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Dismantling Roosevelt’s New Deal

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In the midst of the congressional debate over Donald Trump’s tax bill, leftists accused Republicans of planning to dismantle Franklin Roosevelt’s New Deal. While the fear-mongering was baseless, given that Republicans favor the New Deal programs and philosophy as much as liberals do, the question naturally arises: Why shouldn’t Americans dismantle this almost- century-old socialist and interventionist experiment?

 

It is impossible to overstate the significance of what Roosevelt’s New Deal did to America. It revolutionized the country’s economic system, converting it from one based on free markets and voluntary charity to one based on socialism and mandatory charity.

 

In 1787, notwithstanding slavery, tariffs, and many smaller violations of liberty, the American people brought into existence the most unusual — and the freest — society in history. Imagine:

  • Virtually no economic regulations. People were free to engage in economic enterprises without securing a license, permit, or other form of governmental consent. That was what was meant by the term “free enterprise” — not reduced regulation but rather economic enterprise that was free from governmental control or interference.
  • No income tax. People were free to keep everything they earned. No IRS or income-tax returns.
  • No Social Security, Medicare, Medicaid, subsidies, education grants, foreign aid, or other welfare programs.
  • No immigration controls. People were free to come to the United States from anywhere in the world, knowing that they would not be forcibly repatriated.
  • No Federal Reserve System or paper money. The official money of the United States was gold coins and silver coins.
  • No foreign wars in Europe, Asia, or Africa.
  • A relatively small military force. No CIA. No NSA.
  • No secret police force (e.g., no FBI and no IRS investigators).
  • No mandatory school-attendance laws (except in Massachusetts) and no systems of public (i.e., government) schooling.
  • No passports and no restrictions on travel.
  • No sanctions or embargoes on foreign nations (except for the embargo acts of 1807 and 1809 during the Napoleonic Wars).

The framework for this unusual way of life was the U.S. Constitution. Bringing into existence the federal government, the Constitution set forth its powers, which were few and limited.

The result of this way of life, especially in the late 1800s, was the freest, most prosperous, healthiest, most educated, and most charitable society in history. Every day, people from all over the world were flooding into the United States to get a taste of this unique society.

The reason our American ancestors wanted a limited government — that is, one whose powers were limited — is that they understood that people’s own government constitutes the greatest threat to their freedom. By limiting the powers of government, they stood a better chance of being free.

The amazing byproduct of this way of life was an unbelievable economic prosperity. People were going from rags to riches in two or three generations, sometimes less. One main reason was savings and capital. When people were free to engage in economic enterprise without governmental interference or permission and to keep the fruits of their earnings, they tended to save a portion of their income. Savings were deposited into banks, which lent the money to businesses, which invested in better tools and equipment, which made workers more productive. Higher productivity meant higher wage rates and increased profits, leading to even more savings and more capital accumulation. It was an upward cycle of ever-increasing overall prosperity. Sound money reinforced the process.

While their intention was to establish a government based on the concept of individual freedom, Americans stumbled onto a cure for poverty, the societal ill that had bedeviled mankind for centuries. All that any society had to do to end poverty was to adopt a governmental structure by which officials were not authorized to control or interfere with economic activity, where people were free to accumulate unlimited amounts of wealth (i.e., no income tax), and where people were not forced to participate in mandatory charity.

From freedom to socialism

In the late 1800s, seeds of change began to be planted. Enamored with the socialist philosophy and socialist ideas that were gaining ground in Europe, American “progressives” began advocating that the United States adopt socialist principles, such as income taxation, governmental control and regulation of economic activity, a central bank and paper money, and mandatory charity programs.

Their reasoning was as follows: Notwithstanding the enormous prosperity in the United States in the late 1800s, economic conditions were still extremely difficult for many families. That was reflected by the fact that many women and children were sent into the workplace just to survive.

That shouldn’t have surprised anyone. When a society has little wealth, economic conditions are going to be extremely difficult for most people. As the overall society begins to accumulate wealth, conditions are alleviated for some, but still horribly difficult for others. As the society gets increasingly wealthy, the number of impoverished families continually drops, even if there are still some who are experiencing difficulty or destitution.

What mattered, however, was the ever-upward incline in the overall societal standard of living. That’s what progressives failed to recognize. By focusing on the brutal conditions that still existed for some in the late 1800s, they figured that Americans would be better off abandoning their unique economic system in favor of a socialist and paternalist one — e.g., one in which the government planned or controlled economic activity and promised to take care of people by taxing the rich and giving the money to the poor.

