Franklin Roosevelt made the Great Depression worse?

Great myths about the great depression
Thomas Sowell (archive)

October 9, 2003 | Print | Send

They say “truth will out” but sometimes it takes a long time. For more than half a century, it has been a “well-known fact” that President Franklin D. Roosevelt got us out of the Great Depression of the 1930s. That view was never pervasive among economists, and even J.M. Keynes – a liberal icon – criticized some of FDR’s policies as hindering recovery from the depression.

Only now has a book been written in language that non-economists can understand which argues persuasively that the policies of the Roosevelt administration actually prolonged the depression and made it worse. That book is “FDR’s Folly” by Jim Powell. It is very readable, factual and insightful – and is endorsed by two Nobel Prizewinning economists.

If the word “folly” seems a little dismissive, read the book first. Someone described FDR’s trust-busting Assistant Attorney General Thurman Arnold as being like one of the Marx brothers who went into government by mistake. That description would apply to many of the others around FDR, including his much-vaunted “brain-trust” of presumptuous and self-righteous people.

It is painfully obvious that President Roosevelt himself had no serious understanding of economics, any more than his Republican predecessor, Herbert Hoover, had. The difference was that Roosevelt had boundless self-confidence and essentially pushed some of the misconceptions of President Hoover to their logical extreme.

The grand myth for decades was that Hoover was unwilling to use the powers of government to come to the aid of the people during the Great Depression but that Roosevelt was more caring and did. In reality, both presidents represented a major break with the past by casting the federal government in the role of rescuer of the economy in its distress.

Scholarly studies of the history of these two administrations have in recent years come to see FDR’s New Deal as Herbert Hoover’s policies writ large and in bolder strokes.

Those who judge by intentions may say that this was a good thing. But those who judge by results point out that none of the previous depressions – during which the federal government essentially did nothing – lasted anywhere near as long as the depression in which the federal government decided that it had to “do something.”

In “FDR’s Folly,” author Jim Powell spells out just what the Roosevelt administration did and what consequences followed. It tried to raise farm prices by destroying vast amounts of produce – at a time when hunger was a serious problem in the United States. It imposed minimum wage rates that priced unskilled labor out of jobs, at a time of massive unemployment.

Behind both policies was the belief that what was needed was more purchasing power and that this could be achieved by government policies to raise the prices received by farmers and workers. But prices do not automatically translate into greater purchasing power, unless people buy as much at higher prices as they would at lower prices – which they seldom do.

Then there were the monetary authorities contracting the money supply in the midst of the biggest depression in history – when the economy was showing some signs of revival, until their monetary contraction touched off another big downturn.

With policy after policy and program after program, “FDR’s Folly” traces the high hopes and disastrous consequences. It would be funny, like the Keystone cops running into one another and falling down, except that millions of people were in economic desperation while this farce was being played out in Washington.

Perhaps worse than any specific policy under FDR was the atmosphere of uncertainty generated by incessant new experiments. Billions of dollars of investment were needed to create millions of jobs for the unemployed. But investors were reluctant to risk their money while the rules of the game were constantly being changed in Washington, amid strident anti-business rhetoric.

Some of the people who most admired and almost worshipped FDR – poor people and blacks, for example – were hurt the most by amateurish tinkering with the economy by Roosevelt’s New Deal administration. This book is an education in itself, both in history and in economics. It is also a warning of what can happen when leaders are chosen for their charm, charisma and rhetoric.

Agree. For a very good description of the economic policies which led to and lengthened the depression, you might want to try Paul Johnsons World history as well.

Disagree big time. First of all, look at the scholarship of the book and of the book review. Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University. Of course he is going to be pro-Hoover vs FDR. Jim Powell was recently pushing this book on the Rush Limbaugh show. Not a very serious venue to showcase serious academic writing in my opinion. Every far-right website and newspaper seems to have a book review on it, but I could not find any mainstream press that covered it (Washington Times makes for good asswipe - thats about it).

