The Big Lie About The Great Depression

Posted: Jun 27, 2007 12:00 AM
The Big Lie About The Great Depression

In her vital and fascinating new book, "The Forgotten Man: A New History of the Great Depression," Amity Shlaes tells a story about national icon President Franklin Delano Roosevelt. Shortly after FDR took office, Shlaes explains, he began arbitrarily tinkering with the price of gold. "One day he would move the price up several cents; another, a few more," writes Shlaes.

One particular morning, Shlaes relates, FDR informed his "brain trust" that he was considering raising the price of gold by 21 cents. His advisers asked why 21 cents was the appropriate figure. "It's a lucky number," stated Roosevelt, "because it's three times seven." Henry Morgenthau, a member of the "brain trust," later wrote: "If anybody knew how we really set the gold price through a combination of lucky numbers, etc., I think they would be frightened."

Ignorance of basic economics -- and the concurrent attempt to obfuscate that ignorance by employing class-conscious demagoguery -- remains the staple of the Democratic Party. For over 60 years, Democrats and their allies in the media and public school system have taught that the Great Depression was an inevitable result of laissez-faire economic policies, and that only the Keynesian policies of the FDR government allowed America to emerge from the ashes. The Great Depression, for the left, provides conclusive proof that when it comes to economics, government works better than business.

This point of view has a sterling reputation. That reputation, unsurprisingly, was created by FDR himself. FDR turned the Great Depression into a morality play -- a morality play in which those in favor of individual initiative were the sinners, while those who relied on government were the saints. "We have always known that heedless self-interest was bad morals," Roosevelt intoned in 1937. "We know now that it is bad economics."

This, as Shlaes convincingly shows, is hogwash. The Depression lasted nearly a decade longer than it should have, due almost entirely to governmental meddling under both Herbert Hoover and FDR. High tariffs and government-sponsored deflation followed by enormous taxation and unthinkable government expenditures turned a stock market stumble into a decade-long nightmare. Only the devastation of World War II lifted America out of the mire, solving the drastic unemployment problem and providing a legitimate medium for FDR's pre-war wartime policies.

Nonetheless, the myth of a grinning FDR leading America forth from the soup kitchens remains potent. And today's Democrats rely desperately on that fading falsehood, hoping to bolster their bad economics with worse history. Hillary Clinton routinely hijacks Rooseveltian language, most recently disparaging the "on your own society" in favor of a "we're all in it together society." John Edwards' "two Americas" nonsense drips of FDR's class warfare. Never mind that Keynesian economics does not work. Never mind that it promotes unemployment, discourages investment and quashes entrepreneurship. For Democrats, the image of government-as-friend is more important than a government that actually protects the rights that breed prosperity.

"The impression of recovery -- the impression that a President was bending the old rules and, drawing upon his own courage and flamboyance in adversity and illness, stirring things up on behalf of the down-and-out -- mattered more than any miscalculations in the moot mathematics of economics," novelist-cum-economist John Updike recently wrote, defending FDR from Shlaes' critique. "Business, of which Shlaes is so solicitous, is basically merciless, geared to maximize profit. Government is ultimately a human transaction, and Roosevelt put a cheerful, defiant, caring face on government at a time when faith in democracy was ebbing throughout the Western world. For this inspirational feat he is the twentieth century's greatest President, to rank with Lincoln and Washington as symbolic figures for a nation to live by."

For Updike and his allies, image trumps reality. The supposed harshness of the business world matters more for Updike than the fact that profit incentives promote economic growth, efficiency and creativity. The "caring face" of government is more important for Updike than creating a framework that produces jobs and affordable commodities. Updike's sporadically employed father liked FDR because FDR made him feel "less alone." No doubt Updike's father would have felt less alone if he had been steadily employed by a private enterprise -- the kind of enterprise stifled by Roosevelt.

"We are beginning to wipe out the line that divides the practical from the ideal," FDR announced in 1937, as unemployment stood at 15 percent, "and in so doing we are fashioning an instrument of unimagined power for the establishment of a morally better world." Today's Democrats continue to embrace the vision, even at the cost of a prosperous reality.

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