About No, They Can’t:

From the myth that government can spend its way out of a crisis to be mistaken belief that labor unions protect workers, Stossel, a true libertarian, provides evidence that the reality is very different from what intuition tells us. His evidence leads to the taboo conclusions that:
· Government already dominates health care—and that’s the problem.
· The state keeps banning foods, but food bans don’t make us healthier.
· Government-run schools and teachers’ unions haven’t made kids smarter.*

The event will take place at the Renaissance Waverly Hotel in Atlanta, GA. For ticket information and sponsorship, visit: www.fee.org/stossel.

FEE seeks candidates who may be unfamiliar with the ideas of a free and prosperous society, but are eager to discover the driving forces behind the maximization of human potential. We strive to impart these principles to our students in order for them to articulate, debate, and defend them when they return home.

For a third consecutive year we will host seminars in our branch office location: Atlanta, Georgia. Taking place in the Georgia Pacific building, our exciting Freedom University seminar series are designed to introduce college students to: Austrian economics, history and current events. For the first time this year we offer a summer seminar only for FEE alumni. Communicating liberty is designed to teach FEE alumni techniques of how to become effective communicators and spread the ideas of liberty.

Our Advanced Austrian economics seminar will take place at the FEE headquarter office in Irvington, NY.

Beautiful Salt Lake City will be the home of two seminars specifically designed for high school-aged students.

The goal of our seminars is not only to educate and engage students with the ideas of the free and prosperous society, but also to create life-long associations between our alumni and the Foundation for Economic Education.

Please visit the seminars page to download and complete the application, and do a friend a favor by forwarding this link!

May you have a prosperous and liberty-filled New Year!

Many individuals in favor of liberty simply retire from the social and political world into their own occupations and let the light slowly extinguish. Luckily, there are always the brave few who fight to keep the idea of liberty alive and well. They hold their candles up and fight the battle of ideas in order to make the world a better place, or, at the very least, attempt to make the world a better place. Undoubtedly, the world should be indebted to these individuals for keeping the hope alive, for these individuals are necessary to achieve any sort of liberty.

There is, however, another direction a libertarian can take. In the words of Murray Rothbard, “he can stay in the world, enjoying himself immensely at this spectacle of folly.” In other words, he can lampoon the society, which is turning its back upon the path it should be on. This is a cynical approach, but probably more important than is often realized. Rather than attempting to extend your flame, you mock the system and those who remain in the dark, while having fun doing it.

This was the path taken by the journalist H.L. Mencken. Many write Mencken off as merely a conservative, but as Henry Hazlitt pointed out, this is far from the truth. Mencken was a very principled libertarian. Behind the words he used to lampoon society’s follies, he consistently championed liberty and the dignity of the individual. His attacks upon the welfare state, censorship, prohibition, etc. were more than the grumblings of a crotchety cynic; they were a consistent defense of liberty through pointing out the errors of others.

Mencken used to refer to politics as a carnival of buncombe, which means unacceptable behavior. As he once said, “a good politician is quite as unthinkable as an honest burglar.” And he took great enjoyment in this, as, “A national political campaign is better than the best circus ever heard of, with a mass baptism and a couple of hangings thrown in.” The whole process is a result of what the people want. To Mencken democracy meant the right of the majority to suppress or persecute a nonconformist minority. As he said, “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.” This was the system we asked for and the results were what we deserved.

The world could do with another Mencken. Of course its crucial to have those who expound the importance of liberty, but it is also important to have someone point out the absurdity of our current ways. After all, at best another Mencken will influence others to fight for liberty, and at worst we can at least enjoy the show. For Mencken may only have been a journalist, but as Hazlitt pointed out, he knew what he was talking about.

Download Mencken: A Retrospect by Henry Hazlitt here.

Beautiful Estes Park, CO will be the home of the two Freedom Academy seminars for high school-aged students. These seminars are specifically designed to teach students at that level about the economic system that respects individual rights and human dignity.

Our new branch office location: Atlanta, Georgia will be the home of summer seminar series designed to introduce college students to: basic economics, Austrian economics, history and current events.

The goal is not only to educate and engage students with the ideas of the free and prosperous society, but also to create life-long associations between our alumni and the Foundation for Economic Education. We would like to welcome all our applicants to the liberty community with FREE 3 month subscription to The Freeman.

If you would like to be on our mailing list and receive notifications from FEE on seminars and other high school and college events, please go to our seminars page and sign up.

For the audio file click here.

For the audio file of this lecture click here.

For the audio file of this lecture click here.

Find the audio file of this lecture here.

Common Sense Radio is sponsored by the Ethan Allen Institute with a mission to communicate the fundamentals of free society: individual liberty, private property, and limited government.

Find Lawrence W. Reed’s “Seven Principles of Sound Public Policy” here.

[.]… the deficit that matters most is not denominated in dollars at all. Its currency is of the heart and mind. It’s a manifestation of the values with which we circumscribe our actions, our purposes, and our values. I speak of a deficit of character, which arguably is the root of all of our major economic and social troubles today.

Describing it as a very different kind of deficit, Mr. Reed focuses on the key ingredients of strong character: “honesty, humility, responsibility, self-discipline, courage, self-reliance, and long-term thinking” and how a free society is impossible without having these traits in widespread practice.

The full commentary in The Christian Science Monitor here.

More of Mr. Reed’s thoughts on liberty and moral character from his recent participation in the Idea Room here.

In reality, a voluntary society cannot be opened as a gift. Freedom is an outcome of a societal process where many individuals act and cooperate with one another. This requires a certain type of ideology, which the majority of it members must hold. We must learn to respect and uphold private property rights. We must learn that personal responsibility is important. Liberty is not something that can just be given. It must be understood and it must be wanted. We face many different competing views and so the supporters of a voluntary society must study and understand what a free society could be.

Today’s document will not likely bring the gift of a free society but it does contain a list of 100 hundred books F.A. “Baldy” Harper deemed worth studying for anyone wishing to understand the merits of a free society. It is Harper’s “A Bibliography on the Voluntary Society: 100 Selected Titles in Economics, History, and Philosophy.” Many of these books would make great gifts (some are even available free online) for ourselves and our friends, family, and even (and possibly more important) our intellectual opponents.

Harper collected these books in March of 1953. It is, of course, not comprehensive but it is quite impressive. As many of the great classical liberal economists are present from Frederic Bastiat, Eugen von Boehm-Bawerk, John Bates Clark, Fred Rogers Fairchild (one of the original founders of FEE), Frank Fetter, F.A. Hayek, Frank Knight, Carl Menger (which Harper spells his first name wrong, Karl was his son who was also a noted mathematician and economist), John Stuart Mill, Ludwig von Mises, David Ricardo, Lionel Robbins, J.B. Say, Henry Simons, Adam Smith, and Phillip Wicksteed, among many more!

It is probably safe to say that the more people who studied this list, the better off the world would be. Of course this list was made almost 60 years ago, so many more wonderful and important works have been done since. What important books do you think should be added? Let us know in the comments.

Download “Baldy” Harper’s A Bibliography on the Voluntary Society here.

Summer Seminars Donor Book

IRVINGTON, NY—From its founding in 1946 until 2010, the Foundation for Economic Education (FEE) had one office: its headquarters facilities near the Hudson River in this Westchester County community, less than an hour north of New York City. Now, it has a second home in the heart of the South.

In early May, a branch office was opened at 260 Peachtree Street, NW, Suite 2200 in downtown Atlanta, Georgia 30303. Located in Atlanta’s financial district, the office houses four staff members at present and is just three blocks from the site of five of FEE’s summer 2010 student seminars, the Georgia-Pacific Building. The organization’s headquarters will remain in its historic mansion in Irvington.

Why Atlanta? FEE president Lawrence W. Reed explains: “There are many good reasons for a branch office in Atlanta: Local support is strong. Operational costs are low. Opportunities for FEE programs in the region are great. The proximity of a major airport hub makes Atlanta very accessible. And by putting roots down in a second community, we are broadening the base of FEE’s long-term support.”

No sooner was the office opened in early May than FEE staff in both New York and Georgia were immersed in the organizations’ highly successful summer seminars. Nearly 700 students from 40 states and 42 countries descended on Irvington, Atlanta, and a third site—Estes Park, Colorado—to hear many of the country’s top free market economists.

“Now that the seminars for 2010 are over and planning is underway for next year, we can really settle in to the new office and reach out to the local community,” says Ben Stafford, director of programs. “We’re excited about working with groups in the area to get the FEE message of liberty and free enterprise into the schools and colleges.” One of many new lecture programs will be an occasional “Evening with FEE” event, fashioned after the successful “Evening at FEE” programs at the Irvington headquarters.

FEE’s executive director, Carl Oberg, hailed the branch office opening as “a testimony to our new growth path” for the organization. “Our funding base is growing, our programs are reaching record audiences of young people, our new media exposure is soaring, and now we have a new office from which we can extend our reach,” he said. “People are responding to our unique approach of combining free market economics with the necessity of personal character, and that’s a cause for celebration!”

In Honor of Muso from FEE on Vimeo.

On September 12th, 2010, Universidad Francisco Marroquin celebrated the life of Manuel Ayau. Joining our friends in Guatemala, the Foundation for Economic Education is commemorating the former member of Board of Trustees Manuel “Muso” Ayau.

A great champion of liberty, “Muso” Ayau will remain in the hearts and minds of many free society and free enterprise supporters.

Manuel Ayau, Guatemala’s Freedom Entrepreneur (1925-2010), by Sheldon Richman.
Manuel Ayau: Guatemala’s Liberal Searcher, by Donald J. Boudreaux.
UFM Tribute to Manuel Ayau

One extremely interesting point is that Read claims to be originator of the term libertarian. As he said in the interview, “I’m the one who brought out and popularized the word ‘libertarian’ and it’s gone all over the world.” Those who favored the free market and were against the tyranny of the state against the individual were originally called liberals; for example, the classical economists, such as Adam Smith, were considered liberals. But in the modern age, the word, as one can see, has come to mean something else. Read also abandoned the term libertarian for the same reasons. When asked “what are you, Read?” he would respond, “Leonard Read.”

