Amity Shlaes on the Great Depression
Jun 4 2007

Amity Shlaes, Bloomberg columnist and visiting senior fellow at the Council on Foreign Relations, talks about her new book, The Forgotten Man: A New History of the Great Depression. She and EconTalk host Russ Roberts discuss Herbert Hoover, Franklin Delano Roosevelt, the economics of the New Deal and the class warfare of the 1930s.

Thomas Rustici on Smoot-Hawley and the Great Depression
Thomas Rustici of George Mason University and author of Lessons from the Great Depression talks with EconTalk host Russ Roberts about the impact of the Smoot-Hawley Act on the economy. The standard view is that the decrease in trade that...
Eric Rauchway on the Great Depression and the New Deal
Eric Rauchway of the University of California at Davis and the author of The Great Depression and the New Deal: A Very Short Introduction, talks with EconTalk host Russ Roberts about the 1920s and the lead-up to the Great Depression,...
Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Chris Meisenzahl
Jun 4 2007 at 9:13am

Great podcast Dr. Roberts, just wrapping this book up, on topic.
FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression

Jun 4 2007 at 9:37am

Great discussion. Thank you and I me that in spite of the pendantic rant to follow. Let me recap from my perspective.

First the Great Depression was in no way related to the 40 years of prior laissez faire economic policies. Nor the prior to depressions I assume. It in good part can be blamed on Keynesian missteps by Hoover an otherwise great man free-market kinda man. Roosevelt, if he only knew what we know now could have and should have steered a straight course to recovery. The Economic Royalist were persecuted by the Roosevelt administration via shrewd approaches to class warfare.

Pardon my sarcasm because I look at history as it followed the Roosevelt “disaster”. A great war fought and won and the post war recovery a remarkable success. Great expansion of the middle class and a worlds leading economy through the 70’s.

I can point to all sorts of success here and in Europe of mixed economies. I can only see cycles of boom and bust and corruption and concentration of wealth any time I look to economies as ours prior to the Great Depression.

I admit to my sparse understanding of economic issues and have Capitalism and Freedom and the Road to Serfdom on deck in my reading list. Any other relevant suggestions based on my rankings above? I really do want to believe the world is better the simpler we think of it. I like things simple. But here I live in the real world and could use a bit of convincing.

Russ Roberts
Jun 4 2007 at 9:57am


Let me try and sum up what I think I understand about the Great Depression. Hoover did little once it was started in motion. But he wasn’t as laissez-faire as I’ve always thought. Shlaes argues that his lecturing to business about the need to keep employment and wages up made it hard for businesses to survive the downturn. I don’t know if that’s true. I don’t know if businesses listened or not but it’s an interesting point.

Roosevelt’s policies in the 1930s were a hodge-podge of various attempts to increase demand, increase prices for agricultural goods and micro-manage the economy (the NRA). Some of those policies had modest success. Some were disastrous. But it’s hard to argue that they ended the Depression when you look at the 1938 unemployment figures. Read the Higgs articles in the reading list above. They are not technical and are very interesting.

Many economists (but not all) believe that poor monetary policy kept the economy from recovering. Our improved understanding of monetary policy has definitely reduced the fluctuations in the economy known as the business cycle.

The war and Roosevelt’s philosophy of government were two different things to me. Fighting the Nazis didn’t create the middle class.

Mixed economies (ours included) do pretty well. I’m not convinced their mixed nature has much or anything to do with reducing the boom and bust cycle or reducing inequality. What is clear to me is that the relatively free nature of America’s labor market creates a more dynamic and innovative economy than Europe’s. I think it’s better for the worker here as well, though that is certainly debatable. Let’s see what happens over the next five years. I think Europe is going to have an increasingly difficult time sustaining its policies.

Do read Capitalism and Freedom. It will give you much to think about.

And remember, we are always interested in what might make things better. Our economy and life here in the US is very good. I presume it could be better. I’m interested in what policies we might pursue that might improve things and what policies we might stop pursuing that might improve things. But I wouldn’t want to attribute our current success say, to our public school system just because we have an active public school system and the economy is healthy. I think with a different educational system, we could do even better. Economics can help us understand the issues in that debate.

