“History doesn’t repeat itself, but it rhymes.”

—attributed to Mark Twain

Iam not an economist.

At campaign stops when he was running for president in 1975 and 1976, Jimmy Carter often declared, “I am not a lawyer,” which usually drew great applause from the audience.

Since the fall of 2008, economists have fallen almost to the level of public disrepute in which lawyers are generally held—a level similar to that in which economists were held in the years after 1929.

I am, for better or worse, an historian, and I believe that history can provide a clearer understanding of the Great Depression and the very important things it has to say to us today than can economics.

The Costs of Failing Our Eyes

Tennessee Williams stated well the idea that there are costs to self-delusion and immoderation in the words of Tom Wingfield, the narrator in The Glass Menagerie (1945):

 … that quaint period, the thirties, when the huge middle class of America was matriculating in a school for the blind. Their eyes had failed them, or they had failed their eyes, and so they were having their fingers pressed forcibly down on the fiery Braille alphabet of a dissolving economy.1

Surely many Americans in the quarter century after this book was first published, and especially in the early 2000s, also “failed their eyes,” refusing to see where their actions must lead, at least as much as their forebears had in the twenties. As a student of the Great Depression, I was not among them. Long before the financial collapse in September 2008, it had been apparent to me that we were riding an unsustainable credit bubble and wealth and income were concentrating at the very top. Both conditions were very similar to those of the 1920s, and I was quite sure that something like what happened in 1929 was in the offing. In the summer of 2007, I completed an analysis of the similarities between the 1920s and the 2000s, predicting a collapse.2

But few were listening to those of us who were pointing out that the ever-soaring housing prices were patently unsustainable and that this unreal estate market, along with the mortgage securities tied to it and the gigantic mountain of debt that was being piled up, was bound to collapse. They were, like their forebears eight decades earlier, failing their eyes—and their ears. “A man hears what he wants to hear,” as Paul Simon noted, “and disregards the rest.”3

Brother, Can You Spare a Trillion?

As the imploding economy entered a downward spiral on a scale unseen since the Great Depression eight decades earlier, many people nervously asked in 2008 and 2009: “Is it happening again?”

The aphorism about history rhyming, usually credited to Mark Twain, seems particularly appropriate when discussing the Great Depression in the period after the fall of 2008.

When I began to think about this new introduction in mid-2008, the economy was sounding like that of the late 1920s, and what is especially discomforting when we think about history rhyming is that it is the ends of words that make them rhyme. The end of the twenties economy made a terrible crashing sound and the falling economy of 2008 made very similar noises.

The unfortunate truth is that this book’s subject is plainly even more timely and relevant than it was when it was first published in 1984. The past must always be reread through the eyes of the present, and another look at the causes of, responses to, and consequences of the Great Depression, as well as at what worked and did not work in the New Deal, has never been more needed than it is in the wake of a new economic collapse.

Consider this statement: “It was reported that the extraordinary rate of default on residential mortgages forced banks and life insurance companies to ‘practically stop making mortgage loans, except for renewals.’ ”4 That sounds like it was written about 2008, and the comment was made by Ben Bernanke, the man who reigned as Federal Reserve chairman during that year. But self-described “Depression buff” Bernanke wrote those words in a 1983 paper about how the Great Depression of the 1930s began and deepened.

That sounds like a rhyme with a reason.

One can hope that the economic outlook is better when the reader opens this book, but as I complete this new introduction in 2009, fears that the new economic collapse may prove to be of monumental proportions are even greater than they were when I was originally writing the book in the early 1980s, during what was then the worst recession since the 1930s. The mortgage crisis and credit crunch, foreclosures, the enormous debt burden (both public and private), the collapse of leading investment firms and banks, the foreign trade deficit, business and personal bankruptcies, and a stock market that quickly lost half of its value combined to paint a picture of the economic prospect almost as depressing as the iconic black-and-white images of the 1930s left for us by photographers of the era.

During the Fall Fall of 2008, some proselytizers of social Darwinism and the unfettered free market moved with astounding alacrity to abandon their principles in hopes of recouping their principal. They demanded unprecedented sums of bailout money from the government. The 1930s refrain of the down-and-out, “Brother, can you spare a dime?” was replaced with the 2000s plea of the down-and-in, “Brother, can you spare a trillion?”

The free market, it seems, is fine for prosperous times and for the poor and the middle class, but the rich bleat for government intervention to save them the moment they fail.

