- 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.
December 2008 