What progressives and other Americans failed to realize, however, was that while taxing Peter to give the money to Paul might help Paul in the short run, an economic system based on that principle would ultimately cause the upward incline in prosperity to slow, then stop, and then devolve into a cycle of economic decline.

From the late 1800s to the 1930s, there were enormous debates over the future direction of the United States. On the one side were arrayed the proponents of economic liberty. On the other side were arrayed the proponents of socialism and interventionism.

Demonstrating the power of ideas, for better or worse, the progressives brought about a shift in public opinion in favor of their philosophy.

In 1913, for example, progressives succeeded in their efforts to get a federal income tax imposed on the American people. At first, hardly anyone paid attention, especially since progressives promised that it would be levied only on the rich. Over time, nearly everyone would end up having a large portion of his income taken from him by the federal government.

In that same year, progressives succeeded in their efforts to get a central bank for the country, which became known as the Federal Reserve System. It would ultimately open the floodgates for federal spending and debt, which, in turn, would end up destroying America’s gold-coin, silver-coin monetary system and replacing it with one based on irredeemable paper notes.

It all came to a head in the 1930s with the adoption of Roosevelt’s New Deal. Using the crisis of the Great Depression as an excuse, Roosevelt proceeded to revolutionize America’s economic and monetary systems.

One New Deal principle was that the federal government would now wield the authority to establish mandatory charity programs — that is, programs by which the government would use the Internal Revenue Service (which progressives brought into existence in 1913)  to take money from one group of people in order to give it to another group. That, of course, was the essence of the socialist philosophy that progressives had been advocating — the notion that government should take care of people, force people to be good and caring, and coercively confiscate and redistribute wealth.

The crown jewel of this system was Social Security, a governmental program that originated among socialists in Germany and was ultimately adopted by the “Iron Chancellor of Germany,” Otto von Bismarck. That’s why a bust of Bismarck today appears on the website of the U.S. Social Security Administration.

It is impossible to overstate the significance of Social Security. Not only was it the first socialist program in the United States, it also heralded the new economic system that was now to guide America — one that became known as the “welfare state,” a way of life in which the American people would no longer be fully free to make their own charitable decisions, but instead one in which the federal government would wield the power to force them to make charitable outlays.

Many Americans, including seniors, are convinced that Social Security is a retirement account, one by which they “put into” the system and then get their money back when they get old. Nothing could be further from the truth. From the very beginning, Social Security was established as a welfare program, one that took people’s money and gave it to seniors. There never has been a retirement account or a Social Security “fund,” and there never will be. Social Security is a standard socialist program, no different from any other.

Once Social Security was enacted, the floodgates were open to an entire panoply of welfare programs, including Medicare and Medicaid, farm subsidies, food stamps, foreign aid, education grants, and many more. There is no end to what can be done when government confiscates people’s money and gives it to others.

The irony was that it was the federal government that was the cause of the 1929 stock-market crash that brought on the Great Depression. Needless to say, that’s not what U.S. officials told the American people at the time. They said that the crash and the Depression were the result of the failure of America’s free-enterprise system. The New Deal, Roosevelt maintained, was not an abandonment of America’s free-enterprise system but instead a way to save it.

It was all a lie, through and through. The truth was that America’s free-enterprise system had not failed at all. Instead, it was monetary central planning by the Federal Reserve System that had been established in 1913 at the urging of progressives that brought the 1929 crash and the Great Depression. Roosevelt’s New Deal then rejected and abandoned the unique free-enterprise way of life that had come to characterize the American people in favor of a redistributive welfare state.

Increased regulation

Unfortunately, Roosevelt didn’t stop with a welfare-state revolution. His New Deal also made it clear that the federal government would now wield the power to control, manage, plan, and interfere with economic activity. The most extreme example of this was his National Industrial Recovery Act (NIRA), which ordered American businesses and industries into cartels that wielded the authority to set prices and establish other workplace conditions.

It would be difficult to find a better example of a violation of free-enterprise principles (i.e., enterprise that is free of governmental control) than the NIRA. In fact, the entire program, including its infamous “Blue Eagle” propaganda campaign, would have fit perfectly in Benito Mussolini’s fascist Italy. Perhaps that’s why the U.S. Supreme Court declared his obviously fascist program unconstitutional, even while leaving most of Roosevelt’s other regulatory powers intact.