Viewing the Great Depression from a New Vantage Point

In the last months of 2008, polls indicated that more than eight in ten Americans believed that the country was headed in the wrong direction.5

In the tradition of his predecessors from Herbert Hoover and Franklin Roosevelt onward that I discuss in this book (see this page), President George W. Bush grew a bumper crop of euphemisms in an attempt to put a better face on the economic situation than is depicted by the dreaded words depression and recession. Among the terms Bush ran up the flagpole in hopes of eliciting salutes from the public were “rough patch,” “period of uncertainty,” “slow growth,” “risk of a downturn,” “slowdown,” and “a tough time.”6

Even before the “rough patch” of 2008, though, the Great Depression continued to be as much a subject of historical and popular fascination as it was when I wrote this book. Volumes on the period, its economy, its politics, its culture, and its personalities have continued to pour forth from printing presses. After the Civil War and World War II, the Depression is the most written-about event in American history. Indeed, more than twenty-five books with the same title as this one have hit the market in the quarter century since its publication.7 Biographies of Franklin Roosevelt and books (including three I edited)8 on other personalities of the decade and aspects of the Depression experience have been and continue to be published in such numbers that it is difficult to keep track of them.

While the Great Depression speaks to us today as forcefully as ever, its voice has different tones and nuances now than it did when this book was first written—or, rather, we hear different tones and nuances than we once heard.

“History,” when it means that which historians choose to write down and interpret, instead of the word’s broader meaning of everything that happened, is an equation with three factors, one of which is generally constant, while the other two are variables. It involves the interaction of the events of the time under study, the concerns of the time in which the writing is taking place, and the beliefs, outlook, and interests of the historian. Although the first of these factors is more or less a constant, the discovery of previously unknown documents or artifacts or the revelation of formerly secret recollections may alter our knowledge of those events. The other two factors are the variables that keep “history,” in the sense of our understanding of the past, changing. Any work of history is a matter of selection. The process of selecting which aspects of the age under examination are to be emphasized—or discussed at all—is as dependent on the interests of the period in which the work is written as it is on the events and concerns of the historical era written about. Thus books of history become historical artifacts themselves.

That is one of the reasons for the decision to leave the main body of this book essentially unchanged. I have added this new introduction to address how the views of historians and of the general public concerning the Depression have changed since 1984 and how the times in the first decade of this millennium compared with those prior to the 1930s. I also touch on what I might do differently if I were writing a book on the subject today. This book was written during the worst recession between the Great Depression and the crash of 2008. The body of the book stands as a reflection of how the Great Depression looked from the vantage point of the recession of the early 1980s; the new introduction adds a view of the 1930s from the perspective of the financial collapse of 2008–09.

The most apparent transformation of the world in the quarter century since the publication of this book was the collapse of communism in the Soviet Union and Eastern Europe, the general discrediting of that ideology throughout the world, and the replacement of a cold war against a godless ideology with a (at the least) warm war against an ideology that claims to be godly. Because the decline of communism pulled socialism into disrepute, no challenger was left to the free-market economic system, the unrestrained excesses of which are widely believed (including by this historian) to have generated the Depression. From the late 1980s to late in the first decade of the 2000s, free-market ideology was the dominant economic philosophy, as unhindered as it had been in any time since the mid-nineteenth century. The crash of 2008 has again thrown the totally free-market ideology into question, and this new turn, like the one in the opposite direction after 1980, cannot help but alter the perspective from which we view some of the social, economic, and political issues of the Depression era. Yet we must attempt to understand the attitudes of Americans in the thirties toward communism, socialism, and capitalism in the context of the times in which they lived, rather than that of our own age. In recent years, for example, Marxism’s influence in this country probably appeared to many more as myth than as the reality it was. But that reality is an important part of the history of the era of the Great Depression.

The years since this book was completed have also seen the United States go through a couple of decades that in many respects bore a striking resemblance to the era of the 1920s that ended in the Depression, though with an important difference. Plainly greed was as much a hallmark of the eighties, nineties, and early twenty-first century as it had been of the twenties. But through most of that more recent period, we were not obliged to pay much of a price for the excesses in the way that people did after 1929.