Jun 4 2007 at 10:32am

Thanks for the comments!
I meant to include a list of Depression books and works that seemed important:
Ray Moley, “After Seven Years”
Jim Powell, “FDR’s Folly,” great policy book
Robert Higgs, “Depression War and Cold War”
Edward C Banfield, “Government Project” (about a failed American version of Animal Farm)
“Great Projects,” James Tobin
Harold Evans “They Made America”
Burton Folsom’s book on the Depression — forthcoming
Tugwell’s Diaries
Steve Neal’s “Dark Horse” on Willkie

Moley is the man who would speak to us today. He was the first true neocon. I use the word “neocon” to refer to economics, not foreign policy. Willkie also said it all on econ, but only before the election. After 1940 he went in a different direction.

Chris Meisenzahl
Jun 4 2007 at 10:55am

Dr. Roberts, I took particular interest to the discussion of the size of the money supply and Irving Fisher around the 36 minute mark or so.

I struggle w/ the idea that there can be “too little” money available. Of course $20 worth of one dollar bills isn’t divisible enough for a country of 300 people. But what difference is there between say 5 trillion worth of M1 and 7 trillion worth of M1 in the money supply? The change in the money supply itself, ceteris parabus, creates no new wealth, right?

Can you expand a bit on why the money supply needs to expand? I also had trouble with this concept when listening to Dr. Friedman’s podcasts. I remember once reading a question, “What is the proper amount of money in an economy?” The answer was, “Any amount.” 😉

I was under the impression that simply adding money just caused inflation? I don’t intend this post to be provocative at all, really trying to understand these concepts. 😉

Thanks very much in advance,


Jun 4 2007 at 11:44am

Hi, Chris.

You are right that the phrase “there is too little money” is tricky. You are also right that it is usually meaningless, since there cannot be too little money in an accounting sense. The price level simply falls to match.

The crux of one legitimate use the phrase “too little money” arises when, in a banking crisis, the Federal Reserve doesn’t make enough printed money available temporarily. This doesn’t happen much any more because the Fed has really learned about this, but it happened at the beginning of the Great Depression, and even till the 1970s.

Here’s what used to happen: If a bank appeared to be about to fail, word would get out, and people would line up outside the bank hoping to get whatever cash the bank had on hand before it closed its doors forever. That was called a bank run.

Some bank failures are legitimate. The bank really has mismanaged its affairs and should be driven out of business.

Other times, though, a whole series of banks can be caught up in either a business downturn that does not reflect on their long-run ability to stay in business, or merely a speculative frenzy on the part of their customers. Either way, people line up outside the bank’s doors in a panic.

A well-run bank makes its money not by sitting on the cash it takes in as deposits, but by lending the money out. The bank is required by the Fed to hold some cash in reserve (ironically, it is not allowed to use that in the event of a bank run); and most banks hold a little extra, depending on their expectations of daily demands for cash. If too many customers in a given day line up outside its doors, a bank may temporarily run out of cash on hand.

That’s when the Fed is supposed to step in. It is supposed to act as the lender of last resort–that is, to quickly deliver cash to a bank in good standing to cover the bank in such an unusual event. The bank, by having the cash, can reassure its customers that it is solvent; and presumably they will re-deposit the money and the bank can repay the Fed.

At the time of the Great Depression, this lender-of-last-resort role was not well-understood by the Fed; or if it was understood, it was not acted on quickly enough or emphatically enough. Consequently, legitimate, solvent banks found themselves literally without enough money. And without enough money they could not reassure their customers that they were legitimate; and hence the banks needlessly went out of business.

Some of this is discussed in Chapter 7 of Friedman and Schwartz’s A Monetary History of the United States, called “The Great Contraction.” It’s exciting, though not light, reading, and I recommend it highly.

The Todd
Jun 4 2007 at 12:07pm

I don’t really think bank runs are what they were referring to in the podcast, Lauren, but maybe I just misunderstood.

