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In 1929, however, after the stock market crash, President Hoover did the opposite of Cleveland and Harding. Hoover increased federal spending— through the Federal Farm Board, the Reconstruction Finance Corporation, and public works. Then in 1932 he agreed to sharply increase both income and excise taxes to help pay for his costly programs. With the top income tax rate hiked to 63 percent, and with almost all Americans paying some excise taxes

 

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261 THE DEPRESSION, THE NEW DEAL, AND FRANKLIN D. ROOSEVELT

for the first time in U.S. history, private investment did not bounce back and unemployment reached 25 percent. Thus Roosevelt had an especially difficult task when he entered the White House. Some of his emergency measures—the banking holiday and taking the United States off the gold standard (to stop the outflow of gold)—may have been in order. His New Deal, however, is another story because there he applied ideas from underconsumption theory.

What if, instead of expanding Hoover’s programs and starting many new ones of his own, Roosevelt had kept his campaign promises to cut spending, reduce taxes, and lower the Smoot-Hawley tariff immediately? In the Democrat Party platform, and in speech after speech during the campaign, Roosevelt promised these three things.…

If Roosevelt’s New Deal programs did not break the Great Depression, then what did? Most historians have argued that America’s entry into World War II was the key event that ended it. Federal spending drastically increased as twelve million U.S. soldiers went to war, and millions more mobilized in the factories to make war materiel. As a result, unemployment plummeted and, so the argu- ment goes, the Great Depression receded.

William Leuchtenburg, who has written the standard book on the New Deal, claims, “The real impetus to recovery was to come from rapid, large- scale spending.” Roosevelt, according to Leuchtenburg, was reluctant to take this step. When, at last, Pearl Harbor was bombed, “The war proved that mas- sive spending under the right conditions produced full employment.”

Recently, David M. Kennedy, in his Pulitzer Prise–winning book on Roosevelt, echoed Leuchtenburg’s argument. “Roosevelt,” Kennedy insisted, “remained reluctant to the end of the 1930s to engage in the scale of compen- satory spending adequate to restore the economy to pre-Depression levels, let alone expand it.” At the end of his book, Kennedy concluded, “It was a war that had brought [Americans] as far as imagination could reach, and beyond, from the ordeal of the Great Depression….” More specifically, “The huge expenditures for weaponry clinched the Keynesian doctrine that government spending could underwrite prosperity….”

Economists, Keynes notwithstanding, have always been less willing to believe this theory than historians. F.A. Hayek, who won the Nobel Prize in economics, argued against this view in 1944 in The Road to Serfdom. Economist Henry Hazlitt, who wrote for the New York Times during the Roosevelt years, observed, “No man burns down his own house on the theory that the need to rebuild it will stimulate his energies.” And yet, as historians and others viewed World War II, “they see almost endless benefits in enormous acts of destruction. They tell us how much better off economically we all are in war than in peace. They see ‘miracles of production’ which it requires a war to achieve.” Thus, in Hazlitt’s argument, the United States merely shifted capital from private markets, where it could have made consumer goods, to armament factories, where it made tanks, bombs, and planes for temporary use during war.…

In retrospect, we can see that Roosevelt’s special-interest spending created insatiable demands by almost all groups of voters for special subsidies. That, in itself, created regime uncertainty. Under the RFC [Reconstruction Finance

 

 

Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

262 MAJOR PROBLEMS IN AMERICAN HISTORY

Corporation], for example, the federal government made special loans to banks and railroads; then the AAA had price supports for farmers; soon the operators of silver mines were demanding special high prices for their product. At one level, as we have seen, Roosevelt used these subsidies as political tools to reward friends and punish enemies. But beyond that, where would the line be drawn? Who would get special taxpayer subsidies and who would not? As Walter Waters, who led the veterans’ march on Washington in 1932, observed, “I noticed, too, that the highly organized lobbies in Washington for special industries were producing results: loans were being granted to their special inter- ests and these lobbies seemed to justify their existence. Personal lobbying paid, regardless of the justice or injustice of their demand.”…

Why would so many historians heap so much praise on Roosevelt? Most historians are, along with Roosevelt, influenced by the “progressive view of his- tory” that began to dominate American life during the presidency of Woodrow Wilson. Before the early 1900s, the constitutional views of the Founders domi- nated American political thought. In writing the Declaration of Independence and Constitution, the Founders emphasized natural rights—the process of ensur- ing God-given rights to life, liberty, and property to every American. “If men were angels, no government would be necessary,” Madison wrote. But men were not angels, so to protect natural rights, the Constitution was written with power widely dispersed to prevent a strong president or legislature from increas- ing its authority and gradually turning the United States into a tyranny.

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