A Patriot's History of the United States: From Columbus's Great Discovery to the War on Terror

by Larry Schweikart

  Another variant of this theory saw the early measures as designed to keep capitalism afloat, especially the banking legislation, with a deliberate attempt to introduce planning into the economy. Rexford Tugwell subscribed to this interpretation, complaining that conservative elements stifled attempts to centralize control over the economy in the federal government’s hands. At the point where FDR had found that more radical redistributions of wealth could not be attained, a second, more conservative New Deal evolved that emphasized piecemeal measures. Generally speaking, the Tugwell interpretation is endorsed by the Left, which suggests that FDR saved capitalism from itself by entrenching a number of regulatory measures and social programs that kept the market economy from its own “excesses.”

  That there is confusion about how many New Deals there were reflected the utter lack of a blueprint or consistency to Roosevelt’s programs. Rather, a single theme underlay all of them, namely that government could and should do things that citizens previously had done themselves. In fact, FDR’s policies were haphazard, fluctuating with whichever advisers happened to be on the ascent at the time.

  Then Nazi Germany invaded Poland, and many New Dealers realized that in a coming war—if it came—they needed capitalists. World War II in a sense saved the nation from the New Deal by unleashing the power of the private sector to make implements of war—rather than the New Deal saved capitalism.

  The two–New Deals interpretation has allowed scholars to deal simultaneously with the relative ineffectiveness of FDR’s policies to extricate the nation from the Depression and to explain the contradictions of FDR’s first half-dozen years in office.1 For example, he often claimed that he was committed to a balanced budget, yet he ran what were—and remain to the present, in real terms—all-time record deficits. Those deficits came in spite of the Revenue Act of 1935 that raised the tax rates on the upper classes from the already high level of 59 percent to 75 percent. More than anything, the two New Deals view paralleled the ascendance and decline of different groups within the administration, revealing policy influences on Roosevelt from among a staff who spanned the ideological spectrum.

  At the advice of Raymond Moley, a Columbia University professor, Roosevelt sought to raid the nation’s universities to produce a “Brain Trust” of intellectuals, then mix in a cross section of business leaders or career politicians from around the country. Moley became FDR’s trusted adviser and speechwriter, and he later served in the State Department. Roosevelt’s administration also included Texan Jessie H. Jones (head of the Reconstruction Finance Corporation); two Columbia University professors, Rexford Tugwell (assistant secretary of agriculture) and Adolph Berle (a member of the Brain Trust); Arizonan Lewis Douglas (director of the budget); Louis Brandeis (associate justice of the Supreme Court); and Harry Hopkins. Some, such as Budget Director Douglas, were budget balancers, pure and simple. When Roosevelt took the nation off the gold standard, Douglas envisioned waves of inflation sweeping through the country, at which point someone suggested to him that they change the inscription on money from “In God We Trust” to “I Hope That My Redeemer Liveth.” Tugwell was an intellectual and scholar who had written on economics. In 1939, summing up his views as the New Deal began, he exposed what he called the “myths” of laissez-faire, stating flatly, “The jig is up. There is no invisible hand. There never was.”2

  Others, such as Jones, who headed the RFC—a New Deal holdover from the Hoover years—were big government activists extolling the efficiencies of government/business partnerships. Still others, like Hugh Johnson, who ran the National Industrial Recovery Agency (NIRA), was an antibusiness bully who threatened corporate leaders who resisted his “voluntary” programs with “a sock right on the nose.”3

  Most of these policy makers subscribed in one way or another to the theories of English economist John Maynard Keynes, whose book The General Theory of Employment, Interest and Money had appeared in 1936. Long before Keynes had published the General Theory, however, his papers had circulated and his basic premises—that government spending would spur demand and thus pull a nation out of a depression—had thoroughly seasoned the thinking of the Brain Trust members. As Treasury Secretary Henry Morgenthau noted, a number of acolytes already labored within the government to ensure that federal spending was transformed “from a temporary expedient to a permanent instrument of government.”4 Traditionalists, including Morgenthau and Budget Director Douglas, instead argued for cutting government spending to encourage private investment. For weeks (the nature of the crisis had compressed the time available for considering the positions), the two camps fought over Roosevelt’s soul, but the president sided with the Keynesians, and the race to spend federal money was on.

