FDR’s reasoning was devious. According to Treasury Secretary Henry Morgenthau Jr., Roosevelt wanted to “keep things on an unsettled basis” until the Supreme Court ruled on the constitutionality of his gold legislation. The more chaos for the Court and financial markets, the greater the chance the public would throw up its hands and demand that FDR be given control over the currency.
Meanwhile, with the dollar off the gold standard, FDR could set the price himself, which he did, often over breakfast with Morgenthau. Just how arbitrary was this process (which was aimed at raising prices)? Morgenthau revealed that Roosevelt suggested a price increase from nineteen to twenty-one cents one morning because “It is a lucky number . . . because it’s three times seven.”
When FDR set the gold price to thirty-five dollars per ounce by law, he devalued the currency by more than forty percent, wiping out savings with a pen stroke.
FDR LOSES THE BATTLE BUT WINS THE WAR
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Many of the most harmful of Roosevelt’s policies were struck down by the Supreme Court, which was led by FDR’s old friend, Chief Justice Charles Evans Hughes. But FDR wasn’t about to take it lying down.
In February 1937, fresh off reelection, FDR proposed what would become known as the “court-packing” scheme. Alleging that the Court was flouting the will of the executive and legislative branches in its “activism,” he chided the Court for “making law from the bench.” He argued that modern conditions demanded action.
His plan called for federal judges to be given the option to resign and accept a pension upon reaching the age of seventy. If they refused, FDR would get to appoint additional judges. Since six judges on the Supreme Court were older than seventy, Roosevelt would have the power to potentially expand the Court to fifteen judges, thereby ensuring a favorable majority.
In spite of Democratic control of Congress, a series of events conspired to kill Roosevelt’s bill, including a flurry of Court decisions upholding parts of the New Deal that hinged on the defection of one judge from the “conservative” side to the “liberal” side, the retirement of another judge, and a shift in public opinion against FDR.
Although Roosevelt lost this battle, he won the war. William Rehnquist, who became chief justice five decades later, argued that by breaking with the two-term tradition to win four terms in office, the power-hungry FDR was able to appoint eight Supreme Court justices, shaping decisions for decades to come.
MORE NEW DEAL NUISANCES
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Court actions notwithstanding, much of FDR’s agenda continued to surge ahead. He tripled taxes; created more government entities such as the Federal Communications Commission (FCC), the National Labor Relations Board (NLRB), and the Securities and Exchange Commission (SEC); created a new entitlement in Social Security; and doubled federal spending.
The FCC’s regulation of the communications industry, designed to protect a limited resource, also gave it the power to regulate the content of communications. The FCC threatened anti-FDR stations with license revocation and restricted all “partisan” broadcasts, Roosevelt’s own notwithstanding.
The NLRB “protected” labor by forcing employers to bargain collectively with unions and by mandating minimum-wage floors that dramatically increased unemployment. Strike activity doubled from fourteen million days to twenty-eight million days from 1936 to 1937. But FDR’s “pro-labor” policies did have a positive political effect—at least, for him and future Democrats. Between 1933 and 1945, union membership grew to fourteen million from less than three million, most of them loyal FDR Democrats. By this time, union members now accounted for thirty percent of the entire labor force.
The SEC, designed to protect investors by regulating securities, imposed costly disclosure requirements on businesses, preventing them from raising more capital to expand and create new jobs. Studies showed that rates of return on stocks before and after the SEC’s creation were indistinguishable, which should not have been the case if their job was actually to prevent frauds. The SEC mandated price fixing, sustaining a cartel of Wall Street firms. The little guy received the same investment returns but paid more for them.
Speaking of frauds, Social Security, which is, in effect, a legalized Ponzi scheme, has been on a path to insolvency since the day it was signed.
Roosevelt spent and regulated like a drunken sailor in spite of criticizing President Hoover on those very same grounds during the 1932 presidential race. And perhaps worst of all, he paid for it all by vastly expanding and steeping the tax code. What was only four hundred pages at the start of FDR’s administration ballooned to more than eighty-two hundred pages by the end of it. While designed to make individuals and businesses pay their “fair share,” it had the effect of stifling economic growth and completely reshaping the economic promise of America from one of individual achievement into one of redistributive equality.
FDR MAKES THE DEPRESSION GREAT
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The New Deal was designed to relieve suffering and put America on a sustainable and equitable path. But designed is the key word there. The actual effect was something else entirely.
FDR, in fact, turned what would otherwise have been a Depression into a Great Depression through his attempts at social and financial engineering. From 1933 to 1940, the average annual unemployment rate averaged 18.6 percent. The economy went on a “capital strike,” as private investment did not return to 1929 levels until 1941. FDR’s constant “experimentation” created uncertainty, and there is nothing that private companies and stock markets hate more than that. Business was paralyzed as a result. In 1937 and 1938, after brief gains from the depths of the Great Depression, the economy collapsed into a double-dip recession. From 1937 to 1938, industrial production declined by thirty-three percent. National income hemorrhaged thirteen percent. Wages went down by thirty-five percent. All of this unsurprisingly added up to an unemployment rate that rose by roughly five percentage points. An estimated four million workers lost their jobs.
