Difference between revisions of "Essay: New Ordeal"

Dow Jones Industrial Averages, 1929-49.

Dow Jones Index in constant dollars relative to the price of gold. The chart is a good reflection of living standards throughout the period.

The New Ordeal is the period of time between 1929 and 1949, when the American economy finally recovered from the Crash of '29. It encompasses the four presidential terms U.S. President Franklin D. Roosevelt had been elected to, the final term having been administered mostly by his successor, President Harry S. Truman. The New Ordeal also is sometimes referred to as the Great Ordeal or simply the Ordeal.

During the twenty years of the New Ordeal, America experienced 2 deep recessions, or essentially a second depression within the Great Depression, and World War II, a calamity that claimed the lives of 55 million people worldwide. Many of the nations involved in World War II resorted to "economic planning", as Economist Friedrich Hayek referred to it, to address the so-called "crisis in capitalism" in the 1930s.

The 1929-1949 recession had within it a recession from 1937-1943; 1933 to 1937 were recovery years stimulated by the New Deal government spending. However, by 1937 the nation had nowhere near recovered to where it was in 1929. Manufacturing demand stimulated by WWII led to the 1943-1949 recovery, where finally, in 1949, the New York Stock Exchange recovered to the level it had been at 1929.

In 1929 the DJIA declined 90.0% over a duration 34 months. Six successive market crashes comprised this famed bear market: (1) September to November 1929 (DJIA fell 40% in this first phase). (2) April to June 1930. (3) September to December 1930. (4) March to May 1931. (5) July to January 1932. (6) March to July 1932. A new bull market then started immediately, as did a business recovery.

Business had topped out mildly, a month before the first crash; a gradual mild decline continued to April 1930, then fell sharply into a depression simultaneously with the end of the 1930 stock market rally. The business decline halted in December 1930, stayed level for 6 months, then plunged again in steep economic decline that didn’t lose its downward momentum for a full year, until July 1932. Business improved intermittently thereafter but still remained at depression levels through most of the decade of the 1930s except for a short recovery in 1936–37.

In 1934 a fall of 24.1% in the DJIA began again over 9 months. Then the market took seven more months to get back up to where 1934 began.

To win election, FDR forged a coalition of Northern Democrats and Southern segregationists by placing John Nance Garner of Texas on the ticket as his running mate. The Democrats won an overwhelming majority in the House, picked up 97 seats, bringing the total to 313. On the Republican side the first African-American in the 20th century, and the first since Reconstruction, Rep. Oscar De Priest was re-elected. The Democratic chairman of the new Congress' Committee on Accounts, Rep. Lindsay Warren, ordered a De Priest staffer and his son to be thrown out of the House's whites-only cafeteria. There was a separate facility for blacks in the basement. De Priest introduced a resolution calling for an investigation. On the House floor, De Priest refuted Warren's claim that African-Americans had always been banned from the restaurant, recalling that he and other black patrons had frequented the House cafeteria. De Priest implored his colleagues to support the resolution, remarking,

Elementary school children giving the fascist salute while reciting the Pledge of Allegiance during the New Deal.

The effort to desegregate the Democrat-controlled House cafeteria was defeated. Civil rights were not on the party agenda. FDR always opposed the federal anti-lynching law as part of FDR's Southern Strategy. Anti-lynching bills were first introduced by Republicans. The Costigan–Wagner Act was introduced in 1934, calling on the Roosevelt administration to take an active role in ending lynching in the United States. Senators Edward Costigan of Colorado and Robert Wagner of New York sponsored the bill. Under its provisions, any state officer who failed to exercise diligence in protecting a person under their care from a lynch mob or who neglected to arrest persons involved in a lynching, could themselves be subject to federal imprisonment for five years and a $5,000 fine. In 1935 attempts were made to persuade Roosevelt to speak out in support of the bill. However, Roosevelt refused. He argued that the white voters in the South would never forgive him if he supported the bill and he would, therefore, lose the next election.

