Annals of the Great Recession XII.

Does History teach “lessons”? Amity Schlaes certainly thinks so. Her book on the Great Depression of the 1930s is both history and prophecy.[1]

Standard histories of the Great Depression focus on all those millions of people whose lives were destroyed by the economic collapse of 1929-1932, and who were rescued by the policies of the New Deal of 1933-1940. Schlaes takes a different approach. She focuses on the people who found no solution to their problems in the New Deal or who found themselves stifled by the New Deal. Some of her cases are fascinating, but ridiculous. “Bill W,” the founder of Alcoholics Anonymous, and Father Divine, a now-forgotten campaigner against racism, undoubtedly pursued solutions rooted in individual behavior rather than in collectivist action. But the New Deal wasn’t trying to deal with alcoholism or racism.[2] It was trying to deal with a mind-bending economic collapse.

Schlaes is on more solid ground when she deals with political and economic issues. On the one hand, Schlaes is undoubtedly correct that the New Deal utterly failed to revive the American economy. Unemployment remained high throughout the decade, while the stock market—a barometer of activity in the real economy, regardless of what one thinks of brokers—remained low. Only the massive deficit spending for the Second World War and the sequestering of much of the earnings for later consumer spending restored prosperity. Still, the New Deal put a safety net under a collapsing economy.  Both this achievement and the role of deficit spending in long-term prosperity are ignored or under-played by Schlaes.

On the other hand, she brings out the essential pessimism of the New Deal—FDR’s smile aside. Schlaes argues that many New Deal figures had been influenced by foreign authoritarian and collectivist models in the Twenties. Mussolini’s Italy and Bolshevik Russia had impressed intellectuals who went on the shape the debates of the Thirties.[3] These people tended to be repelled by the supposed chaos and injustice of the market economy. The National Recovery Administration tried to regulate prices, wages, hours, and even processes.[4] Schlaes insists upon the New Deal’s emphasis on redistribution over economic growth; its creation of a regulatory state with bureaucrats run-amok; its early commitment to creating a planned economy; its creation of constituencies tied to the government by economic interest; and its attempt to judicially punish the representatives of an alternative vision.[5]

Curiously, the book came out in 2007, before the Great Recession and the election of Barack Obama as President. Since 2008, Americans have witnessed—cheering or hissing—the flight from Keynesianism by both Republicans and Democrats; the President telling Americans that the person who own a business “didn’t make that” business; and the attack on “millionaires and billionaires” who “tanked the economy.” Seems like old times.

[1] Amity Schlaes, The Forgotten Man: A New History of the Great Depression (New York: HarperCollins, 2007)

[2] Indeed, the New Deal was founded on racism. Much of its electoral base was in the South, where Democrats both excluded blacks from voting and counted blacks for purposes of representation. Hugo Black, appointed to the Supreme Court by FDR, had been a Klansman. Richard Nixon’s “Southern Strategy,” much decried by all right-thinking progressive people, amounted to catching the Democrats skinny-dipping and running away with their clothes.

[3] Schlaes is hardly alone in doing this. See: Paul Hollander, Political Pilgrims: Travels of Western Intellectuals to the Soviet Union, China, and Cuba 1928-1979 (1981) for many funny or revolting stories.

[4] Like the justices of the Supreme Court at the time, Schlaes has a good deal of fun with the “straight killing” of chickens in the Schechter case.

[5] Examples include the “show trials” of Samuel Insull and Andrew Mellon and the disparaging of Herbert Hoover.

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