Jun 4 2007 at 12:19pm

The Todd, I don’t think you are necessarily mistaken. I found that portion of the podcast unclear also.

If not bank runs, though, there is only one other possibly legitimate use of the term “too little money,” having to do with Gresham’s Law.

Gresham’s Law only applies when there are fixed exchange rates (e.g., a gold standard). During the period, there was not literally a fixed exchange rate; but the exchange rate was fixed by a strong expectation of return to a fixed standard, which might have been enough.

Gresham’s Law is discussed very well in The Natural Law of Money, by William Brough. There’s an introduction that also may help.

Chris Meisenzahl
Jun 4 2007 at 12:49pm

Thanks very much Lauren, that was helpful. But one thing I wonder about the instance of the Fed stepping in with cash at the 11th hour … Is the Fed taking extant cash from somewhere else? Or is it just creating money out of thin air, printing and inflating?


Jun 4 2007 at 12:53pm

Here’s one more possibility for a reasonable use of the term “too little money”.

It might mean “too little money growth relative to expectations.”

Friedman and Schwartz, in their three chapters on the Great Depression, emphasized not only the importance of the Fed’s role as a lender of last resort, but also the importance of the Fed’s behaving in a way that was not erratic. In order for people to make daily plans for saving and spending, and to make contracts for the future, people had to know what to expect for future inflation or deflation.

If the Fed jerked the money supply around (which it certainly did during the Great Depression), suddenly raising and equally suddenly lowering its growth rate, there might end up being too little money relative to expectations. In that case, interest rates would be contractually set too high, and lenders would benefit unduly at the expense of borrowers.

Hmmm–I think this might be what was being discussed. Maybe three times’ the charm!

Jun 4 2007 at 1:01pm

Chris asked another good question:

Is the Fed taking extant cash from somewhere else? Or is it just creating money out of thin air, printing and inflating?

The Fed is printing the money when it acts as lender of last resort. The idea is that because the money creation is going to be very short term (a matter of overnight or perhaps just a few days, till citizens calm down and the cash is redeposited into the banks), there will either be no inflation, or an immediate compensating deflation. (Why? As soon as the money is redeposited by reassured citizens, the bank that frantically borrowed the cash from the Fed can repay the Fed’s loan. The Fed then “burns” the money–the opposite of printing it. Of course, in reality it doesn’t literally burn it. The cash is, though, out of circulation, as if it had never been printed at all.)

At any rate, loans of term over a few days shouldn’t be affected–particularly not if people are aware that the Fed is doing its job as the lender of last resort. That the Fed should clearly tell the public what it is doing was also one of Friedman’s prescriptions. (Fed secrecy has been mitigated since the 1970s; but is not complete. However, the Fed’s behavior and depositor insurance such as the FDIC have gone a long way toward reassuring bank depositors in the cases of bank failures.)

Russ Roberts
Jun 4 2007 at 1:21pm

The Todd,

You’re right—I wasn’t talking about bank runs but about a different problem when the money supply is contracting.

When the money supply is contracting, prices and wages fall— what’s known as deflation. In one sense, deflation’s no big deal—your salary is lower but goods are cheaper, too. So it’s possible that there is no real effect on your purchasing power.

The problem occurs with loans. If lenders and borrowers anticipate the deflation, that just lowers the market interest rate. Expected inflation raises the rate. The idea is that if both borrowers and lenders expect prices to change while the loan is outstanding, then how much you have to pay down the road to get someone to give up money today is going to be different than if prices are stable. Some of our readers/listeners might remember the 1970s when interest rates were near 20%. That was because inflation was high and to get people to lend money, you had to offer a premium to compensate for the fact that when you paid them back, the money wouldn’t go as far.

But suppose the change in prices is not anticipated. It’s unexpected. Then you borrow money to finance your house, thinking that your salary will be able to support the loan payments. Then there’s deflation. Wages and prices fall. Interest rates fall. But you borrowed your money in the past at a higher interest rate. Your new lower salary is going to make it tough to make your mortgage payments. It’s one of the reasons there were defaults.