Even the appearance in the newspapers of the lynching of Rubin Stacy failed to change Roosevelt's mind on the subject. Six deputies were escorting Stacy to Dade County jail in Miami on July 19, 1935, when he was taken by a white mob and hanged by the side of the home of Marion Jones, the woman who had made the original complaint against him. The New York Times later revealed that "subsequent investigation revealed that Stacy, a homeless tenant farmer, had gone to the house to ask for food; the woman became frightened and screamed when she saw Stacy's face."^[2] The Costigan-Wagner Bill had wide support; however, the bill was defeated in 1934, 1935, 1937, 1938 and 1940.

FDR's Southern Strategy: FDR always opposed federal anti-lynching legislation, first introduced by Republicans.^[3]

Ever since the Draft Riots of 1863, New York was the bastion of Democratic Resistance in the North. It was a Republican mayor however who made the first efforts to coax traditional black Lincoln Republicans into the New Deal coalition. Fiorello La Guardia was a RINO, or Republican New Dealer. Roosevelt provided federal funds to La Guardia and withheld support from La Guardia's opponents. After the 1935 Harlem riot, La Guardia decreed that African-Americans were not to be arrested for anything, and that police patrolling Harlem could not carry nightsticks.^[4]

President Roosevelt excluded 4-time gold medalist Jesse Owens from the customary White House visit by Olympic athletes. As Jesse Owens later explained:^[5]

Civilian Conservation Corps

See also: New Deal and Fascism

New Deal relief efforts targeted FDR's white Democrat voter base. A Black Republican congressman attached a non-discrimination amendment, however Democrats put a ten percent quota system on Blacks who were suffering from higher incidence of poverty and unemployment than whites or the population in general. In more prosperous times 30 years later the War on Poverty was the New Deal in reverse, targeting Blacks with the assumption that all Blacks were poor and uneducated.

"The German Labor Service (Reichsarbeitsdienst—RAD) arose from a party organization set up in 1931 and known as the NS-Arbeitsdienst for the purpose of easing unemployment,"^[6] "like its New Deal equivalent, the Civilian Conservation Corps [CCC],"^[7] which would be established two years later.^[8] According to Garraty, both

President Franklin Roosevelt (left), Sen. Richard Russell, Jr. (center), and Eurith D. Rivers (right) easily won their elections in Georgia in 1936 as racist whites supported the left-wing policies they favored.

The CCC "smacks of Fascism, of Hitlerism, of a form of Sovietism," observed William Green, president of the American Federation of Labor.^[10] "The American side, and especially President Roosevelt himself, was strikingly open and receptive to ideas emanating from Nazi Germany," writes historian Kiran Klaus Patel. According to Patel, there was at least one actual "intercultural transfer," in which the CCC studied and adopted ("on personal orders from Roosevelt") a program for training aviation mechanics modeled after the Flyer Hitler Youth.^[11]

Republican Rep. Oscar DePriest, the only black member of Congress, made sure that the 1933 legislation that established the CCC banned discrimination based on “race, color, or creed." Black enrollment in the CCC was capped at ten percent of total recruits–roughly equivalent to the proportion of blacks in the U.S. in 1930, but nowhere near proportional to the number of blacks eligible for relief during the Great Depression. Tens of thousands were turned away.

The U.S. Army controlled CCC camp administration and operations, and the Wilsonian policy of racial segregation transferred over to the new civilian workforce. Most of the CCC's quarter million African-American enrollees served in segregated companies and were unable to attain positions of authority.^[12] Some Southern states categorically excluded blacks, arguing that they were needed for growing and harvesting cotton.^[13]

Tuskegee syphilis experiment

See also: Tuskegee syphilis experiment

Tuskegee experiment during the New Deal.^[14]

The study was initially funded by the private Rosenwald Fund. However, The Fund ended its involvement due to lack of matching state funds, and the federal government under the heavily Democrat 73rd Congress took over the funding.^[15] According to the 1995 Abstract to The Tuskegee Syphilis Experiment: biotechnology and the administrative state:

Jinbin Park of Kyung Hee University reports,^[17]

Housing discrimination becomes law

The Federal Housing Administration (FHA) was created by the Democratic congress in 1934 to insure loans for construction and repairs of homes. White middle-class families could buy suburban homes with little or no down payments and extended 30-year amortization schedules and their monthly charges were often less than rents the families had previously paid to housing authorities or private landlords. But the FHA had an explicit policy of not insuring suburban mortgages for African-Americans, according to writer Richard Rothstein on the The American Prospect website. In suburban New York's Nassau County, just east of Queens, Levittown was built in 1947 containing 17,500 mass-produced two-bedroom houses, requiring nothing down and monthly payments of about only $60. At the FHA's insistence, developer William Levitt did not sell homes to Blacks, and each deed included a prohibition of such resales in the future.^[18]

Not until after the Democrat Senate approved FDR's appointment of Hugo Black to a lifetime appointment to the bench, was a conservative journalist able to reveal Black was a Klan member.