Read often referred to his ideology as the freedom philosophy. It stressed the importance of education for the advancement of freedom. In this interview, Read highlighted the importance of this by arguing that the problem of getting people to understand and accept freedom was a problem of learning and not selling. Being against the welfare state and central planning is not enough; you must also be for something! Advocates of liberty should have a healthy dose of misarchy, as Mises said, “Government is the negation of liberty,” but we must also have a strong defense and love for what will replace it, namely the free market.

The above is a lesson we should keep in mind today. As Read said in the interview, he believed no one has adequately come up with a way to logically, persuasively, attractively describe the functioning of the market so that other people will fully understand. Not Mises, Hayek, Rand, Friedman, and certainly not Read himself, as he admitted, “In other words I’m aware of how little I know.” But this does not mean it is impossible, far from it, it just means we must continue to work as hard, if not harder, than Read, and those other giants of liberty, to educate the world about the benefits of freedom and the market.

This interview is worth the read simply to remind us how important and powerful Read’s work was to the free market movement. We could not have come as far along as we have without Leonard Read. Not bad for a guy whose books apparently sold as well as the great Ludwig Von Mises.

Download the Reason magazine interview with Leonard E. Read here.

In the late 1940s, two of the most influential libertarians of the 20^th century, economist Ludwig Von Mises and writer Rose Wilder Lane, had a debate, through correspondences, on the subject of democracy. While FEE’s archives do not house these letters (they can be found at the Grove City College archives) it does contain other letters pertaining to this interesting debate. One example, which can be found here, is a letter dated September 15, 1950 from Rose Wilder Lane to Leonard E. Read expressing her apologies, for being too rough on Professor Mises, and her frustration with Mises’ refusal to grasp, what she called, the American political principle; which in her view was anti-democratic.

Lane detested democracy. She believed that the founders of this country formed the American government in opposition to democracy. In her famous libertarian work, the Discovery of Freedom, she even went as far to say, “ The superstition that all men have a right to vote is a triumph of Old World reasoning… extensions of the franchise are dangerous to individual liberty and human rights.” She believed democracy is simply the rule of the people and that this majority rule would “set up an imaginary Authority armed with force,” which would, “destroy all opportunity to exercise their natural freedom.” As she said in a 1947 letter to Mises,

“as an American I am of course fundamentally opposed to democracy and to anyone advocating or defending democracy, which in theory and practice is the basis of socialism.

It is precisely democracy which is destroying the American political structure, American law, and the American Economy, as Madison said it would, and as Macauley prophesied that it would do in fact in the 20^th century.”

Mises, on the other side, has made the case for the importance of liberal democracy, which can be found in his book Liberalism. He also seemed to disagree with Lane to some degree about America not being democratically founded, as she explains in the letter to Read, “He replied that Toqueville, whom he suggested I read, wrote about democracy in America, so this country is a democracy, but – his tone implied—there, there, never mind, don’t bother about such things; be good, sweet maid, and let who will be clever.” But, Mises also thought Lane misunderstood what he was arguing. He said he never advocated any concrete regime of parliamentary democracy and only wanted to stress the positive fact that all societies ultimately hinge on the ideology of the masses.

Still the Mises/Lane debate was never brought to a conclusion and the question of democracy is still argued today. Today economist even argue over the efficiency of democratic systems (see Bryan Caplan’s book the Myth of the Rational Voter and his debate with Donald Wittman). All and all a conclusion has not been reached leaving us with the question: what role do you think democracy should have in a free society?

Download the September 15, 1950 Letter from Rose Wilder Lane to Leonard Read here.

According to Russell, “the first leftist” were members of the National Constituent Assembly who wanted to abolish government controls over the market. They briefly held a slim majority and successfully limited the central powers of government. But sadly, a small minority among the group, the revolutionary Jacobins, grasped power. The Jacobins differed in that they wanted power in the hands of the “people”, rather than the local and constitutionally-limited government the first leftists had backed. The result was terror and tyranny.

So what lessons, particularly in regards to freedom and economics, should we take from this today? In a sense, the lessons for freedom and economics are the same. The issues of why a decentralized power structure is important for freedom are directly tied to the economics of knowledge.

F.A. Hayek points to these exact dangers of the centralization of power in the Road to Serfdom. Giving centralized power to the government in ‘the name of the people’ is just as much a slippery slope as any despot. The French experience aptly illustrates this.

Given Russell’s article, what parallels do you see with our current political climate? What are the differences? Could we be heading down a similar road?

Download the First Leftist by Dean Russell Here.

James Otteson is a joint professor of philosophy and economics at Yeshiva University in New York and Charles G. Koch Senior Fellow at the Fund for American Studies in Washington, DC. He has previously taught at Georgetown University and at the University of Alabama.

Technical note: We apologize for the minor audio feedback present in some of this video. Due to the importance of the material we decided to post the video despite the defects.

Richman is the editor of The Freeman and TheFreemanOnline.org. He is also senior fellow at The Future of Freedom Foundation and author of FFF’s award-winning book Separating School & State: How to Liberate America’s Families, as well as Your Money or Your Life: Why We Must Abolish the Income Tax and Tethered Citizens: Time to Repeal the Welfare State.

(put a check mark next to any that apply):

____ I raised it in a conversation and hopefully turned on a light in at least one person’s mind

____ I defended it when it was challenged by error

____ I improved my own knowledge of the literature of liberty so as to become a better advocate

____ I wrote a letter-to-the-editor in liberty’s defense

____ I recommended a good article, book or film that advances values consistent with a free and civil society

____ I sent a personal check to an organization I know to be working for the advancement of liberty ideas

____ I resisted temptation to subvert liberty by accepting something from government that didn’t belong to me

____ I took action to clean up my own act so that I can be a solid exemplar of the virtues necessary for a free society to flourish

____ I checked out at least one textbook my son or daughter was assigned in school, explained to my offspring any fallacies I found, and complained to the school about any that were especially egregious

____ I told at least one of my representatives that if he or she ever voted for more government again, I would pull out all the stops to see him or her defeated in the next election

____ I told my college or university alma mater that if they didn’t start hiring faculty who know how to present and defend the case for free enterprise, they’ll never, ever get another dime from me

____ I did nothing at all for liberty today, except enjoy the fruits of it while leaving the battle for its restoration and preservation to others. I was essentially a liberty freeloader today.

Only the first two or three serials were ever written (all compiled together here). Rand considered this a side project for herself that would help clarify the ideas and terms needed to defend liberty and individualism. Given this goal for the project Rand thought it would be helpful for FEE’s Trustees and staff.

As she said in a letter to Leonard Read, “I hope your staff and trustees will study it (the Textbook of Americanism) carefully, as I know that it will be valuable to them in helping them to avoid giving our case away.” This file, which you can download at the link below, was the circulated copy. It consists of ten questions and answers (two more questions and their answers can be found elsewhere on line, see here) concerning the difference between individualism and collectivism.

The issues raised in the textbook really do attempt to uphold individualism and destroy any collectivist mind set. For as Rand says on page 14, “Collectivism goes a step below savage anarchy: it takes away from man even the chance to fight back. It makes violence legal – and resistance to it illegal. It gives the sanction of law to the organized brute force of a majority (or of anyone who claims to represent it) – and turns the minority into a helpless, disarmed object of extermination. If you can think of a more vicious perversion of justice, name it.”

Maybe Rand was planning on telling us what she really thought of collectivism in the unwritten parts, but regardless this unfinished textbook makes for an informative and entertaining read.

Download the Textbook of Americanism here.

1. I resolve to sell liberty by appealing to the self-interest of each prospect, rather than preaching to people and expecting them to suddenly adopt my ideas of right and wrong.

2. I resolve to keep from being drawn into arguments or debates. My purpose is to inspire people to want liberty — not to prove that they’re wrong.

3. I resolve to listen when people tell me of their wants and needs, so I can help them see how a free society will satisfy those needs.

4. I resolve to identify myself, when appropriate, with the social goals someone may seek — a cleaner environment, more help for the poor, a less divisive society — and try to show him that those goals can never be achieved by government, but will be well served in a free society.

5. I resolve to be compassionate and respectful of the beliefs and needs that lead people to seek government help. I don’t have to approve of their subsidies or policies — but if I don’t acknowledge their needs, I have no hope of helping them find a better way to solve their problems.

6. No matter what the issue, I resolve to keep returning to the central point: how much better off the individual will be in a free society.

7. I resolve to acknowledge my good fortune in having been born an American. Any plan for improvement must begin with a recognition of the good things we have. To speak only of America’s defects will make me a tiresome crank.

8. I resolve to focus on the ways America could be so much better with a very small government — not to dwell on all the wrongs that exist today.

9. I resolve to cleanse myself of hate, resentment, and bitterness. Such things steal time and attention from the work that must be done.

10. I resolve to speak, dress, and act in a respectable manner. I may be the first libertarian someone has encountered, and it’s important that he get a good first impression. No one will hear the message if the messenger is unattractive.

11. I resolve to remind myself that someone’s “stupid” opinion may be an opinion I once held. If I can grow, why can’t I help him grow?

12. I resolve not to raise my voice in any discussion. In a shouting match, no one wins, no one changes his mind, and no one will be inspired to join our quest for a free society.

13. I resolve not to adopt the tactics of Republicans and Democrats. They use character assassination, evasions, and intimidation because they have no real benefits to offer Americans. We, on the other hand, are offering to set people free — and so we can win simply by focusing on the better life our proposals will bring.

14. I resolve to be civil to my opponents and treat them with respect. However anyone chooses to treat me, it’s important that I be a better person than my enemies.

Those words of Edward Everett Hale, an American clergyman and writer (1822-1909), underscore our thinking at FEE. The moral, economic, and philosophical pillars of liberty are just too important for us to ever let up or fall short of what we can do to make liberty’s case!

Click to donate.

A year ago, in the wake of collapsing markets and the government’s appalling response, many lovers of liberty despaired. At FEE we see opportunities in crisis—opportunities in the form of teachable moments for open and attentive minds starving for the right ideas. Not only is our message needed more than ever, it’s also being sought more eagerly than I’ve witnessed in years.

The recession and financial crisis that are fueling this renewed interest in our message cry out for clear explanation. They resulted not from free, unregulated markets but directly from the Federal Reserve’s reckless money and credit policies and the government’s reprehensible jawboning of financial institutions to extend mortgage credit to unqualified parties.

