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July 29, 2007
David Warsh, Proprietor


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Good Old Cal?

The year was 1940. Germany had invaded Poland. The United Kingdom and France had declared war in return. In the United States, the popular historical novelist Kenneth Roberts (Northwest Passage) sought to foster fellow-feeling for the British and, at the same time, to remind his readers of the costs of war.

So he conjured up the sympathetic character of a Massachusetts Yankee who had fought (or spied) in nearly every major battle of the American Revolution — for the British Crown.  The result was Oliver Wiswell, an edifying reinterpretation of the Loyalist position throughout the war — and a deeper understanding of both the past and present. No less a personage than Grant Wood painted a portrait of the fictional hero to grace the jacket of the book. (Thirty-five years later, historian Bernard Bailyn achieved much the same result — and won a National Book Award — with real-world precision in The Ordeal of Thomas Hutchinson.)

I kept thinking of the attempt to capture a forgotten man of an earlier era with Wiswell while reading Amity Shlaes’ The Forgotten Man: A New History of the Great Depression. Shlaes’ book is not fiction, though it reads almost as smoothly as if it were a novel. But neither is it professional history. (The author is a veteran journalist and Bloomberg columnist.) Perhaps it could be thought of as “reception history,” an account of various versions of the great event, the interpretations ventured both by those who lived through it and by those who sought to manage it and justify their actions to the public.

Probably it is more accurate, though, to describe it as an elaborate cautionary tale (464 pages), designed to support a particular interpretation of the present by selective reference to the past.

Fr this purpose, Shlaes doesn’t need to invent a character. She simply rehabilitates Calvin Coolidge, thirtieth president of the United States (1923-29), the small-government conservative who is best remembered for his advice to newspaper editors, “After all, the chief business of the American people is business.” It is Coolidge who might be understood as representative of the “forgotten man” of the title.

(“Forgotten man” was a political shibboleth during the ’30s, akin to “silent majority” in the ’70s, except that it was employed by all sides to rally followers. So in the course of the book, the term moves around like a pea under so many walnut shells, denoting the “thirs parties” who did paid for but did not benefit from drect aid in the New Deal, and those who opposed the policies of Herbert Hoover, who succeeded Coolidge in 1928, or Franklin Delano Roosevelt, who was elected in 1932. George Sutherland and James McReynolds get some attention; they were the Supreme Court Justices whose resistance to his policies led Roosevelt to seek to increase the size of the Court.  So does Wendell Willkie, the utilities lawyer who an unsuccessfully against Roosevelt in 1940 gets even more. In the end, however, there can be little doubt that Shlaes has in mind the “minimalist president” Coolidge — and his alter-ego, the business saint Andrew Mellon.)

Of standard histories of the Depression, there is no shortage. One of the best windows on the period is no history at all –Studs Terkel’s extensive collection of interviews, Hard Times. The account that recommends itself in this connection is Gene Smith’s The Shattered Dream: Herbert Hoover and the Great Depression, because the title so well describes the common experience of those years.

The 1920s, the “Roaring Twenties,” had been a time of unparalleled change in daily life: electrification, automobiles, telephones, refrigerators, radios, airplanes. Nor was there any reason to doubt that the cornucopia of new goods would continue — as would the financial revolution that accompanied it, consider the peroration with which Hoover accepted the Republican presidential nomination in 1928:

“We in America today are nearer to the final triumph over poverty than ever before in the history of any land.  The poor-house is vanishing from among us. We have not yet reached the goal, but, given a chance to go forward with the policies of the last eight years, we shall soon with the help of God be in sight of the day when poverty will be banished from this nation.”