1936 elections in Georgia

In the 1936 election cycle, FDR overwhelmingly won Georgia, a Deep South state entrenched in Democrat racism, over Moderate Republican candidate Alf Landon. Appealing to racist white Southerners with his liberal New Deal policies, his coattails helped carry fellow allies Richard Russell, Jr. and Eurith D. Rivers to victory. Governor Eugene Talmadge, a white supremacist who ran on an anti-New Deal campaign against Russell in the Democrat primary for Senate,^[19][20] lost in a landslide against the incumbent New Dealer.^[21]

Due to Talmadge being term-limited from running for re-election as governor, the gubernatorial race became an open seat in the election cycle. Rivers, a Democrat Klansman and liberal New Dealer,^[22] easily won the primary.^[23]

Klansman on the Court

In 1937 FDR appointed Alabama Senator Hugo Black to the Supreme Court. Black was a member of the Ku Klux Klan and built his career campaigning at Klan meetings. Black was well known for his anti-Catholic viewpoints.^[24] In Korematsu v. the United States, Black voted to uphold President Roosevelt's mass arrests and incarceration of Japanese men, women, and children based on race.

President Roosevelt called Democrat Klansman Sen. Theodore Bilbo "a real friend of liberal government."^[25] Bilbo claimed himself to be "100 percent for Roosevelt...and the New Deal."^[26] In a 1938 filibuster against anti-lynching legislation, Bilbo said on the Senate floor that the bill would “open the floodgates of hell in the South” by encouraging Black men to rape white women.^[27]

Franklin Roosevelt nominated James F. Byrnes to the Supreme Court and was confirmed by the Democrat Senate in 1941. The NAACP opposed his confirmation in a telegram to the White House:

As a member of the U.S. House of Representatives and Senate for more than two decades, Byrnes personally blocked a Senate investigation of a South Carolina lynching and opposed federal anti-lynching legislation, insisting that “rape is responsible, directly and indirectly, for most of the lynching in America.” Byrnes later held the office of Secretary of State under President Harry Truman. He remained a vocal opponent of integration throughout his term as South Carolina governor from 1951 to 1955. In his inaugural address, Byrnes proclaimed,

A building and a professorship at the University of South Carolina bear his name, as do Byrnes Auditorium at Winthrop University, Byrnes Hall dormitory at Clemson University, and James F. Byrnes High School in Duncan, South Carolina.^[27]

Democrat Theodore G. Bilbo was an extremely racist Democrat from Mississippi who blocked anti-lynching legislation and was an apologist for racial violence.

Hill political machine in Alabama

For several decades, the single-party Democrat politics of Alabama was dominated by the political machine of Lister Hill, a longtime segregationist senator from the state. According to the Encyclopedia of Alabama:^[28]

While Hill wasn't a demagogic agitator in the manner of race-baiters like George Wallace, he nonetheless consistently opposed civil rights legislation to appeal to the racism of many voters in his state in order to maintain political power.^[28] Along with other prominent politicians from Alabama (including John Sparkman^[29][30] and William B. Bankhead), he appealed to left-wing economics/big government policies which racist whites during the time backed.

Opposition to anti-lynching law

Despite insistence by leftists that the Democrat opposition to civil rights legislation (including anti-lynching legislation) was exclusively from "conservative"/Southern Democrats, it's important to note that a 1937 anti-lynching bill passed the House with opposition from both the Southern bloc in addition to 15 Northern Democrats.^[31] Of those who voted on the legislation by party, it got 96% support from Republicans and only 62% from Democrats.

In late July 1937, Senate Democrats successfully tabled an anti-lynching effort (introduced by pro-civil rights DINO Royal S. Copeland) twice. On July 26, the Senate voted 41–34 to kill an anti-lynching amendment,^[32] with the "Yeas" including future Supreme Court justice Hugo Black and future Vice President Alben Barkley. Over a dozen Northern Democrats voted with the Southern bloc to kill the amendment. 61% of Democrats voted in favor of tabling.

