Breaking the Myth

A Review of Burton W. Folsom Jr.’s New Deal or Raw Deal?

Burton W. Folsom, Jr. was born in 1947. A professor at Hillsdale College, he was given his doctorate in history at the University of Pittsburgh. In addition, he is a senior historian for the Foundation for Economic Education in Irvington, New York. His books on American history have appeared newspapers like The American Spectator and The Wall Street Journal.

BY ANTHONY PRICE

Burton Folsom Jr. discusses the negative aspects of the New Deal in New Deal or Raw Deal? How FDR‘s Economic Legacy Has Damaged America. From the Social Security Act to the Works Progress Association and Agricultural Adjustment Act, Folsom fathoms the true effects of Franklin D. Roosevelt’s legislation. The modern political perspective, in the wake of the housing and economic issues that are prevalent, is that the government should increase their hold on how capital is used and how the New Deal epitomized governmental control. Folsom believes that the New Deal was a failure because it did not end the Great Depression—a goal preached by President Roosevelt in order to have his legislation passed. Folsom describes the financial situation, that “the minimum wage increased unemployment in the 1930s,”1 and that the, “the Smoot-Hawley tariff of the 1930... which raised the import tax to the highest level ever, may have been the single most economically destructive law to pass the U.S. Congress in all of the twentieth century.”2 Focusing on the average American, Folsom goes into greater detail by analyzing the effects of minimum wage, the long-term consequences of Social Security, the character of Franklin Delano Roosevelt, and how they changed the American perspective on the presidencies and politics for future generations.

In the beginning, Folsom discusses the impact Franklin Roosevelt has had on the historians today, as he refers to other experts such as Henry Steele Commager and Richard B. Morris, who at the time, wrote several articles analyzing the Roosevelt’s actions and how they affected everyone— lso known as the Roosevelt Legend. Arthur M. Schlesinger, Jr., along with William Leuchtenburg, portrayed FDR as a hero. With the 1920s being seen as a negative era, Roosevelt was successful in creating a positive light of the New Deal. His idea of the under consumption thesis, where the Great Depression worsened due to the inadequate purchasing power of the people also helped in the popularity and interest in his ideas. Also, the sound of the New Deal was revolutionary and the intentions of the legislation appealed to many. While Roosevelt’s ideas won the hearts of the people, his character also had a great impact. His eloquence in speeches and his fire-side chats kept the nation optimistic and gave the people of America the impression that the president was on their side. His success was evident as “he won [the] reelection by a smashing 523 to 8 landslide in the electoral college—and then won two more terms after that. His fireside chats on the radio uplifted Americans and mobilized them behind his New Deal.”3

The book continues with a look at Roosevelt’s family and childhood, his battle with polio and his determination to live, along with his ability to learn quickly from experience. After graduating from Harvard, he began his career as a politician, running for New York state senator. The Great Depression was a major catalyst in passing many of the New Deal programs. With World War I being another agitator to the economy, Folsom explains that, “Here at home, the United States saw its national debt balloon from $1.3 billion to $24 billion in three short years. A large chunk of that debt - almost one-half - consisted of Allied loans.”4 With Europe rebuilding, the nations needed time for their economy to start up again. In addition, “the Smoot-Hawley Tariff Act, which was debated and passed during 1929 and 1930, instituted the highest tariff ever in U.S. history.”5 This further damaged the trade between the United States and Europe, the latter nations themselves passing tariffs in response. This tariff, while damaging to foreign nations, also affected the economy on the home front. Prices continued to hike as consumers were forced to pay more for their products. Believing that businesses were the ones to blame, the NRA, or National Industrial Recovery Act was enacted in 1933. This forced the industrial leaders to come together and set codes which fixed prices and services to ensure “fair” competition. The NRA targeted businessmen and their practices; similarly, the AAA or Agriculture Adjustment Act targeted the farmers. To rebuild the economy from Hoover’s Federal Farm Board, Roosevelt chose several crops, including wheat and cotton. These products were now given maximum prices in order for the farmers to have a steady income. Farmers switched to producing these two crops for security, thus creating deflation. The money spent to store the products from overgrowth eventually lost the government $500 million to the program.