What the world got instead was the Great Depression. It began with the stock market Crash of October 1929, and for a time people hoped that would be all — a short purgation, like the Depression of 1921-22, followed by a rapid rebound. But gradually the hard times settled in and spread. Farm prices fell, house prices fell, foreign trade declined; there were layoffs, foreclosures, bank closings. When the Bank of United States failed in 1930, a million people in New York, a sixth of the city, lost their savings in a single day. The Depression wasn’t so bad if you had a job, went the joke, but something like a quarter of the population had lost their jobs by 1932. Recovery came haltingly, at best. Ten years later, neither output nor employment had regained their levels of 1929.  Only when World War II loomed did the economy resume its rapid growth.

It was, of course, Roosevelt who eclipsed Hoover in 1932: night and day (or day and night) to those who lived through the times.  Shlaes makes no attempt to ground her history in the experience of a generation, however.  Instead, she lumps Hoover and Roosevelt together as apostles of collective action:  big public works projects, new banking regulations, schemes to support prices, diminish competition and to raise taxes to balance the budget. (It was Hoover who created the Reconstruction Finance Corporation to bail out banks, railroads, farm mortgage associations; Roosevelt simply continued it.)

Her hero is Coolidge, who preferred his Treasury secretary, Mellon, to Hoover, who was his Commerce secretary. He privately disparaged the latter as “wonderboy” and complained, “That man has offered me unsolicited advice for six years, all of it bad.” Not for Coolidge alarums and excursions. His chief skill lay in “refraining,” says Shlaes. Entirely typical was his statement upon vetoing an agricultural-subsidy scheme in 1927:  “Farmers never have made much money. I do not believe we can do much about it.” (His father had been a farmer in Vermont.)  The quote is not in the book, and more’s the pity, since farm price-support programs in the US are at record levels eighty years later, seemingly impervious to reform.

One of the things that makes The Forgotten Man fun to read is its great cast of characters. In addition to the politicians — Coolidge, Hoover, Roosevelt and his “brain trust” — we get an assortment of private-sector types to illustrate Shlaes’ conviction that business leaders and social innovators warrant as much attention as public entrepreneurs.  She skillfully weaves into her account characters as various as public heroes Thomas Edison and Henry Ford; designated villains including utility magnate Samuel Insull (whom she seeks to rehabilitate) and Richard Whitney; Bill Wilson, founder of Alcoholics Anonymous, and George Baker, the evangelical minister known as Father Divine who proclaimed a “Gospel of Plenty” throughout the lean years.

There is an entire chapter, a very good one, on the Schecter brothers, kosher butchers in New York, whose story serves to explain why Roosevelt’s early attempt to counter the Depression with a massive bureaucracy known as the National Recovery Administration (NRA), alienated nearly everyone and was quickly discarded. Another chapter, not so successful, describes popular attitudes towards Soviet communism through the lens of a 1927 fact-finding mission to Moscow by a trade union that included the economist Paul Douglas. Shlaes bends over backwards to avoid the creepy style of an earlier generation of Roosevelt-haters.  Sen. Joseph McCarthy was “wrong,” she says. The problem with “the New Dealers on the left” was not their relationship with Moscow or the Communist Party in the United States.  “The problem was [the left New Dealers'] naïveté about the economic value of Soviet-style or European-style collectivism — and the fact they forced such collectivism on their own country.”

Both Hoover and Roosevelt habitually doctored the country, she says. “Hoover was a constitutionalist and take pains to intervene within the rules — but his interventions were substantial.  Roosevelt cared little for constitutional niceties and believed they blocked progress.  His remedies were on a greater scale and often inspired by socialist or fascist models abroad.”  And it these schemes, enacted into law, has a “crushing impact” on the economy for which “American are still pay for today,” according to the material accompanying the book.

But leaving aside the ill-fated and long-forgotten NRA (and a few other “alphabet agencies” diminished or dispensed with altogether by the deregulation movement of the ’70s and ’80s), it is hard to think what she means. What are the enduring interventions that we sum up as “the New Deal?”  The modern Federal Reserve Board. The Securities and Exchange Commission.  National unemployment insurance.  The Social Security Administration. The National Labor Relations Act.