Five days later, the majority of Senate Democrats (66% of them) voted yet again to kill the amendment in a 46–39 vote.^[33]

Catholicism and the Kennedy's

On the eve of World War II, Roosevelt appointed Joseph P. Kennedy, father of John Kennedy, Bobby Kennedy, and Ted Kennedy as Ambassador to Great Britain. Joe Kennedy was a notorious anti-Semite and Nazi sympathizer. At the time of the Kristallnacht, the New York Times reported Kennedy had a solution to the problems of German Jews: ship them all to Africa.^[34]

In 1940, after rejecting DNC chair James Farley as his successor because Farley was Catholic,^[35] Roosevelt broke with tradition and sought a third term as president. The decision was controversial - Democrat Governor Strom Thurmond supported his third term while his own vice president, John Nance Garner, quit over the matter.^[36]

Immigration and refugees

After Kristallnacht in November 1938, many Jews within Germany decided that it was time to leave. The S.S St. Louis carrying 937 passengers, most of them Jewish, set sail from Hamburg to Cuba on May 13, 1939. In Cuba the passengers were denied entrance without posting a $500 bond. A few dozen passengers disembarked. The ship set sail for Florida.

Once in Florida waters, Sec. of State Cordell Hull advised President Roosevelt to deny the Jews asylum. The U.S. Coast Guard and planes followed the St. Louis to prevent it from landing.^[37]

Many Jews had fled to Central and South America to escape Nazi persecution. When war broke out, these Latin American countries did not want German Jews. They were deported to the United States where the Roosevelt administration was willing to hold them as German citizens in America concentration camps. The Roosevelt administration traded them back to Germany in exchange for American civilians held in detention in Germany. The fate of these Jews is unknown.^[38]

In 1943, Roosevelt told French military leaders at the Casablanca Conference that "the number of Jews engaged in the practice of the professions" in liberated North Africa "should be definitely limited", lest there be a recurrence of "the understandable complaints which the Germans bore towards the Jews in Germany."^[39]

Mass incarceration of minorities

Wikipedia states that Democrat President Franklin Roosevelt set up "concentration camps" during World War II while the United States was at war with Nazi Germany:

Port Chicago disaster

The Port Chicago disaster was a deadly munitions explosion that occurred on July 17, 1944, at the Port Chicago Naval Magazine in Port Chicago, California. Munitions detonated while being loaded onto a cargo vessel bound for the Pacific Theater of Operations, killing 320 sailors and civilians and injuring 390 others. Blacks were denied combat duty and all the enlisted men employed as loaders at Port Chicago were African-American.^[41]

A month later, unsafe conditions inspired hundreds of servicemen to refuse to load munitions, an act known as the Port Chicago Mutiny. This was a crime punishable by death since the United States was at war. Fifty men‍—‌which the liberal media dubbed the "Port Chicago 50"‍—‌were convicted of mutiny and sentenced to 15 years of prison and hard labor, as well as a dishonorable discharge. All 50 were African American.^[42]

See also: Fascism and the New Deal and Economic planning

Criticism of Economic Planning was suppressed; F. A. Hayek's Road to Serfdom was rejected for publication 3 times "on political grounds" ^[43]

The New Deal did not promote economic recovery, rather it established a system which required a permanent crisis to support a military industrial complex. The system resembled the managed and bureaucratized, state supported system of Germany before World War I. Before this regime the United States lived in a system which depended for its economic expansion upon private investment in private enterprise. After World War II the US lived in a system which depended for its expansion and vitality upon the government. This is a system, based upon a pre-World War II European model created at the moment when it had fallen into complete disrepute and disintegration in Europe.^[45]

Cartelization

Enforcement of the Anti-trust Act was considered as an essential instrument to prevent cartels and trusts in restraint of trade which had been viewed as deadly to the system of free enterprise. On the campaign trail in 1932 Franklin Roosevelt called loudly for its strict enforcement. Yet immediately upon Roosevelt's accession to office the Anti-trust Act was suspended in order to cartelize every industry in America on the Italian fascist corporative model.^[46]