This month FEE is publishing a brand new, powerful monograph by Professors Steven Horwitz and Peter Boettke entitled “The House That Uncle Sam Built: The Untold Story of the Great Recession of 2008,” which lays all this out in engaging, jargon-free detail. We will be pleased to send a copy to those responding to this appeal with a contribution of $200 or more.

But before you decide whether or not to help FEE with a year-end contribution, please consider what we’ve accomplished this past year and what we hope to do in the next:

• We dramatically revamped the FEE website (FEE.org), doubling the average monthly traffic in 10 months. We’re aiming for a million page views per month by the end of 2010.
• We created a new website for our magazine, The Freeman (TheFreemanOnline.org), prompting a large following and several thousand additional subscribers to our weekday In Brief e-mail service. We’re looking for even faster growth in readership next year.
• We made our entire archive of past Freeman issues available online. Users can now easily browse issues by year and month, search for their favorite authors and subjects—and view them in HTML and download PDFs.
• We started a FEE fan page on Facebook and in a matter of weeks gained nearly 3,500 fans. We expect to add thousands more Facebook and Twitter fans in 2010, especially since we have added a searchable database of free-market Twitter users at FEE.org.
• At our week-long summer seminars for high school and college students in 2009, we had 700 attendees over 9 weeks, beating the all-time previous attendance record by almost 65 percent! Attendees came from nearly every state and 38 countries. It’s only November and nearly 1,000 students have already signed up to receive e-mails about next year’s programs.
• FEE presentations have been extremely well-received on college and university campuses. Thousands of students have heard FEE speakers at schools like Penn State, Wilkes, Columbia, George Mason, Grand Valley State, Colorado Christian, Northwood, Hillsdale, Webber International, Grove City, Wake Forest, Western New England and Southern Methodist, to name just a few.
• Our high school debate programs drew in a record 5,000+ students this past year. Reaching high school and college students is one of our great strengths. Educating relative newcomers to the freedom philosophy—young people especially—is our special niche. We plan to set new records in reaching both high school and college students in 2010.
• For the first time, FEE is now posting videos of its summer seminars on both YouTube and FEE.org. Our online video library, inaugurated less than a year ago, features dozens of great lectures from current FEE speakers and even a classic talk by our founder, the late Leonard Read. Those videos have been viewed nearly ten thousand times. Next year we will add one to three new videos every week and we expect tens of thousands of viewings.
• All told this is remarkable growth in outreach, undoubtedly the most dramatic one-year expansion in FEE’s more than six decades.

Though I have already mentioned our magazine, The Freeman, I want to share with you some further observations about it. It’s been our flagship publication for half a century and a highly acclaimed leader among free-enterprise journals. (Contributors to FEE of $50 or more receive the magazine for a year).

No publication has covered the financial crisis from a pro-freedom perspective as thoroughly and as clearly as The Freeman. Issue after issue applied solid analysis to all aspects of the episode and has explained the free-market solution in banking and housing.

Likewise, we have relentlessly offered the case for the free market in health care and exposed the prevalent statist fallacies and proposals. Intellectual ammunition from FEE on these issues has become an important weapon in the arsenal for the pro-liberty side of the debate.

We have jumped on every major political-economic issue with clarity and consistency, while also attending to lesser-known threats to liberty and important episodes in economic history. We keep readers informed of the most important new books of relevance to champions of freedom.

The most respected names in the broad free-market movement grace our pages: Israel Kirzner, Richard Epstein, Bruce Yandle, Murray Weidenbaum, Roger Garrison, Lawrence White, Gerald O’Driscoll, Wendy McElroy, Peter Boettke, Ben Powell, Sanford Ikeda, Doug Bandow, James Bovard—not to mention the best of the up-and-coming pro-freedom scholars and writers.

Our regular columnists are an all-star cast and include Robert Higgs, Walter Williams, Thomas Szasz, Don Boudreaux, Charles Baird, David Henderson, Steve Davies, Burt Folsom, John Stossel, and Sheldon Richman. All of this comes in the most attractive packaging in The Freeman’s history—and I don’t mean just the print version. The newly redesigned website, TheFreemanOnline.org, draws in hundreds of thousands of readers, who continue the lively debates by posting comments, emailing articles to friends and sharing The Freeman through social networking sites. Please visit TheFreemanOnline.org at your earliest opportunity!

So there you have, in a nutshell, the good news about our work this past year. But you should know that we practice what we preach in every respect. We don’t think we’re entitled to anything, but we do hope we have earned your support. Ask yourself these questions as you ponder your year-end giving:

• Does FEE stand for what I believe in?
• Has FEE remained faithful and true to the principles of liberty?
• Is FEE’s message really needed?
• Does FEE and its mission deserve my support?

I hope you will answer all four questions with a resounding YES! Since our founding in 1946, FEE has relied exclusively on the voluntary, generous, and tax-deductible contributions of friends of liberty everywhere. We can’t do our work without you.

I started this letter on an optimistic note and I want to end in a similar fashion. I’m a firm believer in an optimistic outlook. Anything less is a losing proposition. Pessimism is a self-fulfilling prophecy because if you let anything get you down, the chances are you won’t then work as hard and you won’t attract the followers necessary to win. Consider these words of Dietrich Bonhoeffer, a Lutheran pastor and man of conscience who was martyred for his opposition to Hitler in 1945:

“The essence of optimism is that it takes no account of the present, but it is a source of inspiration, of vitality and hope where others have resigned; it enables a man to hold his head high, to claim the future for himself and not to abandon it to his enemy”

As 2009 comes to a close and opportunities to turn the tide for liberty in 2010 present themselves, we need FEE to be in a strong position to present its message better and to more people. With this letter, I ask you to be generous in making gift to FEE at your earliest opportunity. Please join us, or stick with us, or even increase your gift if you can! I thank you for your support and partnership.

Liberty—it makes all the difference in the world!

Sincerely,

Lawrence W. Reed
President

P.S. Don’t forget that contributions of $50 or more assure that you will receive our magazine, The Freeman. Contributors of $200 or more will receive a complimentary copy of “The House That Uncle Sam Built: The Untold Story of the Great Recession of 2008.”

P.P.S. If you would like to earmark your gift toward scholarships for summer seminar students ($1,000 per full scholarship, $500 per half-scholarship), let us know and we’ll be sure to have the recipient(s) send you a personal thanks and testimonial next summer.

Introduction

Many volumes have been written about the Great Depression of 1929-1941 and its impact on the lives of millions of Americans. Historians, economists and politicians have all combed the wreckage searching for the “black box” that will reveal the cause of the calamity. Sadly, all too many of them decide to abandon their search, finding it easier perhaps to circulate a host of false and harmful conclusions about the events of seven decades ago. Consequently, many people today continue to accept critiques of free-market capitalism that are unjustified and support government policies that are economically destructive.

>>Listen to Audio Book version of Great Myths of the Great Depression<<
>>Download PDF Version of Great Myths of the Great Depression.<<

How bad was the Great Depression? Over the four years from 1929 to 1933, production at the nation’s factories, mines and utilities fell by more than half. People’s real disposable incomes dropped 28 percent. Stock prices collapsed to one-tenth of their pre-crash height. The number of unemployed Americans rose from 1.6 million in 1929 to 12.8 million in 1933. One of every four workers was out of a job at the Depression’s nadir, and ugly rumors of revolt simmered for the first time since the Civil War.

“The terror of the Great Crash has been the failure to explain it,” writes economist Alan Reynolds. “People were left with the feeling that massive economic contractions could occur at any moment, without warning, without cause. That fear has been exploited ever since as the major justification for virtually unlimited federal intervention in economic affairs.”[1]

Old myths never die; they just keep showing up in economics and political science textbooks. With only an occasional exception, it is there you will find what may be the 20th century’s greatest myth: Capitalism and the free-market economy were responsible for the Great Depression, and only government intervention brought about America’s economic recovery.

A Modern Fairy Tale

According to this simplistic perspective, an important pillar of capitalism, the stock market, crashed and dragged America into depression. President Herbert Hoover, an advocate of “hands-off,” or laissez-faire, economic policy, refused to use the power of government and conditions worsened as a result. It was up to Hoover’s successor, Franklin Delano Roosevelt, to ride in on the white horse of government intervention and steer the nation toward recovery. The apparent lesson to be drawn is that capitalism cannot be trusted; government needs to take an active role in the economy to save us from inevitable decline.

But those who propagate this version of history might just as well top off their remarks by saying, “And Goldilocks found her way out of the forest, Dorothy made it from Oz back to Kansas, and Little Red Riding Hood won the New York State Lottery.” The popular account of the Depression as outlined above belongs in a book of fairy tales and not in a serious discussion of economic history.

The Great, Great,Great,Great Depression

To properly understand the events of the time, it is factually appropriate to view the Great Depression as not one, but four consecutive downturns rolled into one. These four “phases” are:[2]

I. Monetary Policy and the Business Cycle

II. The Disintegration of the World Economy

III. The New Deal

IV. The Wagner Act

The first phase covers why the crash of 1929 happened in the first place; the other three show how government intervention worsened it and kept the economy in a stupor for over a decade. Let’s consider each one in turn.

Phase I: The Business Cycle

The Great Depression was not the country’s first depression, though it proved to be the longest. Several others preceded it.

A common thread woven through all of those earlier debacles was disastrous intervention by government, often in the form of political mismanagement of the money and credit supply. None of these depressions, however, lasted more than four years and most of them were over in two. The calamity that began in 1929 lasted at least three times longer than any of the country’s previous depressions because the government compounded its initial errors with a series of additional and harmful interventions.

Central Planners Fail at Monetary Policy

A popular explanation for the stock market collapse of 1929 concerns the practice of borrowing money to buy stock. Many history texts blithely assert that a frenzied speculation in shares was fed by excessive “margin lending.” But Marquette University economist Gene Smiley, in his 2002 book “Rethinking the Great Depression”, explains why this is not a fruitful observation:

There was already a long history of margin lending on stock exchanges, and margin requirements — the share of the purchase price paid in cash — were no lower in the late twenties than in the early twenties or in previous decades. In fact, in the fall of 1928 margin requirements began to rise, and borrowers were required to pay a larger share of the purchase price of the stocks.

The margin lending argument doesn’t hold much water. Mischief with the money and credit supply, however, is another story.