Born-Again Antisocial Darwinism

“To understand the Great Depression is the Holy Grail of macro-economics,” Ben Bernanke wrote just over a decade after this book was published and just over a decade before he assumed the post of Federal Reserve chairman in 2006.9 The reason, of course, is that the economic collapse of 1929–1933, which continued in many ways to 1940 or 1941, was the greatest economic cataclysm in American and modern world history. “The contraction phase of the depression, extending from August 1929 to March 1933, saw the most severe decline in key economic aggregates in the annals of U.S. business cycle history,” economist Michael Bordo and his colleagues wrote in a 1998 book that sees the Great Depression as the “defining moment” for the American economy in the twentieth century. “Real GNP fell by more than one-third.”10 During the same period, real stock prices, which had gained 202 percent in the preceding boom, fell 67 percent.11

This collapse discredited classical free-market economics, and, for many years after the Depression began, laissez-faire advocates were without direction in their quest to find the Holy Grail that would explain the Depression in a way that would enable them to resurrect classical economics. Keynesianism was apparently confirmed both by the collapse that in retrospect could be seen to have started three months before the stock market crash in 1929 and by the robust recovery that accompanied heavy spending for World War II. For about four decades, most explanations of the causes of the Great Depression focused on insufficient demand.

Ideas, ideologies, and theories are, however, rather like fashions. If you keep that skirt or tie in the closet long enough, it will come back into style. And, in the last two decades of the twentieth century and the first decade of the twenty-first, free-market advocates made an intellectual and (especially) a political comeback. Taking as an article of faith that unfettered markets are self-correcting, they concluded that the cause of the “Great Contraction” must have lain not in the market but in some sort of government fetters placed upon it. In order to argue against government regulation, spending and taxation in the here-and-now, they had to rehabilitate the reputation of what an unregulated, small-spending, low-tax economy did in the there-and-then.

The Galahads and Indiana Joneses of the Market God found several items that groups among them claimed to be the Grail: an insufficient money supply, the Hawley-Smoot tariff and international reactions to it, and the effects of the gold standard, to name a few. I discuss all of these factors in the pages that follow—and they all had roles to play in the economic catastrophe. But I remain as sure as I was when I first wrote this book that any purported Grail that tries to understand the Depression without reference to the demand side and income distribution is a “Holey Grail.”

A number of free market-oriented economists and historians have disagreed. They acquitted the policies of the Coolidge years of the charge of involuntary manslaughter in the 1929 case of homicide in which the economy died. The cause of death, these neoclassical crime scene investigators maintained, was government intervention rather than the lack thereof. The perpetrators were not Calvin Coolidge and Andrew Mellon, they insist, but Herbert Hoover and Franklin Roosevelt. Their analysis of the Great Depression resuscitated free-market economics and even social Darwinism, so that they could again be made the basis of government policy.

The case for exonerating the free market and convicting government intervention received its most pervasive, albeit not most persuasive, argument in 2007, just before the new economic “rough patch” became apparent. In a book titled The Forgotten Man: A New History of the Great Depression, Amity Shlaes came out whole hog in support of the hogs.12

This “new history of the Great Depression” is grounded in very old economics. Not content to resurrect her Lord and Savior, the Market God, Shlaes endeavored also to disinter another, far more discredited creed: the one that is known by the misnomer “Social Darwinism.” In truth, few if any doctrines have ever been further from being “social,” and the application of a brutal survival-of-the-fittest doctrine to society would more accurately be termed antisocial Darwinism.

An unrepentant, born-again antisocial Darwinist, Shlaes took it upon herself to instruct the American public in the forgotten virtues—indeed, the Market-Godliness—of William Graham Sumner, Calvin Coolidge, and Andrew Mellon. In her view, “the deepest problem” causing the Depression was government “intervention, the lack of faith in the marketplace.”13 She suffers from no such lack; her faith in the Marketplace is of the blind, unquestioning variety.

Like so many others whose voices became prominent in the quarter century following Ronald Reagan’s election, Shlaes is a Market God fundamentalist. (Some who could come up with no satisfactory explanation for the Great Depression fell back on terming it an “act of God.” It would be more accurate to see the collapse as an act of those who see the Market as God.)

Like Reagan before her, Shlaes praises the Coolidge-Mellon tax cuts as a great success that proved the “economic facts”—the market is always right and government intervention always messes things up—while she ignores what those “facts” wrought in 1929.14 (It seems significant that she speaks of an economic theory and ideology as “facts”; there are no hypotheses for people of faith.) The Revealed Truth of the Market God tells her that a market left alone will benefit everyone. So she says it did so in the 1920s, blithely stating, “Citizens could afford all the new products”15 such as automobiles and radios. In fact, there was a sharp increase in credit sales in the 1920s, belying the contention that people could “afford” new products in the traditional sense. Here, then, is the confrontation:

In Faith, supply creates its own demand and the rich getting richer is good for everyone.