The National Recovery Act (NRA) and the Agricultural Adjustment Act (AAA) were plans to take the whole industrial and agricultural life of the country under the wing of the government, organize it into vast farm and industrial cartels, as they were called in Germany, corporatives as they were called in Italy, and operate business and farms by economic planning schemes dictated and carried out under the supervision of government. This, at the time, was known as fascism. In those days fascism was not yet defined as anti-­Semitism.^[47][48]

Managerial state

James Burnham, a former Trotskyite, discovered in 1941 that the "workers revolution" which allegedly was to overthrow the capitalist "exploiters", was in real practice a "managerial revolution" which replaced older 19th century owners of capital with twentieth century technocrats and managers. Burnham found that "workers in this mythical 'workers' state' were, the facts showed, a subject class far more heavily exploited than the workers under capitalism," and that the new managers in a planned economy "have curbed the masses and have instituted a social structure in which they are on top, not by virtue of private property rights in the instruments of production, but through their monopoly control of a state power which has fused with the economy." ^[49]

CPUSA defector Louis Budenz testified he could name 400 individuals involved in the Communist conspiracy;^[50] others testified there may have been over 1000.^[51] The Silvermaster group infiltrated 27 high level Stalinist KGB operatives into government jobs in the Roosevelt and Truman administrations, including the first General Secretary of the United Nations, the first head of the International Monetary Fund, the head of the Manhattan Project as well as speech writers and staff assistants for both the President and Vice President.^[52]

The New Deal was infiltrated with Communists.^[53] Harold Ware was a Communist Party USA (CPUSA) official in the AAA and founded the Ware group. The group consisted of young lawyers and economists, had about 75 members in 1934 and was divided into about eight cells. The AAA was later found unconstitutional, but by that time the Communist operatives had established jobs in government employment. Alger Hiss, Lee Pressman, John Abt, Charles Kramer, Nathan Witt, Henry Collins, George Silverman, Marion Bachrach, John Herrmann, Nathaniel Weyl, Donald Hiss and Victor Perlo were all members. Harry Dexter White, who was involved in the most auspicious policy subversion as Director of the Division of Monetary Research in the Treasury Department, was also affiliated with the group. The Ware group was the CPUSA's covert arm at this time. Each of these agents not only provided classified documents to Soviet intelligence, but was involved in political influence operations as well.

In 1934, a Congressional Investigation was held to examine statements by Dr. william A. Wirt, who headed the U.S. Office of Education. Dr. Wirt had attended a dinner party with several Brain Trusters at the home of his secretary, Alice Barrows.^[54] Barrows began working for the Office of Education in 1919 and was secretly a member of the Communist Party of the United States (CPUSA) which advocated the violent overthrow of the United States Constitution. Several of the Brain Trusters present at the dinner revealed to Wirt they were CPUSA members. Wirt testified,

Outside government, the far-left was exerting considerable influence in the labor movement (it dominated the new CIO), and was building a network of membership organizations. Thus the American League Against War and Fascism was formed in 1933 and, in 1937, became the American League for Peace and Democracy. There followed the American Youth Congress, 1934; League of American Writers, 1935; National Negro Congress, 1936; and the American Congress for Democracy and Intellectual Freedom, 1939. All had significant Stalinist connections, and fought furious battles with the anti-Communist left.^[58]

The New Deal was able to expropriate the upper income brackets even before World War II. In 1929, total aggregate Personal Income was estimated at $80.6 billion and the tax brackets making above $50,000 retained $5.2 billion, after income and surtax; in 1936, when total Personal Income was estimated at $64.2 billion, not quite $1.2 billion was retained by "the Rich". Taxable income above $100,000 was wholly absorbed by the government when account is made of the inheritance tax. Economist and former Austrian Finance Minister Joseph Schumpeter described it in these terms:

"a tremendous transfer of wealth has actually been effected, a transfer that quantitatively is comparable with that effected by Lenin. The present distribution of disposable incomes compares well with the one actually prevailing in Russia.^[59]

Class warfare

Main article: Class warfare

Robert H. Jackson, Assistant Attorney General, and Secretary of the Interior Harold Ickes in December 1937 made speeches inspired by the President on the conspiratorial Marxist diatribe, America's 60 Families. ^[60]

In February 1944 Congress rejected Roosevelt's demand for a $10,500,000,000 tax increase and cut it to $2,300,000,000. Roosevelt vetoed it saying this was a "bill not for relief of the needy but of the greedy." Senator Alben Barkley, Democratic leader, rose on the floor of the Senate to say the veto was "a calculated and deliberate assault upon the legislative integrity of every member of Congress." The entire Senate united in a roar of applause. Barkley declared that after seven years of carrying the New Deal banner for Roosevelt, he would resign his post as Democratic majority leader and he called on every member of the Congress to preserve its self-respect and override the veto. The Senate overrode it 72 to 14 and the House 299 to 95.

