U.S. economy into one massive, government-run system of industrial and agricultural cartels. At a time when underemployment or unemployment of resources, including labor resources, was of tragic proportions, the focus of the government was to restrict output and employment even further with supply-reducing cartel schemes and limitations on hours worked.

The scheme was always destined to fail, of course, because of several major confusions. First, if wages are forced up by government fiat, the effect is to reduce the demand for labor, which creates more unemployment.

It is well-known that the minimum wage law causes unemployment, especially among lower-skilled workers. But at least the minimum wage law primarily applies only to entry-level employees and is therefore limited in the amount of harm it can do. The NIRA was an economy-wide minimum wage (and maximum hour) program that rendered the job-destroying effect of the minimum wage law universal.

Second, higher prices caused by a government-run cartel scheme may increase the incomes of some sellers, but only by reducing the incomes of buyers by an equivalent amount. On net, the economy is not “stimulated.” The NIRA was the public policy equivalent of a Rube Goldberg machine.

The NIRA created the National Recovery Administration (NRA), which was a bureaucratic monstrosity The NRA organized each industry into a federally-supervised trade association called a “Code Authority” which had the authority to regulate production, prices, and distribution methods. Every businessperson was required to sign a pledge to observe the government’s minimum wage, maximum hours, prohibitions on “child labor,” and myriad other regulations. Signers of the pledge were given a Blue Eagle badge that they were to wear to show their compliance.

The NRA was administered by a former Army general, Hugh Johnson, who adopted more than seven hundred industry codes and employed thousands of code-enforcement police. It was empowered to enforce minimum prices, but not maximum prices. Prices were not legally permitted to fall below “costs of production,” even if weak consumer demand would necessitate such pricing (temporarily) on the free market. Moreover, what counted as allowable “costs of production” for pricing purposes was determined arbitrarily by government bureaucrats in an unholy collaboration with industry executives. In the lumber industry, for example, prices were prohibited from falling below a “weighted average cost of production,” which included thirteen different cost categories. “When all of these items are thrown in,” Henry Hazlitt wrote, “the lumber industry should be able to present a very impressive figure for cost of production. In other words, it can fix a very substantial minimum price.”[11] Once again the corporate world confirmed Adam Smith’s dictum that businessmen seldom meet, even for “merriment,” when the discussion doesn’t turn to some conspiracy against the public. (As always, effective price-fixing conspiracies must utilize the coercive powers of the state to enforce compliance by the conspirators.)

In the New York garment industry the code-enforcement police roamed through the garment district like storm troopers. They could enter a man’s factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant. Night work was forbidden. Flying squadrons of these private coat-and-suit police went through the district at night, battering down doors with axes looking for men who were committing the crime of sewing together a pair of pants at night.[12]

A New Jersey tailor named Jack Magid was arrested, convicted, fined, and imprisoned for the “crime” of pressing a suit of clothes for 35c when the Tailors’ Code fixed the price at 40c.[13] Every town in America, wrote John T. Flynn, could offer a similar example.

More than six thousand patronage jobs were ladled out to “statisticians” who prepared reports regarding the “appropriate” prices that ought to be charged in each and every industry, a sort of Soviet-style central planning bureaucracy. Henry Hazlitt explained the work of some of these statistical wizards in a December 1933 article in The American Mercury:

[T]he corset and brassiere industry, while permitting manufacturers or wholesalers to contribute up to 50 percent of the net cost of a retailer’s advertising space, prohibits them from paying any of the cost of advertising on “corsets, combinations, girdle-corsets, or step-in corsets which are advertised for retail sale at less than $2, or on brassieres which are advertised for retail sales at less than $1.”[14]

Of course, the codes were in reality nothing but a blatant monopoly scheme. Government-enforced high prices were said to constitute “fair competition,” much to the delight of the industries who believed that they would benefit from the scheme—and who would likely make hefty campaign contributions to FDR in return. In short, the NRA—and the New Deal in general—was a giant shakedown operation.

The oil industry was also cartelized by a provision in the NIRA that created state “control boards” that could restrict the amount of oil sold in interstate and international commerce.[15]

A massive government-funded propaganda campaign complete with a mammoth New York City parade, was launched to promote acceptance of the NRA by the public. The campaign championed the NRA Codes while smearing and denigrating capitalists and capitalist institutions. Competition was called “economic cannibalism”; rugged individualists were “industrial pirates”; competitive price-cutting was denounced by the government as “cutthroat and monopolistic price-slashing”; price cutters were branded as “chiselers”; and government-enforced cartels were praised as “cooperative arrangements.”[16] It is important to recognize that whenever government itself enters into a policy debate, it has the ability to drown out all other voices, and it did so in this case.

