The Phony of the Century

February 2000
Volume 18, Number 2
The Phony of the Century
Thomas J. DiLorenzo

At the end of the century, Bill Clinton declared Franklin D. Roosevelt the "man of the century" for having "saved capitalism," echoing the gushing praise that Newt Gingrich has heaped on FDR, calling him "the greatest figure of the twentieth century." The greatest phony of the twentieth century would be more appropriate.

FDR did not "bring us out of the Depression," as Gingrich, who claims to be a historian, argued. The fact is, he made the Depression much worse. Roosevelt doubled federal expenditures between 1933 and 1940, draining much of the economic lifeblood out of the economy. That is why the government's own measure of the unemployment rate was at 19 percent in 1938, compared to 15.9 percent in 1931, the year before Roosevelt was elected president.

In The Roosevelt Myth, John T. Flynn describes the antics of FDR's economic advisers as "The Dance of the Crackpots," and he was right on the money. The thrust of the "First New Deal" (1935-1938) was the crackpot idea that the cause of the Depression was low prices. Therefore, if government would only force up wages and prices, the Depression would end. This was done through a massive, government-organized cartel scheme administered by the National Recovery Administration (NRA) and the Agricultural Adjustment Administration (AAA), both of which were subsequently ruled unconstitutional by the US Supreme Court.

Thus, at precisely the time when more production was needed, the Roosevelt administration orchestrated a massive reduction in production. Wages were forced up by the NRA "code enforcers" and by a slew of legislation that bestowed special privileges on unions. As Hayek wrote in The Constitution of Liberty, by 1960 unions had become "uniquely privileged institutions to which the general rules of law do not apply."

The crackpot theory that was used to rationalize government-imposed wage increases was the notion that higher wages would enhance "purchasing power." In reality, laws and regulations that push wages above marginal productivity levels always create unemployment. In the depths of the Depression, 1937, wages rose a phenomenal 13.7 percent during the first three quarters alone. Most of the abnormal unemployment of the 1930s could have been avoided, wrote Richard Vedder and Lowell Gallaway in their masterpiece, Out of Work: Unemployment and Government in Twentieth-Century America, had a free market in labor been maintained. This was also a theme that ran throughout the work of the great Austrian labor economist, William H. Hutt.

FDR's disastrous, economy-wrecking regulatory regimentation was modeled after Mussolini's fascist economic policies. As John T. Flynn observed, FDR and his advisers deeply admired Mussolini's "cooperative system." Mussolini "organized each trade or industrial 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."

FDR's chief economic adviser from 1933 to 1945 was Columbia University's Rexford Tugwell, who was an unabashed admirer of Soviet communism. In his 1930 book, American Economic Life, Tugwell praised communism as supposedly being "able to produce goods in greater quantities" than capitalism, so as to "spread such prosperity as there is over wider areas of the population." Yes, there may be a certain "ruthlessness, a disregard for liberties and rights," wrote Tugwell, but anyone interested in "peace, prosperity, and progress" must nevertheless imitate "Russia and the Russians."

Having only made the Great Depression worse in his first eight years in office, by 1940 Roosevelt was desperate. Eleven million men were still out of work and FDR was complaining to his advisers of having "no way to spend" billions of dollars of "deficit money." It was at this point, writes John T. Flynn, that Roosevelt received "a gift from the gods...the gods of war." He abandoned the Neutrality Act, manipulated Japan into attacking Pearl Harbor, and "set off on an immense program of military and naval expenditures, all with borrowed money and more government debt."

Mises Review editor David Gordon has offered a much more plausible assessment of the real FDR than either Clinton or Gingrich. To Gordon, FDR 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." Perhaps this is the real reason why self-indulgent egomaniacs like Clinton and Gingrich think he was "the greatest man of the century."

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Thomas J. DiLorenzo, a contributing editor, teaches economics at Loyola College.


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