Franklin D. Roosevelt: A Destructive President

Franklin D. Roosevelt is viewed by many scholars as one of the greatest presidents in American history. The United States Presidency Center ranked Franklin D. Roosevelt as the best president in American history, followed by Abraham Lincoln and George Washington (“UK Survey of US Presidents: Results and Analysis”). Out of 238 scholars surveyed by Siena College, Roosevelt was ranked the highest (Finnegan). However, there is information about Franklin D. Roosevelt involving his negative traits that may not be taught in history class.

Before evaluating the president directly, some context to the environment that he was placed in is first required. Roosevelt was elected during a difficult time – perhaps the most difficult time in American history. To understand whether or not Franklin D. Roosevelt planned and executed the correct course of action, we first must understand the nature of the Great Depression itself.

The Great Depression is not to first be viewed by the economy’s decline, but by its previous boom period. The 1920s are referred to as the “roaring twenties” for good reason. Throughout the decade, ownership of cars, new household appliances, and housing itself increased significantly. The productivity of labor and capital grew enormously and the overall economy flourished. This is despite a severe sudden depression in 1920, comparable to the fall in 1929, which only lasted less than a single year (Smiley).

What followed this growing period was the worst economic downturn that the United States has ever seen. What happened? What led this flourishing economy down this incredibly dark path?

To this day, what caused the Great Depression is still a highly debatable topic, explained differently by different theories and economists. The two arguably most notable theories derive from the Keynesian and Austrian schools of economic thought. Keynesian economics, nicknamed after the famous economist, John Maynard Keynes, is far more popular among the Western world and is the school of thought usually taught in universities. Austrian economics is typically classified as the more fringe school of thought. The Austrian economists were Jewish and fled Austria in order to avoid the eventual wrath Hitler’s regime. They went to the United States promoting their ideas of economics and ended up being labeled as Austrian economists ("Keynesian Economics vs. Austrian Economics”).

The Keynesian economic theory essentially holds that aggregate demand decreased, which led companies to stop investing in markets that did not possess sufficient funds in order to profit. The lack of economic activity caused more of a lack of activity, and the cycle continued. In other words, consumers suddenly decided to come to a screeching stop of spending in the middle of the roaring twenties so severely that it caused the Great Depression. ("Three Economists and Their Theories”).

No one, including John Maynard Keynes himself, foresaw the crash of the Great Depression from the Keynesian model. In fact, Keynes showed confidence in the opposite direction, stating “we will not have any more crashes in our time” in 1927, two years before the start of the Great Depression (Somary, pp. 146-147).

The Austrian theory explaining the cause behind the Great Depression tells a different narrative. Essentially, the theory holds that the central bank’s massive credit expansion during the 1920s enabled short-term economic prosperity but long-term economic disaster. The central bank’s low interest rates throughout the 1920s incentivized businesses to make large investments throughout the 1920s, causing an economic boom period that we refer to as the “roaring twenties.” By the principles of supply and demand, higher savings cause lower interest rates (which is a general acceptance among economists – not just the Austrians). The Austrians claim that because the interest rates were artificially manipulated into being lowered during the 1920s, it created the usual result of having low interest rates – a large number of funds being allocated into capital investments, fueling workers and the economy in the process. Unfortunately, because the low interest rates were a result of the central bank’s manipulation rather than an abundance of savings, none of the rewards followed. Because there were no savings to be pulled from, when the interest rates were eventually raised again, the production halted but the investments never paid off. The Austrians claim that this resulted in the Great Depression (Rothbard, pp. 3-27).

While no one foresaw the Great Depression using the Keynesian model, Ludwig von Mises, one of the most prominent Austrian economists at the time, predicted that a “great crash is coming” in 1929, declining a very high position in the banking industry, not wanting to be associated with the upcoming depression (Spitznagel). In February of 1929, Friedrich Hayek, perhaps the most famous articulator of the Austrian theory, published a paper predicting that a severe crash would occur in a matter of months (Herman).

When Franklin D. Roosevelt was elected in 1933, he had to operate in the midst of the Great Depression, not the start of it, so how could the cause of the Great Depression have any relevance to the presidency of Roosevelt? The cause of the Great Depression obviously has no connection with FDR, but it is crucial for understanding the nature of the Great Depression and FDR’s subsequent attempted remedies to cure the economy.

The Keynesian and Austrian schools of thought differ greatly on what would have been considered the proper response to the Great Depression. Because the Keynesian theory attributes a decline in aggregate demand as the cause of the depression, it promotes an artificial boost of aggregate demand as the most appropriate response to the crash. In other words, people need to start buying stuff. The Keynesian school holds that the best way that this end could have been achieved was through government spending of infrastructure and an expansion of credit from the central bank. The Keynesian model gives a supposed quick and easy solution that requires the government to act and remedy the problem. Essentially, the Keynesian theory advocates for massive government spending and artificially low interest rates in times of economic downturns as a solution (Blinder).