Most monetary economists, particularly those of the “Austrian School,” have observed the close relationship between money supply and economic activity. When government inflates the money and credit supply, interest rates at first fall. Businesses invest this “easy money” in new production projects and a boom takes place in capital goods. As the boom matures, business costs rise, interest rates readjust upward, and profits are squeezed. The easy-money effects thus wear off and the monetary authorities, fearing price inflation, slow the growth of, or even contract, the money supply. In either case, the manipulation is enough to knock out the shaky supports from underneath the economic house of cards.

One prominent interpretation of the Federal Reserve System’s actions prior to 1929 can be found in “America’s Great Depression” by economist Murray Rothbard. Using a broad measure that includes currency, demand and time deposits, and other ingredients, he estimated that the Fed bloated the money supply by more than 60 percent from mid-1921 to mid-1928.[3]  Rothbard argued that this expansion of money and credit drove interest rates down, pushed the stock market to dizzy heights, and gave birth to the “Roaring Twenties.”

Reckless money and credit growth constituted what economist Benjamin M. Anderson called “the beginning of the New Deal”[4] — the name for the better-known but highly interventionist policies that would come later under President Franklin Roosevelt. However, other scholars raise doubts that Fed action was as inflationary as Rothbard believed, pointing to relatively flat commodity and consumer prices in the 1920s as evidence that monetary policy was not so wildly irresponsible.

Substantial cuts in high marginal income tax rates in the Coolidge years certainly helped the economy and may have ameliorated the price effect of Fed policy. Tax reductions spurred investment and real economic growth, which in turn yielded a burst of technological advancement and entrepreneurial discoveries of cheaper ways to produce goods. This explosion in productivity undoubtedly helped to keep prices lower than they would have otherwise been.

Regarding Fed policy, free-market economists who differ on the extent of the Fed’s monetary expansion of the early and mid-1920s are of one view about what happened next: The central bank presided over a dramatic contraction of the money supply that began late in the decade. The federal government’s responses to the resulting recession took a bad situation and made it far, far worse.

The Bottom Drops Out

By 1928, the Federal Reserve was raising interest rates and choking off the money supply. For example, its discount rate (the rate the Fed charges member banks for loans) was increased four times, from 3.5 percent to 6 percent, between January 1928 and August 1929. The central bank took further deflationary action by aggressively selling government securities for months after the stock market crashed. For the next three years, the money supply shrank by 30 percent. As prices then tumbled throughout the economy, the Fed’s higher interest rate policy boosted real (inflation-adjusted) rates dramatically.

The most comprehensive chronicle of the monetary policies of the period can be found in the classic work of Nobel Laureate Milton Friedman and his colleague Anna Schwartz, “A Monetary History of the United States”, 1867-1960. Friedman and Schwartz argue conclusively that the contraction of the nation’s money supply by one-third between August 1929 and March 1933 was an enormous drag on the economy and largely the result of seismic incompetence by the Fed. The death in October 1928 of Benjamin Strong, a powerful figure who had exerted great influence as head of the Fed’s New York district bank, left the Fed floundering without capable leadership — making bad policy even worse.[5]

At first, only the “smart” money — the Bernard Baruchs and the Joseph Kennedys who watched things like money supply and other government policies — saw that the party was coming to an end. Baruch actually began selling stocks and buying bonds and gold as early as 1928; Kennedy did likewise, commenting, “only a fool holds out for the top dollar.”[6]

The masses of investors eventually sensed the change at the Fed and then the stampede began. In a special issue commemorating the 50th anniversary of the stock market collapse, U.S. News & World Report described it this way:

Actually the Great Crash was by no means a one-day affair, despite frequent references to Black Thursday, October 24, and the following week’s Black Tuesday. As early as September 5, stocks were weak in heavy trading, after having moved into new high ground two days earlier. Declines in early October were called a “desirable correction.” The Wall Street Journal, predicting an autumn rally, noted that “some stocks rise, some fall.”

Then, on October 3, stocks suffered their worst pummeling of the year. Margin calls went out; some traders grew apprehensive. But the next day, prices rose again and thereafter seesawed for a fortnight.

The real crunch began on Wednesday, October 23, with what one observer called “a Niagara of liquidation.” Six million shares changed hands. The industrial average fell 21 points. “Tomorrow, the turn will come,” brokers told one another. Prices, they said, had been carried to “unreasonably low” levels.

But the next day, Black Thursday, stocks were dumped in even heavier selling. The ticker fell behind more than 5 hours, and finally stopped grinding out quotations at 7:08 p.m.[7]

At their peak, stocks in the Dow Jones Industrial Average were selling for 19 times their earnings — somewhat high, but hardly what stock market analysts regard as a sign of inordinate speculation. The distortions in the economy promoted by the Fed’s monetary policy had set the country up for a recession, but other impositions to come would soon turn the recession into a full-scale disaster. As stocks took a beating, Congress was playing with fire: On the very morning of Black Thursday, the nation’s newspapers reported that the political forces for higher trade-damaging tariffs were making gains on Capitol Hill.

The stock market crash was only a reflection — not the direct cause — of the destructive government policies that would ultimately produce the Great Depression: The market rose and fell in almost direct synchronization with what the Fed and Congress were doing. And what they did in the 1930s ranks way up there in the annals of history’s greatest follies.

Buddy, Can You Spare $20 Million?

Black Thursday shook Michigan harder than almost any other state. Stocks of auto and mining companies were hammered. Auto production in 1929 reached an all-time high of slightly more than 5 million vehicles, then quickly slumped by 2 million in 1930. By 1932, near the deepest point of the Depression, they had fallen by another 2 million to just 1,331,860 — down an astonishing 75 percent from the 1929 peak.

Thousands of investors everywhere, including many well-known people, were hit hard in the 1929 crash. Among them was Winston Churchill. He had invested heavily in American stocks before the crash. Afterward, only his writing skills and positions in government restored his finances.

Clarence Birdseye, an early developer of packaged frozen foods, had sold his business for $30 million and put all his money into stocks. He was wiped out.

William C. Durant, founder of General Motors, lost more than $40 million in the stock market and wound up a virtual pauper. (GM itself stayed in the black throughout the Depression under the cost-cutting leadership of Alfred P. Sloan.)

Phase II: Disintegration of the World Economy

Though modern myth claims that the free market “self-destructed” in 1929, government policy was the debacle’s principal culprit. If this crash had been like previous ones, the hard times would have ended in two or three years at the most, and likely sooner than that. But unprecedented political bungling instead prolonged the misery for over 10 years.

Unemployment in 1930 averaged a mildly recessionary 8.9 percent, up from 3.2 percent in 1929. It shot up rapidly until peaking out at more than 25 percent in 1933. Until March of 1933, these were the years of President Herbert Hoover — a man often depicted as a champion of noninterventionist, laissez-faire economics.

“The greatest spending administration in all of history”

Did Hoover really subscribe to a “hands-off-the-economy,” free-market philosophy? His opponent in the 1932 election, Franklin Roosevelt, didn’t think so. During the campaign, Roosevelt blasted Hoover for spending and taxing too much, boosting the national debt, choking off trade, and putting millions on the dole. He accused the president of “reckless and extravagant” spending, of thinking “that we ought to center control of everything in Washington as rapidly as possible,” and of presiding over “the greatest spending administration in peacetime in all of history.” Roosevelt’s running mate, John Nance Garner, charged that Hoover was “leading the country down the path of socialism.”[8] Contrary to the conventional view about Hoover, Roosevelt and Garner were absolutely right.

The crowning folly of the Hoover administration was the Smoot-Hawley Tariff, passed in June 1930. It came on top of the Fordney-McCumber Tariff of 1922, which had already put American agriculture in a tailspin during the preceding decade. The most protectionist legislation in U.S. history, Smoot-Hawley virtually closed the borders to foreign goods and ignited a vicious international trade war. Professor Barry Poulson describes the scope of the act:

The act raised the rates on the entire range of dutiable commodities; for example, the average rate increased from 20 percent to 34 percent on agricultural products; from 36 percent to 47 percent on wines, spirits, and beverages; from 50 to 60 percent on wool and woolen manufactures. In all, 887 tariffs were sharply increased and the act broadened the list of dutiable commodities to 3,218 items. A crucial part of the Smoot-Hawley Tariff was that many tariffs were for a specific amount of money rather than a percentage of the price. As prices fell by half or more during the Great Depression, the effective rate of these specific tariffs doubled, increasing the protection afforded under the act.[9]

Smoot-Hawley was as broad as it was deep, affecting a multitude of products. Before its passage, clocks had faced a tariff of 45 percent; the act raised that to 55 percent, plus as much as another $4.50 per clock. Tariffs on corn and butter were roughly doubled. Even sauerkraut was tariffed for the first time. Among the few remaining tariff-free goods, strangely enough, were leeches and skeletons (perhaps as a political sop to the American Medical Association, as one wag wryly remarked).

Tariffs on linseed oil, tungsten, and casein hammered the U.S. paint, steel and paper industries, respectively. More than 800 items used in automobile production were taxed by Smoot-Hawley. Most of the 60,000 people employed in U.S. plants making cheap clothing out of imported wool rags went home jobless after the tariff on wool rags rose by 140 percent.[10]

Officials in the administration and in Congress believed that raising trade barriers would force Americans to buy more goods made at home, which would solve the nagging unemployment problem. But they ignored an important principle of international commerce: Trade is ultimately a two-way street; if foreigners cannot sell their goods here, then they cannot earn the dollars they need to buy here. Or, to put it another way, government cannot shut off imports without simultaneously shutting off exports.

You Tax Me, I Tax You

Foreign companies and their workers were flattened by Smoot-Hawley’s steep tariff rates and foreign governments soon retaliated with trade barriers of their own. With their ability to sell in the American market severely hampered, they curtailed their purchases of American goods. American agriculture was particularly hard hit. With a stroke of the presidential pen, farmers in this country lost nearly a third of their markets. Farm prices plummeted and tens of thousands of farmers went bankrupt. A bushel of wheat that sold for $1 in 1929 was selling for a mere 30 cents by 1932.

With the collapse of agriculture, rural banks failed in record numbers, dragging down hundreds of thousands of their customers. Nine thousand banks closed their doors in the United States between 1930 and 1933. The stock market, which had regained much of the ground it had lost since the previous October, tumbled 20 points on the day Hoover signed Smoot-Hawley into law, and fell almost without respite for the next two years. (The market’s high, as measured by the Dow Jones Industrial Average, was set on Sept. 3, 1929, at 381. It hit its 1929 low of 198 on Nov. 13, then rebounded to 294 by April 1930. It declined again as the tariff bill made its way toward Hoover’s desk in June and did not bottom out until it reached a mere 41 two years later. It would be a quarter-century before the Dow would climb to 381 again.)