  Given these disparate influences on Roosevelt, it became possible for sympathetic writers at the time, and to historians subsequently, to portray FDR as either a conservative corporatist intent on saving the free enterprise system through regulation or as a revolutionary who understood the limits of genuine reform. But there is another alternative, namely, that the New Deal—or either of them, if one prefers—had no overarching principles, no long-term vision, no guiding fundamentals, but was rather a reactive network of plans designed to “get” business. Many members of Roosevelt’s New Deal Brain Trust could not identify any coherent precepts even years later—certainly nothing of majestic civic virtue or high moral cause. Quite the contrary, whatever clear policies could be identified, such as electric-power policy, the administration’s aims were crudely simple: “One objective [of New Deal power policy] was to enlarge the publicly owned sector of the power industry…as a means of diminishing private control over the necessities of life.”5

  It did not help that FDR had few business leaders among his advisers. He distrusted them. Roosevelt told Moley that he “had talked to a great many business men, in fact to more…than any other President, and that they are generally stupid.”6 Roosevelt cared nothing about the effects of the class warfare that he had started. When Moley questioned how the welfare of the country could be served by “totally discrediting business to the people,” he concluded that Roosevelt “was thinking merely in terms of the political advantage to him in creating the impression through the country that he was being unjustly attacked by business men.”7 FDR specifically looked for “high spots” in his speeches to get in “a dig at his enemies.” More than by the president’s vindictiveness, Moley was “impressed as never before by the utter lack of logic of the man, the scantiness of his precise knowledge of things that he was talking about [and] by the immense and growing egotism that came from his office.”8

  It is true that “the New Dealers shared John Dewey’s conviction that organized social intelligence could shape society, and some, like [Adoph] Berle, reflected the hope of the Social Gospel of creating a Kingdom of God on earth.”9 Roosevelt, however, had enough vision to know that the public would not share in his enthusiasm for many large-scale programs. Tugwell observed that the president engaged in “secret amputation” when it came to introducing programs that might generate opposition: “If you have to do some social reorganizing,” Tugwell noted, “you do it as quietly as possible. You play down its implications.”10 Mixing Hooverism with spot emergency measures, applied to selective sectors of the economy, then combining them with stealth social engineering, the New Deal took on a variegated appearance, and perhaps the only thread that ran through it emanated from the Keynesian policy recommendations.

  By the time the New Deal got underway, Keynes had already established a spectacular scholarly reputation as well as a talent for turning quick profits in the British stock market. His General Theory did not appear until 1936, but Keynes had published the essentials in scholarly studies and white papers that found their way to the United States through academia. They had thoroughly penetrated American economic thinking even while Hoover was in the Oval Office.

  Few seemed troubled by the fact that Britain had pursued Keynesian policies with little success for some t
ime prior to Roosevelt’s election. Moreover, people pointed to Roosevelt’s comments about the need to balance the budget, and his choice of Douglas (a budget balancer par excellence) as budget director, as evidence that Roosevelt never endorsed Keynesian economics. But the deficits told a different story, and between 1932 and 1939, the federal debt—the accumulated deficits—had leaped from $3 billion to $9 billion, and the national debt had soared to real levels unmatched to this day. Insiders with Roosevelt’s ear, such as Tugwell, saw the only hope for escaping the Depression as lying with increasing purchasing power on the part of ordinary Americans, not with stimulating business investment.

