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The End of the New Deal

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The End of the New Deal

The New York Sun June 13, 2007

The history of the Great Depression has generally been written by the liberals who were the victors in its political battles. Great, but hardly neutral, historians like Richard Hofstadter and Arthur Schlesinger, Jr., crafted a narrative of the New Deal where the just forces of government righted the failures of the free market. Textbooks today teach that the Great Depression demonstrated the need for state regulation, as long as the state were run by well-meaning progressives.

Amity Shlaes's fascinating new history of the Great Depression, "The Forgotten Man" (HarperCollins, 480 pages, $26.95), challenges this conventional wisdom. Ms. Shlaes, who oversees the op-ed columns in this newspaper, reminds us that error and abuse always accompany governmental interventions, even the New Deal. Of course, there is nothing new about the view that governmental mistakes, including deflation and the Smoot-Hawley Tariff Act, helped bring on the depression. But in the standard view, these mistakes serve primarily to illustrate Republican perfidy. In Ms. Shlaes's telling, governmental management of the economy was as problematic under President Franklin Roosevelt as it had been under President Hoover. Ms. Shlaes's elegant volume uses a collection of interlocking stories to document the caprice and incompetence that marked many New Deal programs. She makes a case that President Coolidge, Andrew Mellon, and Wendell Willkie deserve to be better remembered for their vision that private enterprise, not government regulation, offered America a future that was both prosperous and humane.

The New Deal was a heady mix of redistribution, regulation, and rhetoric. Ms. Shlaes's revisionism generally stays away from discussing the New Deal's more redistributive efforts, such as unemployment insurance and social security. Roosevelt looks best when he is trying to reduce poverty among the elderly and out of work. There is no contradiction in greatly admiring FDR's attempts to aid the least fortunate, and deploring his attempts to control the economy.

The New Deal's regulatory interventions ranged from relatively benign interventions, such as the Securities and Exchange Commission, to deeply dubious interventions aimed at forcing prices and wages up that trampled on freedom and good economics. Ms. Shlaes focuses on the folly and inequity of the National Recovery Administration's attempts to dictate the terms of trade to employers, workers, and consumers. The case against the NRA is so convincingly argued that I found myself thinking that if this book had been written 40 years ago, it might have deterred President Nixon from his foolish attempts at price fixing.

The NRA's regulatory apparatus was beaten in the Supreme Court by the humble Schechter Poultry Company. The lawyers of the NRA had tried to send some chicken butchers to jail for violating the codes on price and quality. A unanimous Supreme Court ruled that the act enabling the NRA had given too much power to the executive branch, which looks especially prescient given Roosevelt's attempt to gut the court itself two years later. Ms. Shlaes dispels the New Dealers' caricature of the court as a nonet of Neanderthals. Some of the toughest words against the NRA came from Louis Brandeis, the great progressive Justice who was the mentor of Roosevelt's own legal guru Felix Franfurter, who declared "this is the end of this business of centralization, and I want you to go back and tell the president that we're not going to let this government centralize everything."

While Ms. Shlaes's discussion of the NRA reminds us of the problems inherent in the New Deal's regulation of prices and wages, her discussion of Roosevelt's rhetoric reminds us of how easily symbolic politics can be abused. Today, we remember the fireside chats and wartime addresses that brought hope to an anguished nation, but FDR was no great unifier. He built support for his programs by systematically vilifying businessmen whose leadership had brought goods to their customers, jobs to their workers, and profits to their shareholders.

The New Deal's war on the wealthy went way beyond rhetoric. Politically attractive targets, such as the long-time Republican treasury secretary, Andrew Mellon, were subjected to legal cases that sought punishment not only against tax evaders who broke the law, but also tax avoiders, who used entirely legal means to reduce their tax bills. The attack on Mellon was particularly egregious because it occurred just as that great philanthropist was giving American the magnificent art collection that would be the core of our National Gallery in Washington, D.C.

Ms. Shlaes's presentation of Mellon, Willkie, and Coolidge is effective because she writes with benevolent detachment, not ardent partisanship. She lets each of them speak for themselves, and their words and deeds make it obvious that their belief in freedom represented neither selfishness nor materialism. Mellon's lack of selfishness is seen not only in the magnitude of his philanthropy but also by his decision to keep his name off of the gallery that he built and gave. Coolidge is no materialist. He argues that "the accumulation of wealth" is not "the chief end of existence," but rather "a means to every well nigh desirable achievement," including "the multiplication of schools, the increase of knowledge, the dissemination of intelligence, the encouragement of science, the broadening of outlook, the expansion of liberties, the widening of culture." Willkie's decision in the 1940 presidential election to avoid any appeals to the powerful isolationist wing of his own party remains a model of putting national interests ahead of private ambition.

For these men, limited government did not represent an abdication of responsibility for the less fortunate, but rather the best means of increasing economic opportunity. From their vantage point, a steadfast commitment to free markets represented a much more effective response to economic distress than the capricious unpredictability of the New Deal. We continue to face big questions about the government's role in managing the economy. FDR's charisma has led many to exaggerate the benefits from large-scale economic intervention. His critics have so often failed because their shrill critiques seemed inhumane relative to FDR's warmth. Ms. Shlaes's revisionism is more successful because her book is grounded more in evidence than in ideology. She weaves together the stories of Mellon, Rex Tugwell, Willkie and many others, in a way that condemns no one, but subtly challenges the conventional view of the 1930s. "The Forgotten Man" reminds us that the New Deal should also be seen as a cautionary tale against the dangers of too much intervention.

This piece originally appeared in The New York Sun