New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America by Burton Folsom Jr.

From the Publisher

A sharply critical new look at Franklin D. Roosevelt's presidency reveals government policies that hindered economic recovery from the Great Depression — and are still hurting America today.

In this shocking and groundbreaking new book, economic historian Burton W. Folsom exposes the idyllic legend of Franklin D. Roosevelt as a myth of epic proportions. With questionable moral character and a vendetta against the business elite, Roosevelt created New Deal programs marked by inconsistent planning, wasteful spending, and opportunity for political gain — ultimately elevating public opinion of his administration but falling flat in achieving the economic revitalization that America so desperately needed from the Great Depression. Folsom takes a critical, revisionist look at Roosevelt's presidency, his economic policies, and his personal life.

Elected in 1932 on a buoyant tide of promises to balance the increasingly uncontrollable national budget and reduce the catastrophic unemployment rate, the charismatic thirty-second president not only neglected to pursue those goals, he made dramatic changes to federal programming that directly contradicted his campaign promises. Price fixing, court packing, regressive taxes, and patronism were all hidden inside the alphabet soup of his popular New Deal, putting a financial strain on the already suffering lower classes and discouraging the upper classes from taking business risks that potentially could have jostled national cash flow from dormancy. Many government programs that are widely used today have their seeds in the New Deal. Farm subsidies, minimum wage, and welfare, among others, all stifle economic growth —encouraging decreased productivity and exacerbating unemployment.

Roosevelt's imperious approach to the presidency changed American politics forever, and as he manipulated public opinion, American citizens became unwitting accomplices to the stilted economic growth of the 1930s. More than sixty years after FDR died in office, we still struggle with the damaging repercussions of his legacy.

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On May 9, 1939, Henry Morgenthau, Jr., the secretary of the treasury and one of the most powerful men in America, had a startling confession to make. He made this remarkable admission before the influential Democrats who ran the House Ways and Means Committee. As he bared his soul before his fellow Democrats, Morgenthau may have pondered the irony of his situation.

Here he was — a major cabinet head, a man of great authority. The source of his power, of course, was his intimate friendship with President Franklin Delano Roosevelt. Morgenthau was the president's longtime neighbor, close confidant, and — would be for over a decade — his loyal secretary of the treasury. Few men knew the president better, talked with him more, or defended him more faithfully. Eleanor Roosevelt once said Morgenthau was one of only two men who could tell her husband "categorically" that he was wrong and get away with it. Roosevelt and Morgenthau liked to banter back and forth at cabinet meetings, pass each other secret notes, meet regularly for lunch, and talk frequently on the phone. Morgenthau cherished a photo of himself and the president in a car, side by side, friends forever, with Roosevelt's inscription: "To Henry," it read, "from one of two of a kind."

But in May 1939, Morgenthau had a problem. The Great Depression — the most devastating economic catastrophe in American history — was not only persisting, in some ways it was getting worse. Unemployment, for example, the previous month had again passed the 20 percent mark. Here was Morgenthau, the secretary of the treasury, an expert onfinance, a fount of statistics on the American economy during the 1930s; his best friend was the president of the United States and the author of the New Deal; key public policy decisions had to go through Morgenthau to get a hearing. And yet, with all this power, Morgenthau felt helpless. After almost two full terms of Roosevelt and the New Deal, here are Morgenthau's startling words — his confession — spoken candidly before his fellow Democrats on the House Ways and Means Committee:

We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!

In these words, Morgenthau summarized a decade of disaster, especially during the years Roosevelt was in power. Indeed average unemployment for the whole year in 1939 would be higher than that in 1931, the year before Roosevelt captured the presidency from Herbert Hoover. Fully 17.2 percent of Americans, or 9,480,000, remained unemployed in 1939, up from 16.3 percent, or 8,020,000 in 1931. On the positive side, 1939 was better than 1932 and 1933, when the Great Depression was at its nadir, but 1939 was still worse than 1931, which at that time was almost the worst unemployment year in U.S. history. No depression, or recession, had ever lasted even half this long.

