Books by Shlaes, Amity

Shlaes, Amity. The Forgotten Man. New York: Harper Perennial, [2007] 2008. ISBN 978-0-06-093642-6.
The conventional narrative of the Great Depression and New Deal is well-defined, and generations have been taught the story of how financial hysteria and lack of regulation led to the stock market crash of October 1929, which tipped the world economy into depression. The do-nothing policies of Herbert Hoover and his Republican majority in Congress allowed the situation to deteriorate until thousands of banks had failed, unemployment rose to around a quarter of the work force, collapsing commodity prices bankrupted millions of farmers, and world trade and credit markets froze, exporting the Depression from the U.S. to developed countries around the world. Upon taking office in 1932, Franklin Roosevelt embarked on an aggressive program of government intervention in the economy, going off the gold standard, devaluing the dollar, increasing government spending and tax rates on corporations and the wealthy by breathtaking amounts, imposing comprehensive regulation on every aspect of the economy, promoting trade unions, and launching public works and job creation programs on a massive scale. Although neither financial markets nor unemployment recovered to pre-crash levels, and full recovery did not occur until war production created demand for all industry could produce, at least FDR's New Deal kept things from getting much worse, kept millions from privation and starvation, and just possibly, by interfering with the free market in ways never before imagined in America, preserved it, and democracy, from the kind of revolutionary upheaval seen in the Soviet Union, Italy, Japan, and Germany. The New Deal pitted plutocrats, big business, and Wall Street speculators against the “forgotten man”—the people who farmed their land, toiled in the factories, and strove to pay their bills and support their families and, for once, allied with the Federal Government, the little guys won.

This is a story of which almost any student having completed an introductory course in American history can recount the key points. It is a tidy story, an inspiring one, and both a justification for an activist government and demonstration that such intervention can work, even in the most dire of economic situations. But is it accurate? In this masterful book, based largely on primary and often contemporary sources, the author makes a forceful argument that is is not—she does not dispute the historical events, most of which did indeed occur as described above, but rather the causal narrative which has been erected, largely after the fact, to explain them. Looking at what actually happened and when, the tidily wrapped up package begins to unravel and discordant pieces fall out.

For example, consider the crash of 1929. Prior to the crash, unemployment was around three percent (the Federal Government did not compile unemployment figures at the time, and available sources differ in methodology and hence in the precise figures). Following the crash, unemployment began to rise steeply and had reached around 9% by the end of 1929. But then the economy began to recover and unemployment fell. President Hoover was anything but passive: the Great Engineer launched a flurry of initiatives, almost all disastrously misguided. He signed the Hawley-Smoot Tariff (over the objection of an open letter signed by 1,028 economists and published in the New York Times). He raised taxes and, diagnosing the ills of the economy as due to inflation, encouraged the Federal Reserve to contract the money supply. To counter falling wages, he jawboned industry leaders to maintain wage levels which predictably resulted in layoffs instead of reduced wages. It was only after these measures took hold that the economy, which before seemed to be headed into a 1921-like recession, nosed over and began to collapse toward the depths of the Depression.

There was a great deal of continuity between the Hoover and early Roosevelt administrations. Roosevelt did not rescind Hoover's disastrous policies, but rather piled on intrusive regulation of agriculture and industry, vastly increased Federal spending (he almost doubled the Federal budget in his first term), increased taxes to levels before unimaginable in peacetime, and directly attacked private enterprise in sectors such as electrical power generation and distribution, which he felt should be government enterprises. Investment, the author contends, is the engine of economic recovery, and Roosevelt's policies resulted in a “capital strike” (a phrase used at the time), as investors weighed their options and decided to sit on their money. Look at this way: suppose you're a plutocrat and have millions at your disposal. You can invest them in a business, knowing that if the business fails you're out your investment, but that if it generates a profit the government will tax away more than 75% of your gains. Or, you can put your money in risk- and tax-free government bonds and be guaranteed a return. Which would you choose?

The story of the Great Depression is told largely by following a group of individuals through the era. Many of the bizarre aspects of the time appear here: Father Divine; businesses and towns printing their own scrip currency; the Schechter Brothers kosher poultry butchers taking on FDR's NRA and utterly defeating it in the Supreme Court; the prosecution of Andrew Mellon, Treasury Secretary to three Presidents, for availing himself of tax deductions the government admitted were legal; and utopian “planned communities” such as Casa Grande in Arizona, where displaced farmers found themselves little more than tenants in a government operation resembling Stalin's collective farms.

From the tone of some of the reaction to the original publication of this book, you might think it a hard-line polemic longing to return to the golden days of the Coolidge administration. It is nothing of the sort. This is a fact-based re-examination of the Great Depression and the New Deal which, better than any other book I've read, re-creates the sense of those living through it, when nobody really understood what was happening and people acting with the best of intentions (and the author imputes nothing else to either Hoover or Roosevelt) could not see what the consequences of their actions would be. In fact, Roosevelt changed course so many times that it is difficult to discern a unifying philosophy from his actions—sadly, this very pragmatism created an uncertainty in the economy which quite likely lengthened and deepened the Depression. This paperback edition contains an afterword in which the author responds to the principal criticisms of the original work.

It is hard to imagine a more timely book. Since this book was published, the U.S. have experienced a debt crisis, real estate bubble collapse, sharp stock market correction, rapidly rising unemployment and economic contraction, with an activist Republican administration taking all kinds of unprecedented actions to try to avert calamity. A Democratic administration, radiating confidence in itself and the power of government to make things better, is poised to take office, having promised programs in its electoral campaign which are in many ways reminiscent of those enacted in FDR's “hundred days”. Apart from the relevance of the story to contemporary events, this book is a pure delight to read.

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