Hoover made economic mistakes, so did Roosevelt. For FDR - destroying agricultural crops was one of them. I remember JK Galbraith commenting on that at Harvard many years ago. However, you have to look at the overall legacy of FDR. Another book"FDR and the Holocaust" mentions that he could have done more to help the Jews during the Holocaust.

The causes of the great depression were an unequal distribution of wealth and income, unequal distribution of corporate power, a bad banking structure, and a laissez-faire and the self-regulating economy.

The NIRA and AAA maybe have been failures, but many of the “100 Days” legislative acts such as the CCC were successes. Moreover, the Second New Deal was responsible for the WPA, Wagner Act, Social Secuirty Act, and Wealth Tax Act - all progressive legislation. Hoover would have never started or considered passing such legislation.

However, some similarities exist between FDR and Hoover. Both were suspicious of Keynesian economics. Roosevelt brought about the Recession of 1937 because he refused to follow the advice of his economic aides and turned away from Keynesian economics.

John Maynard Keynes was a British economist who rejected classical economics and traditional theories of the free market. He claimed that there was a direct correlation between government spending and the welfare of the private sector economy. In addition, he advocated vast government spending–even deficit spending–in times of recession. Then, when the economy had recovered, Keynes argued, the government should reduce spending. Today, many Western nations accept the principles of Keynesian economics. In the 1930s, however, Roosevelt remained suspicious of deficit spending during tough economic times. Only World War II would prove the truth of Keynes’s theories. I still believe FDR saved capitalism at a time when more radical solutions could have been implemented. Lord Conrad Black (who despite his politics is a huge FDR fan shares the same opinion)

I was hoping the right-wingers would leave FDR alone now that they have Clinton to blame everything on.

While I concede that some of the things Roosevelt did were good in terms of social security etc, I won’t concede that a lot of his policies did a great deal more harm than good. The which-hunt for culprits is an American trait, I don’t understand, and TWA for instance is a bit too stalinist for me.

Moreover, the great depression was caused by the biggest monetary bubble then seen. The US central bank lent money to Germany, who in turn paid reparations to UK and France, who then in turn imported from US. Claiming otherwise is bollocks. Laissez-faire in itself has never caused any major depression, government meddling has done so several times - Alan Greenspan is a prime example of a meddler.

Decifit spending could have led to a quicker recovery, but the problem is not to expand govt spending, the problem is to retrench it, once the recession is over. So while goodin theory, you end up sacrificing long term growth for short-term relief.

Where both Hoover and Roosevelt failed was in shutting down world trade, making both poor presidents in the same league as Lyndon B Johnson (Great society and virenam) and George Bush Junior (protectionist scumbag).

Wealth taxes destroy more than they equalize. Even my semi-socialist welfare country has scrapped them.

Mr He:

Your comments sound eminently reasonable to me. It is not a subject about which I know a great deal, but one that I have become interested in. Thanks for your insightful comments.

Chewycorns, Thomas Sowell is not and has never been pro-Hoover. Keynes has been discredited, much as your marxist analysis of the causes of the great depression have been.

Smith, it is not news that FDR both deepened and prolonged the depression. But thanks for posting the article. More of the posters here should read his articles.


Of course he would be pro-Hoover over FDR. He is the Rose and Milton
Friedman Senior Fellow in Public Policy at the Hoover Institute at Stanford. Read his resume, his speeches, and his published articles. Hell, he even looks like Clarence Thomas.

Just a sec…I got to remove a pubic hair from my coke.

The AAA wasn’t entirely bad either. Henry A. Wallace’s legacy was a mixed one, but I still think he was a damn fine Sec. of A, VP, and Sec of C.