In Fact, a top-heavy distribution of income inhibits demand from keeping up with supply and is, ultimately, bad for almost everyone.

But, in the reckoning of Believers, “in fact” is a phrase as weightless as an astronaut in space. Evidence that goes against received Truth thereby proves itself to be false. Blind faith wouldn’t be blind if it could see facts. (This is as true of those whose unquestioning faith is in Marxism as it is of those whose unquestioning faith is in—let’s call it “Marketism.”)

The Fundamentalists of the Economy Are Wrong: The “Intellectual Edifice” of Marketism Collapses—Again

The attitude of the Market God fundamentalists toward evidence, so well exemplified by Shlaes, seems to be something akin to the charming notion devised by some Creationists that God put fossil evidence in the rocks of the earth in order to test people’s faith. We of little faith might see the credit boom of the twenties as evidence that a top-heavy distribution of income meant that average citizens could not afford all the new products. The Market God worshippers will have none of it. They prefer saying “the evidence be damned” to being damned by the evidence.

Shlaes opposes government regulation of the stock market. The great bull market of the late twenties, she informs us, “was not a speculative bubble”—the prices of equities in pre-crash 1929 were “entirely rational.”16 (Murray Klein’s description in his 1992 book, Rainbow’s End, of the bubble whose existence Shlaes denies may seem more persuasive: “Put simply, too many people held too much stock on borrowed money.”17)

As it happened, Shlaes and her fellow Market God worshippers in the mid-2000s were viewing the stock market boom of the 1920s through a car’s sideview mirror—the one that carries the message: “OBJECTS IN THE MIRROR ARE CLOSER THAN THEY APPEAR.” So it was with the new speculative bubble that had arisen while Shlaes was denying the one in the 1920s. It burst in the fall of 2008.

Shlaes’s faith in the Market is so unquestioning that she opposes regulation not only of the stock market, but of anything. She would let the Market sort out for us even tainted foods and deadly drugs. In her Market-worldview, the Food and Drug Administration is “an outrageous theft of a function normally provided by the private sector—quality control.”18 She seems to believe that when a sufficient number of people die from a dangerous product, the Market will self-correct and cause the manufacturer to lose sales to safer products. That is apparently the way they do it in China.

A foolish consistency is the hobgoblin of the mind of a True Believer.

There are two reasons why I have discussed at length Shlaes’s contentions on the causes of the Great Depression.

By far the lesser of those reasons is that Shlaes sets her narrative up as a corrective to books (like this one) that she attacks as “the standard history of the Great Depression.” Included, she asserts, are the ideas that the stock market crash was “the cause of the Depression”; “a dangerous inflation caused by speculating margin traders brought down the nation”; Hoover had a “risible commitment to rugged individualism”; and Roosevelt made everything right.19 This volume is one of the standard histories of the Great Depression,* yet I neither took at the time I wrote it nor now take any of the positions Shlaes lists. But, then, that neither I nor the writers of most other standard histories of the Depression say what she attributes to us is a fact, and so has no relevance to her worldview, in which all opponents are stuffed with straw.

The much larger reason for discussing Shlaes is that hers is the capstone statement of the free-market argument that steadily gained influence during the two and a half decades after this book first appeared. Her extreme views on the infallibility of the free market were, unsurprisingly, enthusiastically embraced by the economic fundamentalists of the Wall Street Journal editorial page and such “conservatives” as former House Speaker Newt Gingrich. After the Marketist economics Shlaes preaches had so horribly failed, House Republicans desperate to maintain their faith in the failed Market God were reported in the spring of 2009 to be “tearing through the pages of Amity Shlaes’ The Forgotten Man like soccer moms before book club night.”20

Shlaes and the other Market God-worshipping forensic economists and historians exhumed the corpse of the twenties economy and pronounced it to have been in good health at the time of its demise; the practical result was to clear the way for the restoration of the economic approach that I argue in these pages was in fact the cause of death (see this pagethis page). These “conservative” scholars decriminalized, among other things, deregulation, tax-slashing for the highest income groups, a rapidly growing concentration of income among the very richest people, and staunch opposition to unions.