The shrinkage in world trade brought on by the tariff wars helped set the stage for World War II a few years later. In 1929, the rest of the world owed American citizens $30 billion. Germany’s Weimar Republic was struggling to pay the enormous reparations bill imposed by the disastrous Treaty of Versailles. When tariffs made it nearly impossible for foreign businessmen to sell their goods in American markets, the burden of their debts became massively heavier and emboldened demagogues like Adolf Hitler. “When goods don’t cross frontiers, armies will,” warns an old but painfully true maxim.

Free Markets or Free Lunches?

Smoot-Hawley by itself should lay to rest the myth that Hoover was a free market practitioner, but there is even more to the story of his administration’s interventionist mistakes. Within a month of the stock market crash, he convened conferences of business leaders for the purpose of jawboning them into keeping wages artificially high even though both profits and prices were falling. Consumer prices plunged almost 25 percent between 1929 and 1933 while nominal wages on average decreased only 15 percent — translating into a substantial increase in wages in real terms, a major component of the cost of doing business. As economist Richard Ebeling notes, “The ‘high-wage’ policy of the Hoover administration and the trade unions … succeeded only in pricing workers out of the labor market, generating an increasing circle of unemployment.”[11]

Hoover dramatically increased government spending for subsidy and relief schemes. In the space of one year alone, from 1930 to 1931, the federal government’s share of GNP soared from 16.4 percent to 21.5 percent.[12] Hoover’s agricultural bureaucracy doled out hundreds of millions of dollars to wheat and cotton farmers even as the new tariffs wiped out their markets. His Reconstruction Finance Corporation ladled out billions more in business subsidies. Commenting decades later on Hoover’s administration, Rexford Guy Tugwell, one of the architects of Franklin Roosevelt’s policies of the 1930s, explained, “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”[13]

Though Hoover at first did lower taxes for the poorest of Americans, Larry Schweikart and Michael Allen in their sweeping A Patriot’s History of the United States: From Columbus’s Great Discovery to the War on Terror stress that he “offered no incentives to the wealthy to invest in new plants to stimulate hiring.” He even taxed bank checks, “which accelerated the decline in the availability of money by penalizing people for writing checks.”[14]

In September 1931, with the money supply tumbling and the economy reeling from the impact of Smoot-Hawley, the Fed imposed the biggest hike in its discount rate in history. Bank deposits fell 15 percent within four months and sizable, deflationary declines in the nation’s money supply persisted through the first half of 1932.

Compounding the error of high tariffs, huge subsidies and deflationary monetary policy, Congress then passed and Hoover signed the Revenue Act of 1932. The largest tax increase in peacetime history, it doubled the income tax. The top bracket actually more than doubled, soaring from 24 percent to 63 percent. Exemptions were lowered; the earned income credit was abolished; corporate and estate taxes were raised; new gift, gasoline and auto taxes were imposed; and postal rates were sharply hiked.

Can any serious scholar observe the Hoover administration’s massive economic intervention and, with a straight face, pronounce the inevitably deleterious effects as the fault of free markets? Schweikart and Allen survey some of the wreckage:

By 1933, the numbers produced by this comedy of errors were staggering: national unemployment rates reached 25 percent, but within some individual cities, the statistics seemed beyond comprehension. Cleveland reported that 50 percent of its labor force was unemployed; Toledo, 80 percent; and some states even averaged over 40 percent. Because of the dual-edged sword of declining revenues and increasing welfare demands, the burden on the cities pushed many municipalities to the brink. Schools in New York shut down, and teachers in Chicago were owed some $20 million. Private schools, in many cases, failed completely. One government study found that by 1933 some fifteen hundred colleges had gone belly-up, and book sales plummeted. Chicago’s library system did not purchase a single book in a year-long period.[15]

Phase III: The New Deal

Franklin Delano Roosevelt won the 1932 presidential election in a landslide, collecting 472 electoral votes to just 59 for the incumbent Herbert Hoover. The platform of the Democratic Party, whose ticket Roosevelt headed, declared, “We believe that a party platform is a covenant with the people to be faithfully kept by the party entrusted with power.” It called for a 25 percent reduction in federal spending, a balanced federal budget, a sound gold currency “to be preserved at all hazards,” the removal of government from areas that belonged more appropriately to private enterprise and an end to the “extravagance” of Hoover’s farm programs. This is what candidate Roosevelt promised, but it bears no resemblance to what President Roosevelt actually delivered.

Washington was rife with both fear and optimism as Roosevelt was sworn in on March 4, 1933 — fear that the economy might not recover and optimism that the new and assertive president just might make a difference. Humorist Will Rogers captured the popular feeling toward FDR as he assembled the new administration: “The whole country is with him, just so he does something. If he burned down the Capitol, we would all cheer and say, well, we at least got a fire started anyhow.”[16]

“Nothing to fear but fear itself”

Roosevelt did indeed make a difference, though probably not the sort of difference for which the country had hoped. He started off on the wrong foot when, in his inaugural address, he blamed the Depression on “unscrupulous money changers.” He said nothing about the role of the Fed’s mismanagement and little about the follies of Congress that had contributed to the problem. As a result of his efforts, the economy would linger in depression for the rest of the decade. Adapting a phrase from 19th century writer Henry David Thoreau, Roosevelt famously declared in his address that, “We have nothing to fear but fear itself.” But as Dr. Hans Sennholz of Grove City College explains, it was FDR’s policies to come that Americans had genuine reason to fear:

In his first 100 days, he swung hard at the profit order. Instead of clearing away the prosperity barriers erected by his predecessor, he built new ones of his own. He struck in every known way at the integrity of the U.S. dollar through quantitative increases and qualitative deterioration. He seized the people’s gold holdings and subsequently devalued the dollar by 40 percent.[17]

Frustrated and angered that Roosevelt had so quickly and thoroughly abandoned the platform on which he was elected, Director of the Bureau of the Budget Lewis W. Douglas resigned after only one year on the job. At Harvard University in May 1935, Douglas made it plain that America was facing a momentous choice:

Will we choose to subject ourselves — this great country — to the despotism of bureaucracy, controlling our every act, destroying what equality we have attained, reducing us eventually to the condition of impoverished slaves of the state? Or will we cling to the liberties for which man has struggled for more than a thousand years? It is important to understand the magnitude of the issue before us. … If we do not elect to have a tyrannical, oppressive bureaucracy controlling our lives, destroying progress, depressing the standard of living … then should it not be the function of the Federal government under a democracy to limit its activities to those which a democracy may adequately deal, such for example as national defense, maintaining law and order, protecting life and property, preventing dishonesty, and … guarding the public against … vested special interests?[18]

New Dealing from the Bottom of the Deck

Crisis gripped the banking system when the new president assumed office on March 4, 1933. Roosevelt’s action to close the banks and declare a nationwide “banking holiday” on March 6 (which did not completely end until nine days later) is still hailed as a decisive and necessary action by Roosevelt apologists. Friedman and Schwartz, however, make it plain that this supposed cure was “worse than the disease.” The Smoot-Hawley tariff and the Fed’s unconscionable monetary mischief were primary culprits in producing the conditions that gave Roosevelt his excuse to temporarily deprive depositors of their money, and the bank holiday did nothing to alter those fundamentals. “More than 5,000 banks still in operation when the holiday was declared did not reopen their doors when it ended, and of these, over 2,000 never did thereafter,” report Friedman and Schwartz.[19]

Economist Jim Powell of the Cato Institute authored a splendid book on the Great Depression in 2003, titled “FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression”. He points out that “Almost all the failed banks were in states with unit banking laws” — laws that prohibited banks from opening branches and thereby diversifying their portfolios and reducing their risks. Powell writes: “Although the United States, with its unit banking laws, had thousands of bank failures, Canada, which permitted branch banking, didn’t have a single failure …”[20] Strangely, critics of capitalism who love to blame the market for the Depression never mention that fact.

Congress gave the president the power first to seize the private gold holdings of American citizens and then to fix the price of gold. One morning, as Roosevelt ate eggs in bed, he and Secretary of the Treasury Henry Morgenthau decided to change the ratio between gold and paper dollars. After weighing his options, Roosevelt settled on a 21 cent price hike because “it’s a lucky number.” In his diary, Morgenthau wrote, “If anybody ever knew how we really set the gold price through a combination of lucky numbers, I think they would be frightened.”[21] Roosevelt also single-handedly torpedoed the London Economic Conference in 1933, which was convened at the request of other major nations to bring down tariff rates and restore the gold standard.

Washington and its reckless central bank had already made mincemeat of the gold standard by the early 1930s. Roosevelt’s rejection of it removed most of the remaining impediments to limitless currency and credit expansion, for which the nation would pay a high price in later years in the form of a depreciating currency. Sen. Carter Glass put it well when he warned Roosevelt in early 1933: “It’s dishonor, sir. This great government, strong in gold, is breaking its promises to pay gold to widows and orphans to whom it has sold government bonds with a pledge to pay gold coin of the present standard of value. It is breaking its promise to redeem its paper money in gold coin of the present standard of value. It’s dishonor, sir.”[22]

Though he seized the country’s gold, Roosevelt did return booze to America’s bars and parlor rooms. On his second Sunday in the White House, he remarked at dinner, “I think this would be a good time for beer.”[23] That same night, he drafted a message asking Congress to end Prohibition. The House approved a repeal measure on Tuesday, the Senate passed it on Thursday and before the year was out, enough states had ratified it so that the 21st Amendment became part of the Constitution. One observer, commenting on this remarkable turn of events, noted that of two men walking down the street at the start of 1933 — one with a gold coin in his pocket and the other with a bottle of whiskey in his coat — the man with the coin would be an upstanding citizen and the man with the whiskey would be the outlaw. A year later, precisely the reverse was true.

In the first year of the New Deal, Roosevelt proposed spending $10 billion while revenues were only $3 billion. Between 1933 and 1936, government expenditures rose by more than 83 percent. Federal debt skyrocketed by 73 percent.

