Roosevelt, the Great Depression, and the Economics of Recovery

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Elliot A. Rosen. Roosevelt, the Great Depression, and the Economics of Recovery. (Charlottesville: University of Virginia Press, 2005. ISBN 0-8139-2368-9.


In the opening paragraphs of this significant work, author Elliot A. Rosen ponders what might have happened if Franklin Delano Roosevelt had not assumed the presidency. It raises the question of whether there would have been a New Deal, and if not, what would have taken its place, for there was certainly more than one approach being contemplated for addressing the nation's economic ills in 1933.

A series of events in the wake of the 1929 stock market crash had left the U.S. economy in a fearful condition. It had begun in Europe, where disputes over war debts and reparations had resulted in a dramatic fall-off in the monies American banks could expect from European debtors. These disputes were made worse by the British decision to terminate its use of the gold standard. These events signaled a decline in the international monetary community’s ability to exercise a cohesive authority.

The disarray abroad and the overvalued American dollar (a condition caused by the persistent gold standard) created a death spiral in which there were fewer dollars in circulation, which meant Americans had fewer dollars to spend. This lack of purchasing power made it impossible for the U.S. industrial output to be consumed. The unconsumed productivity resulted in fewer dollars in circulation, as the nation's economy produced fewer goods and services.

The Hoover Administration--and indeed a long line of GOP administrations before it--had embraced a series of principles that Rosen characterizes as the “Sound Money School.” These principles included maintenance of the gold standard, deflation of the dollar, balanced federal budgets, aversion to deficit spending by the federal government, limited federal intervention in domestic economic affairs, and maintenance of the U.S. economic role in international monetary discourse. Sound Money adherents believed the U.S. government was ill-qualified for and incapable of effectively managing domestic affairs and was well advised to leave these matters to the corporate community. The onset of the Depression had produced minor variations in this program without altering the overall structure.

Roosevelt's New Deal featured a devaluation of the dollar through inflation and the management of gold's influence; public works projects to increase regional purchasing power; deficit spending; and major efforts to “prime the pump” using a bewildering array of agencies to manage supply and labor. New Dealers believed that only the federal government had the resources and objectivity to correct the dismal economic conditions of the 1930s.

Throughout the 1930s, these opposing approaches to the country’s woes would dominate American life for good and ill. The Sound Money ideals on deflation would eventually cause massive bank failures, while New Deal attempts to manage the economy through the National Recovery Administration and to provide make-work opportunities would both prove ineffective at fostering real growth. Much more effective were later attempts by the National Resource Planning Board to increase consumption without manipulating industrial operation. Rosen makes the case that these attempts at stimulating demand were the only real successes of the New Deal towards recovery.


In his book, The End of Reform: New Deal Liberalism in Recession and War, author Alan Brinkley makes the case that the reformed pattern of government established by the New Deal remains one of its most enduring legacies. This is compatible with Rosen's arguments. Rosen makes the case that the New Deal's attempts to stimulate recovery by manipulating supply and increasing consumer purchasing power failed. Rosen then states that the pattern of encouraging consumption/demand without interfering in supply or industrial discourse was the most successful of the New Deal's activities. This form of governmental discourse remains common today and represents a significant reform wrought by the New Deal, reform that Brinkley would recognize.

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