Indeed, The Forgotten Man is largely a brief for the George W. Bush tax cuts, masquerading as a history of the Depression era. Shlaes’s praise for Coolidge Treasury Secretary Andrew Mellon is so lavish that it makes him sound like the Second Coming (which he was: the second coming of Alexander Hamilton’s efforts to concentrate wealth at the top with the assurance that it would eventually trickle down to those below). Mellon, she breathlessly recounts, “put through the Revenue Act of 1926, a dramatic series of rate cuts, repealing gift taxes, slashing estate taxes.…”21 On the other hand, Franklin Roosevelt raised taxes “on wealthy people,” which Shlaes says “caused enormous damage.”22

From the perspective of 2009, it certainly appears that it was the general deregulation intended to restore, as much as possible, the good old days of the 1920s (or, “better,” in the views of Shlaes and top Bush adviser Karl Rove, the 1890s) and George W. Bush’s Coolidge-Mellon-style tax cuts on the very rich that has caused enormous damage.

To get to the most important point—applicable to both the economic state of the twenties and its reprise in the 2000s—Marketists argue for a “natural” economy in an age that is farther removed from humankind’s natural circumstances than ever before in history. That happened in the ’20s and again in the ’00s. Neither Coolidge nor Bush believed there was any need to put a visible hand on the economy’s tiller. (Bush, though, was less consistent in practicing what the economic fundamentalists preached than Coolidge had been, and he jettisoned their creed almost entirely when the economy collapsed during the final months of his presidency.) The ship without a pilot would find its way naturally. Unfortunately for most people, the un-captained ship ran aground on a rocky coast in 1929 and again in 2008.

I argue in these pages that a major part of the problem in the 1920s was that eighteenth-century theories were being used to deal with twentieth-century realities. Policy makers were “playing by the rules of Adam Smith’s pin factory at a time when Henry Ford’s River Rouge plant was more indicative of the true nature of the economy. It would have been remarkable if disaster had not resulted from this discrepancy” (see this page).

Attempting to explain twenty-first-century problems with eighteenth-century theories is even less likely to succeed. Yet the forceful argument in the last three decades that those theories were not to blame in the collapse of 1929 allowed them to make a comeback.

At the time of this writing, those chickens have come back to roost in foreclosed homes and submerged banks and brokerages across the American economy, although many of the ideologues—as is the wont of ideologues—steadfastly refuse to recognize that their ideology carried to an extreme produced economic collapse in the 1920s and did the same in the 2000s.

The prescription of the Market God faithful (albeit not of most of the practitioners of unregulated capitalism, who quickly ran to the government for bailouts when the Market failed) in the face of the failure of their policies is the same in the early twenty-first century as it was in 1929 and ensuing years: Keep following the regimen that produced the sickness. As I point out in this book (this pagethis page), a basic difference between the ideologue Herbert Hoover and the pragmatist Franklin Roosevelt was that FDR called for “bold, persistent experimentation” and said, “It is common sense to take a method and try it; if it fails, admit it frankly and try another. But above all, try something,” while the position of Hoover (and, far more, that of the full-blown believers in the Market God) was: Take the Method (as they see it, there is only one) and try it. If it fails, deny its failure and try it again and again … and again.… But, above all, keep trying the same thing.

The difference boils down to this: Bold, persistent experimentation vs. bold persistence.

“But one of the good things about reading history is you learn a good deal,” Senate Minority Leader Mitch McConnell (R, Kentucky) declared with bold persistence early in 2009. “And, we know for sure that the big spending programs of the New Deal did not work. In 1940, unemployment was still 15 percent. And, it’s widely agreed among economists, that what got us out of the doldrums that we were in during the Depression was the beginning of World War II.”24

A few weeks later House Minority Leader John Boehner (R, Ohio) called for a spending freeze. Republicans boldly persisted in calling for tax cuts and circulated a petition demanding that federal spending be kept at current levels. “Families and small businesses are tightening their belts; Congress must too,” the appeal declared.25

When one looks at what actually happened during Franklin Roosevelt’s presidency, it is beyond doubt that the “conservatives” have it backwards.

It is true that the New Deal failed to end the Depression; the reason, though, is not that Roosevelt and Congress overspent, but that they underspent. The New Deal was not too reckless in spending; it was too cautious. The war ended the Depression because it obliged Roosevelt and Congress to spend huge amounts without worrying about where the money was coming from.