[i]Before he even took office, Wallace convened a conference of agricultural leaders to form some kind of emergency legislation. The outcome of this meeting was an endorsement of the idea of controlling production by limiting acerage. Wallace, together with Assistant Secretary of Agriculture Rexford Tugwell, and others, would transform this agreement into the first major piece of New Deal agricultural legislation: the 1933 Agricultural Adjustment Act. The goal of this act, as stated in its preamble, was to “relieve the existing national economic emergency by increasing agricultural purchasing power” (qtd Schapsmeier Henry A. Wallace of Iowa 173). Its long-term goal was parity between manufactured goods and farm commodities. But the program, as Wallace saw it, had an additional impact. The AAA functioned not only to reduce surpluses and increase farm income, but also to foster communal habits among farmers steeped in the tradition of rugged individualism. This transformation was accomplished by the prominent role farmers played in determining allotments. Rather than having reduction allotments determined in Washington, local boards, made up of farmers, determined the allotments for their counties. Years later, Wallace would look back on the role local farmers played in directing the AAA as one of his greatest accomplishments.

By the time the AAA had been enacted, however, farmers had already planted their crops. Faced already with damaging surpluses, Wallace made one of the most difficult choices of his life. He ordered the destruction of 6 million hogs, and 10 million acres of cotton. While this decision caused him much anguish, and generated much fodder for his political opponents, it showed his determination to get farm surpluses under control.

The AAA prospered, but in 1936 the Supreme Court ruled it unconstitutional on the grounds that agriculture was not interstate commerce, and hence was not under the authority of the federal government. Thus the AAA, the court ruled, was an intrusion in the perrogatives of individual states. Wallace, however, was ready for such a setback. Having already seen the NRA (National Industrial Recovery Act) struck down on similar grounds, Wallace organized a team to develop a new version of the AAA

Destroying crops sound like a EU nghtmare.

It has been tried and it usually ends up like some kind of pork barrel, once its benefits have brought the sector back.

Mr He:

I am with you on this. I read the excerpt submitted by Chewy Corns and it does seem to have that awful “best intentions” kind of horror about it. I think that agriculture should be completely left to its own devices. NO subsidies, quotas, support payments, export promotions, etc. Many nations get by without them, why cannot the EU, US and Japan?

[quote=“Mr He”] Laissez-faire in itself has never caused any major depression, government meddling has done so several times - Alan Greenspan is a prime example of a meddler.


Before FDR the size of the American government was meaninglessly miniscule - the biggest budget item was defense and even then we barely had a bare-bones peacetime military. The Great Depression was not an anomaly; recessions and depressions were part of the regular economic landscape in America and Europe since the invention of capitalism, despite the fact that the governments before Keynesiasm were too small to do much ‘meddling’. The first ‘great depression’ in American history happened in 1837, and for the next century our tiny (except during war time, when it had to temporarily expand) laissez-faire government allowed the dips in the economy to come and go, not lifting a finger. The natural rise/fall fluctuations in markets cause depressions, not government ‘meddling’.

And btw, Paul Johnson is the Noam Chomsky of the Right.

Agree. Moreover, complete agricultural trade liberalisation would be a great boon to the developing world.

However, the small but powerful agricultural lobbies would prevent that from happening - the collapse of the Doha is a case in point.

Just to clarify that I think modlang’s point was interjected before Mr He could answer and I believe that he was in fact agreeing with my point not modlang’s.

Pity about the Cancun meeting. I blame France primarily but Japan and Korea have been big sticklers too. Naturally, certain interests in the US are only too happy for this to get bogged down. What can be done to go beyond one or two obstacles such as France and Japan. Could other nations move ahead while putting higher tariffs on only French and Japanese products?

The century of small government brought us great economic benefits - even the ones who left the land and worked as factory workers did leave farming voluntary.

The 20th century brought us a lot of wars and much misery.

The recessions used to be short and brutal. Now they are long and might hurt less, but recessions nonetheless.

Mr. He, don’t forget that herds of cattle were also slaughtered and bulldozed into pits by Franklin Damned Roosevelt.

