An article encapsulating some of the key points of Amity Schlaes’ The Forgotten Man in PDF form:
We all know the traditional narrative of that event: The stock market crash generated an economic Katrina. One in four was unemployed in the first few years. It resulted from a combination of monetary, banking, credit, international, and consumer confidence factors. The terrible thing about it was the duration of a high level of unemployment, which averaged in the mid teens for the entire decade.
The second thing we usually learn is that the Depression was mysterious — a problem that only experts with doctorates could solve. That is why FDR’s floating advisory group — Felix Frankfurter, Frances Perkins, George Warren, Marriner Eccles and Adolf Berle, among others — was sometimes known as a Brain Trust. The mystery had something to do with a shortage of money, we are told, and in the end, only a Brain Trust’s tinkering with the money supply saved us. The corollary to this view is that the government knows more than American business does about economics.
Another common presumption is that cleaning up Wall Street and getting rid of white-collar criminals helped the nation recover. A second is that property rights may still have mattered during the 1930s, but that they mattered less than government-created jobs, shoring up home-owners, and getting the money supply right. A third is that American democracy was threatened by the rise of a potential plutocracy, and that the Wagner Act of 1935 — which lent federal support to labor unions — was thus necessary and proper. Fourth and finally, the traditional view of the 1930s is that action by the government was good, whereas inaction would have been fatal. The economic crisis mandated any kind of action, no matter how far removed it might be from sound monetary policy. Along these lines the humorist Will Rogers wrote in 1933 that if Franklin Roosevelt had “burned down the capital, we would cheer and say, ‘Well at least we got a fire started, anyhow.’”
To put this official version of the 1930s in terms of the Monopoly board: The American economy was failing because there were too many top hats lording it about on the board, trying to establish a plutocracy, and because there was no bank to hand out money. Under FDR, the federal government became the bank and pulled America back to economic health.
When you go to research the 1930s, however, you find a different story. It is of course true that the early part of the Depression — the years upon which most economists have focused — was an economic Katrina. And a number of New
Deal measures provided lasting benefits for the economy. These include the creation of the Securities and Exchange Commission, the push for free trade led by Secretary of State Cordell Hull, and the establishment of the modern mortgage format. But the remaining evidence contradicts the official narrative. Overall, it
can be said, government prevented recovery. Herbert Hoover was too active, not too passive — as the old stereotypes suggest — while Roosevelt and his New Deal policies impeded recovery as well, especially during the latter half of the decade.
H/T to Monty for the link.