  Thus, the New Deal contained little in the way of a guiding philosophy, except that government should “do something.” Equally as important as the lack of direction, virtually all of the New Dealers shared, to one degree or another, a distrust of business and entrepreneurship that they thought had landed the nation in its current distressed condition. Above all, emergency measures needed to be done quickly before opposition could mount to many of these breathtaking challenges to the Constitution.

  The Hundred Days

  Although many historians characterize the New Deal programs as divided into categories of relief, reform, and recovery, such a neat compartmentalization of the programs clouds the fact that they were passed in haste—occasionally, even frenzy—and that no one in 1933 knew that any of the programs would be effective or politically beneficial. Rather, the Hundred Days especially addressed areas of the economy that seemed to be most distressed. The banking system had to be stabilized, and wages (including farm income) increased. And the only calculated policy Roosevelt had, namely, to somehow restore the morale of the nation, rested almost entirely on intangibles such as public emotion and a willingness to believe change would occur. When FDR addressed the nation in his first inaugural, his comment that “the only thing we have to fear is fear itself” embodied the single most important element of Roosevelt’s recovery program, a sense of confidence at the top.

  Bolstering optimism was no small task. Roosevelt excelled at projecting a reassurance to the public, and, surprisingly to some, most Americans neither lost hope nor drifted into lethargy.11 Many of the groups hardest hit—the Okies and African Americans—remained hopeful and sanguine that despite the impediments, a better future lay ahead.

  By far, the bank collapse was the most serious threat to the nation. Some 5,500 banks had closed in a three-year period, stimulated by the outflow of gold, which had undergirded the banking structure. Roosevelt immediately called Congress into special session and requested broad executive powers. Even before the session was convened, FDR announced on March 5, 1933, a national bank holiday in which all state and national banks would be closed and then examined. After the examiners found that the banks were solvent, they would be allowed to reopen. Banks that still might be in danger, but which were fundamentally strong, could reopen with government support. Weak banks would be closed. Congress, convening a few days later, approved the measures. The bank holiday, obviously, stopped the runs by closing the banks. In his first fireside chat radio address on March twelfth, Roosevelt reassured the nation that the government had stepped in to protect the banks, and when banks began reopening on the thirteenth, deposits returned, leaving Raymond Moley to pontificate, “Capitalism was saved in eight days.”12

  While not publicly tied to the bank holiday, Roosevelt’s most important single act in saving the banking system occurred when he took the United States off the gold standard in April 1933, ending the requirement that all U.S. dollars be converted into gold upon request. Other countries not on the gold standard could convert dollars to gold, but the United States could not convert francs or pound sterling notes to gold. Foreign notes flowed in, then were converted to gold, which flowed out. That destabilized the banks in the most fundamental sense by kicking out from under them the gold reserve that propped them up. By protecting the gold reserves, FDR ended the drain, and quietly and immediately restored viability to the financial structure. All along, the banking/gold destabilization had been a response to government manipulation of market forces in which Europeans sought to gain an advantage by going off gold. If all nations had remained on gold, the market would have gradually reestablished stability; or if none remained on gold the same result would have been achieved. America’s bank destabilization occurred in part because only the United States continued to honor gold contracts, which was akin to being the only bank in town to remain open during a run, whereupon sooner or later it, too, would run out of money. This single positive action by FDR is widely overlooked.13

  Over the Hundred Days, FDR unleashed a torrent of presidential initiatives focused mainly on raising wages or providing jobs. Congress turned out the legislation, creating what was referred to as the “alphabet soup” agencies because of the abbreviations of the host of new offices and acts. The Civilian Conservation Corps (CCC) and the Public Works Administration (PWA) both promised to put people (mostly young men) to work in government-paid make-work jobs. The CCC paid boys from the cities to work in the forests planting trees, cutting firebreaks, and in general doing something that would justify the government paying them. Two million jobs were created, and it made great press. As supporters said, Roosevelt sent “boys into the forests to get us out of the woods.”