C. S. Lewis, in God in the Dock, could have been speaking for millions of demoralized Americans when he wrote:
Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive . . . those who torment us for our own good will torment us without end for they do so with the approval of their own conscience. They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth.
Treasury Secretary Henry Morgenthau Jr. may have summed it up best when he said that “after eight years of this administration we have just as much unemployment as when we started. . . . And an enormous debt to boot!”
Everyone seemed to be a loser, except for Roosevelt himself. After all, if his primary mission was to consolidate and retain power, his agenda would have to be deemed a rousing success.
But a simple rousing success was not what he had in mind. He wanted to be thought of as an all-time great.
And a world war would be exactly the thing to get him there.
FDR GOES TO WAR
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In peacetime, spending and regulation were FDR’s tonics for fixing what ailed America. But war provided him with an excuse to plan centrally on a far greater scale—the free world depended on it. If America didn’t reform, it would be occupied by Hitler’s storm troops. Hitler himself was known to fantasize about “the downfall of New York in towers of flames.” In March 1942, before the United States had even entered the war, FDR warned journalists: “Nazi forces are not seeking mere modifications in colonial maps or in minor European boundaries. They openly seek the destruction of all elective systems of government on every continent, including our own.”
Fear of Nazi occupation, of losing everything we loved. But of course, there was hope. We could avoid war if only we’d get our own economic house in order—which, in FDR’s telling, meant giving more power to the federal government to regulate business and confiscate private property.
Given this context, it shouldn’t be too
surprising that FDR conferred upon himself unprecedented executive powers after Pearl Harbor, including the right to ignore tariffs, close radio stations, order the military to take over any plot of land, close financial exchanges, and alter labor regulations.
The federal bureaucracy boomed.
The War Production Board (WPB) was created to direct production and allocate materials and fuel. It converted civilian industries into wartime ones, rationed basic materials, and regulated everything down to even the quantity of fabrics used in dresses.
Vice President Henry Wallace—the former agriculture secretary who supervised the hog-slaughtering AAA—now headed the Board of Economic Welfare (BEW), which procured raw materials. Although the BEW spent $1.2 billion during the war, it was never authorized by law, nor did the Senate ever affirm Wallace’s appointment to lead it.
Under the BEW, Wallace sought to kill two birds with one stone by internationalizing the New Deal in service of the war. For example, he built rubber plantations in Haiti and Brazil, while subsidizing the natives’ “general welfare.” This sounds great until you look at the math. Private industry produced rubber for $0.30 per pound; the rubber from Haiti cost $546 per pound.
HENRY WALLACE’S 1944 TRIP TO THE SOVIET UNION
He looked out over the plains of Kolyma toward the snowcapped mountains in the distance. The tall man from Iowa probably did not expect to find himself feeling at home in the stark landscape of northeastern Russia, yet Vice President Henry Wallace, visiting this remote corner of Soviet Siberia as part of a tour of the Far East in May 1944, sensed that he was visiting a land of bounty not so different from America’s own heartland.
“The vast expanses of your country, her virgin forests, wide rivers and large lakes, all kinds of climate,” he said to the Soviet officials who greeted him, “from tropical to polar—her inexhaustible wealth. It all reminds me of my homeland.”
Among Wallace’s official Soviet guides was Sergei Goglidze, who was introduced as a civil official. Wallace told Goglidze that he saw him as a very fine man and very understanding with people. In reality, however, Goglidze was the top commander of the Soviet foreign intelligence services in the region and had arranged for a number of his agents to be placed among Wallace’s welcoming committee.
Shepherded by Goglidze and other Soviet handlers, Wallace spent several weeks visiting the region’s farms, mines, and factories. He chatted amiably with the seemingly cheerful workers he met along the way.
Of course, it was all a ruse. They were literal Potemkin villages to charm and impress credulous visitors like the American vice president.
What Wallace was actually touring was a massive prison complex where hundreds of thousands of political prisoners from all over the Soviet Union and beyond labored as slaves of Stalin. The gulag archipelago of Siberia stretched for thousands of miles in each direction. Wallace would have had no way of knowing. Soviet officials had seen to that. According to Elinor Lipper, a prisoner in the camp who was originally from Switzerland and was later released, “in honor of Mr. Wallace the wooden watchtowers were razed in a single night.”
Also hidden away were the prisoners themselves, who were prohibited from even venturing into the camp yard during Wallace’s visit. Instead, guards, other camp staff, and members of local Communist youth groups were corralled into masquerading as miners, farmers, and workers for Wallace to meet with.
The charade worked. Wallace went home and two years later published an enthusiastic account of the trip, describing the efficient, prosperous workforce he had encountered. But back in Siberia, in the words of Lipper, “the watchtowers were put up again, the prisoners sent out to work again.”
“Wallace,” she said, “saw nothing at all of this frozen hell with its hundreds of thousands of the damned.”
Wallace was a progressive who was, at a minimum, a proud socialist. Many argued that he was actually an outright Communist. Like so many others in FDR’s employ, Wallace hired Communists, dupes, and useful idiots under him. (Thirty-five BEW Reds were later identified by the House Committee on Un-American Activities.)