Henry Hazlitt perfectly summarized the essence of the NRA in 1933 as a government program under which

the American consumer is to become the victim of a series of trades and industries which, in the name of “fair competition,” will be in effect monopolies, consisting of units that agree not to make too serious an effort to undersell each other; restricting production, fixing prices—doing everything, in fact, that monopolies are formed to do. . . . Instead of a relatively flexible system with some power of adjustment to fluid world economic conditions we shall have an inadjustable structure constantly attempting—at the cost of stagnant business and employment—to resist these conditions.[17]

The Agricultural Adjustment Act created the Agricultural Adjustment Administration (AAA) within the Department of Agriculture, which was similar to the NRA; the only real difference was that the former sought to cartelize agricultural markets. Even as many Americans were going hungry, FDR adopted a program to pay farmers millions of dollars annually to literally burn their crops and slaughter their livestock. One corporation alone that was in the business of refining sugar was paid $ 1 million for not producing sugar.[18] This created a public relations disaster for Roosevelt, who then wised-up and began paying farmers and ranchers for not raising livestock and planting crops in the first place. The AAA initiated acreage allotments, restrictive marketing agreements, the licensing of food processors and dealers to “eliminate unfair pricing,” and numerous other agricultural cartel schemes. The agency was an awful burden on poor sharecroppers, thousands of whom were evicted so that the landowners could collect their governmental bounties for not producing.[19] Who needs sharecroppers when one is being paid not to grow crops?

Perhaps the worst of FDR’s price-fixing schemes had to do with his handling of gold prices. Roosevelt abandoned the gold standard, the only certain restraint on federal government growth and inflation. He nationalized the gold stock by making the private ownership of gold illegal (except for jewelry, scientific or industrial uses, and foreign payments) and by nullifying all contractual promises to pay for anything in gold.

This was an act of outright theft, and it didn’t even inflate prices, as FDR hoped it would. Due to the severity of the Depression, the price level remained fairly steady for the entire decade of the 1930s. Roosevelt failed in his harebrained scheme to make everyone “rich” through inflation.

FDR’s “bank holiday,” in which he invoked the 1917 “Trading with the Enemy Act” to order the closing of banks, served only to heighten the state of panic in the minds of the public and did nothing to improve the banking system or alleviate the Depression. This crisis mentality allowed Roosevelt to further ignore constitutional constraints on governmental power and to act, more or less, like a dictator. One of FDR’s advisers, Raymond Moley, absurdly proclaimed that because of his boss’ bank closings, “Capitalism was saved in eight days.”[20]

Economic Fascism

The NRA and AAA were essentially modeled after the Italian fascist system that had been put in place by Benito Mussolini in the 1920s. Under Mussolini’s system, Italian businesses were grouped into “legally recognized syndicates,” which were essentially regional trade associations with names like “National Fascist Confederation of Commerce,” and the “National Fascist Confederation of Credit and Insurance.”[21] The ostensible purpose of these groupings was to enable government to secure “collaboration . . . between the various categories of producers” to assure that “the principle of private initiative” would not serve the purposes of private citizens, such as consumers, but would be “useful in the service of the national interest.”[22] The “national interest” as defined by Mussolini, of course.

Each regional trade association, or syndicate, was overseen and regulated by a central government “planning agency” or “corporation.” There was one such corporation for each industry. The supposed purpose of this arrangement was to counter—if not eliminate—free-market competition and replace it with “a spirit of collaboration that would not be possible under any other system,” according to the fascist economist Luigi Villari, an adviser to Mussolini.[23]

Like FDR and his NRA appointees, the Italian fascists waged a fierce propaganda campaign against the principles of free markets and individual liberty. In numerous speeches Mussolini bemoaned the “selfish pursuit of material prosperity,” explained that fascism was “a reaction against the flaccid materialistic positivism of the nineteenth century,” and urged Italians to abandon the ideas of Adam Smith and “the economistic literature of the eighteenth century.”[24] “If the nineteenth century was the century of the individual (liberalism implies individualism),” Mussolini wrote, then “this [the twentieth century] is the ‘collective’ century, and therefore the century of the State. . . . Fascism spells government.”[25]

That the First New Deal was strikingly similar to Italian fascism was noted by John T. Flynn, who observed that many American intellectuals, politicians, and businessmen greatly admired Mussolini.

What they liked particularly was his corporative system. He organized each trade or industrial group or professional group into a state-supervised trade association. He called it a cooperative. These cooperatives operated under state supervision and could plan production, quality, prices, distribution, labor standards, etc. The NRA provided that in American industry each industry should be organized into a federally supervised trade association. It was not called a cooperative. It was called a Code Authority. But it was essentially the same thing. . . . This was fascism.[26]

American businessmen were the primary promoters of economic fascism, although many of FDR’s advisers endorsed the idea as well. In 1932, Henry I. Harriman, president of the U.S. Chamber of Commerce, was impressed at how businessmen had been “conspicuously zealous in promoting the effort to carry into practical effect the philosophy of the planned economy.”[27]

In the 1920s, Gerard Swope, chief executive officer of General Electric, offered a “plan” that was very popular among business executives. His system would “operate through compulsory trade associations, made up of all major firms and empowered by law to regulate production, prices, and trade practices.”[28]