The president continued his programs to help the people by passing the ERA or Emergency Relief and Construction Act, which gave the government the responsibility of aiding the needy. In the 1800s, president Grover Cleveland strongly vetoed legislation that was to give relief to Texas farmers in need and stated that “…Federal aid, in such cases, encourages the expectations of paternal care on the part of the Government and weakens the sturdiness of our national character. As for Texas, Cleveland noted, ‘the friendliness and charity of our countrymen can always be relied upon to relieve their fellow citizens in misfortune.”6 Decades later, Cleveland’s prediction came true as the ERA was authorized to give $300 million to states needing assistance. The ensuing scramble left larger states such as Illinois gaining a total of $55 million while the smaller states like Massachusetts received nothing. The de-privatizing of industries such as the air mail service killed twelve pilots. Poor coordination at the Federal Emergency Relief Administration camps killed two hundred fifty-six war veterans during a hurricane. With experience needed in privatized occupations, unskilled workers worked hazardous jobs and suffered from FDR’s ignorance. Folsom continues his argument by discussing the weaknesses of the TVA, or Tennessee Valley Authority, in which he states, “first, the concentrating benefits among the 2 percent of the population living in the Tennessee Valley had to be done by taxing away wealth from the other 98 percent… the state of Tennessee in the fifty years after the 1930s actually lagged behind nearby states in economic development.”7 From an economic standpoint, the author discusses the alteration of gold and silver as these two products were bought over the market price, forcing taxpayers to pay for their purchase. Roosevelt and his supporters, in their desperate attempt to reform the economic life in America, crushed the working man. Minimum wage laws destroyed the freedom of creating a personalized contract and lead to unemployment. Social security caused taxpayers to continually pay for others’ retirement, and finally, the balance of power shifted from the employers to the employees through their labor organizations. The author continues by pointing out the issues of the New Deal with the continuation of excise, income, and corporate taxes. Excise taxes were passed in the Hoover administration to raise revenue for public and government funds. While promises were made to decrease and eventually end them, these taxes continued and even increased due to the continuous spending for New Deal programs. To redistribute the wealth and create revenue for his New Deal programs, Roosevelt also increased the income tax for those making higher wages. Finally, corporate taxes were a way for the government to gain revenue from the successes of businesses.

The New Deal programs swallowed government funds, yet no progress was made and suspicion fell upon Roosevelt and his administration. The IRS soon became the president’s weapon to discard his opponents, including Huey Long and Senator Wheeler of Montana who spoke against Roosevelt‘s court packing. This tactic also elevated Roosevelt’s allies to power. Folsom theorizes that “the following equation seems to be true: FDR+$= in patronage= reelection.”8 Enormous amounts of capital—said to heal the economy—were instead spent on FDR’s presidential revival. Once back in office, Roosevelt went through the ideas of court packing, purging, and the ever-present issue of race. These strategies allowed for an easier passage for his legislation. One of Roosevelt’s angles on defeating the Republicans was the idea that his party was more liberal; however, he took no action to exclaim his message. Roosevelt continued to use under-handed tactics which is shown when he proclaims, “I shall approach the problem of carrying out the plain precept of our Party, which is to reduce the cost of current Federal Government operations by 25 percent.”9 Unfortunately, even his own treasury secretary, Morgenthau, who had been with the president all through his terms, prevented the passage of $67 million to Rexford Tugwell who was in charge of the Resettlement Administration and sardonically stated that “this is so typical of the President.”10 Our first president had set the standard on how the administration should be run and how the president should behave properly. Roosevelt fell short of the precedent however, as there was an increase in power to the executive branch, along with a favoritism toward his allies.

