Serenity Wang is a graduate student at the University of Pennsylvania. She was active in the grassroots Ron Paul movement and was county coordinator for Philadelphia in the Ron Paul campaign's precinct leader program. She attended Mises University in 2008 and passed the oral exam with honors. See her blog on freedom and food.

Obama himself is said to have studied FDR's policies in an effort to emulate the president, much idolized and four times elected, who presided over the worst economic depression in U.S. history so far.

This is a good time to review how destructive FDR's first hundred days were and why we should all pray that the change Obama promised does not consist of more of the same type of New Deal policies that once crippled the U.S. economy for a decade.

FDR's first act as president was to declare a bank holiday. Taking full advantage of the banking crisis, FDR rammed the Emergency Banking Act through a willing Congress and conveniently gave himself and his administration unprecedented powers over monetary policy and financial institutions. Under the Emergency Banking Act, only those banks deemed sound by the government would be allowed to reopen. The bill also gave the president the power to regulate or prohibit "any transactions in foreign exchange. . . and export, hoarding, melting, or earmarking of gold or silver coin or bullion or currency." It gave the Secretary of the Treasury the power to confiscate gold coins, bullions, and certificates from the citizenry. (After forcing Americans to accept dollars for gold, FDR's administration proceeded to devalue the dollar by raising the price of gold from $20.67 per ounce to $35 per ounce.) In June of 1933, FDR signed a joint Congressional resolution that abrogated the gold clause in all contracts. Thus FDR moved away from the gold standard and towards a managed currency.

The medicine with which FDR attempted to cure the ailing economy was the propping up of prices, as price deflation was wrongly identified as the cause of the depression. FDR tried to control commodity prices by fixing the dollar price of gold, which he did in a completely arbitrary manner. In John T. Flynn's classic treatment of the FDR years, The Roosevelt Myth, the journalist illustrates the absurdity of the situation with this anecdote:

One day they wished to raise the price. Roosevelt settled the point. Make it 21 cents, he ruled. That is a lucky number -- three times seven. And so it was done. (Flynn, p.57)

It was a crime against our civilization to pay farmers in two years $700,000,000 to destroy crops and limit production. It was a shocking thing to see the government pay one big sugar corporation over $1,000,000 not to produce sugar. (Flynn, p. 49)

What little knowledge I have about what life was like during the Great Depression I gleaned from John Steinbeck's novel, The Grapes of Wrath. And even in high school, when I first learned about the magnificent New Deal and the man who rescued America from the grips of the Great Depression, I knew that there was something terribly wrong with burning crops and killing pigs at a time when people had to eat fried dough for sustenance.

Even grander and more dramatic was the National Industrial Recovery Act (NIRA). The NIRA catered to the interests of big business and organized labor. It created the National Recovery Administration to enforce codes, drawn up by the trade associations of various industries, that would limit production and competition and force businesses to adopt minimum-wage and maximum-hour laws. Prices were fixed in order to keep desperate businesses from aggressively undercutting each other ("fair competition"), and production was limited in order to further prop up prices. Minimum-wage and maximum-hour laws effected artificially high labor costs, which exacerbated unemployment.

Senator King of Utah correctly identified the model on which the NIRA was based when he asked if it was "drawn largely from the philosophy of Mussolini or the old German cartel system." (Rauch, p. 79) Indeed, the NIRA created a fascist system in which trade associations teamed up with government to regulate businesses and control the economy. The effect of such a bureaucratic scheme of centralized economic planning was to further cripple the economy. The NRA regulations themselves were lunacy. Flynn writes:

A tailor named Jack Magid in New Jersey was arrested, convicted, fined and sent to jail. The crime was that he had pressed a suit of clothes for 35 cents when the Tailors' Code fixed the price at 45 cents. (Flynn, p. 44)

Thus, at a time when nearly a quarter of the population was unemployed, the NRA created artificial shortages in commercial products, while the AAA created artificial shortages in agricultural goods, all in the name of combating price deflation.

In view of FDR's accomplishments, all of which prolonged and worsened the Great Depression, we can only hope that Obama does not actually attempt to emulate FDR. So far, it looks like Obama is going to try to spend his way out of the depression. That will not work. In May of 1939, FDR's Treasury Secretary Henry Morgenthau wrote in his diary:

We have tried spending money. We are spending more than we have ever spent before and it does not work. . . . We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot.

The repercussions of Obama's economic policy are yet to be seen, but one thing is for certain -- his administration will not do the one thing that a government can do to allow the economy to recover as quickly as possible: refrain from doing anything. This would mean cutting back government spending, regulating, inflating and taxing. At it looks now, Obama's $825 billion stimulus plan is only the beginning. There will be more spending, more bailouts, and an ever increasing national debt.


Books Cited:

Flynn, John T. The Roosevelt Myth. New York: The Devin-Adair Company, 1948.
Rauch, Basil. The History of the New Deal 1933-1938. New York: Capricorn Books, New York, 1975.