For a good understanding of how different Roosevelt’s New Deal was, compared with America’s founding economic system, see Three New Deals: Reflections on Roosevelt’s America, Mussolini’s Italy, and Hitler’s Germany, 1933–1939, by Wolfgang Schivelbusch. The fact is that Roosevelt’s welfare-state, regulatory-state revolutionary system was similar to what Hitler and Mussolini were establishing in their respective countries to combat the depressions in their countries.

Roosevelt also revolutionized America’s monetary system by adopting a policy of nationalization that was being employed in the Soviet Union and other communist regimes. Soon after taking office, he decreed an end to the gold-coin standard on which the nation was founded and which had been America’s monetary system for more than 100 years. He decreed that thenceforth the United States would operate under a system of paper money that was not redeemable in gold. Nationalizing gold, he ordered every American to turn in his gold coins to the federal government, which would pay him in irredeemable Federal Reserve notes. Anyone failing or refusing to do so would be hit with a felony criminal prosecution and harsh punishment. Adding insult to injury, soon after the nationalization Roosevelt devalued the paper money that he had just recently ordered Americans to use.

The conversion to a paper-money standard and the use of the income tax, combined with a welfare-state and regulatory state and, later, a warfare state, opened the floodgates to unrestrained federal spending and debt, which today, 73 years after Roosevelt’s reign, has headed the federal government toward financial bankruptcy.

Even worse is what the welfare state has done to the ever-increasing upward momentum of economic prosperity. Faced with ever-growing confiscation of a portion of their income, many Americans are unable to save anything, living from paycheck to paycheck. The decreased growth in savings and capital has served to stifle economic growth and standards of living.

Helpless Americans

Worse yet is what it has done to the American people, making so many of them helpless wards of the state, convinced that they would not survive without the government’s serving as their parent and convinced that they have a right to get into the pocketbooks of others and take their money, so long as the state does it for them. Social Security and Medicare are the prime drivers of this phenomenon.

Worst of all is the belief among so many Americans that the welfare-state, regulated-economy way of life constitutes “freedom.” From the first grade in the government-approved schools to which their parents are forced to send them, people are inculcated with the notion that they are growing up in a free society, one in which Roosevelt’s New Deal purported to save America’s “free enterprise” system. They are expected to block out of their minds that Social Security, Medicare, Medicaid, subsidies, income taxation, a Federal Reserve System, public (i.e., government) schooling, and drug laws are core elements of the systems in Cuba, North Korea, and other socialist countries. Americans embody perfectly the immortal words of Johann von Goethe: None are more hopelessly enslaved than those who falsely believe they are free. The psychosis from living such a life of the lie might explain the massive level of alcoholism, drug addiction, suicide, violence, and other dysfunctionalities of American society.

And here’s the kicker: This revolutionary transformation of America’s economic and political system was all done without even the semblance of a constitutional amendment.

The purpose of the amendment process was to enable Americans to alter their form of government in fundamentally different ways. It would be difficult to find a more fundamental change in America’s governmental structure than what Roosevelt did with his New Deal. Yet, he was permitted to achieve his economic and monetary revolution simply through decree and legislation.

Our American ancestors understood the dangers that crises posed to their liberty and well-being. They understood that governments inevitably seized upon crises to take away the freedoms of the citizenry, in the name of “temporarily” keeping them safe and secure.

That was the message that Roosevelt delivered to the American people — that his New Deal was designed simply to address the temporary emergency of the American people. It was a lie, as Americans were later to realize. In fact, he was using what was obviously a temporary economic emergency to accomplish a permanent and revolutionary change in America’s governmental structure. After all, the Great Depression ended in the 1940s. Yet we are still saddled with the economic system and programs that were enacted to address the Depression, with Social Security being the prime example.

Americans had more than a hundred years of a genuine free-enterprise system, one in which people were free to engage in economic enterprise without governmental interference, accumulate unlimited amounts of wealth, and do whatever they wanted with their own money.

Americans have also had 85 years of a false and fake “free enterprise” system, one in which the government controls, regulates, and plans economic activity; wields the unlimited power to tax and plunder people, and forces people to participate in mandatory charity programs.

It’s time for Americans to do some serious reevaluating before their socialist system does even more damage. It’s long past time to dismantle, not reform, Roosevelt’s New Deal and restore America’s founding principles of economic liberty to our land.

This article was originally published in the March 2018 edition of Future of Freedom.

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    Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.