1937 DJIA declined 51.8% over 56 months. There were five crash phases: (1) August to November (DJIA fell 40% in this first phase). (2) February to March 1938. (3) January to April 1939. (4) May 1940. (5) October 1941 to April 1942. Business peaked out and fell violently, simultaneously with stocks. Economic indicators bottomed out 9 months later (May 1938). The recovery began mildly at first, but not until the World War II production boom was the country lifted out of the Great Depression.

The period 1941–42 contained the longest nonstop downswing crash (7 1/2 months) in history. Certain analysts call this two separate bear markets, one from September 1937 to March 1938, and the second from May 1940 to April 1942.

During the Great Bear Market from 1929 to 1942, the Dow Jones Industrial Average (DJIA) had rallies of 48% (from November 13, 1929, to April 17, 1930), 94% (July 8, 1932, to September 7 of that year), 121% (February 27, 1933, to February 5, 1934), 127% (July 26, 1934, to March 10, 1937), 60% (March 31, 1938, to November 12 of that year), and 28% (April 8, 1939, to September 12 of that year). Yet, on April 28, 1942, the apex of the Malthusian crisis that was World War II, the DJIA was still at only 92.92, 76% below its September 3, 1929, high of 381.17.^[61]

Double-dip recession

When FDR was inaugurated for his second term in March 1937 national income, payrolls, and industrial production^[62] were still 20 per cent below the 1929 figure and construction was still only about one third what it had been in 1929 when the nation had a booming economy due to massive speculation that would ultimately lead to the stock market crash. By June, 1937 the U.S. Treasury reported relief payments were less than in the same period the preceding 12 months, however this was not so. The Treasury merely shifted relief payments to other accounts. Relief payments were, in fact, larger than the year before. The Treasury made a practice of "cooking the books" to produce phony numbers. Stock prices declined and by September the dire reality could be no longer hidden. By the end of October 1937 the market crashed. The U.S budget was running a deficit at the time of $300,000,000 a month.

Unemployment worse than in 1933

In January 1938, John D. Biggers in a study commissioned by President Roosevelt reported there were 10,870,000 people out of work, more than when FDR first took office in 1933. ^[63] Roosevelt realized that all the “pump priming” and spending $17 billion had failed. Despite the billions added to the debt, the Depression was back and Roosevelt was at the center of a tug-of-war with advocates of spending like Harry Hopkins, Leon Henderson and Rex Tugwell on one side, and opponents like Henry Morgenthau on the other.

DNC Chairman Jim Farley recalled on a meeting with Roosevelt on March 28, 1938. FDR told Farley he would have "to go in for pump priming or relief," but complained he could not spend on local projects because the states and cities did not want any more buildings and institutions which they would have to pay for in perpetuity. States and localities were having trouble paying the bills on New Deal projects already built. Many WPA projects approved by the federal government were abandoned because the states and cities could not raise the money to support and occupy them.

In the 1938 Congressional elections Harry Hopkins oversaw spending programs with no regard for economic utility to meet the immediate political necessities of an election, but the growth of debt could not go on indefinitely. And the New Dealers problem was complicated by pressure from within the Democratic party to balance the budget.

New capital made available for investment amounted to $348,000,000 in 1935. This was less than 1/10th of the amount available in 1929. By contrast, the British economy had nearly recovered to its 1929 levels by 1935, and the amount available for investment was almost twice as much as the United States.

The country now reached a greater crisis than in 1933. The National debt, which was $22 billion when Roosevelt took office and largely a heritage of World War I, now was $37 billion. Taxes had been more than doubled by Roosevelt.