Put another way, if the unemployed in 1931 under Hoover would have been lined up one after the other in three separate lines side by side, they would have extended from Los Angeles across the country to the border of Maine. In 1939, eight years later, the three lines of unemployed Americans would have lengthened, heading from the border of Maine south to Boston, then to New York City, to Philadelphia, to Washington, D.C., and finally into Virginia. That line of unemployed people from the border of Maine into Virginia was mostly added when Roosevelt was president.

We can visualize this hypothetical line of unemployed Americans, but what about the human story of their suffering. Who were some of them, and what were they thinking? In the line at Chicago, we would encounter salesman Ben Isaacs. "Wherever I went to get a job, I couldn't get no job," Isaacs said of the prolonged depression. "I went around selling razor blades and shoe laces. There was a day I would go over all the streets and come home with fifty cents, making a sale. That kept going until 1940, practically." Letters to President Roosevelt tell other stories. For example, in Chicago, a twelve-year-old Chicago boy wrote the president, "We haven't paid the gas bill, and the electric bill, haven't paid grocery bill for 3 months....My father he staying home. All the time he's crying because he can't find work. I told him why are you crying daddy, and daddy said why shouldn't I cry when there is nothing in the house." In our hypothetical unemployment line at Latrobe, Pennsylvania, we might see the man who wrote in 1934, "No home, no work, no money. We cannot go along this way. They have shut the water supply from us. No means of sanitation. We cannot keep the children clean and tidy as they should be." From Augusta, Georgia, in 1935 came this letter to the president: "I am eating flour bread and drinking water, and no grease and nothing in the bread....I aint even got bed[d]ing to sleep on...." But even he was better off than the man from Beaver Dam, Virginia, who wrote the president, "We right now, have no work, no winter bed clothes....Wife don't even have a winter coat. What are we going to do through these cold times coming on? Just looks we will have to freeze and starve together."

High unemployment was just one of many tragic areas that made the 1930s a decade of disaster. The Historical Statistics of the United States, compiled by the Census Bureau, fills out the rest of the grim picture. The stock market, which picked up in the mid-1930s, had a collapse later in the decade. The value of all stocks dropped almost in half from 1937 to 1939. Car sales plummeted one-third in those same years, and were lower in 1939 than in any of the last seven years of the 1920s. Business failures jumped 50 percent from 1937 to 1939; patent applications for inventions were lower in 1939 than for any year of the 1920s. Real estate foreclosures, which did decrease steadily during the 1930s, were still higher in 1939 than in any year during the next two decades.

Another disaster sign in the 1930s was the spiraling national debt. The United States had budget surpluses in 1930 and 1931, but soon government spending ballooned and far outstripped revenue from taxes. The national debt stood at $16 billion in 1931; by the end of the decade the debt had more than doubled to more than $40 billion. Put another way, the national debt during the last eight years of the 1930s, less than one decade, grew more than it had in the previous 150 years of our country's existence. From 1776 to 1931, the spending to support seven wars and at least five recessions was more than offset by the debt acquired during the 1930s. Put yet another way, if Christopher Columbus, on that October day when he discovered the New World, could have arranged to put $100 a minute in a special account to defray the American debt, by 1939 his account would not yet have accumulated enough cash to pay for just the national debt acquired in the 1930s alone. In other words, if we were to pay $100 a minute (in 1930s dollars) into a special '30s debt account, we would need more than 450 years to raise enough money to pay off the debt of that decade.

The economic travail of the New Deal years can also be seen in the seven consecutive years of unbalanced trade from 1934 to 1940. Much of our government spending during the decade went to prop up prices of wheat, shirts, steel, and other exports, which in turn, because of the higher prices, made them less desirable as exports to other countries. From 1870 to 1970, only during the depression years plus the year 1888 did the United States have an unfavorable balance of trade.

Hard times are often followed by social problems. The United States in the 1930s was no exception. For example, the American birthrate dropped sharply, and the country's population increased only 7 percent in that decade. During the more prosperous 1920s, by contrast, the birthrate was higher and the country's population increased 16 percent.

