Power of Story: Roosevelt and Keynes

Herbert Hoover was president when the stock market crashed in 1929. Franklin Delano Roosevelt, the charismatic governor of the state of New York was elected president in November, 1932, and inaugurated March 4, 1933. For three years the country had been traumatized by the worst economic crisis imaginable. The international scramble over gold supplies and debt repayments had involved and embroiled the economies of most of the world.

Roosevelt was a new face with a voice of hope. He was the only man to ever be elected president of the U.S. for four consecutive four-year terms. The irony of his election campaign in 1932 is worth a short review. Looking back over what transpired in the past seventy years it would almost seem as though Hoover and Roosevelt had somehow switched their campaign speeches and each delivered the lines of the other.

During the campaign it was Roosevelt who reiterated the old line party speeches promising reductions of all public expenditures, doing away with useless commissions and offices, consolidating departments and bureaus, and eliminating extravagances. Roosevelt even promised to balance the budget. Hoover was castigated for running huge deficits, his inability to halt the effects of the depression, or restore any semblance of prosperity. Roosevelt at one point even stated, “Our industrial plant is built; the problem just now is whether under existing conditions it is not overbuilt. Our last frontier has long since been reached.” Strange philosophical words when compared to what was set into motion over the dozen years that followed the election. (1)

Roosevelt spent the time between his election and inauguration at his Governor’s Mansion in Albany, New York with his Brain Trust, a group of intellectuals gathered from the universities, primarily Columbia University. Big change was on its way. The intellectual atmosphere on campuses around the world had changed over recent years. Now, we can look back and measure just how big that change was to become. From 1860 until Roosevelt’s election in 1932 the Republicans had held the presidency fifty-six of the seventy-two years. Democrats held for sixteen years. From 1932 to 1980 it was reversed: Democrats held the presidency for thirty-two years and the Republicans for sixteen.

Running against both the Democrats and Republicans in the 1928 election was the Socialist Party. Following is a listing of planks in their political platform:

  • Nationalization of our natural resources beginning with coal mines
  • A publicly owned giant power system (Tennessee Valley Authority)
  • National ownership and management of railroads and other means of transportation and communication
  • An adequate national program for food control, food relief, reforestation, irrigation, and reclamation
  • Immediate relief of the unemployed by the extension and program of all public works
  • Loans to states and municipalities without interest
  • A system of unemployment insurance (part one of Social Security system)
  • Nation-wide extension of public employment agencies (U.S. Employment Service)
  • A system of health and accident insurance and of old age pensions (Social Security 2)
  • Shortening the workday and forty- hour work per week
  • Federal anti-child labor amendment
  • Abolition of brutal exploitation of convicts
  • Increase of taxation on high income levels, corporation taxes, and inheritance taxes
  • Appropriation by taxation of all land held for speculation

The economic and cultural pendulum had internationally swung and was nationally swinging from belief in individual responsibility and a decentralized and limited government to a model of social outcome equality and a centralized and powerful government. The model relied on the government to protect the citizens from misfortune and to control the operation of the economy, even if that meant the government’s ownership and operation of the means of production.

Behind those closed doors of the Albany, New York Governor’s Mansion, between Roosevelt’s election and inauguration, a philosophical coalition had formed. TheBrain Trust was ready to view the depression as a failure of capitalism, and to believe that active intervention by centralized government was the appropriate prescription for rapid remedy. Relief, recovery, and reform would be the theme of the game plan.

By March 4, 1933, Roosevelt was fired up and ready to lead the charge with his inaugural speech. He began by blaming the crash, depression, and economic crisis on bankers and financiers and their quest for profit, and the greedy self-interest of capitalism, never allowing once that the problem had also been the responsibility of the U.S. government itself and the inaction of the empowered Federal Reserve System:

Primarily this is because rulers of the exchange of mankind's goods have failed through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence . . . The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit. (2)

The new president then called for a Bank Holiday and closed all the banks that still remained open. They would be reopened after the Emergency Banking Act and the Federal Deposit Insurance Corporation (FDIC) bills were passed by Congress. It was understood that successful economic systems must be based on confidence and convenience. There wasn’t a lot of confidence left in the system. The tacit message was that no longer would the depositors have to depend on the reliability of the bank, but could rest on the assurance of the government to protect their deposits. “The only thing we have to fear is fear itself.”

President Roosevelt’s First 100 Days witnessed a record number of bills being sent to Congress for approval during a special emergency session. Soon there were so many Relief, Recovery and Reform bills in existence it was hard to keep track of the action. Any programs that failed to pass or were held up for some reason were re-instituted by the President’s Executive Orders. Congress would then have to override the orders or it would be necessary for the Supreme Court to strike them down as unconstitutional. Especially in Roosevelt’s second term, the conflict with the Supreme Court led to their unanimously ruling that the National Recovery Act (NRA) was an unconstitutional delegation of legislative power to the president.

In response, Roosevelt proposed a shocking law that would allow him to appoint up to six new justices of the Supreme Court so that he could have a “persistent infusion of new blood.” Even his own Vice President Garner led an intense protest, claiming that he was violating the very separation of powers that would give Roosevelt absolute control over the Supreme Court by Court Packing. Eventually, however, Roosevelt appointed eight of the nine justices of the Supreme Court. They began to ratify his policies with ease.

On other issues, it was ranking members of his own Democratic party that began taking issue with Roosevelt’s power and policies. Democrats led by Al Smith organized the American Liberty League and vociferously attacked Roosevelt by equating him with Karl Marx and Vladimir Lenin. But, people were going back to work, and once again businesses were beginning to reopen their doors. No one had expected that the depression would have lasted for ten years.

Next Week: More about Bathtub economics

(Research ideas from Dr. Jackson's new writing project on Cultural Economics) 

© Dr. James W. Jackson  

Permission granted by Winston-Crown Publishing House