The Austrian solution runs quite contrary to that of the Keynesian. Because the Austrian school of thought advances that artificially low interest rates were the cause of the depression in the first place, the theory would strongly oppose exercising exactly this activity in order to restore the economy. The Austrian model recognizes that the Keynesian solutions did somewhat stabilize the economy in the short-run (though hardly did they completely cure the economy), but further suggests that these practices were only beneficial for the short-run and detrimental to the long-run. Unlike the Keynesians, the Austrians did not offer a quick and easy get-out-now solution to the Great Depression. Instead, they advocated for the depression’s eventual dismissal, as the market would eventually correct itself (Rothbard, pp. 2-27). As would be expected, the theory which advanced that the solution was for the government to step back and let the market work itself out was not exactly the most popular idea.

Franklin D. Roosevelt, influenced by the Keynesian model, promoted and implemented significant spending programs as the path to economic recovery. The president’s most significant contribution was the New Deal, which implemented massive government spending throughout the 1930s, and is often credited by Keynesians as the fuel factor to boosting the country out of the Great Depression ("Keynesian Theory and the New Deal”). However, the Austrian would make the opposing claim: that the Great Depression eventually ended despite FDR’s efforts, and the stimulus packages throughout the Great Depression only prolonged the condition.

Frédéric Bastiat was an economist in the 19th century who may have been considered someone who fell under the Austrian school of thought had he been born in a later timeframe. He famously published a thought experiment in an 1850 article entitled “What is Seen and What is Not Seen.” In it, he refuted government spending as a solution to economic recovery in what is now often referred to as the “Broken Window Fallacy.”

Propose this scenario: a hooligan throws a rock through a window. The window is destroyed and the owner must now pay to buy a new one. A crowd gathers around and someone observes that this event is actually not too bad. In fact, this person claims, it is beneficial for the economy. Because the owner of the window now must purchase a new window, he is funding the glazier, which the glazier will use to spend money on something else, which that person will use to spend money on something else, and so on and so forth. This hooligan has just done a favor to the economy by enforcing the circulation of the money supply.

Bastiat points out that while this claim is technically accurate in that the glazier will receive money and the money will circulate, it only takes into account what is seen and ignores what is not seen. What is seen is that the window owner has paid the glazier and money has circulated into the economy as a result. What is not seen is that, if the hooligan had not destroyed the window, the window owner would have spent the money on some other industry, boosting that sector of the economy, causing the same effect. (This is not to ignore the possibility that he could have decided to save his money for later. The money would still be spent eventually, and, in modern era, money that is put in a bank is lent out to investors and circulated into the economy that way.) The difference is that, in the scenario in which the window is not destroyed, the window owner has the enjoyment of a window, as well as the enjoyment of something else he could have afforded with that money (perhaps shoes or extra money for later). In the scenario in which the window is destroyed, the window owner is left with only the benefit of a functioning window but nothing else. Essentially, economics, in this case, boils down to common sense: when a window is destroyed, the economy is down exactly one window.

This loops back into the concept of government spending in order to boost an economy. What is seen in the scenario of the government spending money on infrastructure is that the economy collects funds, those funds circulate, jobs are created, and so on. What is not seen is that the money that the government collected through taxes, inflation or debt would have been spent elsewhere.

Austrians argue that because the government cannot possess enough knowledge to know the best interests of every individual and by effect cannot know the correct course of action for what needs to be invested in compared to the individual actor (Hayek), government spending is nothing but detrimental to correcting the economy. Due to the circular nature of the spending accompanied by the misallocation of resources, stimulus packages and recovery plans can only prolong a recession (Rothbard, pp. 3-27).

According to the Austrians, the government’s lack of a response to the sharp economic downturn in 1920 explains why the economy was able to bounce back in a matter of months. This event is often cited by the Austrians to demonstrate their solution as the proper one, given that this was a similar timeframe with a similar sociocultural environment, and the cause of the downturn was arguably the same as the cause of the Great Depression (Woods).

Herbert Hoover, the unfortunate president in office when the Great Depression began, responded to the crash immediately by launching government spending programs in an attempt to remedy the problem. Despite popular belief, Hoover’s economic response was overwhelmingly interventionist in the economy, implementing massive spending methods in an attempt to lift the economy out of the depression, including the Hoover Dam (Horwitz). By Austrian theory, this implicates a prolonged effect of the recession, which did occur throughout the rest of Hoover’s presidency.

In 1933, Franklin D. Roosevelt was elected president for the first out of four times. During his time as president, he immediately started implementing Keynesian solutions to the disaster of the Great Depression. Through countless public work and spending projects, FDR furiously spent money throughout the 1930s in hopes of retrieving the economy.