The other reason is much more obvious. It’s hard enough to make your mortgage payments when wages are falling. But it’s particularly hard when you’re unemployed. When unemployment is 25% as it was in 1933, a lot of people default.

The other contractionary aspect of deflation (when it’s unexpected) is businesses see the price of their product falling. They don’t know easily, especially at first, if this price fall is particular to their product or part of an economy-wide deflation. Some businesses will assume that it’s particular to their business and will lay off workers as a way to stay in business at the new lower prices.

The point is that a contracting money supply when people haven’t experienced it and aren’t expecting it can have real effects that are very destructive.

Jun 4 2007 at 7:14pm

I enjoyed this podcast very much.
My questions are:
Why is the FedReserve a good thing? Isn’t it a government institution that should be abolished in favor of a free market?
Would the great depression actually have something to do with this?

Sure, bad government policies make things worse, but ever since I’ve learned of the great flood, I’ve wondered why nobody mentions it in conjunction with the great depression. Is the South, agriculture and all, truly meaningless to the health of the American economy?

Jacob Tomaw
Jun 5 2007 at 9:42am

Isn’t unexpected de-/in-flation a risk of doing business? Why is it good for the government need to create more money by fiat to counteract this? It seems like the ability to set the price of money is worse than all the other price controls government might impose.

I have read Murry Rothbard and other Austrians work on money and they talk about fiat money and government created inflation (no matter how small) dampening the signals that the price of money is supposed to send, causing suppliers and consumers of debt and credit to not see the risk. If there had been no fiat money or a real gold standard how would the situation would be different.

I hope The Todd, Lauren, Chris, and I are representative of a larger group and more podcasts about money supply are in out future.

Jun 5 2007 at 11:55am

Great podcast once again!

I wonder why, even though in the U.S. we’ve gotten to a low stable inflation rate, we haven’t gotten to the 0% rate that I believe Friedman endorsed. My theory is that since government is (always?) a net debtor, and since inflation favors debtors, and since government sets monetary policy, there is always pressure to keep the inflation rate positive. Any truth to this?

Jun 6 2007 at 6:46am

Hi, Nathan.

It’s an interesting question. Your hypothesis, however, won’t work. Only unexpected inflation favors debtors. If inflation is stable at 5%, contracts will build that into interest rates, and no one gets hurt or benefits unduly when the payoff time comes around.

Since this podcast talked about Irving Fisher, it’s the perfect moment to point out that Fisher’s The Theory of Interest is the classic work explaining how real and nominal interest rates interact with expected inflation. The graphs and case-by-case examples enlightened generations of young economists and inspired the graphs used to represent the intertemporal models that replaced and revised the one-period simple Keynesian and classical analyses.

The simplified formula is
i = r + (π)^e
i = nominal rate of interest at the time of the loan-writing
r = the (expected but presumably relatively constant) real rate of interest
(π)^e = the expected inflation rate
(π, the Greek character, is commonly used in economics for the inflation rate, not for the mathematical constant; similarly e is used in economics for expectations, not the math constant)

Only if the actual inflation rate doesn’t turn out to equal the expected inflation rate does one or the other party to the loan benefit at the other’s expense (because the payoff for the loan turns out to be worth more or less than originally anticipated when used to buy goods). At the time of the payoff, i and (π)^(actual) are done deals, so the r^(actual) received by the lender and paid by the borrower turns out to be different from r.

Your idea, though, does partly explain why governments do not want to commit by law to a fixed monetary growth rule. Governments want to reserve themselves the flexibility of inflating without warning in cases of crisis. (Even then, citizens can partly anticipate the government’s likelihood to inflate, driving up the open-market interest rate the government has to contract in order to borrow.) A low stable rate maintained for a long time does influence the market’s expectation for that stability and low rate to continue.

Matt C.
Jun 7 2007 at 10:09am

I think the best part of the Ogden Nash poem is the actually the last part, in my humble opinion.