For many Americans, the prolonged Great Depression of the 1930s became a time of death. As one eighty-year-old wrote, "Now [December 1934] there are a lot of us [who] will choose suicide in preference to being herded into the poor house." Apparently, thousands of Americans agreed with her, because suicides increased from 1929 to 1930 and remained high throughout the 1930s. Equally sad were the people who gave up on life after prolonged despair and took their lives more subtly, through an accidental fall, reckless driving, or being hit by a train. All three of these categories hit record numbers of deaths per capita during the New Deal years.

The loss of the will to live was also reflected in life expectancy during the 1930s. When Franklin Roosevelt became president in 1933, life expectancy in the United States was 63.3 years. Since 1900, it had steadily increased sixteen years — almost half a year each year of the first third of the twentieth century. In 1940, however, after more than seven years of the New Deal, life expectancy had dropped to 62.9 years. Granted, the slight decline during these years was not consistent — two of the seven years showed an increase over 1933. But the steady increase in life expectancy from 1900 to 1933 and from 1940 to the end of the century was clearly interrupted only during the New Deal years.

The halt in improved life expectancy hit blacks even harder than whites. In 1933, black Americans could expect to live only 54.7 years, but in 1940 that had dropped to 53.1 years. Both before and after the Great Depression, the gap in life expectancy between blacks and whites had narrowed, but from 1933 to 1940 it actually widened. Strong indications are that blacks suffered more than whites during Roosevelt's first term as president.

Someone might survey the wreckage from the 1930s and say, "Okay, maybe the whole decade of the thirties was a disaster. But since the Great Depression was a worldwide catastrophe, doesn't that diminish America's blame for its bad numbers?" The Great Depression did, of course, rock most of the world, but some nations performed better than others in limiting damage and restoring economic growth. Fortunately, the League of Nations collected data from many nations throughout the 1930s on industrial production, unemployment, national debt, and taxes. How did the United States compare with other countries? The answer: in all four of these key indexes the U.S. did very poorly, almost worse than any other nation studied. Most nations of Europe weathered the Great Depression better than the United States did.

In a decade of economic disaster, such as the 1930s, a decline in morality is a significant danger. If record numbers of people are hungry, out of jobs, and taxed higher than ever before, will the charity, honesty, and integrity necessary to hold a society together begin to crumble as well? The Historical Statistics of the United States offers some help in answering this question. Homicides increased slightly during the 1930s. There were more than 10,000 murders a year only seven times from 1900 to 1960, and all seven years were in the 1930s. Arrests during this decade roughly doubled: almost 300,000 were made in 1932, and this steadily increased, reaching a peak of almost 600,000 in 1939. Divorce rates increased as well, especially during the late 1930s, and the number of cases of syphilis treated almost doubled, although cases of gonorrhea were roughly constant.

Statistics can't tell the whole story of the changing mores of the 1930s. Many persons openly threatened to steal — or thought about stealing — to make ends meet during the Great Depression. Joblessness also led to "jumping trains" either to find work elsewhere or just to roam the country. R. S. Mitchell of the Missouri Pacific Railroad testified before the U.S. Senate that young men who jumped trains often encountered "hardened criminals" on these rides, who were a "bad influence" on the character of these youths. The Historical Statistics further shows that deaths to trespassers on railroads were at their highest ever during the depression years of 1933 to 1936.

ROOSEVELT AND THE HISTORIANS

Did the New Deal, rather than helping to cure the Great Depression, actually help prolong it? That is an important question to ask and ponder. Almost all historians of the New Deal rank Roosevelt as a very good to great president and the New Deal programs as a step in the right direction. With only a few exceptions, historians lavish praise on Roosevelt as an effective innovator, and on the New Deal as a set of programs desperately needed and very helpful to the depressed nation.

An example of this adulation is the appraisal by Henry Steele Commager and Richard B. Morris, two of the most distinguished American historians of the twentieth century. Commager, during a remarkable career at Columbia University and Amherst College, wrote over forty books and became perhaps the bestselling historian of the century. From the first year of Roosevelt's presidency, Commager lectured and wrote articles in defense of the New Deal. Richard Morris, his junior partner at Columbia, was a prolific author and president of the American Historical Association. Here is Commager and Morris's assessment of Roosevelt and the New Deal:

The character of the Republican ascendancy of the twenties had been pervasively negative; the character of the New Deal was overwhelmingly positive. "This nation asks for action, and action, now," Roosevelt said in his first inaugural address, and asked for "power to wage war against the emergency."...