With terrible economic conditions still raging after years of attempted stimulus spending, Henry Morgenthau, Jr., Secretary of Treasury to the FDR Administration, made a claim about the administration that did not display it in a positive light. As the secretary of treasury, he ideally should have known the economic situation of the environment better than anyone. In 1939, he stated: “We have tried spending money. We are spending more than we have ever spent before and it does not work … after eight years of this administration we have just as much unemployment as when we started ... and an enormous debt to boot!”

Despite this prolonged severe depression, which was an accurate mold of the Austrians’ predictions, FDR persisted with a new plan. In 1940, FDR approved of the military draft, forcing a large chunk of the workforce into employment. On November 26, 1941, an all out war ultimatum was presented to the Japanese ambassador which demanded that Japan immediately withdrew all of its armed forces -- army, navy, air force, and police -- from China and Indochina immediately. Arguably, FDR’s motive behind this course of action was to provoke an attack out of Japan and justify American military presence in the war (Martin).

Sure enough, in a matter of days following FDR’s ultimatum to Japan, Pearl Harbor ensued. FDR was seemingly ecstatic to join the war in his speech on December 9th, 1941. With the public’s support, the military was able to operate, and eventually enrolled over sixteen million people, both from voluntary participants and from those who were forced to join, virtually eliminating that pesky unemployment figure (Glass).

While FDR enjoyed the pleasure of claiming his administration to be successful by forcefully employing the workforce and boosting the Gross Domestic Product figures purely through even more aggressive government spending, he simultaneously decided to conduct another project in the United States. He issued executive order 9066, demanding that people who have not been proven guilty of any crime or have shown any sign of danger must be thrown in internment camps, referred to by Roosevelt himself as “concentration camps,” solely because of their ethnic background (“Internment History”).

All in the name of “national security,” Japanese Americans were forced into the remote camps, surrounded by barbed wire and security guards, without any chance for trials or legal objections. George Takei, most known for his role in Star Trek and has made many other appearances in several television programs, was one of these people, and has described the experience as so:

“[M]y parents have passed now, but we were citizens of this country. We had nothing to do with the war. We simply happened to look like the people that bombed Pearl Harbor. But without charges, without trial, without due process—the fundamental pillar of our justice system—we were summarily rounded up, all Japanese Americans on the West Coast, where we were primarily resident, and sent off to 10 barb wire internment camps—prison camps, really, with sentry towers, machine guns pointed at us—in some of the most desolate places in this country: the wastelands of Wyoming, Idaho, Utah, Colorado, the blistering hot desert of Arizona, of all places, in black tarpaper barracks.” (Dvorsky)

As George Takei stated, he was hardly one of the only people to have to endure this experience. Well over a hundred thousand people of Japanese descent in the United States were imprisoned in these concentration camps with no opportunity for civil questioning. Many victims died as a result of an inability to access any medical treatments and suffered emotional distress. The guards even outright killed many of the victims based on alleged disobedience. Half of the over hundred thousand Japanese Americans were children. Not only was Franklin D. Roosevelt the driving force behind this course of action, but his administration had full knowledge that not a single one of the Japanese victims committed any act of espionage or sabotage (“Internment History”).

At this point, the Keynesian may claim that although FDR’s actions were, shall we say, a bit on the unethical side, those actions were what ultimately lifted the country out of the Great Depression. Therefore, FDR was a hero.

Because the Keynesians viewed spending as the remedy, they foresaw the end of the war to be economic disaster. In the year of 1946, government resources were essentially exhausted. Spending was slashed by two thirds, taxes were reduced by a third, ten million troops were brought home, and a massive number of price controls and interventionist policies ceased to be enforced. By Keynesian forecast, this was going to result in the next Great Depression. Now, even if we forgive the Keynesians for failing to predict the Great Depression, failing to get the economy back on track after ten years of FDR implementing its solutions (until eventual forced employment euphemized as a low unemployment rate and happy economy), is it honestly reasonable to yet again forgive the Keynesians if they incorrectly foresaw the effects of this event? Surely, something so basic to their entire theory should have been clear-cut. The Keynesians predicted clearly that these reductions in government spending and intervention would encompass another severe economic crash, throwing the economy back into a depression. In reality, there was no repeat Great Depression of 1946. In fact, 1946 was one of the best years in American history in terms of real economic growth (Vedder, et al). Allowing the economy to function without artificial manipulation in the market resulted in the proper allocation of resources and economic flourishing.