Folsom dispels the myth of success that entailed the New Deal by studying the economic, political, and cultural consequences. The programs aimed to help the people but instead, raised unemployment and fixed competition. With minimum wage enforced, skilled workers were more sought after. The president also ruined the reputation of the White House through political schemes by using programs against opponents and helping friends with funding. Connections have been made by Folsom between the New Deal Programs and the economic recession today; several are still in effect. Folsom believes that Social Security, the IRS, and the CCC continue the myth of the New Deal. Professor David Gordon, who is associated with the Ludwig von Mises Institute believes that “[Those familiar with Flynn‘s The Roosevelt Myth]… will find Folsom’s book valuable. Folsom advances new and important arguments.”11 Doctor Gene Smiley, a member of the Board of Advisors for The Quarterly Journal of Austrian Economics also reviewed this book and stated that “Folsom’s is an excellent book overall, and it clearly adds to our knowledge of Roosevelt’s character and motives in the 1930s.”12 Their reasons extend further as this book delves deeper into the motives of Roosevelt and includes a critical view of his character. Throughout the book, the author presented his ideas and facts clearly; statistics, along with comparisons between nations has given much perspective into how the United State’s situation compared to the rest of the world. His use of quotes and personal anecdotes from business owners and middle-classed working people helped show how this affected the everyday life of the people. The book could, however, discuss some of the positive aspects of how the Public Works Administration and Civilian Conservation Corps works projects culturally benefited the communities.

Folsom points out -- through examples and anecdotes from those present -- that the New Deal was a disaster because it failed to end the Great Depression and led to the sinking reputation of the White House for future presidencies. The hypocrisy, along with broken promises gave the precedent that such actions are allowed in a president’s administration, as long as one is elected. This is described as “As FDR discovered, he could promise one thing in an election and deliver something quite different and get away with it as long as many political constituencies received their subsidies.”13 Politically, these programs greatly increased the power to the government to an almost dictatorial status for Roosevelt. Using political tactics to subdue opposition, whether through FBI or IRS investigations, or the endorsement of allies using federal funds, the president practiced all these actions. Economically, the minimum wage made unemployment worse and limited the job opportunities for the people, and in comparison with other European nations, the United States fared worse. In a cultural aspect, the people, along with senators and representatives, believed that as long as they received federal patronage, they would continue to vote for legislation. The integrity of the White House was lost, and now, even today, the people are swayed by those influential in the cities, and by the politicians who want increased power.

The New Deal was a watershed in a sense that the American political, economical, and cultural history was expanded. The government was more heavily involved in the lives of the people through its programs. This, however, did not have the effect needed to help the United States climb out of its miserable economic climate. While these programs were efforts to combat the persistent issue of the Great Depression and attempts were made to uplift the people away from the dismal 1920s, they still did not ultimately fix the overall issue. Culturally, this time period was chance for the United States to perceive a different perspective, and at the very least, action was taken to help those in need and to prevent the farmers from feeling the disastrous effects of deflation. With the underhanded tactics used by Roosevelt however, the political climate became more hostile, and politicians, along with the people, were swayed by funds that were for their individual benefit—not for the betterment of the country as a whole. This could be seen by Jim Farley asking the question, “How could Senators Patrick McCarran of Nevada and Joseph O’Mahoney of Wyoming afford not to vote for the bill if they ever wanted anything from the administration?”14 This, along with several of the programs still in place today, still has an impact in playing an active role in our society.

Nearing the conclusion of his thesis, Folsom ends his book with the presidencies and the precedent that was left behind by Roosevelt, especially with the usage of money to gain voters for the election. The notion of winning through integrity, keeping promises, and fixing the issues that arise was swept away, as it was not needed to keep office. The effects of the New Deal, during the 1930s all the way to the present, were just one of its remains. Unemployment, as studied by Folsom and others, had a direct connection with minimum wage, and so while the laws increased the minimum wage, teenagers along with unskilled workers soon were let off because of the pay needed. Also, Folsom described the situation today on the topic of farm subsidies, “today, with the creation of the huge ethanol subsidies, corn farmers alone have received over $7 billion in farm subsidies—which comes to $1.45 added to each gallon.”15 While the New Deal had its positive effects such as expanding the government in an attempt to improve the lives of the people, Folsom’s meticulous explanations and statistics clearly showed the true consequences of the programs that occurred then and now.

Endnotes

Student Bio

Anthony Price was born in Urayasu, Japan. He has played for two years on Irvine High School’s baseball team, and regularly volunteers for the Irvine Little League. His hope is to continue to learn about history and to someday incorporate that into his profession.