White House on the heels of the Wagner Act came a thunderous barrage of insults
against business. Businessmen, Roosevelt fumed, were obstacles on the road to
recovery. He blasted them as "economic royalists" and said that businessmen as
a class were "stupid." He followed up the insults with a rash of
new punitive measures. New strictures on the stock market were imposed. A tax
on corporate retained earnings, called the "undistributed profits tax," was
levied. "These soak-the-rich efforts," writes economist Robert Higgs, "left
little doubt that the president and his administration intended to push through
Congress everything they could to extract wealth from the high-income earners
responsible for making the bulk of the nation's decisions about private
During a period of barely two
months during late 1937, the market for steel — a key economic barometer —
plummeted from 83 percent of capacity to 35 percent. When that news emblazoned
headlines, Roosevelt took an ill-timed nine-day fishing trip. The New York Herald-Tribune implored him to get back to work to stem the tide of the renewed
Depression. What was needed, said the newspaper's editors, was a reversal of
the Roosevelt policy "of bitterness and hate, of setting class against class
and punishing all who disagreed with him."
Columnist Walter Lippmann wrote in March 1938 that "with almost no
important exception every measure he [Roosevelt] has been interested in for the
past five months has been to reduce or discourage the production of wealth."
out earlier in this essay, Herbert Hoover's own version of a "New Deal" had
hiked the top marginal income tax rate from 24 to 63 percent in 1932. But he
was a piker compared to his tax-happy successor. Under Roosevelt, the top rate
was raised at first to 79 percent and then later to 90 percent. Economic
historian Burton Folsom notes that in 1941 Roosevelt even proposed a whopping
99.5-percent marginal rate on all incomes over $100,000. "Why not?" he said
when an advisor questioned the idea.
After that confiscatory
proposal failed, Roosevelt issued an executive order to tax all income over
$25,000 at the astonishing rate of 100 percent. He also promoted the lowering
of the personal exemption to only $600, a tactic that pushed most American
families into paying at least some income tax for the first time. Shortly
thereafter, Congress rescinded the executive order, but went along with the
reduction of the personal exemption.
Meanwhile, the Federal Reserve
again seesawed its monetary policy in the mid-1930s, first up then down, then
up sharply through America's entry into World War II. Contributing to the
economic slide of 1937 was this fact: From the summer of 1936 to the spring of
1937, the Fed doubled reserve requirements on the nation's banks. Experience
has shown time and again that a roller-coaster monetary policy is enough by
itself to produce a roller-coaster economy.
stinging from his earlier Supreme Court defeats, Roosevelt tried in 1937 to
"pack" the Supreme Court with a proposal to allow the president to appoint an
additional justice to the Court for every sitting justice who had reached the
age of 70 and did not retire. Had this proposal passed, Roosevelt could have
appointed six new justices favorable to his views, increasing the members of
the Court from 9 to 15. His plan failed in Congress, but the Court later began
rubber-stamping his policies after a number of opposing justices retired. Until
Congress killed the packing scheme, however, business fears that a Court
sympathetic to Roosevelt's goals would endorse more of the old New Deal
prevented investment and confidence from reviving.
historian Robert Higgs draws a close connection between the level of private
investment and the course of the American economy in the 1930s. The relentless
assaults of the Roosevelt administration — in both word and deed — against
business, property, and free enterprise guaranteed that the capital needed to
jump-start the economy was either taxed away or forced into hiding. When FDR
took America to war in 1941, he eased up on his anti-business agenda, but a
great deal of the nation's capital was diverted into the war effort instead of
into plant expansion or consumer goods. Not until both Roosevelt and the war
were gone did investors feel confident enough to "set in motion the postwar
investment boom that powered the economy's return to sustained prosperity."
gains support in these comments from one of the country's leading investors of
the time, Lammot du Pont, offered in 1937:
Uncertainty rules the tax situation, the
labor situation, the monetary situation, and practically every legal condition
under which industry must operate. Are taxes to go higher, lower or stay where
they are? We don't know. Is labor to be union or non-union? . . . Are we to
have inflation or deflation, more government spending or less? ... Are new
restrictions to be placed on capital, new limits on profits? ... It is
impossible to even guess at the answers."
modern historians tend to be reflexively anti-capitalist and distrustful of
free markets; they find Roosevelt's exercise of power, constitutional or not,
to be impressive and historically "interesting." In surveys, a majority
consistently rank FDR near the top of the list for presidential greatness, so
it is likely they would disdain the notion that the New Deal was responsible
for prolonging the Great Depression. But when a nationally representative poll
by the American Institute of Public Opinion in the spring of 1939 asked, "Do you
think the attitude of the Roosevelt administration toward business is delaying
business recovery?" the American people responded "yes" by a margin of more
than 2-to-1. The business community felt even more strongly so.
private diary, FDR's very own Treasury Secretary, Henry Morgenthau, seemed to
agree. He wrote: "We have tried spending money. We are spending more than we
have ever spent before and it does not work. ... We have never made good on our
promises. ... I say after eight years of this Administration we have just as
much unemployment as when we started ... and an enormous debt to boot!"
At the end of the decade and 12
years after the stock market crash of Black Thursday, 10 million Americans were
jobless. The unemployment rate was in excess of 17 percent. Roosevelt had
pledged in 1932 to end the crisis, but it persisted two presidential terms and
countless interventions later.