Abracadabra, thus we learn
The more you create, the less you earn.
The less you earn, the more you’re given,
The less you lead, the more you’re driven,
The more destroyed, the more they feed,
The more you pay, the more they need,
The more you earn, the less you keep,
And now I lay me down to sleep.
I pray the Lord my soul to take
If the tax-collector hasn’t got it before I wake.

Matt C.
Jun 7 2007 at 10:11am

I find it interesting that Rothbard was not brought up. He has written several books about the depression and the impact of the Fed and the other government’s policies.

Jun 25 2007 at 8:08pm

What a great interview.

There is a documentary film made by the Australian ABC about Herbert Hoover’s time in Australia where he played a major role in converting the Western Australian goldfields from a “gold rush” boom town situation to a modern industrial operation equipped with hundreds of kilometres of water piped in from the south-west etc.

The documentary is called “Hoover’s Gold” and is available for sale on-line here.

Jun 25 2007 at 11:56pm

The discussion about how the extreme and divisive tactics of many of the New Dealers provoked the “blowback” of McCarthyism was touched on briefly by a recent article on “CounterPunch”.

See article here.

The relevant passage is:

“There is a pamphlet called “The Chickens of the Interventionist Liberals Have Come Home to Roost” by Harry Elmer Barnes. Written in 1973 it was directed against the liberals who thought nothing about smearing or destroying the lives and the reputations of the old liberal academics who wrote prescient books in the 1930’s about the policies of FDR, what the consequences of those policies might mean for us and for the world. Barnes’ screed meant to remind these people who were bitter about eventually getting McCarthyized that they once had been just as vicious against free speech when it served their purposes, war. Chickens roosting he wrote.”

Barnes, himself a social democrat, in his “Chickens” pamphlet details the sins against civil liberties taken by pro-FDR liberals during the New Deal and WW2.

Jun 26 2007 at 6:27am

By the way, there is a blog dedicated to discussing Hoover’s experience in the Western Australian gold mining industry here. There is an article here on how Hoover made his fame and fortune in the Westralian goldfields, and even what may be some love poems young Hoover may have penned here.

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Podcast Episode Highlights
0:36Intro. Standard view: Herbert Hoover was a laissez faire acolyte who stood idly by as we plunged into depression; then Franklin D. Roosevelt came along and, inspired by Keynes, spent our way out of it by putting purchasing power into the hands of consumers. What's Shlaes's view? Hoover: Hoover's philosophy was free market—stance on promoting mining. But his temperament trumped his philosophy. He was a control-freak. When the [1929 stock market] Crash happened he tried to control it, and did a lot of wrong things. He called business together and told them to not lay off people—very Keynesian. But the first thing you want to do in a recession is cut costs. He also didn't take seriously the importance of free trade; and he signed off on a bad tariff (the Smoot-Hawley Tariff) even though economists of the day wrote him. Hoover made "fallacious assumption that he was the smartest person in the room" because he always had been. Consistent with his Quaker background, he tried to do good deeds; led relief effort in Belgium to stave off starvation. But food is fungible, so Germans didn't feed the Belgians. Helped during flood; but Coolidge wasn't comfortable with the Federal Government marching into the south because he felt it was the job of the states. Followed the rules, believed spending would help (Keynesian style, though without talking about Keynes). "He should have known better but he just couldn't help himself." Hoover Dam, arranged compact among states—he was a big spender. Roosevelt administration took away the name; they and history trashed him. Throughout the '30s, Hoover protested that he, like Roosevelt, had been a big spender. Irony was that he kept claiming he acted and acted and acted, when inaction might have been the better course.
9:50Roosevelt: Clichéd view is that by his taking hold of the tiller [sic, rudder], he steadied the sinking ship of the economy. "We will do bold persistent experimentation." Neglects an appreciation of the cost of uncertainty. When a ruler may do the unexpected, you freeze. Investors, employers were terrified day by day. Roosevelt kept changing course. Ray Moley, prison reform: to look at Roosevelt's policies and see that they have any purpose was as silly as to look at a boy's bedroom and see the snakeskin and the old mitt and tell yourself that an interior decorator had decorated that room. Roosevelt was random. Did some very destructive things when business tried to hide. Undistributed profits tax: claim was that money needed to be put back into the economy, so if companies kept money it was stunting growth the money had to be taken from them. But taking money from them discouraged investment! Roosevelt was anti big business, pro small business, Justice Louis Brandeis (The Curse of Bigness), cozied up to big business but trashed it through Justice Department.
15:26National Recovery Administration (NRA) was a conflicting law: had a romance with the economy of scale. If we can be big and efficient, and save, we will be better; if we can keep prices up, we will be better and stop deflation. Fallacy. If business can just get along (e.g., labor sits in boardroom), we'd be better off. People who ran the New Deal were not traitors, but were influenced by the Soviet Union. Perverse result afflicted every area of the economy by codes and rules with false premises: sewing, chicken farming. From "One From One Leaves Two," by Ogden Nash:
Mumbledy pumbledy, my red cow,
She's cooperating now.
At first she didn't understand
That milk production must be planned;
She didn't understand at first
She either had to plan or burst,
But now the government reports
She's giving pints instead of quarts....