And, held up against the experience of the Roosevelt years, the argument that low taxes are the way to end an economic collapse is ludicrous. This is not a matter for debate; it is absolutely certain that it was not tax cuts that brought the nation out of the Great Depression. The rapid recovery from the Depression during World War II took place at a time when the top marginal income tax rate was raised to 88 percent and then, in the last two years of the war, to 94 percent—the highest rate in American history.

The following graph makes crystal clear the actual effects of spending and tax rates on the economy during the Depression and World War II:

While most Marketist theorists kept the faith, however, some of them allowed evidence to enter their equations. Alan Greenspan was one. “Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief,” the longtime Federal Reserve chairman testified during the Fall 2008 crash.26



Self-interest, Greenspan had belatedly recognized, is not sufficient to curb the excesses inherent in a market-based economy. Someone needs to watch the store to prevent the shoplifters from running wild. But the security guards—the regulators who had been brought in during the New Deal—had been laid off. Greenspan himself had believed they were unneeded.

“Do you feel that your ideology pushed you to make decisions that you wish you had not made?” Representative Henry Waxman (D, California) asked Greenspan.

“Yes, I’ve found a flaw,” the chastened Marketist admitted, saying he was “very distressed by that fact.” Greenspan went on to admit that “the whole intellectual edifice” had collapsed.27

It wasn’t the first time. That same intellectual edifice had resoundingly collapsed in 1929. It was rebuilt in the years between the late 1970s and 2008, only to fall from its own top-heavy weight once again.

In both cases, the problem was not just that, contrary to the assurances from business and political leaders, the fundamentals of the economy were not strong; it was also that the fundamentalists of the economy are wrong.28

1987: An Echo of 1929 and a Foretaste of 2008

The attempt to restore the economic conditions of the 1920s that was being made when I originally wrote this book in the early 1980s nearly bore its bitter fruit near the end of the Reagan years.

By some measures the stock market collapse of October 1987 rivaled that of fifty-eight years before. (The 508-point drop in the Dow Jones average on October 19, 1987, was twice the loss of any single day in 1929. The 1929 crash, to be sure, was no one or two-day phenomenon; it involved many days over a period of more than two months and it ultimately involved a far greater percentage loss in stock values than occurred in 1987.) But no major depression followed the 1987 stock collapse. Two of the most important reasons why this was the case are directly related to the subject of this book.

The more apparent one is that counter-cyclical policies that were begun in the New Deal as a means of trying to combat the Great Depression worked largely as they were intended to. Although the Republican administration in the eighties attacked the “welfare state” that had its origins in the thirties, that same administration reversed ingrained Republican attitudes and embraced deficit spending to a degree never before contemplated in peacetime. This, the greatest difference between the eighties and the twenties-early thirties, plainly helped to counteract much of the downward pressure on the economy that the crash of ’87 reflected and which it might otherwise have substantially increased. A government which writes each year $200 billion or more in checks that would have been returned to any individual marked “insufficient funds” cannot help but provide a good deal of stimulus to a weak economy.

Less obviously, the revival of an outlook that first fully emerged in the Coolidge twenties but had receded in the Roosevelt thirties may have played a larger role in keeping the economy going after the crash of ’87—and in the years from then until 2008. The more subtle reason why we averted a serious economic depression in the late 1980s is that the values of community, cooperation, prudence, and sacrifice that enjoyed such an upsurge in the thirties have since then been almost completely submerged by those of acquisitive individualism. Put simply, most contemporary Americans have fully adopted the consumption ethic that was rising in the 1920s but was briefly reversed during the Great Depression. We have become accustomed to buying as a way of life and to living for the moment, even if that means incurring large debts that threaten our own and our descendents’ future standards of living.

These attitudes were cultivated by businesses and their advertisers in order to create markets for the products of highly productive modern industry. The period immediately following October 1987 put the consumption ethic to a major test. Would the scare that the stock market collapse created cause people to become wary of the future and cut back on spending, as so many had done after that similar October nearly six decades before? If it did, the resulting fall in demand might have started a downward spiral much like that of the early thirties. But most Americans slowed their purchasing only briefly, and then returned to doing their part to stimulate the economy.

One of the principal differences, then, between the circumstances of the crashes of ’29 and ’87 is that the consumption ethic was still new in the twenties. At that time, Americans were insufficiently weaned from the traditional values of an earlier phase of capitalism to heed Herbert Hoover’s calls for confidence and spending in the face of hard times. By the eighties, most Americans had left those values of restraint and prudence so far behind that no pleas from Ronald Reagan were needed to get them to spend again as if there were no tomorrow. This very un-thirties-like willingness to focus on the self and the moment may have done more than the social and economic policies that began in the thirties to avert—or at least postpone—a new depression.