In the June 1931 issue of Harper’s magazine, economist Stuart Chase offered a “Ten Year Plan for America” that was extremely popular among businessmen. Chase sneered at the Soviets for believing that they, and not Americans, had invented central planning. “These Slavs seem to think that they discovered national planning,” Chase stated, but in reality the “credit” for it should go to Woodrow Wilson and his “War Industries Board” during World War I, described by Chase as “fifteen hundred businessmen, economists, engineers, statisticians, map makers, running the country.”[29]

So enamored with Mussolini were America’s political and business elite that in the foreword to Mussolini’s 1928 autobiography, former American ambassador to Italy Richard Washburn Child wrote that “In our time it may be shrewdly forecast that no man will exhibit dimensions of permanent greatness equal to those of Mussolini . . . the Duce is now the greatest figure of this sphere and time.”[30] Similar sentiments were expressed by many other business and political leaders during the 1920s and ’30s.

The idea that war planning can be a model for peacetime planning of the economy permeated the Roosevelt administration, as did admiration for something even more totalitarian than Italian fascism: Soviet central planning. FDR’s most influential economic adviser was Rexford G. Tugwell of Columbia University. In his 1930 book, American Economic Life, Tugwell praised Soviet communism, which he believed would be more prosperous and more egalitarian than capitalism.

Her [the Soviet Union’s] worst enemies are being forced to admit that the system appears to be able to produce goods in greater quantities than the old one and to spread such prosperity as there is over wider areas of the population.[31]

Soviet central planning enabled the Soviets to plan and to “carry out their industrial operations in accordance with a completely thought-out program,” Rexford Tugwell admiringly commented.[32] “The available evidence as to the success of the scheme seems to indicate clearly enough that it works.”[33] There were admittedly “those who suffer under it,” but according to Tugwell, “the major advantages . . . outweigh the disadvantages of the supposed loss of incentive, red tape, unimaginative centralized authority.”[34] As Stalin reportedly said, one must break a few eggs to make an omelet.

Yes, there might have been “a ruthlessness, a disregard for liberties and rights” in the Soviet Union, and there was an awful lot of “repression, spying, and violence,” but it was not caused by socialism, Tugwell contends.[35] Anyone who was interested “in peace, prosperity, and progress must, in the coming years, devote much study and thought to Russia and the Russians.”[36]

Writing in the American Economic Review in 1932, the year of Franklin Roosevelt’s election, Tugwell denounced capitalistic profits as being responsible for producing “insecurity” by creating “overcapacity” and “inflation, essentially echoing Karl Marx’s theory of surplus value.[37] Profits were said to “create unemployment and hardship” and to “persuade us to speculate” in “dangerous endeavors” and, most harmfully, to “hinder measurably the advance of [centralized] planning.”[38] To Tugwell, the NRA, as onerous and as unconstitutional as it was, did not nearly go far enough in regulating and regimenting the U.S. economy.

The First New Deal was such a debacle that both the NRA and AAA were ruled unconstitutional by the U.S. Supreme Court in early 1935. The NRA created such a protest with its storm-trooper tactics that the U.S. Senate forced FDR to appoint a commission to evaluate the agency in 1934. The commission was headed by renowned attorney Clarence Darrow, who described the NRA as “harmful, monopolistic, oppressive, grotesque, invasive, fictitious, ghastly, anomalous, preposterous, irresponsible, savage, wolfish.”[39]

General Hugh Johnson resigned on October 1, 1934 as the head of the NRA because of a dispute with FDR. The man whom FDR chose to head his most important effort to “revive” the economy gave a farewell speech to NRA employees in which he compared himself to “Christ and Madame Butterfly, quoting in Italian the words on the latter’s Samurai dagger, ‘To die with honor when you can no longer live with honor.’”[40] The Italian language was an especially appropriate touch. Mussolini would have liked it.

But many of these programs were resurrected by the wiley and irrepressible Roosevelt. The AAA programs were continued under the subterfuge of a “soil conservation program” and, thanks to Roosevelt’s court-packing scheme, many other programs that the U.S. Supreme Court had ruled unconstitutional were continued—many of them to this day. As economist Charlotte Twight observed in her book, America’s Emerging Fascist Economy, many (perhaps most) of the governmental institutions that Americans take for granted today and that were introduced during the New Deal were explicitly modeled after the fascist economies of Italy and Germany of the 1930s. Economic fascism sought to “empower an elite to determine the specific purposes that other individuals in the society are compelled to serve”; it “is the antithesis of limited government and individualism,” as it “uncompromisingly seeks to obliterate individual rights”; its view of capitalism is “regulated capitalism” and “government intervention in the economy on a massive scale”; it “supplants . . . market considerations with political considerations” with only “perfunctory regard for economic costs or consumers’ wishes”; it uses the language of “the national interest” to justify myriad government interventions; and it “attempts to fuse management and labor, molding them into a monolithic instrument for achieving whatever government officials decree to be the national interest.”[41]

