Unhappy Days

But the allusion to a “forgotten man” has two edges. It was adopted by the partisans of the New Deal to describe the most disadvantaged victims of the business crisis: “the forgotten man at the bottom of the economic pyramid.” This phrase, referring to the victims of unemployment, bank collapse, and agricultural crisis that 1932 Democratic presidential candidate Franklin Roosevelt proposed to help, was inserted by Raymond Moley–a pioneer of FDR’s original Brain Trust, also now largely forgotten–into the candidate’s earliest major speech.

In accord with that spirit, most histories of the New Deal have treated it as a benevolent revolution, which rescued and reunited America, bringing economic reconstruction and relief, institutional reform, and populist art to a nation badly wounded. Amity Shlaes, an economic journalist who has worked at the Wall Street Journal and the Financial Times, and now writes for Bloomberg News, has chosen a different perspective. Hers is a critical history of the Great Depression and the New Deal from a rigorous free-market viewpoint.

Shlaes traces the trope of “the forgotten man” to a much earlier and more penetrating usage. Some 50 years before the onset of the Depression, the Yale philosopher William Graham Sumner described the “forgotten man” as the victim in a para digm where social reformer A cooperates with politician B to apply government resources to resolve the problems of person X. The forgotten man in the diagram is C, who must pay for such programs through taxation. Sumner described C as follows: “He works, he votes, generally he prays, but he always pays.” Shlaes argues that while there is no harm in reformers and politicians aiding the needy, there is something very wrong in using the power of the state to harness C to the effort. In the words of her introduction, “Roosevelt’s forgotten man, the constituent X, perpetually tangled with Sumner’s original forgotten man, C.”

In this telling of the story, stirring speeches and massive social convulsions take second place to acute observation of how the New Deal grafted an overgrown bureaucracy on the political culture of the United States. While the outcome of the New Deal was perceived as beneficial, and was unaccompanied by repression, it has long been observed that the emergence of the American social welfare state had elements in common with Mussolini’s fascism, Hitler’s state-directed economic revival, and Stalinist compulsory agrarian collectivization and central planning.

This important volume is, therefore, an encyclopedic accounting of attempts by many such “forgotten” individuals and institutions, some of them demonized in the reforming idiom of the New Dealers, to combat the aggrandizement of the state. Her book could be viewed as a reply to a standard chronicle of the epoch, Part of Our Time, published by the liberal journalist Murray Kempton in 1955. Although the remnant of popular memory in which the New Deal is still alive tends to associate it and FDR with grandiose public works, Shlaes shows that his predecessor Hoover, a conservative Republican but an engineer by training and temperament, had already adopted large-scale public construction and government intervention as means of economic improvement. The main incident in the narrative of the Depression and New Deal most often recalled today is the stock market crash of October 1929. For this reader, however, an episode recounted in this work has such resonance that it should serve as an urgent warning to Americans today: the passage in 1930 of the Smoot-Hawley tariff legislation, signed into law under Hoover.

That protectionist measure was authored by Senator Reed Smoot of Utah and Representative Willis Hawley of Oregon, both Republicans. The federal government had increased the public works budget to its highest level in half a decade. But farming was still a foundational component of the American economy, and excess production had driven crop prices to disastrous lows. The Republican party (and Hoover himself) were committed to protectionism as a general policy for assistance to the domestic producer, and even before the crash Hoover had pledged to institute a new tariff on farm commodities.

“Such a tariff not only protects the farmer in our domestic market,” he declared, “but it also stimulates him to diversify his crop.”

Even though farming no longer plays a central role in our national economy, the parallel between protectionism then and the wave of similar sentiments sweeping the country today cannot be ignored. As Shlaes writes, “America was in trouble.” Like unions now, farmers were widely portrayed as victims in need of a legal shield along the nation’s borders. The Smoot-Hawley act raised tariffs on imported goods to one of the highest levels ever seen in America–according to some, above any precedent.

Smoot-Hawley had devastating effects at home and abroad. The country had enjoyed a 15-year period, beginning with the outbreak of World War I, in which exports exceeded imports sufficiently to produce a $25 billion positive trade balance. Numerous business figures warned against the bad effects of Smoot-Hawley while it was under consideration. Thomas W. Lamont of the J.P. Morgan investment bank confessed that he had nearly gone on his knees to Hoover to beg for a veto of the “asinine” tariff bill. The European director of General Motors, Graeme K. Howard, cabled Washington warning that the tariff would so isolate the American economy as to create the “MOST SEVERE DEPRESSION EVER EXPERIENCED.”

Howard, as we know, was correct. The new regulations would drive up the prices of imported goods, reducing the capacity of foreign companies to sell products in America and of their governments to accumulate gold needed to pay off debts to the United States dating from the world war. It would also block the sale of American products to badly needed foreign customers. Protectionism would diminish the buying power of the American wage earner while further enclosing the farmer in a pattern of overproductive inefficiency.

The impact of Smoot-Hawley proved global, and more disastrous than even its most serious critics had argued. European journals warned that such protectionist action would produce reprisals and, eventually, war. Retaliation came from many countries, including France, Italy, Australia, India–even Canada. In a somber tone, Shlaes points out that “at a time when the country could have pulled itself out of a slump through trade, Washington was buttressing the walls preventing that trade.”

Still, the story of the Depression is, by the simple fact of Roosevelt’s tenure in the White House from 1933 until his death in 1945, much more that of the New Deal’s version of big government than of the errors of Herbert Hoover. Amity Shlaes has brilliantly assembled a panorama of individuals and events demonstrating the metastasis of the federal system under Democratic control. The most grandiose example of early New Deal legislation was the National Industrial Recovery Act. This law produced the National Recovery Administration (NRA), new labor organizing rights, and the Public Works Administration. The NRA, symbolized by a blue eagle, imposed minimum wage rates and hours of work on enterprises.

Roosevelt and the New Deal have been sanctified in American history. But many honest and productive citizens came forward to challenge the ambitious reorganization of the relation between government and the economy. Shlaes introduces vignettes of several such individuals. One was the Harlem-based messianic preacher Father Divine, who offered free food and clothing to the needy without recourse to state funding. Others include the owners of the Schechter Poultry Corp. of Brooklyn, a small firm of kosher chicken butchers prosecuted for violating NRA rules on working hours and wages, selling substandard meat, and conspiracy to evade the new regulations which, for chicken farmers, were oppressively complex. The Schechters took their case to the Supreme Court, which struck down the impositions of the NRA as a coercive abuse of the law.

Shlaes’s wide-ranging gallery of outspoken opponents of big government includes some that will surprise readers: It is certainly enlightening to see Bill Wilson, the founder of Alcoholics Anonymous–usually referred to, semianonymously, as “Bill W.”–presented as a pioneer of self-help without government interference. Aside from the lesson of Smoot-Hawley protectionism, there is another passage here that gave this reader pause. With the introduction of Social Security, Roosevelt commented to Labor Secretary Frances Perkins that actuarial studies had disclosed that money to run the program might run out in the future. Said FDR: “It is almost dishonest to build up an accumulated deficit for the Congress of the United States to meet in 1980. . . . We can’t sell the United States short in 1980 any more than in 1935.”

Let’s hope that Amity Shlaes’s cautionary retrospective on our country’s most significant political development in the 20th century will be read and studied widely as the future that Franklin Roosevelt himself feared approaches.

Stephen Schwartz is the author, most recently, of Is It Good for the Jews?