Wallace fancied himself an expert on Russia. He had studied Marx and Lenin and even taught himself the language. In 1944, he traveled to Siberia as FDR’s vice president. When it became clear that Soviet dictator Joseph Stalin had less-than-peaceful plans in eastern Europe and elsewhere, Wallace steadfastly argued for appeasement, offering to relinquish the atomic bomb in exchange for a deal with the tyrant.
Roosevelt created the Office of Price Administration (OPA) to fight price inflation. The OPA could freeze rents and set prices for goods and commodities. Rationing soon followed. Labor unions, however, did not see their wages frozen, nor did FDR take action to break up strikes. (It’s probably not a coincidence that union members were a key source of Roosevelt votes.)
All of this central planning only made the economic dislocations of war worse. Aside from the rationing, price inflation and mass shortages of basic goods such as rubber and flour also followed.
The distorted war marketplace created labor shortages resulting in a job freeze of twenty-seven million workers issued in April 1943. Strikes that year numbered 3,752, including those in vital war industries like steel and coal. This amounted to thirteen million man-days of labor lost at a time when the country couldn’t afford any.
Historians Burton and Anita Folsom wrote that the OPA “issued more than 600 rent and price regulations on more than 8 million articles, with 3,100 investigators and 700 attorneys, plus support staff” by 1945. “Snoopers” submitted hundreds of thousands of cases to the courts alleging illegal black-market transactions.
Economic liberty wasn’t the only thing languishing.
The Office of War Information (OWI) published and distributed pro-FDR propaganda worldwide and promoted the efforts of the Soviet Communist “ally” in Europe. In addition to the politicized messaging in its hundreds of radio programs, daily cables, recordings, and movie shorts, OWI also printed millions of pro-FDR pamphlets in the run-up to the 1944 election. News that might have reflected poorly on Roosevelt was often suppressed.
The FCC and OWI took control of foreign-language radio, often installing un-vetted immigrants with “questionable” (read: Leftist) political views to broadcast to millions of people. The OWI, in conjunction with the FCC, forced out those whose views did not comport with theirs. Eugene L. Carey, a member of the Congressional Select Committee Investigating the FCC, noted that “a real Gestapo was created and a lawless enterprise was launched.” OWI also worked with Treasury to use the airwaves to emphasize the patriotic duty of paying taxes. The theme? “Taxes to beat the Axis.”
More chilling was Roosevelt’s use of illegal wiretapping. Under cover of war, the president authorized agents to bug the phones of not just aliens who threatened national security but also “potential political enemies” and even “political friends.” Roosevelt’s spying targets included former President Herbert Hoover, 1940 Republican presidential opponent Wendell Willkie, and critical journalists.
FDR asked Treasury Secretary Morgenthau to run a tax audit on the New York Times, among other IRS investigations FDR ordered on behalf of actual opponents. He also sicced the heads of various agencies, including the FBI and the Department of Justice, on several newspaper publishers in a failed witch hunt for evidence of Nazi ties.
FDR’s internment of almost one hundred twenty thousand Japanese, most of whom were American, was particularly brazen. It violated the rights of habeas corpus, protection against search and seizure, and protection of property. Meanwhile, Germans and Italians—the latter of whom consisted of six hundred thousand noncitizens—were never interned en masse.
Roosevelt, however, was really just following the progressive playbook, responding to his innate fear of people different from himself. Consistent with the progressive eugenicists who came before him and held disdain for “inferior” peoples, Roosevelt had historically argued that Japanese immigrants were inassimilable on a biol
ogical basis. The Germans could be excused—Wilson had, after all, praised the “Teutonic race”—but not the Japanese. The distinction was made based purely on race. Roosevelt’s irrational fear led to the rounding up and unjust imprisonment of tens of thousands of loyal Americans who happened to come from a different background. This is the price of progressive fear in high places.
FDR’S LAST PROGRESSIVE HURRAH
* * *
As World War II wound toward its end in 1944, FDR proposed a “Second Bill of Rights.” The first was apparently insufficient for him. In that year’s State of the Union address, he argued: “True individual freedom cannot exist without economic security and independence. ‘Necessitous men are not free men.’ People who are hungry and out of a job are the stuff of which dictatorships are made.”
Roosevelt claimed that government had to secure Americans’ fundamental right to a job; a decent living; trade without “unfair competition”; a fine home; sufficient health care; financial support in old age, poor health, or unemployment; and a solid education—all to prevent tyranny.
He may have originally claimed that all we had to fear was fear itself, but the reality was that he wanted Americans to fear a whole host of things, from Japanese-Americans to those who didn’t have enough to eat. Fear, after all, opened doors to all sorts of things that people wouldn’t otherwise think possible.
In addition to fear, Roosevelt also appealed to pride and patriotism. He noted that the nation must not be allowed to slide back into 1920s “normalcy.” Were that to happen, he said, “even though we shall have conquered our enemies on the battlefields abroad, we shall have yielded to the spirit of Fascism here at home.”