Economic fascism is perhaps Roosevelt’s most enduring legacy to America. So was the art of lying through one’s teeth and political viciousness. After modeling his First New Deal almost exclusively along the lines of Italian fascism sprinkled with outright socialism and filling the top levels of his administration with wide-eyed idolaters of Stalinist central planning, FDR had the gall to warn the country in an ominous voice that “Tory Republicanism” may lead to fascism. Just before the 1938 election he stated:

As of today, Fascism and communism and old-line Tory Republicanism are not threats to the continuation of our form of government, but I venture the challenging statement that if American democracy ceases to move forward as a living force . . . then Fascism and Communism, aided, unconsciously perhaps, by old-line Tory Republicanism, will grow in strength in our land.[42]

The Second New Deal

We shall tax and tax, spend and spend, and elect and elect.

—Harry Hopkins

Adviser to President Roosevelt

On January 4, 1935—only a few months before most of his “First New Deal” was ruled unconstitutional by the U.S. Supreme Court—Franklin Roosevelt announced his Second New Deal. The principal additions were the Social Security Act, the National Labor Relations Act, the Fair Labor Standards Act (the minimum wage law), the Works Progress Administration, and punitive taxes imposed ostensibly to punish “economic royalists” and other entrepreneurs whom Roosevelt wanted to blame for the country’s troubles. Every one of these programs was a drain on the private sector of the economy and an impediment to the employment of labor. As such, they all made the Great Depression even worse.

The Social Security payroll tax and the two labor laws increased the cost to employers of hiring workers, which led to higher unemployment. The payroll tax was a straightforward increase in the cost of labor, as was the minimum wage law. The National Labor Relations Act, or Wagner Act, created a system of government-sanctioned legal privileges for labor unions that greatly enhanced their bargaining powers and, in many ways, enabled them to become more or less outlaw organizations. The Norris-LaGuardia Act, signed by President Hoover in 1932 and vigorously enforced during the Roosevelt administration, made it extremely costly and difficult to obtain an injunction against union violence. Laws against extortion exempted unions as long as the extortion involved “the payment of wages by a bona fide employer to a bona fide employee.”[43]

Thanks primarily to FDR’s Depression-era labor legislation, labor unions have been able to compel even nonmembers to pay dues, which are often used for political purposes unrelated to collective bargaining. Unions are immune from most injunctions by federal courts; can compel workers to pay dues as a condition of keeping their jobs; are legally empowered to “represent” all workers in a bargaining unit, regardless of whether they are union members; can compel employers to make their private property available to union officials; are all but immune from paying damages for personal and property injury that they inflict; and can force employers to open up their books to them.[44] As Friedrich Hayek wrote in The Constitution of Liberty:

We have now reached a state where they [unions] have become uniquely privileged institutions to which the general rules of law do not apply. They have become the only important instance in which governments fail in their prime function—the prevention of coercion and violence.[45]

These new laws that granted special privileges to unions—and at the same time, expanded state control over labor relations—were virtually identical to the kind of arrangements that had been adopted in Germany and Italy in the 1920s and ’30s. In each instance, the objective was to put the state in control of regulating labor relations in such a way as to achieve the state’s objectives—higher wages to “enhance purchasing power,” in Roosevelt’s case. In each instance individual bargaining with employers was all but outlawed and was replaced by state-supervised and controlled collective bargaining, with unions as the state-sponsored bargaining agents for all workers within a unionized workplace. According to labor historian Howard Dickman, New Deal labor legislation was “the beginning of a fascistic regulation of our quasi-syndicalist system of industrial democracy.”[46]

The virtual exemption from the rule of law allowed unions to force wages up during the Great Depression at a much faster pace than labor productivity was increasing, thereby causing higher unemployment. Wages rose by a phenomenal 13.7 percent during the first three quarters of 1937 alone.[47] Due largely to the legislated powers granted to unions, the union-nonunion wage differential increased from 5 percent in 1933 to 23 percent by 1940.[48] On top of this, the Social Security payroll and unemployment insurance taxes contributed to a rapid rise in government-mandated fringe benefits, from 2.4 percent of payrolls in 1936 to 5.1 percent just two years later.

Richard Vedder and Lowell Gallaway have estimated a statistical model of unemployment that leads them to conclude that, by 1940, the unemployment rate was more than 8 percentage points higher than it otherwise would have been due to the legislation-induced growth in unionism and government-mandated fringe benefit costs imposed on employers [49] They conclude that “the Great Depression was very significantly prolonged in both its duration and its magnitude by the impact of New Deal programs.”[50] Most of the abnormal unemployment of the 1930s would have been avoided had it not been for the New Deal.