Abracadabra, thus we learn
The more you create, the less you earn....
So many rules people went crazy.
19:02People were put in jail. Schechter Poultry vs. the United States, family business, Kosher butchers, convicted, barely spoke English. Plucked to be an example, had to conform to detailed regulations. NRA emblem: blue eagle. Family made same case as Roberts, Boudreaux, Friedman, Samuelson—modern economists of all persuasions—make. "I'm not an economist, but I'm an economizer." Competitive markets mean you have to charge low prices. NRA even ruled out a consumer's picking out best chickens from a batch—just had to take first ones that came to hand. But consumer and business choice are very important. Concept was that middleman gets in the way—historical, medieval, possibly stemming from anti-semitism. Rule was purportedly to decrease inefficiency but haggling and picking matter for chicken business. Rule made market unable to weed out inefficient businesses that provided crummy chickens. Like Al Capone; clean people from Harvard and the Government attack dirty ethnic people. Schechters won, delegation, commerce clause. Communist Drew Pearson mocked the Schechters. All in the name of one bad law. NRA ultimately collapsed—bone and sinew of it couldn't hold up. Stock market began to rally around the time the Schechters won. Unemployment was at 20%, didn't come back till 1950s; yet Roosevelt's popularity high. Poem by Mrs. Schechter, reprinted in book with family permission:
No more excuses to hide our disgrace
With pride and satisfaction I'm showing my face
For a long, long time to be kept in suspense
Sarcastic remarks made it our expense...
30:55Schechter case was as much a watershed as Gideon case, highlighted in Gideon's Trumpet, Anthony Lewis: case about Miranda rights. Schechter case stopped the big government, New Deal, worry that we were heading toward National Socialism or 5-year Soviet-style plans. Wagner Act (1935), Fair Labor and Standards Act (1938), later lost ground gained by Schechter case. Low level of economic reasoning in the debates of the day. Example: Role of money supply, Friedman and Schwartz, Monetary History of the United States—even the Federal Reserve Board itself at the time was ignorant of the economic role of money. Example: Microeconomic misunderstanding: the idea that you can make the economy better by killing pigs, driving up the price of pork. Helps pig farmers, but destroys economy and wealth. Six million pigs killed at a time to drive up pork prices when people were starving. Shlaes: "I believe the understanding of people in government about economics was poor, and the rules in government were poor, but there was a lot of native understand among the people that was usually good. Certainly on the micro side. Maybe not on monetary—monetary's hard." Today there's a better understanding that might stop some of these ideas from becoming policy. Wonder about protectionism. There was an economist at the time who understood that it was a monetary problem, that there wasn't enough money, literally, and that was Irving Fisher. Made price indexes. But he was also a market bull, so when market crashed he looked ridiculous. But he was right about the monetary problem. At first Fisher was pleased with Roosevelt, but ultimately Fisher didn't think Roosevelt went far enough.
39:31Problem of deflation: If prices are falling (or rising) isn't as important as that people are able to predict what will happen with prices so that they can write contracts, especially loans. Bad to be a borrower at time of deflation, hard to pay off on a house when wages are falling. 3 or 4 in 10 people in some towns lost their homes. Ben Bernanke, current Fed Chairman, has written about this. Deflation punished risk takers and rewarded lenders. Created the character of our parents and grandparents: savings bonds, saving rubber bands. Cultural side to the Depression. We think of that period as a period when government became important in our lives, but it was also a period when people turned inside and away from government. Bill W., a founder of Alcoholics Anonymous (AA), created the modern self-help group, no clergyman leadership, just citizens helping each other. Legacy of the period: today we know acronyms like AA, but NRA now has to be explained.