To be sure, the last decade has seen a concerted assault on some of these institutions, on Social Security in particular.  It was led by George W. Bush and New Gingrich, and supported by many professional economists. So little success did they meet, however, that the fundamental institutional reforms of the 1930s seem intact. A modest intergenerational financial “safety net,” federal regulation of financial markets, government responsibility for management of the business cycle: these mandates seem as strong as at any time in their seventy-five year history.  The New Deal was a fundamental re-arrangement of institutions and our expectations of them.

What then /did/cause cause the Great Depression?  According to Shlaes, an overheated market, culminating in the October Crash of 1929, had something to do with it. So did bad banking policy and protectionism. “But the deepest problem was the intervention, the lack of faith in the marketplace. Government management of the late 1920s and 1930s hurt the economy… Fear froze the economy, but that uncertainty itself might be a cost was something the young experimenters simply did not consider.”  But for the air of emergency fostered by “the world of theory, the world of the pilgrims,” the economy would have quickly equilibrated by itself, with wages and share prices quickly “marked to market.” The Depression would have gone into the history books as no more severe than the short, sharp “liquidation” that began the ’20s — a “quarter-hour” in the history of the American republic in Andrew Mellon’s memorable phrase.

There is very little support for this idea among professional economists. Consult Essays on the Great Depression by Ben S. Bernake, for example, and you will learn that a majority of macroeconomists have concluded in recent years that prolonged adherence to the gold standard played a dominating role in determining the worldwide monetary contraction of the 1930s. “We do not yet have our hands on the grail by any means,” he writes, but countries that left the gold standard early were able to reflate their monetary supplies and price levels, while countries that remained on gold were forced into further deflation. In other words, some approaching a consensus exists among economists that poorly-designed institutions and short-sighted policies were at the heart of the Great Depression. That the understanding of these mechanisms is widely believed to have improved a great deal since then accounts for the appointment of Bernanke, a leading scholar of the mechanics of the Great Depression, as chairman of the Federal Reserve Board

(About this considerable volume of work, Shlaes has very little to say. She cites public choice theory, which, she says, “tells us a much about the New Deal as the traditional economics Americans have been taught.” And it is certainly true that interest group politics received a potent boost from Roosevelt, who vigorously courted the disenfranchised and the poor. Public choice teaches that “government is not higher than the private sector but rather a co-equal combatant,” she explains. Margaret Thatcher put it slightly differently when she opined, “[T]here is no such thing as society.”)

Coolidge died in 1933, so Shlaes can’t carry the narrative of her book forward with him. She tries with Willkie, soundly defeated in 1940, but he died in 1944. There is, in fact, no obvious political figure to represent continuing principled opposition to the New Deal — certainly not Hoover, who lived until 1964, nor even Ronald Reagan, a committed New Dealer in his youth who as president oversaw the re-balancing of its programs.

The result is a book just as fanciful, but much less convincing than Kenneth Roberts’ account of Oliver Wiswell’s long career as a critic of the first American Revolution. For Roberts never argued that the colonies’ War for Independence was a mistake — rather he showed that it was a very painful ordeal, with good arguments on both sides of the issues. Safely ensconced in Nova Scotia at the very end of the book, Wiswell allows, “Perhaps something great will come even to that rabble… that drove us from our homes.”

Shlaes, on the other hand, seems to argue that we would be better off if John Maynard Keynes had never written what she describes as a “license for perpetual experimentation” with macroeconomic policies, if the extension of rights and responsibilities summarized by the phrase “the New Deal” had never occurred. But what about the enormous growth of the American economy since 1946?  What about the seventy five years that have passed without another depression?

Turn back the clock to the 1923? What’s next, I kept wondering: A “new history” of Abraham Lincoln’s presidency and the Civil War?  There’s a great deal in what Shlaes has to say about the Other Side of the Story — our penchant to off-load our problems on government. She might have done better if, like the novelist Roberts, she had simply made up a hero.

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