Chewycorns, I don’t usually argue with marxists, born-again-christians, Mormon missionaries, neocons, etc., as it is a complete waste of time. But, did you even read the Sowell article? Did you not understand that FDR continued Hoover’s policies to an extreme? Do you not know that Wallace was a Communist and that he and FDR got their agriculture policies, and some others, from Uncle Joe Stalin? BTW, where did you study economics and political history, Moscow U.?

Here’s a liberal response to the aid of FDR from this website:

The causes of the Great Depression are hotly disputed by scholars even to this day. No one knows the ultimate reason why the economy started plunging downhill in 1929. However, several things are certain:
There was a variety of things wrong with the economy going into 1929, and they had been deteriorating throughout the decade.
The conservative economic policies of the 1920s – low taxes, little regulation, lack of anti-trust enforcement – did nothing to stop the August recession and the October stock market crash.
Hoover kept the Federal Reserve from expanding the money supply while bank panics and billions in lost deposits were contracting it. The Fed’s inaction was the reason why the initial recession turned into a prolonged depression.
The economy continually sank throughout Hoover’s entire term. Under Roosevelt’s New Deal, it rose five out of seven years.
Attempts to blame Big Government for the Depression do not withstand serious scrutiny. The Smoot-Hawley Tariff had a minor impact because trade formed only 6 percent of the U.S. economy, and reducing trade gave Americans only that much more money to spend domestically. Hoover’s other attempts at government intervention came mostly during his last year in office, when the Depression was already at its depth.
The first nations to come out of the Great Depression – Sweden, Germany, Great Britain, and then everyone else – did so after they adopted the Keynesian solution of heavy deficit government spending.
Keynesian economic policies have eliminated the depression from the world’s economies in the six decades that have followed.

“The only thing we have to fear, is voodoo economics.”


Gulp. Actually I studied at Moscow U for a while. By the way, it is named after Patrice Lumumba. I hope that my stay there (short I assure you) merely served to vaccinate me against the people’s studies or the people’s agriculture.



Ishmael2 wrote: Chewycorns, I don’t usually argue with marxists, born-again-Christians, Mormon missionaries, neocons, etc., as it is a complete waste of time. But, did you even read the Sowell article? Did you not understand that FDR continued Hoover’s policies to an extreme? Do you not know that Wallace was a Communist and that he and FDR got their agriculture policies, and some others, from Uncle Joe Stalin? BTW, where did you study economics and political history, Moscow U.?

Then we agree on one thing. I’m not a big fan of Marxists, Born-agains, mormons, or neocons either. I read many Sowell articles, including the one he wrote about Wal-mart this week. Have you read that one? IT will show you how right-wing and neo-conservative he really is. Wallace a communist? IF being a multi-million dollar capitalist (does Pioneer Hi-Bred International ring a bell) means being a communist, I guess he is guilty hehehehee…he was a very very successful businessman.

I studied at LSE.

Ta for Now,

So germany came quickly out of the depression on keynesian policies???

I see, most interesting. Better bone up on the history lessons, unless you want to be labeled a nazi.

Moreover, the 1920’s saw the biggest credit explosion up till then, thru the us fed. In case you haven’t studied economics, then allow me to explain that pumping money out into the economy is the quickest way of making a bubble, witness the 1990’s in the US.

A few more of your “facts” are even worse:

Low taxes and little regulation creates recessions. Plain wrong, they lead to renewed growth, the countries who liberalise (like China) often experience higher than the ones who don’t (Let’s pick India).

Tariff barriers create more money in American (or other pockets). Populist baloney, the opposite is the case, as cheaper imports usually serve to keep costs down, thereby hurting a few but benefiting the many. What america did was to try to export their depression - nice to the rest of the world btw.

FDJ did nothing to reverse that, shame on him.

However, if you read: The lion and the fox, you will see that he actually did not have a consistent policy, but changed it as he changed advisors. He was a great and cunning political operator, but that does not make him a statesman.

Germany recovered in 1936 due to heavy deficit spending in preparation for war.