It is the stuff of good history, this — a leadership that was buoyant and dynamic; a large program designed to enable the government to catch up with a generation of lag and solve the problems that crowded upon it; a people quickened into resolution and self-confidence; a nation brought to realize its responsibilities and its potentialities. How it lends itself to drama! The sun rises on a stricken field; the new leader raises the banner and waves it defiantly at the foe; his followers crowd about him, armies of recruits emerge from the shadows and throng into the ranks; the bands play, the flags wave, the army moves forward, and soon the sound of battle and the shouts of victory are heard in the distance. In perspective we can see that it was not quite like that, but that was the way it seemed at the time.

Commager and Morris's assessment highlights four main points of defense for Roosevelt and the New Deal that have been adopted by most historians for the last seventy years: first, the 1920s were an economic disaster; second, the New Deal programs were a corrective to the 1920s, and a step in the right direction; third, Roosevelt (and the New Deal) were very popular; and fourth, Roosevelt was a good administrator and moral leader.

These four points constitute what many historians call "the Roosevelt legend." Since the works of Arthur M. Schlesinger, Jr., and William Leuchtenburg have been essential in shaping and fleshing out this view of Roosevelt, I will quote from them liberally. Schlesinger twice won the Pulitzer Prize and was probably the best-known historian in America. His three volumes on the rise of Roosevelt and the early New Deal became landmark books. Leuchtenburg, a professor at Columbia University and the University of North Carolina, wrote the standard one-volume history of the New Deal. Leuchtenburg studied and wrote his Ph.D. dissertation under the direction of Commager. The seasoned Commager was pleased with Leuchtenburg's devotion to Roosevelt because Commager gave Leuchtenburg the opportunity to write his history of the New Deal for the prestigious New American Nation Series. Leuchtenburg, in his career, trained scores of New Deal historians, who later wrote books and major articles on the New Deal. No one has ever, and maybe will ever, train more New Deal historians than William Leuchtenburg. Here, in more detail, are the four myths that Commager, Morris, Schlesinger, Leuchtenburg, and most historians have promoted.

First, as Commager and Morris state, "The character of the Republican ascendancy of the twenties had been pervasively negative; the character of the New Deal was overwhelmingly positive." In other words, the 1920s was an economic disaster that helped lead to the Great Depression, from which Roosevelt with his New Deal provided useful tools of relief, partial recovery, and reform for the American economy.

To promote this view, both Schlesinger and Leuchtenburg support the underconsumption thesis, which states that the Great Depression was accelerated because workers did not have adequate purchasing power during the 1920s to buy the products of industrial America. According to Schlesinger, "Management's disposition [in the 1920s] to maintain prices...meant that workers and farmers were denied the benefits of increases in their own productivity. The consequence was the relative decline of mass purchasing power." President Calvin Coolidge and his treasury secretary, Andrew Mellon, contributed to great income disparities by enacting tax cuts for the rich. "The Mellon tax policy," Schlesinger says, "placing its emphasis on relief for millionaires rather than for consumers, made the maldistribution of income and oversaving even worse." Along similar lines, Leuchtenburg argues, "Insofar as one accepts the theory that underconsumption explains the Depression, and I do, then one can say that the Presidents of the 1920's are to blame...."

Second, "the character of the New Deal was overwhelmingly positive." Its intentions were excellent, and its results tended to be positive. Historians cite statistics to support this point: unemployment was 25 percent in 1933, Roosevelt's first year in office, and dropped steadily to about 15 percent by the end of his term in early 1937. The New Deal, then, did not solve the Great Depression, but it was a move in the right direction. William Leuchtenburg writes, "The New Deal achieved a more just society by recognizing groups which had been largely unrepresented — staple farmers, industrial workers, particular ethnic groups, and the new intellectual-administrative class." Samuel Eliot Morison, longtime professor at Harvard University, echoed this view: "The New Deal was just what the term implied — a new deal of old cards, no longer stacked against the common man." Textbook writers often pick up this theme. Historian Joseph Conlin concludes, "The greatest positive accomplishment of the New Deal was to ease the economic hardships suffered by millions of Americans...."