44:49Politics: Roosevelt and his aides used lass warfare, vilifying the rich, so justice requires that they be punished. View is that world is a 0-sum game—one person's riches can only come at the expense of someone else. Misunderstanding of how wealth is created. Sarbanes-Oxley is mild compared to the language of New Deal legislation. We've learned that the private sector is important. We see that period as an exception rather than the rule. Roosevelt knew people attacked hated him, and said on the air, "And I welcome their hatred." Had new tool: Income tax, young but in effect and mostly tax on the wealthy. Raised income tax way up from where Andrew Mellon as Secretary of the Treasury had had them in the '20s, persisted into the '70s. Prosecuted people. Conflated avoidance—legal—with evasion—illegal. Anyone who tried to pay less taxes was a criminal. Same attitude as Treasury Secretary Henry Morgenthau. Scared people, was hypocritical. Prosecuted Andrew Mellon (would be like prosecuting Allan Greenspan today) for taking deductions he was allowed to take. Mellon died before it was all over. FDR didn't treat himself the same way: Didn't pay his whole taxes and couldn't be bothered to figure out what they were. Insight into McCarthyism, attacks on communism. Outstanding thing about them was not whether people were communists—it was that they had no decency, were vicious, mean. The Republicans learned how to be nasty from the New Dealers. The lists of McCarthy were foreshadowed by the lists drawn up by Roosevelt of innocent taxpayers. Power corrupts, turns people arrogant, all sides. Politics is a blood sport. Roosevelt's illness, constant pain, may have informed his presidency.
53:55Rule of law was at risk because of relentless tinkering at the time. Justified ex post by saying it could have been worse. Our culture of contract—between two people, between government and the people—was weakened. Rex Tugwell, institutional economist of the period, failed because he was insufficiently political, went on to consider rewriting the Constitution. Is it important for the Constitution to be flexible? Jefferson.
57:20In last 10 or 15 years, new stereotype: Roosevelt tried hard but wasn't successful in ending the Depression. The war ended the Depression. But Bob Higgs has pointed out that maybe the war didn't end it either. The atmosphere of uncertainty persisted. Salient question is: Why did Depression last so long? Economy didn't come back to where it had been till late '30s, even '50s. We still live with its legacy. Roosevelt's 2nd Inaugural, 1937: "We are beginning to wipe out the line that divides the practical from the ideal and in so doing we are fashioning an instrument of unimagined power for the establishment of a morally better world." Pretty confident. 1935-6 law, taxes are never going to go up. Social Security and payroll tax myth that your payments fund your account came out of the New Deal. Forgotten man in Shlaes's book is today's voter. Book title, William Graham Sumner, The Forgotten Man, was used by Roosevelt in a speech, possibly without knowing the phrase came from Sumner and meaning something different. The forgotten man is not the one who gets the benefit, but the one who pays. Taxpayer. Sumner's 1883 forgotten man: "He is the man who is never thought of. He works, he votes—generally he prays—but he always pays." Also, from frontispiece: "As soon as A observes something which seems to him to be wrong from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine what C shall do for X.... What I want to do is look up C.... I call him the Forgotten Man."