In addition to fascistic labor policies and government-mandated wage and fringe benefit increases that destroyed millions of jobs, the Second New Deal was responsible for economy-destroying tax increases and massive government spending on myriad government make-work programs. “I’ve got four million at work [in federal jobs],” Harry Hopkins told the president in 1935, “but for God’s sake, don’t ask me what they are doing.”[51] Even before the military mobilization for World War II was under way, federal spending nearly doubled, from $4.6 billion in 1932 to $9.1 billion in 1940, while approximately $24 billion in deficits were accumulated. Annual deficits during this time averaged 42 percent of the federal budget.[52] Prior to Roosevelt’s terms in office budget deficits were universally denounced, even by Roosevelt himself during the election campaign of 1932.

Franklin Roosevelt proposed to have government spend the country out of the Great Depression, but of course, neither he nor any other politician could possibly have done so. There is no free lunch. Every dollar spent by government on whatever kind of make-work programs that can be dreamed up must necessarily depress genuine, market-driven economic growth by diverting resources from the private to the governmental sector. Every dollar spent by the state must be taken from private citizens one way or another—either through taxation, through government borrowing that crowds out private borrowers, or by inflating the currency, which reduces the value of all privately-held wealth. That is why, despite a more than doubling of the federal budget in eight years, the Depression did not end. Indeed, unemployment was higher in 1938 than it was in 1931.

Roosevelt’s vaunted “jobs” programs unequivocally destroyed jobs. Government “jobs” programs, such as the Works Progress Administration and the Civilian Conservation Corps, can only destroy private-sector jobs in order to “create” government make-work jobs. And since government bureaucrats spend the taxpayers’ money much more inefficiently than the taxpayers themselves do, government jobs that are “created” usually come at the expense of destroying several private-sector jobs. For example, the federal government’s own General Accounting Office has estimated that some federal jobs programs have provided $14,000-per-year jobs at a total cost of more than $100,000 per job, once one accounts for all the administrative expenses. Thus, in this case, about seven $14,000-per-year entry-level jobs must be destroyed in order to create one government job.

The New Deal Pork Barrel

Most historians have perpetuated the myth that Roosevelt spent the U.S. out of the Great Depression. There are two fundamental flaws in these assertions. First, as mentioned above, it is impossible for government spending to create prosperity out of thin air. Only production can create prosperity. Second, the assumption behind the claims that government spending somehow ended the Depression is that Roosevelt made spending decisions based on economic “need.” That is, government spending programs are said to have targeted the neediest areas of the country.

There is little evidence of this. In fact, there is much evidence that New Deal spending was designed with one overriding objective: to use the money to buy votes in order to assure Roosevelt’s reelection, regardless of regional disparities in the degree of economic hardship. The South was the most devastated region of the country during the Great Depression, for example, yet it received a disproportionately small amount of federal subsidies. John T. Flynn discussed how thoroughly politicized New Deal spending was by reporting the conclusions of a 1938 Official Report of the U.S. Senate Committee on Campaign Expenditures. Among the findings of the report were:[53]

• In one Works Progress Administration (WPA) “district” in Kentucky, 349 WPA employees were put to work preparing forms listing the electoral preferences of every employee on work relief. Many of those who stated that they did not intend to vote for Roosevelt were laid off.

• In another Kentucky WPA district, government workers were required, as a condition of employment, to pledge to vote for the senior senator from Kentucky, who was a Roosevelt supporter. If they refused, they were thrown off the relief rolls.

• Republicans in Kentucky were told that they would have to change party affiliations if they wanted to keep their WPA jobs.

• Letters were sent out to WPA employees in Kentucky, instructing them to donate 2 percent of their salaries to the Roosevelt campaign if they wanted to keep their jobs.

• In Pennsylvania, businessmen who leased trucks to the WPA were solicited for $100 campaign contributions.

• As in Kentucky Pennsylvania WPA workers were told to change their party affiliation if they wanted to keep their jobs. Many people refused and were fired.

• Government employment was increased dramatically right before elections. In Pennsylvania, “employment cards” were distributed, entitling holders of the cards to “two to four weeks of employment around election time.”

• A Pennsylvania man who was given a $60.50-per-month white-collar job was transferred to a pick-axe job in a limestone quarry after refusing to change his voter registration from Republican to Democrat.

• Tennessee WPA workers were also instructed to contribute 2 percent of their salaries to the Democratic Party as a condition of employment.

• In Cook County, Illinois, 450 men were employed in one congressional election district by the WPA and were instructed to canvass for (Democratic) votes around election time. They were all laid off the day after the 1938 election.