Third, Roosevelt was a popular and beloved president. He received unprecedented amounts of fan mail and he won reelection by a smashing 523 to 8 landslide in the electoral college — and then won two more terms after that. His fireside chats on the radio uplifted Americans and mobilized them behind his New Deal. "He came through to people," Schlesinger wrote, "because they felt — correctly — that he liked them and cared about them." Conlin writes, "Where Teddy [Roosevelt] had been liked and enjoyed, however, FDR was loved and adored." There were, of course, pockets of opposition to Roosevelt, especially among some selfish and greedy businessmen, who resented the regulations and taxes in the New Deal programs. "Roosevelt," Leuchtenburg writes, "was also determined to regulate the practices of high finance, and it was inevitable that this would cost him business support." But most Americans were enthusiastically behind the president. In fact, in his first midterm election of 1934, his party gained seats in both the House and Senate — something only Roosevelt did between 1902 and 1998. By 1936, his Democrats dominated Congress more than any party has in the last 150 years.

Fourth, Roosevelt was an admirable executive and a good moral leader. Schlesinger, like all historians, concedes that Roosevelt "made mistakes both in policy and in politics," but he was a great president nonetheless. "Roosevelt had superb qualities of leadership, superb instincts for the crucial problems of his age, superb ability to select and manage vigorous subordinates, enormous skill as a public educator, and enormous ability to lift the spirits of the republic and to mobilize national energies." According to Morison, "Roosevelt reasserted the presidential leadership which had been forfeited by his three predecessors and promoted the growth of federal power, which had halted since the First World War." Leuchtenburg concludes that "if the test of a good administration is not an impeccable organizational chart but creativity, then Roosevelt must be set down not merely as a good administrator but as a resourceful innovator." What's more, "Franklin Roosevelt re-created the modern Presidency. He took an office which had lost much of its prestige and power in the previous twelve years and gave it...importance...." Moral leadership is important, and Leuchtenburg writes that "essentially he [Roosevelt] was a moralist who wanted to achieve certain humane reforms and instruct the nation in the principles of government." "The presidency," Roosevelt himself said, "is not merely an administrative office....It is predominantly a place of moral leadership."

These four parts of the Roosevelt legend have a strong cumulative effect and historians regularly place Roosevelt among the top three presidents in U.S. history. In fact, the most recent Schlesinger poll (1996) ranks Roosevelt and Lincoln as the greatest president in U.S. history. He and his New Deal have become American idols. As Conlin writes, "From the moment F. D. R. delivered his ringing inaugural address — the clouds over Washington parting on cue to let the March sun through, it was obvious that he was a natural leader." Even before Roosevelt died, Conlin notes, "he was ranked by historians as among the greatest of the chief executives....No succeeding generation of judges has demoted him." Leuchtenburg concludes, "Few would deny that Franklin Delano Roosevelt continues to provide the standard by which every successor has been, and may well continue to be, measured."

Of course, historians are often nigglers and all students of Roosevelt and his presidency have some complaints. What's interesting is that most of these complaints are that Roosevelt should have done more than he did, not less. "The havoc that had been done before Roosevelt took office," Leuchtenburg argues, "was so great that even the unprecedented measures of the New Deal did not suffice to repair the damage." Therefore, to Leuchtenburg and others, the New Deal was only "a halfway revolution" that should have gone further. Some historians say FDR should have done more deficit spending during the recession of 1937; some chide him for not supporting civil rights more strongly; some point to abuse or corruption in some of the programs; and some say he should have done much more to redistribute wealth. The New Deal was, many historians conclude, a conservative revolution that saved capitalism and preserved the existing order. Some New Deal historians of the 1980s, 1990s, and 2000s — loosely called the "constraints school" — argue that the New Deal did promote many needed changes, but that Roosevelt was constrained in what he could accomplish and therefore he did as much reform as circumstances would permit.

These recent criticisms of Roosevelt and the New Deal slightly alter but do not diminish the Roosevelt legend. The four points of defense are currently intact, and are usually found in most histories of the New Deal and in virtually all of the American history textbooks today.