By April 1938 unemployment reached several thousand more than when Roosevelt was elected in 1932. This was now Roosevelt’s Double Dip Depression. Voices began to speak up suggesting after all Hoover may have known what he was doing, but here, nine years after the Depression began the fundamental condition of the country was no further advanced than it was at the end of Hoover's three-year struggle with it.

The Second New Deal

All during the winter and spring of 1938 a group of young instructors from Harvard and Tufts were busy on a book which they called An Economic Program for American Democracy. which appeared in October, 1938. These instructors had been moving under the guidance of Dr. Alvin H. Hansen,^[66] The theory propounded may be briefly stated thus: The expansion of the American economy came to an end in 1929. Before that it had grown for several well-known reasons. (1) There was a rapid increase in population due to free immigration. (2) The frontier was open to entry and exploitation. (3) Technological expansion went forward upon an amazing scale. But all this came an end. Population is no longer increasing save at a small rate. The frontier is gone, having been exploited and settled. Technological advance at the old rate is no longer possible—the great era of revolutionary inventions is over. A basic change had come over the structure of the American economy.

Real Output and Growth remained stagnant throughout the New Deal. By 1938 Unemployment was worse than when FDR took office.^[67]

The theory continued: Government spending on the First New Deal had been proved to be a powerful. Too many people made the mistake of supposing that this was a temporary expedient to bring back a self-sustaining economic recovery. Government spending must be not be used as merely a pump primer, but as a permanent additional or auxiliary pump. The old pump—private industry and business—could no longer produce the national income required for a full life. The government had to set up built in stabilizers to maintain prosperity. "The government must assume full responsibility for maintaining national income at a sufficiently high level to assure full utilization of our human and material resource."

This must be done, they insisted, by government spending. "The notion that public spending can he safely resorted to as a temporary emergency device must he abandoned."

Their thesis was as follows. The people do not spend all of the income they receive on consumable goods and services. Each year they save great sums. These savings are thus withdrawn from the function of spending. They must be brought back into the stream of spending some way or the system collapses. The orthodox method of accomplishing this in the past has been through private investment. People who save and who do not wish to spend their money for food or clothes or consumable goods are willing to invest it. If they invest it they put it into what are called capital goods—goods designed to produce other goods such as houses, buildings, machinery, etc. If they do this the money is used to create jobs, experts, technicians, etc., and this gets into the hands of people who will consume it. To keep the capitalist system going there must he a continuous flow of all savings into investment—into new industries and the expansion of old industries. That was considered a perfectly sound theory for many years. It was the basis of the opinion of those who appealed to President Roosevelt in 1933 to adopt a program that would encourage business expansion. Instead the president promoted anti-business rhetoric and class warfare causing uncertainty, and job creation suffered.

The New Deal economists, however, as John Flynn cited, were just learning this important principle. But the Brain Trusters concluded that a continuous flow of savings into private investment was no longer possible. This is possible only when business men wish to borrow funds for new enterprises and expansion of old ones. But this would happen again, they said. Expansion on a sufficient scale in new enterprises and expanding old ones is hopeless because the economy has reached the end of its expansion era, as described above. The only way to avoid the inevitable collapse of the system, they proposed, was for the government to step in and borrow those sums which business refused to borrow and to spend the money on all sorts of welfare, educational, social and other public enterprises.

Government spending had already plunged the nation into debt to the tune of nearly $40 billion. Continuous spending of funds borrowed by the government would mean a continuous expansion of the government debt. Government debt, they argued, is not like private debt. It does not have to be paid. The government can keep it afloat indefinitely by redeeming old bonds with new bonds. Moreover, the interest on the government debt will not be a burden. "The debt is due by the people to themselves," they said. The people owe the debt. The people own the bonds which represent the debt. The government taxes the people to pay the interest on the bonds. It takes the taxes out of the pockets of the people and then pays it back to them in the form of interest. It is just taking it out of one pocket and putting it in the other.

The government therefore need not bother about the size of the debt. It can go on borrowing indefinitely.

At this same time Rex Tugwell and Leon Henderson both admitted that the New Deal spending programs failed. But they insisted it had failed because it had been on a far too modest scale. Instead of spending three billion a year, for which Roosevelt was being condemned, Tugwell said it should have spent twelve billion a year.