FDR talked Congress into creating Social Security in 1935 and imposing the nation’s first comprehensive minimum wage law in 1938. While to this day he gets a great deal of credit for these two measures from the general public, many economists have a different perspective. The minimum wage law prices many of the inexperienced, the young, the unskilled and the disadvantaged out of the labor market. (For example, the minimum wage provisions passed as part of another act in 1933 threw an estimated 500,000 blacks out of work).[24] And current studies and estimates reveal that Social Security has become such a long-term actuarial nightmare that it will either have to be privatized or the already high taxes needed to keep it afloat will have to be raised to the stratosphere.

Roosevelt secured passage of the Agricultural Adjustment Act, which levied a new tax on agricultural processors and used the revenue to supervise the wholesale destruction of valuable crops and cattle. Federal agents oversaw the ugly spectacle of perfectly good fields of cotton, wheat and corn being plowed under (the mules had to be convinced to trample the crops; they had been trained, of course, to walk between the rows). Healthy cattle, sheep and pigs were slaughtered and buried in mass graves. Secretary of Agriculture Henry Wallace personally gave the order to slaughter 6 million baby pigs before they grew to full size. The administration also paid farmers for the first time for not working at all. Even if the AAA had helped farmers by curtailing supplies and raising prices, it could have done so only by hurting millions of others who had to pay those prices or make do with less to eat.

Blue Eagles, Red Ducks

Perhaps the most radical aspect of the New Deal was the National Industrial Recovery Act, passed in June 1933, which created a massive new bureaucracy called the National Recovery Administration. Under the NRA, most manufacturing industries were suddenly forced into government-mandated cartels. Codes that regulated prices and terms of sale briefly transformed much of the American economy into a fascist-style arrangement, while the NRA was financed by new taxes on the very industries it controlled. Some economists have estimated that the NRA boosted the cost of doing business by an average of 40 percent — not something a depressed economy needed for recovery.

The economic impact of the NRA was immediate and powerful. In the five months leading up to the act’s passage, signs of recovery were evident: factory employment and payrolls had increased by 23 and 35 percent, respectively. Then came the NRA, shortening hours of work, raising wages arbitrarily and imposing other new costs on enterprise. In the six months after the law took effect, industrial production dropped 25 percent. Benjamin M. Anderson writes, “NRA was not a revival measure. It was an antirevival measure. …  Through the whole of the NRA period industrial production did not rise as high as it had been in July 1933, before NRA came in.”[25]

The man Roosevelt picked to direct the NRA effort was General Hugh “Iron Pants” Johnson, a profane, red-faced bully and professed admirer of Italian dictator Benito Mussolini. Thundered Johnson, “May Almighty God have mercy on anyone who attempts to interfere with the Blue Eagle” (the official symbol of the NRA, which one senator derisively referred to as the “Soviet duck”). Those who refused to comply with the NRA Johnson personally threatened with public boycotts and “a punch in the nose.”

There were ultimately more than 500 NRA codes, “ranging from the production of lightning rods to the manufacture of corsets and brassieres, covering more than 2 million employers and 22 million workers.”[26] There were codes for the production of hair tonic, dog leashes, and even musical comedies. A New Jersey tailor named Jack Magid was arrested and sent to jail for the “crime” of pressing a suit of clothes for 35 cents rather than the NRA-inspired “Tailor’s Code” of 40 cents.

In “The Roosevelt Myth”, historian John T. Flynn described how the NRA’s partisans sometimes conducted “business”:

The NRA was discovering it could not enforce its rules. Black markets grew up. Only the most violent police methods could procure enforcement. In Sidney Hillman’s garment industry the code authority employed enforcement police. They roamed through the garment district like storm troopers. They could enter a man’s factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant. Night work was forbidden. Flying squadrons of these private coat-and-suit police went through the district at night, battering down doors with axes looking for men who were committing the crime of sewing together a pair of pants at night. But without these harsh methods many code authorities said there could be no compliance because the public was not back of it.[27]

The Alphabet Commissars

Roosevelt next signed into law steep income tax increases on the higher brackets and introduced a 5 percent withholding tax on corporate dividends. He secured another tax increase in 1934. In fact, tax hikes became a favorite policy of Roosevelt for the next 10 years, culminating in a top income tax rate of 90 percent. Sen. Arthur Vandenberg of Michigan, who opposed much of the New Deal, lambasted Roosevelt’s massive tax increases. A sound economy would not be restored, he said, by following the socialist notion that America could “lift the lower one-third up” by pulling “the upper two-thirds down.”[28] Vandenberg also condemned “the congressional surrender to alphabet commissars who deeply believe the American people need to be regimented by powerful overlords in order to be saved.”[29]

Alphabet commissars spent the public’s money like it was so much bilge. They were what influential journalist and social critic Albert Jay Nock had in mind when he described the New Deal as “a nation-wide, State-managed mobilization of inane buffoonery and aimless commotion.”[30]

Roosevelt’s Civil Works Administration hired actors to give free shows and librarians to catalog archives. It even paid researchers to study the history of the safety pin, hired 100 Washington workers to patrol the streets with balloons to frighten starlings away from public buildings, and put men on the public payroll to chase tumbleweeds on windy days.

The CWA, when it was started in the fall of 1933, was supposed to be a short-lived jobs program. Roosevelt assured Congress in his State of the Union message that any new such program would be abolished within a year. “The federal government,” said the president, “must and shall quit this business of relief. I am not willing that the vitality of our people be further stopped by the giving of cash, of market baskets, of a few bits of weekly work cutting grass, raking leaves, or picking up papers in the public parks.” Harry Hopkins was put in charge of the agency and later said, “I’ve got four million at work but for God’s sake, don’t ask me what they are doing.” The CWA came to an end within a few months but was replaced with another temporary relief program that evolved into the Works Progress Administration, or WPA, by 1935. It is known today as the very government program that gave rise to the new term, “boondoggle,” because it “produced” a lot more than the 77,000 bridges and 116,000 buildings to which its advocates loved to point as evidence of its efficacy.[31]

With good reason, critics often referred to the WPA as “We Piddle Around.” In Kentucky, WPA workers catalogued 350 different ways to cook spinach. The agency employed 6,000 “actors” though the nation’s actors’ union claimed only 4,500 members. Hundreds of WPA workers were used to collect campaign contributions for Democratic Party candidates. In Tennessee, WPA workers were fired if they refused to donate 2 percent of their wages to the incumbent governor. By 1941, only 59 percent of the WPA budget went to paying workers anything at all; the rest was sucked up in administration and overhead. The editors of The New Republic asked, “Has [Roosevelt] the moral stature to admit now that the WPA was a hasty and grandiose political gesture, that it is a wretched failure and should be abolished?”[32] The last of the WPA’s projects was not eliminated until July of 1943.

Roosevelt has been lauded for his “job-creating” acts such as the CWA and the WPA. Many people think that they helped relieve the Depression. What they fail to realize is that it was the rest of Roosevelt’s tinkering that prolonged the Depression and which largely prevented the jobless from finding real jobs in the first place. The stupefying roster of wasteful spending generated by these jobs programs represented a diversion of valuable resources to politically motivated and economically counterproductive purposes.

A brief analogy will illustrate this point. If a thief goes house to house robbing everybody in the neighborhood, then heads off to a nearby shopping mall to spend his ill-gotten loot, it is not assumed that because his spending “stimulated” the stores at the mall he has thereby performed a national service or provided a general economic benefit. Likewise, when the government hires someone to catalog the many ways of cooking spinach, his tax-supported paycheck cannot be counted as a net increase to the economy because the wealth used to pay him was simply diverted, not created. Economists today must still battle this “magical thinking” every time more government spending is proposed — as if money comes not from productive citizens, but rather from the tooth fairy.

“An astonishing rabble of impudent nobodies”

Roosevelt’s haphazard economic interventions garnered credit from people who put high value on the appearance of being in charge and “doing something.” Meanwhile, the great majority of Americans were patient. They wanted very much to give this charismatic polio victim and former New York governor the benefit of the doubt. But Roosevelt always had his critics, and they would grow more numerous as the years groaned on. One of them was the inimitable “Sage of Baltimore,” H. L. Mencken, who rhetorically threw everything but the kitchen sink at the president. Paul Johnson sums up Mencken’s stinging but often-humorous barbs this way:

Mencken excelled himself in attacking the triumphant FDR, whose whiff of fraudulent collectivism filled him with genuine disgust. He was the ‘Fuhrer,’ the ‘Quack,’ surrounded by ‘an astonishing rabble of impudent nobodies,’ ‘a gang of half-educated pedagogues, nonconstitutional lawyers, starry-eyed uplifters and other such sorry wizards.’ His New Deal was a ‘political racket,’ a ‘series of stupendous bogus miracles,’ with its ‘constant appeals to class envy and hatred,’ treating government as ‘a milch-cow with 125 million teats’ and marked by ‘frequent repudiations of categorical pledges.’[33]

Signs of Life

The American economy was soon relieved of the burden of some of the New Deal’s worst excesses when the Supreme Court outlawed the NRA in 1935 and the AAA in 1936, earning Roosevelt’s eternal wrath and derision. Recognizing much of what Roosevelt did as unconstitutional, the “nine old men” of the Court also threw out other, more minor acts and programs which hindered recovery.

Freed from the worst of the New Deal, the economy showed some signs of life. Unemployment dropped to 18 percent in 1935, 14 percent in 1936, and even lower in 1937. But by 1938, it was back up to nearly 20 percent as the economy slumped again. The stock market crashed nearly 50 percent between August 1937 and March 1938. The “economic stimulus” of Franklin Delano Roosevelt’s New Deal had achieved a real “first”: a depression within a depression!

Phase IV:

The Wagner Act

The stage was set for the 1937-38 collapse with the passage of the National Labor Relations Act in 1935 — better known as the “Wagner Act” and organized labor’s “Magna Carta.” To quote Sennholz again:

This law revolutionized American labor relations. It took labor disputes out of the courts of law and brought them under a newly created Federal agency, the National Labor Relations Board, which became prosecutor, judge, and jury, all in one. Labor union sympathizers on the Board further perverted this law, which already afforded legal immunities and privileges to labor unions. The U.S. thereby abandoned a great achievement of Western civilization, equality under the law.

