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posted: January 16, 2025
tl;dr: Did FDR’s policies prolong the Great Depression?...
During times of crisis, most people want to see the government take action. My favorite advice in life, “Don’t Panic!”, gets tossed out the window. Further impetus for doing so is provided by the adage “never let a crisis go to waste”, a version of which is attributed to ex-Chicago mayor Rahm Emanuel. When civic life is in apparent disarray those with novel ideas have the perfect opportunity to foist them upon a public desperate for solutions, any solutions. President Franklin Delano Roosevelt (FDR) took strong actions during the Great Depression, and the same was done by the government during the COVID-19 pandemic. Initially, most of the public was happy to see the government act even though freedoms were sacrificed. But did the government actions ultimately work, and improve the lives of the people?
Amity Shlaes attempts to answer that question, for FDR’s case, in The Forgotten Man: A New History of the Great Depression. The popular narrative about the Great Depression is that FDR’s New Deal helped people but a full recovery wasn’t possible until World War II stimulated U.S. manufacturing. Shlaes thesis is that the New Deal’s radical restructuring of the relationship between government and the private sector put a damper on the recovery, prolonging the depression until World War II forced the government to back off and run the manufacturing sector hot.
The Great Depression started ten years after the Bolshevik Revolution in Russia. Then, as now, many U.S. intellectuals and academics were captivated by Marxism. The longest chapter in the book, Chapter 2, discusses in detail a trip to Soviet Russia by U.S. intellectuals in 1927 which culminated in a long meeting with Joseph Stalin. Most expressed admiration for collectivism and the Soviet planned economy, even though Soviet Russia was a dictatorship with fewer freedoms than the U.S. This is similar to the present day admiration of China among many elites in the U.S. The Great Depression of 1929, coupled with FDR’s rise to power, would give these intellectuals, FDR’s Brain Trust, the chance to implement similar policies in the United States.
But it wasn’t a straightforward march towards implementing some sort of grand vision of Communism with American characteristics. As portrayed in The Forgotten Man FDR was not necessarily an idealogue. He was flexible, contradicted himself many times, and supported people with differing views, not all of them progressive. Shlaes also makes the case that FDR extended what Herbert Hoover began, as Hoover had already moved towards greater government control of the economy.
One illustrative example is FDR’s gold seizure. Before reading The Forgotten Man I had thought FDR seized gold (paying people $20/ounce) and then changed the price to $35/ounce as part of a grand plan to devalue the U.S. dollar to fight deflation. But it actually took a while and went in a stepwise progression, as FDR wasn’t quite sure what to do. It was not all thought out at the beginning. Electrification was similar, with a drawn-out battle between state and private electrical power, and shifting lines of responsibility. Federal government power projects predated FDR, but his Tennessee Valley Authority was a dramatic increase in scale. Today the battle between public and private responsibility for electricity is still being fought. Many other battles from FDR’s time, right down to the specific wording, are still in the news today. History tends to rhyme, if not repeat.
What is the best way to help the common man, the man in the street, the forgotten man? Is it a strong government that provides direct support and throttles the business sector to prevent abuses? Or is it a strong business sector that provides plenty of employment and opportunities while the government steps aside to let business grow? This is a fundamental question in American politics and our system of state-directed capitalism. In 2025 the pendulum is still swinging between the extremes of communism and free-market capitalism.