The U.S. Senate report only surveyed four states, but there is every reason to believe that similar practices occurred in all states. Economist Gavin Wright conducted a more systematic examination of WPA spending patterns and concluded that, in general, “WPA employment reached peaks in the fall of election years, and the pattern is most pronounced when employment is measured relative to indices of need.”[54] In a 1939 magazine article entitled “The WPA: Politicians’ Playground,” historian Stanley High observed that “In states like Florida and Kentucky—where the New Deal’s big fight was in the primary elections—the rise of WPA employment was hurried along in order to synchronize with the primaries.”[55]

More recently, in 1969, economic researchers uncovered governmental data sets depicting the distribution of New Deal spending, and that has enabled them to examine more fully the extent to which programs such as the WPA were motivated by politics, i.e., the reelection of Franklin D. Roosevelt. In general, the relatively well-off Western states tended to receive the lion’s share of New Deal subsidies, whereas the Southern states, where the Depression was most severe, received the least. The average resident of a Western state received 60 percent more in federal subsidies than did the average Southerner.[56] This is sharply at odds with the New Deal rhetoric of compassion and “relief” for the most “downtrodden.” As soon as these data were discovered, statist apologists in academe began constructing excuses and rationales for the pattern of New Deal spending. The cost of living was much lower in the South, they said, so naturally there would have been less spending there. Cost-of-living differences existed but were rather small, whereas there were very large differences in the distribution of spending on a regional basis. For example, the annual cost-of-living estimate for Jacksonville, Florida, in 1938 was $1,260.44; the corresponding estimate for Buffalo, New York, was $1,283.81.[57]

A second rationale offered by New Deal apologists is that, since standards of living were so low in the South, it didn’t take much to satisfy Southerners. But this rationale is clearly at odds with all the “compassionate” rhetoric of the New Deal.

A third excuse for the New Deal’s odd spending patterns has to do with matching requirements. The argument is that since some New Deal programs had matching requirements that required state and local governments to match federal subsidies, it should be expected that more affluent states—that is, states in the West and Northeast—would receive more in subsidies, since they could afford greater matching amounts. But the key question is this: If the New Deal programs were truly motivated by a desire to help those who most needed economic assistance, why were such matching requirements implemented in the first place? Surely Roosevelt’s vaunted “Brains Trust” knew that the requirements would skew the distribution of subsidies in this way.[58]

In contrast to these questionable excuses, a number of economists have begun to examine the notion that politics may have been a more reliable and consistent explanation for the pattern of New Deal spending than “compassion” or “need.” Couch and Shughart explain why so much federal money was showered on the Western states:

The support of these states was instrumental in securing Franklin Roosevelt’s nomination as the Democratic Party’s standard-bearer in 1932. History might have played out very differently had “favorite son” candidates William Gibs McAdoo of California and Speaker of the House (and soon-to-be vice presidential nominee) John Nance Garner of Texas not released the delegates pledged to them and thrown their support behind FDR on the convention’s fourth ballot. Two years later, the West was again of the highest political importance to the New Dealers “because of crucial senatorial races involving Democratic incumbents in Utah, Arizona, Montana, and in other states where they hoped to gain a seat: Nebraska, Wyoming, New Mexico, Washington, and California.[59]

Since the War Between the States, the South had been solidly Democratic. Few self-respecting Southerners could bring themselves to vote for the “party of Lincoln.” Thus, Franklin Roosevelt knew that he had little need to buy the electoral votes of the Southern states with federal funds. He only needed to throw them enough crumbs to avoid a political revolt. His main priority was to use tax dollars to buy votes in those states where his electoral margins were slim.

Gavin Wright was the first economist to publish in 1974 a statistical analysis of New Deal spending that explored the hypothesis that the spending was driven by politics more than economic “need.”[60] He found that in those states (mostly Western) where the percentage of the electoral vote going to the Democratic Party in 1932 and 1936 was lower, New Deal spending tended to be highest. In other words, FDR directed New Deal spending to where it was most “needed” by him, not by Americans suffering from the effects of the Depression. Wright also found little statistical support for the hypothesis that New Deal spending patterns were determined by economic need across regions.

More recently Gary Anderson and Robert Tollison also found that electoral votes per capita were an important determinant of the allocation of New Deal spending. They found that congressional districts whose representatives were members of House or Senate appropriations committees received disproportionate New Deal subsidies.[61]

Couch and Shughart found the “perverse” result that “states with healthier economies [during the Great Depression] received proportionately more federal aid in the form of [New Deal] grants they were not expected to repay while repayable loans were directed in slightly greater amounts to their harder-hit sisters.”[62] They also found that “New Dealers allocated significantly more funds to states where the nation’s most valuable . . . farms were located. . . . Little flowed to sharecroppers and other tenants or to farm laborers.”[63]

Couch and Shughart also concluded that

the states that gave Franklin Roosevelt larger percentages of the popular vote in 1932 were rewarded with significantly more federal aid than less-supportive constituencies . . . a one percentage point increase in support of FDR in the 1932 presidential election translated into nearly $300 in additional per-capita federal aid over the 1933–1939 period.[64]

The New Dealers’—and their contemporary descendants’—claims of special sensitivity to the hardships of blacks during the Great Depression is also challenged by Couch and Shughart’s research: “[S]tates where blacks accounted for larger percentages of the farm population received fewer New Deal dollars.”[65] In light of all these findings these authors conclude that:

[T]he distribution of the billions of dollars appropriated by Congress to prime the economic pump was guided less by considerations of economic need than by the forces of ordinary politics. Perhaps the New Deal failed as a matter of economic policy because it was so successful in building a winning political coalition: FDR was reelected overwhelmingly in 1936 and again in 1940 in part due to the support of the big-city machines, organized labor, and other constituencies which benefited disproportionately from New Deal largesse. Insofar as the region was “safe” for the Democrats, the administration’s comparative neglect of the nation’s number one economic problem—the South—can likewise be explained by politics.[66]

As David Gordon has written, Franklin Roosevelt was a most ordinary and familiar kind of politician. That is, he “was a vain, intellectually shallow person whose principal interest was to retain at all costs his personal power,” and whose priorities were the “total subordination of his country’s welfare to his personal ambition.”[67] All politicians are power-hungry egomaniacs, but Roosevelt was hungrier and more egomaniacal than most.