The Wagner Act, or National Labor Relations Act, was passed in reaction to the Supreme Court’s voidance of NRA and its labor codes. It aimed at crushing all employer resistance to labor unions. Anything an employer might do in self-defense became an “unfair labor practice” punishable by the Board. The law not only obliged employers to deal and bargain with the unions designated as the employees’ representative; later Board decisions also made it unlawful to resist the demands of labor union leaders.[34]

Armed with these sweeping new powers, labor unions went on a militant organizing frenzy. Threats, boycotts, strikes, seizures of plants and widespread violence pushed productivity down sharply and unemployment up dramatically. Membership in the nation’s labor unions soared: By 1941, there were two and a half times as many Americans in unions as had been the case in 1935. Historian William E. Leuchtenburg, himself no friend of free enterprise, observed, “Property-minded citizens were scared by the seizure of factories, incensed when strikers interfered with the mails, vexed by the intimidation of nonunionists, and alarmed by flying squadrons of workers who marched, or threatened to march, from city to city.”[35]

An Unfriendly Climate for Business

From the White House on the heels of the Wagner Act came a thunderous barrage of insults against business. Businessmen, Roosevelt fumed, were obstacles on the road to recovery. He blasted them as “economic royalists” and said that businessmen as a class were “stupid.”[36] He followed up the insults with a rash of new punitive measures. New strictures on the stock market were imposed. A tax on corporate retained earnings, called the “undistributed profits tax,” was levied. “These soak-the-rich efforts,” writes economist Robert Higgs, “left little doubt that the president and his administration intended to push through Congress everything they could to extract wealth from the high-income earners responsible for making the bulk of the nation’s decisions about private investment.”[37]

During a period of barely two months during late 1937, the market for steel — a key economic barometer — plummeted from 83 percent of capacity to 35 percent. When that news emblazoned headlines, Roosevelt took an ill-timed nine-day fishing trip. The New York Herald-Tribune implored him to get back to work to stem the tide of the renewed Depression. What was needed, said the newspaper’s editors, was a reversal of the Roosevelt policy “of bitterness and hate, of setting class against class and punishing all who disagreed with him.”[38]

Columnist Walter Lippmann wrote in March 1938 that “with almost no important exception every measure he [Roosevelt] has been interested in for the past five months has been to reduce or discourage the production of wealth.”[39]

As pointed out earlier in this essay, Herbert Hoover’s own version of a “New Deal” had hiked the top marginal income tax rate from 24 to 63 percent in 1932. But he was a piker compared to his tax-happy successor. Under Roosevelt, the top rate was raised at first to 79 percent and then later to 90 percent. Economic historian Burton Folsom notes that in 1941 Roosevelt even proposed a whopping 99.5-percent marginal rate on all incomes over $100,000. “Why not?” he said when an advisor questioned the idea.[40]

After that confiscatory proposal failed, Roosevelt issued an executive order to tax all income over $25,000 at the astonishing rate of 100 percent. He also promoted the lowering of the personal exemption to only $600, a tactic that pushed most American families into paying at least some income tax for the first time. Shortly thereafter, Congress rescinded the executive order, but went along with the reduction of the personal exemption.[41]

Meanwhile, the Federal Reserve again seesawed its monetary policy in the mid-1930s, first up then down, then up sharply through America’s entry into World War II. Contributing to the economic slide of 1937 was this fact: From the summer of 1936 to the spring of 1937, the Fed doubled reserve requirements on the nation’s banks. Experience has shown time and again that a roller-coaster monetary policy is enough by itself to produce a roller-coaster economy.

Still stinging from his earlier Supreme Court defeats, Roosevelt tried in 1937 to “pack” the Supreme Court with a proposal to allow the president to appoint an additional justice to the Court for every sitting justice who had reached the age of 70 and did not retire. Had this proposal passed, Roosevelt could have appointed six new justices favorable to his views, increasing the members of the Court from 9 to 15. His plan failed in Congress, but the Court later began rubber-stamping his policies after a number of opposing justices retired. Until Congress killed the packing scheme, however, business fears that a Court sympathetic to Roosevelt’s goals would endorse more of the old New Deal prevented investment and confidence from reviving.

Economic historian Robert Higgs draws a close connection between the level of private investment and the course of the American economy in the 1930s. The relentless assaults of the Roosevelt administration — in both word and deed — against business, property, and free enterprise guaranteed that the capital needed to jump-start the economy was either taxed away or forced into hiding. When FDR took America to war in 1941, he eased up on his anti-business agenda, but a great deal of the nation’s capital was diverted into the war effort instead of into plant expansion or consumer goods. Not until both Roosevelt and the war were gone did investors feel confident enough to “set in motion the postwar investment boom that powered the economy’s return to sustained prosperity.”[42]

This view gains support in these comments from one of the country’s leading investors of the time, Lammot du Pont, offered in 1937:

Uncertainty rules the tax situation, the labor situation, the monetary situation, and practically every legal condition under which industry must operate. Are taxes to go higher, lower or stay where they are? We don’t know. Is labor to be union or non-union? . . . Are we to have inflation or deflation, more government spending or less? … Are new restrictions to be placed on capital, new limits on profits? … It is impossible to even guess at the answers.”[43]

Many modern historians tend to be reflexively anti-capitalist and distrustful of free markets; they find Roosevelt’s exercise of power, constitutional or not, to be impressive and historically “interesting.” In surveys, a majority consistently rank FDR near the top of the list for presidential greatness, so it is likely they would disdain the notion that the New Deal was responsible for prolonging the Great Depression. But when a nationally representative poll by the American Institute of Public Opinion in the spring of 1939 asked, “Do you think the attitude of the Roosevelt administration toward business is delaying business recovery?” the American people responded “yes” by a margin of more than 2-to-1. The business community felt even more strongly so.[44]

In his private diary, FDR’s very own Treasury Secretary, Henry Morgenthau, seemed to agree. He wrote: “We have tried spending money. We are spending more than we have ever spent before and it does not work. … 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!”[45]

At the end of the decade and 12 years after the stock market crash of Black Thursday, 10 million Americans were jobless. The unemployment rate was in excess of 17 percent. Roosevelt had pledged in 1932 to end the crisis, but it persisted two presidential terms and countless interventions later.

Whither Free Enterprise?

How was it that FDR was elected four times if his policies were deepening and prolonging an economic catastrophe? Ignorance and a willingness to give the president the benefit of the doubt explain a lot. Roosevelt beat Hoover in 1932 with promises of less government. He instead gave Americans more government, but he did so with fanfare and fireside chats that mesmerized a desperate people. By the time they began to realize that his policies were harmful, World War II came, the people rallied around their commander-in-chief, and there was little desire to change the proverbial horse in the middle of the stream by electing someone new.

Along with the holocaust of World War II came a revival of trade with America’s allies. The war’s destruction of people and resources did not help the U.S. economy, but this renewed trade did. A reinflation of the nation’s money supply counteracted the high costs of the New Deal, but brought with it a problem that plagues us to this day: a dollar that buys less and less in goods and services year after year. Most importantly, the Truman administration that followed Roosevelt was decidedly less eager to berate and bludgeon private investors and as a result, those investors re-entered the economy and fueled a powerful postwar boom. The Great Depression finally ended, but it should linger in our minds today as one of the most colossal and tragic failures of government and public policy in American history.

The genesis of the Great Depression lay in the irresponsible monetary and fiscal policies of the U.S. government in the late 1920s and early 1930s. These policies included a litany of political missteps: central bank mismanagement, trade-crushing tariffs, incentive-sapping taxes, mind-numbing controls on production and competition, senseless destruction of crops and cattle and coercive labor laws, to recount just a few. It was not the free market that produced 12 years of agony; rather, it was political bungling on a grand scale.

Those who can survey the events of the 1920s and 1930s and blame free-market capitalism for the economic calamity have their eyes, ears and minds firmly closed to the facts. Changing the wrong-headed thinking that constitutes much of today’s conventional wisdom about this sordid historical episode is vital to reviving faith in free markets and preserving our liberties.

The nation managed to survive both Hoover’s activism and Roosevelt’s New Deal quackery, and now the American heritage of freedom awaits a rediscovery by a new generation of citizens. This time we have nothing to fear but myths and misconceptions.

- END -

Postscript:

Have We Learned Our Lessons?

Eighty years after the Great Depression began, the literature on this painful episode of American history is undergoing an encouraging metamorphosis. The conventional assessment that so dominated historical writings for decades argued that free markets caused the debacle and that FDR’s New Deal saved the country. Surely, there are plenty of poorly-informed partisans, ideologues and quacks that still make these superficial claims. Serious historians and economists, however, have been busy chipping away at the falsehoods. The essay you have just read cites many recent works worth careful reading in their entirety.

At the very moment this latest edition of “Great Myths of the Great Depression” was about to go to press, Simon & Schuster published a splendid new volume I strongly recommend. Authored by the Foundation for Economic Education’s senior historian and Hillsdale College professor, Dr. Burton W. Folsom, the book is provocatively titled “New Deal or Raw Deal? — How FDR’s Economic Legacy Has Damaged America.” It’s one of the most illuminating works on the subject. It will help mightily to correct the record and educate our fellow citizens about what really happened in the 1930s.

Another great addition to the literature, appearing in 2007, is “The Forgotten Man: A New History of the Great Depression” by Amity Shlaes. The fact that it has been a New York Times bestseller suggests there is a real hunger for the truth about this period of history.

While Americans may be unlearning some of what they thought they knew about the Great Depression, that’s not the same as saying we have learned the important lessons well enough to avoid making the same mistakes again. Indeed, today we are no closer to fixing the primary cause of the business cycle — monetary mischief — than we were 80 years ago.

The financial crisis that gripped America in 2008 ought to be a wake-up call. The fingerprints of government meddling are all over it. From 2001 to 2005, the Federal Reserve revved up the money supply, expanding it at a feverish double-digit rate. The dollar plunged in overseas markets and commodity prices soared. With the banks flush with liquidity from the Fed, interest rates plummeted and risky loans to borrowers of dubious merit ballooned. Politicians threw more fuel on the fire by jawboning banks to lend hundreds of billions of dollars for subprime mortgages.

When the bubble burst, some of the very culprits who promoted the policies that caused it postured as our rescuers while endorsing new interventions, bigger government, more inflation of money and credit and massive taxpayer bailouts of failing firms. Many of them are also calling for higher taxes and tariffs, the very nonsense that took a recession in 1930 and made it a long and deep depression.