  Two Roosevelt Brain Trusters, Harry Hopkins and Harold Ickes, battled for control of the piles of new public monies. Ickes, who headed the PWA, insisted that the jobs involve meaningful work and that they pay a wage that would allow the employees to purchase goods, stimulating consumption. The PWA, therefore, tended toward large-scale public works such as new school buildings, hospitals, city halls, sewage plants, and courthouses. Many of these might have constituted worthwhile additions to the infrastructure under normal circumstances, and perhaps a few genuinely fell in the domain of the public sector. But the necessary tradeoff of taxes for public works was missing. At the same time, schools were closing at a record pace because of the inability of local districts to pay teachers and buy books; and pouring money into courthouses and city halls rekindled memories of the Tweed Ring’s abuses. Indeed, had every dollar dumped into public facilities (for which there still existed no funding for the people to operate the facilities) remained in private hands, the private sector would have rebounded in a more healthy, but far less flamboyant, way. And grandiose these projects were: the PWA constructed the Lincoln Tunnel, the Triborough Bridge, and linked Florida’s mainland with Key West. PWA money also paid for construction of the navy’s aircraft carriers Yorktown and Enterprise.

  On the surface, large-scale projects brought some measure of hope and demonstrated that the government was doing something—that America was building again. And, no question, the projects were impressive. Yet what could not be seen was that the capital for these projects came from the private sector, where it would have generated a similar amount of economic activity, but activity that was demanded by the market.

  But the job not seen is a vote not won, and therefore public activities had to be…well, public. Harry Hopkins’s Works Progress Administration (WPA), which had come out of the Emergency Relief Appropriation Act (1935), extended some of the initiatives of the Civil Works Administration begun a year earlier that had given jobs to some 4 million people. The WPA came about even as Roosevelt warned Congress that welfare was “a narcotic, a subtle destroyer of the human spirit.” Yet the WPA generated jobs of far more dubious value than the PWA.14 There is no question that the WPA (which critics label We Piddle Around) produced benefits in the public sector. By 1940, the WPA could claim a half million miles of roads, 100,000 bridges and public buildings, 18,000 miles of storm drains and sewers, 200 airfields, and other worthwhile projects. It also generated a certain temporary measure of self-respect: unemployed men could look their children in their faces as breadwinners. In an era in which most people took any work seriously, and infused it with pride, even make-work programs had some virtue. But it also built
opera houses, hired writers to design travel guides, and paid for traveling circuses.15

  Over the long haul, however, government’s attempt to endow work with true market value proved as futile for Roosevelt’s New Dealers as for Robert Owens’s utopians in New Harmony or the Brook Farm communalists. The inescapable conclusion was that if a task was valuable, someone in the private sector would have paid to have it done, or, at least, citizens would have imposed taxes on themselves to pay for it in the first place. If Roosevelt’s New Dealers thought that they could shift the tax burden for all these projects onto the wealthy, they were wrong. As always, the rich could hide much of their income from taxation. What the Brain Trusters did not take into account was the depressing drain on the overall economy by the disincentives to invest and make profits. Virtually all private investment stopped as industry felt punished.

  Another act, designed to work in conjunction with employment measures, the National Industrial Recovery Act (NIRA) of 1933, was directed by the National Recovery Administration (NRA) under the hand of Hugh Johnson. A man given to a robust vocabulary of profanity, Johnson had been a lawyer and businessman as well as a soldier, and was capable of using his dynamic genius and exceptional energy to design and administer large-scale military-style operations such as the NRA. Symbolized by a blue eagle—a bright military badge, to Johnson—the NRA authorized industrial and trade associations to establish production codes (based on a blanket code), set prices and wages, and otherwise collude. The NIRA completely reversed the TR–Taft antitrust legislation, suspending antitrust acts, and recognized (from the federal level) the rights of employees to organize unions and bargain collectively, effectively cementing organized labor as a permanent voting bloc for the Democratic Party.