Making provision for war increased business profits. In 1936 Roosevelt had said, "If we face the choice of profits or peace, the nation will answer – must answer - 'We choose peace'. It is the duty of all of us to encourage such a body of public opinion in this country that the answer will be clear." ^[68][69] By 1938 Roosevelt embarked on a massive defense appropriations buildup; the Administration would advance 30% to a defense contractor when placing an order. The National City Bank reported an increase of overall business profits in the year 1939 over 1938 of 63.6%, and in its December 1940 Bulletin showed for 284 companies "directly affected by war and defense program" a rise of 79.2%. The Wall Street Journal reported, "Betterment in profits was naturally more pronounced, as a rule, in those industries benefiting directly or indirectly from the European conflict." ^[70]

On February 28, 1934, Elliott Roosevelt, son of President Franklin Roosevelt, and Anthony Fokker each received half a million dollars for selling fifty military aircraft to the Soviet government.^[71]

Curtiss-Wright Aircraft, to enlarge its plant, received a loan of $92 million at 4%. I. F. Stone of The Nation magazine wrote,

"Offered as a non-recourse loan . . . the government would have no claim against the Wright company if it failed to repay the loan. All the government could do in that case would be to take the factory. Since the plant would be financed entirely by the government, the government would really be taking back its own property if the Wright company for some reason wanted to drop it. ...The Wall Street Journal reported on August 2 that while the loan was for $92,000,000, 'the cost of the proposed plant and its equipment is understood to be only $37,000,000 or $38,000,000'. When asked by the Journal correspondent about 'this apparent discrepancy', Jesse Jones said, 'We don't believe it would be in the public interest to break down that total at this time'....As this is being written, the Wright contract has yet to be signed. The company is now asking for five-year amortization instead of eight. Incidentally, a vice-president of this finicky company, T. P. Wright, was assigned to the Defense Commission on June 8 to help speed up production"

The Defense Commission was the same commission that would determine and approve the terms of the loan.^[72] PM noted "For an $18,000,000 plant to command a $92,000,000 credit from any bank, including a federal one, may make financiers blink, but that is what has been arranged". The Curtiss-Wright loan was only a little over five times the value of the plant. But Boeing Aircraft, with a plant worth $3,000,000 was awarded a loan of $32,000,000, more than ten times. And Boeing was to own it in five years.^[73]

Main article: Keynesianism

1946 DJIA declined 24.6% over 37 months. There was only one crash phase (August–September 1946), and the bottom was hit within 4 months. But the market moved sideways for almost three years and tested the 1946 low area three times. The final time was in 1949, after which the market rose almost without interruption for the next 12 years (160 to 741 in 1961).

Record keeping and even economic definitions then were not what they are today. By using the Dow Jones Industrial Average (which is practically the only measurement available in real time that scans the entire period) the Dow did not get back to the level it was at in 1929 until 1949 (160 pts on the Dow). Other economic indexes either did not exist, or were developed later, often by guess work. For example, the oft quotes unemployment rate of 25% which peaked in 1932 is only guess work based upon observations in New York City. No one knows what the real national figures were, or what it actually had been in places like Arkansas or Oklahoma. Gross output figures such as GDP did not exist either.

It was not until 1949 that living standards and peacetime employment returned to something like it was prior to 1929. The New Ordeal is evident today throughout American cities where one can see a distinct gap in the building and construction trades that took place in the decades of the 1930s and 40's. Little was built beyond quonset huts, tin structures with a semi-circular shape and a timber frame underneath. And what was built was either extremely expensive, or built by the government usually for military purposes.

• New Deal

• Road to Serfdom, Friedrich A. Hayek, Reader's Digest Condensed Version, April 1945.

• Other People's Money, John T. Flynn, The New Republic, February 20, 1935.

• The New Ordeal, Freeman Tilden, The North American Review, v. 239, February 1935, p. 131-7.

• Ordeal by Planning, John Jewkes, Macmillan, New York, 1948. [2]

• The New Ordeal by Planning, John Jewkes, Macmillan and Co., Ltd., 1968.

• The Ordeal of Total War, 1939-1945, Gordon Wright, New York, Evanston, and London, Harper & Row, 1968.

• Franklin D. Roosevelt: The Ordeal, Frank Freidel, Boston: Little, Brown and Company, 1954.