Myths about the Depression and Franklin Roosevelt's program
Much mischaracterization surrounds the greatest economic crisis in American history. For starters, I'm going to skip ahead to the election of 1932, where Franklin Roosevelt defeated the otherwise popular Herbert Hoover to become only the third Democrat to be elected president since the Civil War.
The mythology concerns the why of Roosevelt's superior popularity. Most folks you might ask would say FDR had a grander vision of what it would take to end the Depression — and they would be wrong.
First off, the stock market crash of 1929 had not yet fully morphed into the Great Depression by 1932. Paul Johnson, in Modern Times, makes the case that FDR won because he campaigned on ending Prohibition. He was a "Wet" and Hoover was a "Dry." I posed this to my mother, who voted for the first time in that election. She was shocked and amazed — and then realized that she really did vote to end Prohibition, not the Depression.
Johnson does still blame the Depression on Hoover — not as president, but rather as secretary of commerce under Coolidge. Hoover sent boat-loads of money to Latin American nations to stimulate markets for American exports. The recipient regimes were often soon overthrown, and the money was embezzled, damaging the liquidity of the US government.
The primary myth is that the New Deal worked. I was once told by a professor of economics that the New Deal was a serious example of malinvestment — sending good money after bad, without the slightest concern for return on investment (ROI). FDR succeeded in increasing his own political capital, but without actually creating any new wealth. The lack of real progress became particularly evident when the economy took another dive in 1937. I mentioned this to some folks who were ardent FDR enthusiasts, and they told me that he, at least, gave people "hope." This is kind of like saying that Vicks VapoRub actually cures the common cold.
Of course, monuments to the New Deal remain, the ironically renamed Hoover Dam being the most obvious. My high school was constructed by the WPA, along with a sidewalk just down the street from here. It does make sense that, when there's 25% unemployment, it would be a good time to accomplish a lot of labor-intensive construction on the cheap. Many projects, however, were of dubious necessity. "But they put people to work," the New Dealers would argue.
Another myth was of the special shovel designed for the WPA — it had a padded sleep rest on the handle, so a worker could comfortably nap while he was on the job.
What the Depression really was was the opposite of inflation: deflation. Prices plunged due to the collapse of purchasing power. Many businesses simply closed up when they couldn't at least break even. This recently happened mostly in Europe during the "Great" Recession of 2008, for exactly the same reason. The National Industrial Recovery Act (NRA) was ruled unconstitutional by the Schechter Poultry decision in 1935 by the U.S. Supreme Court, which that found that the federal government did not have the legal standing to micro-manage local businesses. FDR retaliated by trying to flood the court with additional justices — also a current issue known as "court-packing." What had been his lap-dog Congress balked, and FDR's relationship with them was never again as good.
Another official bungle involved a legislated requirement that corporations distribute all of their profits to shareholders as dividends. The intention was to put more money into circulation. The result, however, was for businesses to defer capital improvements since they couldn't accumulate the necessary cash. They could just borrow the money...at additional cost.
What is fairly well understood, and thus not mythology, is that the Great Depression was brought to an end when a profound national emergency began at Pearl Harbor. From about 25% unemployment, we quickly went to nearly full employment, some via conscription and much also via an overwhelming demand for labor. Consumer products, such as automobiles, were not available, and workers were instead encouraged to take a portion of their pay in war bonds. Over time, the conversion of disposable income into a form of savings bond was a significant source of capital formation.
When the war ended, there was serious worry that the Depression would start all over. Plans were afoot to provide unemployment insurance for the many returning military personnel. But the accumulated war bond wealth had a major impact. The construction boom of the 1920s that ended with the crash of 1929 started all over again, both with the war bond money and the added help of improved building technologies, largely associated with the Seabees. And thus began the postwar Baby Boom, featuring good ol' Ozzie and Harriet.
Image via Picryl.