Two examples will help illustrate this point. David Kennedy and George McJimsey, both of whom loosely fit in the "constraints school," have written recent books on the Roosevelt presidency. Kennedy's book won the Pulitzer Prize in history and McJimsey's is part of the distinguished American Presidency Series. Kennedy praises "the remarkable generation of scholars" who did "pioneering work on the New Deal era." He cites Leuchtenburg, Schlesinger, and four other similar historians and writes, "Though I sometimes disagree with their emphases and evaluations, they laid the foun-dation on which all subsequent study of that period has built, including my own." Kennedy, like these predecessors, concludes, "Roosevelt's New Deal was a welcoming mansion of many rooms, a place where millions of his fellow citizens could find at last a measure of...security...." McJimsey, also like his predecessors, praises Roosevelt: "No president in our history has faced such critical problems with the courage, vision, and stamina that Roosevelt displayed." McJimsey concludes that "one of Roosevelt's major achievements was to create an institutional structure for the modern welfare state....Subsequent presidents," McJimsey notes approvingly, "were freer than ever to use government in creative ways."

The durability of Roosevelt's popularity among historians was noted by Arthur Schlesinger, Jr., who himself was sometimes criticized for his Roosevelt books. Schlesinger remarked in 1988 that the rapidly increasing historical scholarship has more polished than tarnished the Roosevelt legend. In 1988, almost thirty years after Schlesinger's major works on Roosevelt were published, he surveyed the avalanche of recent books on the New Deal and observed that "a very considerable literature has appeared on many facets of the age of Roosevelt. I do not believe that the outpouring of scholarly books, monographs, and articles changes the main outline of the story told in these volumes, but some float ingenious theories and others add valuable details."

After his 1996 presidential poll, Schlesinger was more confident in Roosevelt than ever. Of the thirty-two experts consulted, thirty-one gave FDR the highest rating of "Great" and one ranked him "Near Great," the second highest rating. "For a long time FDR's top standing enraged many who had opposed his New Deal," Schlesinger wrote. "But now that even Newt Gingrich pronounces FDR the greatest president of the century, conservatives accept FDR at the top with stoic calm." Along these lines, historian David Hamilton, who edited a book of essays on the New Deal, observed, "Conservative critiques [of the New Deal] have drawn less attention in recent years...." In other words, according to Schlesinger and many historians, the debate is over as the Roosevelt legend is established even among conservative historians.

The historical literature tends to support Schlesinger. The books and articles on Roosevelt and the New Deal are now so extensive, however, that it is almost impossible to read it all. Historian Anthony Badger has come as close as any modern historian to mastering the New Deal literature, and his book The New Deal: The Depression Years, 1933-1940 is an essential tool to the modern historian trying to sort out all the writing on the subject. Badger looks fondly at Schlesinger and Leuchtenburg, the two key historians to shape the historical writing on the New Deal:

At a time when there were few specialist monographs, both authors [Schlesinger and Leuchtenburg] displayed a remarkably sure touch in identifying the critical issues at stake in the most diverse New Deal activities. Both demonstrated an enviable mastery of a vast range of archival material. No one is ever likely to match the richness of Schlesinger's dramatic narrative. No one is ever likely to produce a better one volume treatment of the New Deal than Leuchtenburg's.

Thus, the Roosevelt legend seems to be intact. And as long as it is intact, the principles of public policy derived from the New Deal will continue to dominate American politics. As historian Ray Allen Billington noted, the New Deal "established for all time the principle of positive government action to rehabilitate and preserve the human resources of the nation." Yet, as we have seen, there is that nagging observation in 1939 by Henry Morgenthau, the secretary of the treasury, the friend of Roosevelt's and the man in the center of the storm. With great sadness, he confessed, "We are spending more than we have ever spent before and it does not work....We have never made good on our promises."

Since national unemployment during the previous month of April 1939 was 20.7 percent, Morgenthau's admission has the ring of truth to it.

Is it possible that the Roosevelt legend is really the Roosevelt myth?

Copyright © 2008 by Burton Folsom