Monday, March 24, 2014

Hold The Applause: FDR and the New Deal

Oh, we all know the story. The Great Depression was a tremendous catastrophe caused by the failures of the free market. Ultimately capitalism was saved from its failings by President Franklin Roosevelt, more commonly known as FDR. FDR's excellent proposal posed a radical shift in governmental policy in response to economic depressions. Eventually, the depression resided due to these marvelous policies.

But it's just that - a story. But even at first glance, it becomes pretty clear that this is not really what happened. After all, why would it take so long for these policies (labeled the New Deal) to make a positive difference. In all recessions prior to this point, there had been a much stronger and quicker response (the government doing nothing in these instances just in case you were wondering). In fact, Robert Murphy, Ph.D. details in his book The Politically Incorrect Guide to the Great Depression and the New Deal that this recovery was the slowest in American history even until today.

Now before you all go accusing me of the post hoc fallacy, I will supply you with some causal links between Roosevelt's New Deal policies and the slower response to the American economy. At its core, Roosevelt's policies attacked the little man for the benefit of, well, no one at all.

When one wished to express the success of the New Deal, they point to Roosevelt as a hero of the little guy, how he presented opportunities for the working man to earn money to live in the harsh economy, instead of supporting big business. But Roosevelt's iron knife struck not only the big business, but also every business, especially the smaller ones.

When you regulate every aspect of how someone could run a business, big businesses will have the necessary funds to adapt to these procedures. Although they will not likely be as well off as they initially would have been, they will still be able to make a profit.

But most times, circumstances aren't quite so pleasant for a small business owner. The little guy has difficulty making a profit when the government takes away some of his creative controls. To illustrate, listen to this true story from the days of the Great Depression, told by Burton Folsom in the book, New Deal or Raw Deal? How FDR's Economic Legacy has Damaged America, 
"[Jerry] Maged had been pressing pants for twenty-two years and his low prices and quality work had kept him competitive with large tailor shops in the better parts of town. The NRA [National Recovery Administration, created in a New Deal policy] Cleaners and Dryers Code demanded that 40 cents be charged to press a suit. Maged, despite repeated warnings, insisted on charging his customers only 35 cents.... Not only was Maged thrown in jail, he was also slapped with a hundred-dollar fine."

The impact to small business is obvious. Business owners (not greedy rich business owners mind you, but rather those who are simply trying to support their families) are being threatened with jail for doing something as innocent as selling their services for a discounted rate.

Cutting out the main advantage that a small business can have over a large business is not a winning strategy for economics, nor is it looking out for the little guy. Jailing a man for disobeying regulations is akin to tyranny.

But there is another consequence to this particular event as well. The government was literally ensuring that prices remained high. FDR and his compatriots were ensuring that services were not affordable to the common man. These actions are simply unforgivable and definitely strengthened and prolonged the suffering of the American people.

But that's not even the worst thing that FDR did with the New Deal. Indeed, these actions indirectly hurt many Americans and decreased the sizes of their wallets, but from an economic standpoint, nothing could be worse than the outright theft that the Roosevelt Administration committed by taking America off the gold standard.

Now you may question how the gold standard equates with theft of the American people. To be sure, the link is not readily apparent. Nevertheless, it is there. Allow me some time to explain it.

From 1873 onward, the federal government promised the American people that in exchange for their certificates, they would be given gold. Indeed that gold the United States government possessed was given by the American people in exchange for these certificates because of this promise. In this way, the dollar we owned really could be exchanged for 1.505 grams of gold. Rather, one dollar was 1.505 grams of gold. For the sake of convenience, we had stored our gold with the federal government to exchange paper which represented the gold we owned of the government's store - gold we could withdraw at any time.

Then Roosevelt swooped in and enforced a different exchange. You give me these paper certificates which indicate the gold you own, and I will give you worthless paper that is only valuable because the government says so. In this way, Roosevelt stole gold from the American people.

Robert P. Murphy, Ph.D. expressed it quite well in his book, The Politically Incorrect Guide to the Great Depression and the New Deal
"Short of herding tens of thousands of children into concentration camps - something Roosevelt also did: remember the Japanese internment camps - it would be difficult for the president to behave in a more tyrannical fashion. The gold certificates held by the public had not been gifts from the U.S. Treasury. On the contrary, they were redemption tickets for which individuals and companies had traded away actual gold, or other goods and services, because the United States government had pledged, since 1873, to surrender physical gold to anyone bearing the certificates, at the rate of $20.67 per ounce. Ordering the public to turn in the gold certificates, in exchange for Federal Reserve Notes (noticeably lacking the phrase, "PAYABLE TO THE BEARER"), was naked theft, just as surely as if President Obama ordered the public to turn in all Iphones in exchange for Blackberries. The theft would be made quite explicit when the government officially tied the dollar back to gold the following year at the rate of $35 per troy ounce, a depreciation of more than 40 percent. (Note that American citizens still could not redeem their paper currency for gold at any exchange rate.) Ordering the public to turn over its gold - under penalty of a $10,000 fine and up to ten years in prison - was clear-cut robbery." 

All of the American people were forcibly robbed of their resources, but it's all ok because we got useless paper money in return, right? I don't think so, yet many around the world, praise this and other moves by FDR as the boost the American economy needed to find its way out of the Great Depression.

But that is not the case at all. Roosevelt was not the saviour of the free market, nor the defender of the little man. On the contrary, his policies prevented the little man from competing against the larger corporations, while stealing the gold of every American citizen in the country, all under threat of incarceration. Not only was the New Deal counter-productive, it was tyrannical, stealing by threat of force. Franklin Delano Roosevelt was surely no hero.

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