Conclusion

A “comprehensive” treatment of Franklin Delano Roosevelt and the New Deal would require a very long book, many of which have been written. The purpose here has been to highlight two overriding features of the New Deal: the adoption of economic fascism, modeled directly after Mussolini’s system in Italy (and Hitler’s in Nazi Germany), and the unrestrained orgy of vote-buying and pork-barrel politics. This latter policy was famously described by Roosevelt confidant Harry Hopkins as the strategy of “tax and tax, spend and spend, and elect and elect.”

Roosevelt virtually destroyed what was left, by the 1930s, of the old Constitutional order that was established by the American Founding Fathers. Legal scholar Richard Epstein was right when he wrote in his treatise on governmental “takings” that the New Deal was unconstitutional, as is most of what the federal government does today.[68]

Roosevelt’s critics, such as John T. Flynn, Albert J. Nock, and H.L. Mencken, were labeled “Roosevelt Haters” and their criticisms were dismissed by most of the American journalistic and political elite. Whatever one may wish to call them, the “Roosevelt Haters” have been proven right by history. Roosevelt was a disaster for American liberty and prosperity.

Now that we know that John T. Flynn was prescient in his analyses of Roosevelt and the New Deal, it is perhaps worth reconsidering his assessment of Roosevelt’s role in getting the United States involved in World War II. Having failed miserably for eight years to end the Depression (actually making it worse, as we have seen), Roosevelt must have been thrilled when, in 1940, Germany, France, England, Italy, China, and Japan were all “clamoring for steel, scrap iron, planes, plane parts. The time was here when thousands of Americans who, seeking immediate riches, fool’s gold, would attempt to break down or evade our neutrality.”[69] What would Roosevelt do? According to Flynn:

Here he was with a depression on his hands—eleven million men out of work, the whole fabric of his policy in tatters, his promise only a few months old to balance the budget still fresh in the minds of the people and yet the pressing necessity, as he put it himself, of spending two or three billion a year of deficit money and, most seriously of all, as he told Jim Farley, no way to spend it.

Here now was a gift from the gods—and from the gods of war at that. Here was the chance to spend. Here now was something the federal government could really spend money on—military and naval operations. . . . He promptly set off on an immense program of military and naval expenditures, . . . all with borrowed money and more government debt.[70]

To assure that he could engage in the Mother of All Spending Binges, Roosevelt abandoned the Neutrality Act, which he had previously invoked in 1936 when Mussolini invaded Ethiopia and in 1937 when Japan invaded China.

Every American has viewed film footage of the weeping crowds mourning the sudden and unexpected death of Roosevelt in 1945, which made him a political icon for the ages. But Americans also need to confront the fact that, for the last years of his life, he was a terribly sick man whose doctors advised him not to work more than four hours a day and who was heavily medicated. Always putting his own personal political fortunes above all else, Roosevelt apparently never even seriously considered not running for reelection in 1944 or stepping down when he was deathly ill and expected to negotiate the postwar “peace” with Joseph Stalin and Winston Churchill. The disastrous result was that the smiling, jocular Roosevelt, with his ever-present cigarette holder protruding from his mouth, sat next to Stalin at Yalta and agreed to condemn the people of Eastern Europe and much of Asia to forty-five years of communist hell. To Roosevelt, this was apparently a necessity. After all, the political fortunes of Franklin D. Roosevelt were at stake.

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[1] I consider myself somewhat of an expert on the subject of government lies. See James T. Bennett and Thomas J. DiLorenzo, Official Lies: How Washington Misleads Us (Alexandria, Va.: Groom Books, 1992).

[2] Cited in Robert Higgs, “How FDR Made the Depression Worse,” The Free Market (February 1995).

[3] Benjamin M. Anderson, Economics and the Public Welfare: A Financial and Economic History of the United States, 1914–1946 (Indianapolis, Ind.: Liberty Press, 1979), p. 474.

[4] Robert Higgs, “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed After the War,” Independent Review (Spring 1997): 561–90.

[5] Ibid.

[6] Richard K. Vedder and Lowell E. Gallaway, Out of Work: Unemployment and Government in Twentieth-Century America (New York: Holmes and Meier, 1993), p. 129.

[7] Robert Higgs, “Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s,” Journal of Economic History (March 1992): 41–60.