The taxpayer bailouts of agencies such as Fannie Mae and Freddie Mac, as well as a growing number of private firms in the early fall of 2008, represent more folly with a monumental price tag. Not only will we and future generations be paying those bills for decades, the very process of throwing good money after bad will pile moral hazard on top of moral hazard, fostering more bad decisions and future bailouts. This is the stuff that undermines both free enterprise and the soundness of the currency. Much more inflation to pay these bills is more than a little likely, sooner or later.

“Government,” observed the renowned Austrian economist Ludwig von Mises, “is the only institution that can take a valuable commodity like paper, and make it worthless by applying ink.” Mises was describing the curse of inflation, the process whereby government expands a nation’s money supply and thereby erodes the value of each monetary unit — dollar, peso, pound, franc or whatever. It often shows up  in the form of rising prices, which most people confuse with the inflation itself. The distinction is an important one because, as economist Percy Greaves explained so eloquently, “Changing the definition changes the responsibility.”

Define inflation as rising prices and, like the clueless Jimmy Carter of the 1970s, you’ll think that oil sheiks, credit cards and private businesses are the culprits, and price controls are the answer. Define inflation in the classic fashion as an increase in the supply of money and credit, with rising prices as a consequence, and you then have to ask the revealing question, “Who increases the money supply?” Only one entity can do that legally; all others are called “counterfeiters” and go to jail.

Nobel laureate Milton Friedman argued indisputably that inflation is always and everywhere a monetary matter. Rising prices no more cause inflation than wet streets cause rain.

Before paper money, governments inflated by diminishing the precious-metal content of their coinage. The ancient prophet Isaiah reprimanded the Israelites with these words: “Thy silver has become dross, thy wine mixed with water.” Roman emperors repeatedly melted down the silver denarius and added junk metals until the denarius was less than one percent silver. The Saracens of Spain clipped the edges of their coins so they could mint more until the coins became too small to circulate. Prices rose as a mirror image of the currency’s worth.

Rising prices are not the only consequence of monetary and credit expansion. Inflation also erodes savings and encourages debt. It undermines confidence and deters investment. It destabilizes the economy by fostering booms and busts. If it’s bad enough, it can even wipe out the very government responsible for it in the first place and then lead to even worse afflictions. Hitler and Napoleon both rose to power in part because of the chaos of runaway inflations.

All this raises many issues economists have long debated: Who or what should determine a nation’s supply of money? Why do governments so regularly mismanage it? What is the connection between fiscal and monetary policy? Suffice it to say here that governments inflate because their appetite for revenue exceeds their willingness to tax or their ability to borrow. British economist John Maynard Keynes was an influential charlatan in many ways, but he nailed it when he wrote, “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

So, you say, inflation is nasty business but it’s just an isolated phenomenon with the worst cases confined to obscure nooks and crannies like Zimbabwe. Not so. The late Frederick Leith-Ross, a famous authority on international finance, observed: “Inflation is like sin; every government denounces it and every government practices it.” Even Americans have witnessed hyperinflations that destroyed two currencies — the ill-fated continental dollar of the Revolutionary War and the doomed Confederate money of the Civil War.

Today’s slow-motion dollar depreciation, with consumer prices rising at persistent but mere single-digit rates, is just a limited version of the same process. Government spends, runs deficits and pays some of its bills through the inflation tax. How long it can go on is a matter of speculation, but trillions in national debt and politicians who make misers of drunken sailors and get elected by promising even more are not factors that should encourage us.

Inflation is very much with us but it must end someday. A currency’s value is not bottomless. Its erosion must cease either because government stops its reckless printing or prints until it wrecks the money. But surely, which way it concludes will depend in large measure on whether its victims come to understand what it is and where it comes from. Meanwhile, our economy looks like a roller coaster because Congresses, Presidents and the agencies they’ve empowered never cease their monetary mischief.

Are you tired of politicians blaming each other, scrambling to cover their behinds and score political points in the midst of a crisis, and piling debts upon debts they audaciously label “stimulus packages”?  Why do so many Americans want to trust them with their health care, education, retirement and a host of other aspects of their lives? It’s madness writ large. The antidote is the truth. We must learn the lessons of our follies and resolve to fix them now, not later.

To that end, I invite the reader to join the education process. Support organizations like FEE that are working to inform citizens about the proper role of government and how a free economy operates. Help distribute copies of this essay and other good publications that promote liberty and free enterprise. Demand that your representatives in government balance the budget, conform to the spirit and letter of the Constitution and stop trying to buy your vote with other people’s money.

Everyone has heard the sage observation of philosopher George Santayana: “Those who cannot remember the past are condemned to repeat it.” It’s a warning we should not fail to heed.

Endnotes

1 Alan Reynolds, “What Do We Know About the Great Crash?” National Review, November 9, 1979, p. 1416.

2 Hans F. Sennholz, “The Great Depression,” The Freeman, April 1975, p. 205.

3 Murray Rothbard, America’s Great Depression (Kansas City: Sheed and Ward, Inc., 1975), p. 89.

4 Benjamin M. Anderson, Economics and the Public Welfare: A Financial and Economic History of the United States, 1914-46, 2nd edition (Indianapolis: Liberty Press, 1979), p. 127.

5 Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867-1960 (New York: National Bureau of Economic Research, 1963; ninth paperback printing by Princeton University Press, 1993), pp. 411-415.

6 Lindley H. Clark, Jr., “After the Fall,” The Wall Street Journal, October 26, 1979, p. 18.

7 “Tearful Memories That Just Won’t Fade Away,” U. S. News & World Report, October 29, 1979, pp. 36-37.

8 “FDR’s Disputed Legacy,” Time, February 1, 1982, p. 23.

9 Barry W. Poulson, Economic History of the United States (New York: Macmillan Publishing Co., Inc., 1981), p. 508.

10 Reynolds, p. 1419.

11 Richard M. Ebeling, “Monetary Central Planning and the State-Part XI: The Great Depression and the Crisis of Government Intervention,” Freedom Daily (Fairfax, Virginia: The Future of Freedom Foundation, November 1997), p. 15.

12 Paul Johnson, A History of the American People (New York: HarperCollins Publishers, 1997), p. 740.

13 Ibid., p. 741.

14 Larry Schweikart and Michael Allen, A Patriot’s History of the United States: From Columbus’s Great Discovery to the War on Terror (New York: Sentinel, 2004), p. 553.

15 Ibid., p. 554.

16 “FDR’s Disputed Legacy,” p. 24.

17 Sennholz, p. 210.

18 From The Liberal Tradition: A Free People and a Free Economy by Lewis W. Douglas, as quoted in “Monetary Central Planning and the State, Part XIV: The New Deal and Its Critics,” by Richard M. Ebeling in Freedom Daily, February 1998, p. 12.

19 Friedman and Schwartz, p. 330.

20 Jim Powell, FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression (New York: Crown Forum, 2003), p. 32.

21 John Morton Blum, From the Morgenthau Diaries: Years of Crisis, 1928-1938 (Boston: Houghton Mifflin Company, 1959), p. 70.

22 Anderson, p. 315.

23 “FDR’s Disputed Legacy,” p. 24.

24 Anderson, p. 336.

25 Ibid., pp. 332-334.

26 “FDR’s Disputed Legacy,” p. 30.

27 John T. Flynn, The Roosevelt Myth (Garden City, N.Y.: Garden City Publishing Co., Inc., 1949), p. 45.

28 C. David Tompkins, Senator Arthur H. Vandenberg: The Evolution of a Modern Republican, 1884-1945 (East Lansing, MI: Michigan State University Press, 1970), p. 157.

29 Ibid., p. 121.

30 Albert J. Nock, Our Enemy, the State (online at www.barefootsworld.net/nockoets1.html), Chapter 1, Section IV.

31 Martin Morse Wooster, “Bring Back the WPA? It Also Had A Seamy Side,” Wall Street Journal, September 3, 1986, p. A26.

32 Ibid.

33 Johnson, p. 762.

34 Sennholz, pp. 212-213.

35 William E. Leuchtenburg, Franklin D. Roosevelt and the New Deal, 1932-1940 (New York: Harper and Row, 1963), p. 242.

36 Ibid., pp. 183-184.

37 Robert Higgs, “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed After the War,” The Independent Review, Volume I, Number 4: Spring 1997, p. 573.

38 Gary Dean Best, The Critical Press and the New Deal: The Press Versus Presidential Power, 1933-1938 (Westport, Connecticut: Praeger Publishers, 1993), p. 130.

39 Ibid., p. 136.

40 Burton Folsom, “What’s Wrong With The Progressive Income Tax?”, Viewpoint on Public Issues, No. 99-18, May 3, 1999, Mackinac Center for Public Policy, Midland, Michigan.

41 Ibid.

42 Higgs, p. 564.

43 Quoted in Herman E. Krooss, Executive Opinion: What Business Leaders Said and Thought on Economic Issues, 1920s-1960s (Garden City, N.Y.: Doubleday and Co., 1970), p. 200.

44 Higgs, p. 577.

45 Blum, pp. 24-25.

Photo Credits

Cover, Artwork based on a poster created by Works Progress Administration between 1941 and 1943.

Page 1, Library of Congress, Prints and Photographs Division, [LC-USF34-T01-018258-C DLC].

Page 2, Federal Reserve Building, Library of Congress, Prints and Photographs Division, Theodor Horydczak Collection [LC-H814-T-F03-003 DLC].

Page 3, Unemployment, Michigan State Archives.

Page 5, Farm Relief Act, Library of Congress, National Photo Company Collection, [LC-USZ62-111718 DLC].

Page 6, Roosevelt, Library of Congress, Prints and Photographs Division [LC-USZ62-117121 DLC].

Page 7, Roosevelt, Franklin D. Roosevelt Library and Museum.

Page 9, Bridge, Library of Congress, Prints and Photographs Division, Historic American Buildings Survey or Historic American Engineering Record, Reproduction Number [HAER,?TEX,42-VOS.V,4-].

Page 11, Steel Mill, Library of Congress, Prints and Photographs Division, Theodor Horydczak Collection [LC-H814-T-0601 DLC].

Page 12, Supreme Court Building, Library of Congress, Prints & Photographs Division, FSA-OWI Collection, [LC-USF34-005615-E DLC].

Page 13, Strikers, Archives of Labor and Urban Affairs, Wayne State University.