Reagan’s Revolution, Roosevelt’s Repudiation

While the collapse of communism and the complete triumph of consumption were very influential, the change of the last twenty-five years with the greatest apparent impact on the way we look at the matters on which this book focuses was the so-called Reagan Revolution. It became conventional wisdom to say that the whole era of American politics, society, and economics shaped by the Great Depression and the New Deal finally came to an end in the 1980s. The public’s seeming repudiation of the Age of Roosevelt—an age in which Americans learned to look to the federal government for assistance and solutions—was found in the two presidential election victories of a man who proclaimed in his first inaugural address: “Government is not the solution to our problems; government is the problem.”29

“For modern American conservatism,” Harold Meyerson wrote in the Washington Post in 2008, “Reagan’s words may as well have been inscribed on the tablets handed down at Mount Sinai. The market was god and Reagan was its Moses, and Republicans have sworn fealty to both for the past quarter-century.”30

What Reagan proposed and started to carry out—and the junior Bush took much further—amounted to the unilateral disarmament of the middle and working classes while the very rich were stockpiling an arsenal that was unprecedented in its relative firepower since at least the Gilded Age. (Of that late-nineteenth-century age in which the robber barons were free to plunder without a hint of government interference, Amity Shlaes made the following jaw-drop-inducing remark: “The Gilded Age was generally proving to be gilded for the average, even the poor, man.”31) The federal government, which had entered into an alliance with the poor and the middle class during the Depression years, was withdrawing from that pact in the 1980s and 2000s, leaving labor and consumers with slingshots to use against the vast array of economic thermonuclear weapons being accumulated by capital.

The problem with labor unions, from the perspective that regained ascendancy after 1980, is that they raise wages and lower profits.32 (As will be apparent in the pages that follow, if it is not already, I suffer from the failing of not perceiving these results to be problems—so long as profits remain at healthy levels—in terms either of morals or economics.) Pools of consumers to obtain lower prices also incur the wrath of the Market God’s messengers, but in their theology there’s nothing whatsoever wrong with capital unions (corporations).33 In the view of the Marketists, pools of capital, no matter how deep, are no threat to the free individual, but pools of workers or consumers, no matter how shallow, pose mortal threats to freedom and individualism.

According to the species of free-market economics that flourished in the 1920s and found a niche in which it could thrive again in the political environment of the twenty-five years after 1980, very wealthy people must be completely free to band together in ever-more-powerful combinations, while everyone else must be completely free as unconnected, noncooperating, everless-powerful individuals. Then, the Marketists tell us, the competition between the former and latter will be … fair and balanced.

The Depression/New Deal Legacy during the 1990s and Early 2000s

Between the Reagan and second Bush presidencies came an interlude during which Bill Clinton played, in some respects, Dwight Eisenhower to Reagan’s Roosevelt-in-a-mirror. As the first Democratic president after the Reagan Revolution, Clinton made bipartisan the acceptance of some of the key features of what Reagan had done, much as Eisenhower, as the first Republican president after the Roosevelt Revolution, had made bipartisan the acceptance of some of the key progressive features of what FDR had done. It was Bill Clinton, after all, who proclaimed in his 1996 State of the Union address, “The era of big government is over.”34

Significantly, however, Clinton made it clear that he was not endorsing the Reagan view. He immediately followed that declaration with: “But we cannot go back to the time when our citizens were left to fend for themselves.”35

And, on closer examination, it is far from certain that we ever completely emerged from the shadow cast by the 1930s. First, there has been little change in the centrality of the presidency itself. One of Franklin Roosevelt’s most important innovations was to personalize the presidency, to give people a feeling of intimate connection with the president. We continue today to expect the president to lead to a much greater extent than had been the case before FDR. For all his rhetorical lunges at the government, Ronald Reagan did little to reduce the nation’s focus on his office. Certainly the need for a president to give the appearance of personal contact with the people is a carryover from the Depression years that remained very much with us even after the Reagan Revolution. Those—the first George Bush is a good case in point—who are unable to convey such a feeling of intimacy via the electronic media are unlikely to be successful national leaders. A large part of Bill Clinton’s popularity stemmed from his ability to get people to believe that he could “feel your pain.”