To reiterate the facts: a severe crash occurred in 1920. The government unintentionally practiced the Austrian solution by doing virtually nothing. The depression lasted for eight months. Throughout the roaring twenties, the central bank artificially lowered interest rates and predictably, by the Austrians, another crash took place in 1929, unforeseen by any Keynesian economist. This time, the government practiced the Keynesian solution by furiously launching inflationary, tax, and debt funded money into the economy. Franklin D. Roosevelt took office not to bring any change but to further expand on Herbert Hoover’s attempted stimulus responses to the economy. The depression carried out for ten years after the crash of 1929, prompting FDR’s very own secretary of treasury to call out the administration for failing in its efforts. Subsequently, FDR forced millions of people into employment via military conscription and provoked Japan to attack. FDR responded to the attack by ordering over a hundred thousand knowingly innocent civilians, half of which were children, to what he called concentration camps on the basis of their race. It was only after his death in 1945 that the United States finally had real growth in 1946, the same year that the government significantly scaled back on the bulk of government programs.

Was Franklin D. Roosevelt really the honorable president he is often portrayed as? The answer should be obvious.

Works Cited

Bastiat, Frédéric, and W. B. Hodgson. What Is Seen and What Is Not Seen: Or Political Economy in One Lesson .. London: W.H. Smith and Son, 1859. Print.

Blinder, Alan, Ph.D. "Keynesian Economics." The Concise Encyclopedia of Economics. Web. 31 July 2014. [http://www.econlib.org/library/Enc/KeynesianEconomics.html].

Dvorsky, George. "George Takei Describes His Experience in a Japanese Internment Camp." Io9. 28 Feb. 2014. Web. 31 July 2014. [http://io9.com/george-takei-describes-his-experience-in-a-japanese-int-1533358984].

Finnegan, Leah. "FDR Rated Best President In Survey Of 238 Scholars." The Huffington Post. TheHuffingtonPost.com, 01 July 2010. Web. 01 Aug. 2014. [http://www.huffingtonpost.com/2010/07/01/fdr-rated-best-president-_n_632182.html].

Glass, Andrew. "FDR Born, Jan. 30, 1882." POLITICO. N.p., 30 Jan. 2014. Web. 01 Aug. 2014. [http://www.politico.com/story/2014/01/this-day-in-politics-franklin-d-roosevelt-born-102829.html].

Hayek, Fredrich. ""The Use of Knowledge in Society"" Hayek, The Use of Knowledge in Society. Web. 30 July 2014. [http://www.econlib.org/library/Essays/hykKnw1.html].

"Henry Morgenthau Diary." Franklin D. Roosevelt Library (1939): n. pag. Web. 24 June 2014. [http://www.burtfolsom.com/wp-content/uploads/2011/Morgenthau.pdf].

Herman, Arthur. The Cave and the Light: Plato versus Aristotle and the Struggle for the Soul of Western Civilization. New York: Random House, 2013. p. 508. Print.

Horwitz, Steven, Ph.D. "Hoover's Economic Policies." : The Concise Encyclopedia of Economics. Web. 01 Aug. 2014. [http://www.econlib.org/library/Enc/HooversEconomicPolicies.html].

"Internment History." PBS. Web. 25 June 2014. [http://www.pbs.org/childofcamp/history]

"Keynesian Economics vs. Austrian Economics." Be Financial Cycles Educated. Web. 30 Jul. 2014. [http://www.befinancialcycleseducated.com/index.php/keynesian-economics-vs-austrian-economics].

"Keynesian Theory and the New Deal." Novelguide. Web. 31 July 2014. [http://www.novelguide.com/reportessay/history/american-history/keynesian-theory-and-new-deal].

Martin, David. "The Ultimatum That Gave Us Pearl Harbor." Web. 25 June 2014. [http://www.dcdave.com/article5/121019.htm]

Rothbard, Murray, Ph.D. America's Great Depression. New York City: Richardson & Snyder, 1983. pp. 3-27. Print.

Smiley, Gene. "The U.S. Economy in the 1920s." EHnet. Marquette University. Web. 01 Aug. 2014. [http://eh.net/encyclopedia/the-u-s-economy-in-the-1920s].

Somary, Felix. The Raven of Zurich, London: C. Hurst, 1986. pp. 146-147.

Spitznagel, Mark. "The Man Who Predicted the Depression." The Wall Street Journal. Dow Jones & Company, 6 Nov. 2009. Web. 31 July 2014. [http://online.wsj.com/news/articles/SB10001424052748704471504574443600711779692].

"Three Economists and Their Theories." Infoplease. Infoplease, n.d. Web. 29 July 2014. [http://www.infoplease.com/cig/economics/three-economists-their-theories.html].

“UK Survey of US Presidents: Results and Analysis.” United States Presidency Center. p. 2. Web. 31 Jun. 2014.

Vedder, Richard K., and Lowell Gallaway. "The Great Depression of 1946." The Review of Austrian Economics 5.2 (1991): 3-31. Web. 25 June 2014. [https://mises.org/journals/rae/pdf/rae5_2_1.pdf].

Woods, Thomas E., Ph.D. "The Forgotten Depression of 1920." Mises Institute. Web. 30 July 2014. [http://mises.org/daily/3788].