[8]Historical Statistics of the United States (Washington, D.C.: U.S. Government Printing Office, 1961), p. 711.

[9] Higgs, “Regime Uncertainty,” p. 586.

[10] John T. Flynn, The Roosevelt Myth (New York: Devin-Adair, 1948).

[11] Ibid., p. 422.

[12] Ibid., p. 45.

[13] Ibid., p. 44.

[14] Henry Hazlitt, “The Fallacies of the N.R.A.,” The American Mercury (December 1933): 421.

[15] Robert Higgs, Crisis and Leviathan: Critical Episodes in the Growth of American Government (New York: Oxford University Press, 1987), p. 178.

[16] Ibid., p. 179.

[17] Hazlitt, The Fallacies of the N.R.A., p. 422.

[18] Flynn, The Roosevelt Myth, p. 49.

[19] David E. Conrad, The Forgotten Farmers (Urbana: University of Illinois Press, 1965).

[20] William E. Leuchtenberg, Franklin D. Roosevelt and the New Deal (New York: Harper and Row, 1963), p. 45.

[21] Fausto Pitigliani, The Italian Corporative State (New York: Macmillan, 1934).

[22] Ibid., p. 93.

[23] Luigi Villari, Bolshevism, Fascism, and Capitalism (New Haven, Conn.: Yale University Press, 1932), p. 107.

[24] Benito Mussolini, Fascism: Doctrine and Institutions (Rome: Adrita Press, 1935), p. 8.

[25] Ibid., p. 29.

[26] Flynn, The Roosevelt Myth, p. 43.

[27] Cited in Charles and Mary Beard, America in Midpassage (New York: Macmillan, 1932), p. 100.

[28] Martin Fausold and George T. Mazuzan, The Hoover Presidency: A Reappraisal (Albany: State University of New York Press, 1974), p. 107.

[29] Stuart Chase, “A Ten Year Plan for America,” Harpers (June 1931): 2.

[30] Benito Mussolini, My Autobiography (New York: Charles Scribener’s Sons, 1928), pp. xi, xix.

[31] Rexford Tugwell, Thomas Munro, and Roy E. Stryker, American Economic Life (New York: Harcourt Brace, 1930), p. 707.

[32] Ibid., p. 709.

[33] Ibid., p. 711.

[34] Ibid., p. 712.

[35] Ibid.

[36] Ibid., p. 716.

[37] Rexford G. Tugwell, “The Principle of Planning and the Institution of Laissez Faire,” American Economic Review (May 1932): 79.

[38] Ibid., p. 82.

[39] Report of the National Recovery Review Board,” New York Times, May 21, 1934.

[40] Jordan A. Schwartz, The New Dealers (New York: Alfred A. Knopf, 1993), p. 104.

[41] Charlotte Twight, America’s Emerging Fascist Economy (New Rochelle, N.Y.: Arlington House, 1975), pp. 13–29.

[42] James MacGregor Burns, Roosevelt: The Lion and the Fox (New York: Macmillan, 1956).

[43]Congressional Record 78, 402–03 (1934).

[44] Morgan O. Reynolds, Power and Privilege: Labor Unions in America (New York: Universe Books, 1984), p. 265.

[45] Friedrich A. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1960), p. 267.

[46] Howard Dickman, Industrial Democracy in America: Ideological Origins of National Labor Relations Policy (LaSalle, Ill.: Open Court, 1987), p. 287.

[47] Vedder and Gallaway, Out of Work, p. 134.

[48] Ibid., p. 139.

[49] Ibid., p. 141.

[50] Ibid.

[51] Flynn, The Roosevelt Myth, p. 132.

[52]Historical Statistics of the United States, p. 711.

[53] Cited in Flynn, The Roosevelt Myth, pp. 133–37.

[54] Gavin Wright, “The Political Economy of New Deal Spending: An Econometric Analysis,” Review of Economics and Statistics (February 1974): 35.

[55] Stanley High, “The WPA: Politicians’ Playground,” Current History (May 1939): 23–25.

[56] Jim F. Couch and William F. Shughart, II, The Political Economy of the New Deal (Northampton, Mass.: Edward Elgar, 1998), p. 130.

[57] Ibid., p. 139.

[58] Ibid., p. 143.

[59] Ibid., p. 145.

[60] Gavin Wright, “The Political Economy of New Deal Spending.”

[61] Gary Anderson and Robert Tollison, “Congressional Influence and Patterns of New Deal Spending,” Journal of Law and Economics (April 1991): 161–75.

[62] Couch and Shughart, The Political Economy of the New Deal, p. 187.

[63] Ibid.

[64] Ibid., p. 188.

[65] Ibid., p. 192.

[66] Ibid., p. 228.

[67] David Gordon, “Power Mad,” The Mises Review (Spring 1999): 7–12.

[68] Richard A. Epstein, Takings: Private Property and the Power of Eminent Domain (Cambridge, Mass.: Harvard University Press, 1985).

[69] Flynn, The Roosevelt Myth, p. 171.

[70] Ibid.