Even after Reagan we continued to operate in a system largely created in the Roosevelt years. Welfare payments and unemployment insurance trace their roots to the New Deal; the old age pensions upon which a growing percentage of Americans depend were instituted in the New Deal; the price-support system that allows many American farmers to stay on the land was launched by New Dealers. And Republican and conservative fears—fears very much shared by FDR and his relief administrator Harry Hopkins—that direct relief (welfare) would undermine self-reliance and contribute to the creation of a class of permanently dependent Americans have been partially borne out.

But the weakening of the New Deal that Reagan had sought was carried further under Bill Clinton, as he bought too fully into the economic fundamentalism being preached by economists and business leaders. In 1999 Congress repealed the 1933 Glass-Steagall Act, which separated investment banking from commercial banking; that change facilitated the mortgage bubble and collapse of the 2000s. In 2000, Marketist Texas Republican Senator Phil Gramm inserted the “Commodities Futures Modernization Act” into the huge year-end reauthorization bill. The act “modernized” futures trading by prohibiting any regulation of the modern gambling instruments called derivatives, including credit default swaps. Then George W. Bush took the undermining of New Deal protections much further, as he loosened monitoring of the stock market. Bush also sought to “privatize” Social Security into personal accounts invested in the stock market. Had he succeeded, the level of the disaster of the 2008 crash would have been increased exponentially.

Surely in the last twenty-five years we have still lived to a significant degree in a political alignment established during the Great Depression. In the 1930s, the Democratic party firmly identified itself with the downtrodden. Association with those who were left out worked well politically at that time, since the people who considered themselves to be in that category constituted a clear majority of the electorate. But identification as the champions of the oppressed became less politically viable in the post-World War II years, when the majority of Americans came to see themselves as middle class and the “left outs” came to mean, in the minds of many members of that expanded (and mostly white) middle class, racial minorities. The consequences of this affiliation of Roosevelt’s party with the “left outs” in times of real or perceived prosperity are clear in the remarkable fact that the Democratic presidential candidate has won a majority of the white vote in only one election (1964) since FDR’s death. At this writing, that is once in sixteen presidential elections, covering a span of six decades.

Perhaps more important than the continuing effects of the things the New Deal did is the impact on us today of what it failed to do—or did insufficiently or incorrectly. We are still facing the unfinished business of the Depression era. Two mistakes of the New Deal—both perhaps unavoidable, but unfortunate nonetheless—loom large in the problems Americans confront in the twenty-first century. Both of them revolve around the centerpiece of New Deal social legislation, the Social Security Act of 1935. As I discuss in more detail in the body of the book (beginning on this page), the use of payroll taxes to fund the system was an easier way to get the program approved, and it has provided great protection for the Social Security System. But as currently configured, payroll taxes are regressive and also make it costly for employers to hire regular, full-time workers. Payroll taxes constitute a tax on job creation, and the precedent of funding social insurance programs (such as Medicare) through payroll levies that was set in 1935 is a large obstacle to job creation today.

The other vital mistake the New Dealers made that continues to haunt us today is their failure (for reasons discussed in this book) to include national health insurance in the Social Security program. The health care crisis that the American people find themselves in at the start of the twenty-first century is essentially a piece of uncompleted business of the New Deal.

Some surface appearances to the contrary notwithstanding, then, even before the economic collapse of 2008, we had not yet seen the end of the era of American history that is significantly influenced by the Great Depression. It remains impossible to understand contemporary problems and issues without an understanding of the Great Depression and the ways in which Americans and their government attempted to respond to its challenges. Furthering such an understanding is the chief objective of this book.

The Era of Big Government Is Over Never Ended

Prior to 2008, an area often cited as one in which we had clearly departed from the New Deal is the public’s attitude toward government. Here, too, the truth has been more complicated. While President Reagan and his party may have reversed, or at least slowed, the advance of big government, they also discovered the political efficacy of another part of the New Deal approach: deficit spending. It might even be argued that Franklin Roosevelt and Ronald Reagan are linked principally by the fact that both won popularity by having the government do more than they asked the people to pay for.

In the 1930s, the Democrats made a wonderful political discovery that served them well for the better part of a half century: a majority of the American people like spending programs more than they dislike the taxes that pay for them. Thus, as their Republican critics often complained (with more than a touch of envy), the Democrats followed a policy of “tax, tax; spend, spend; elect, elect.” In the 1980s, Republicans made a yet more wonderful political discovery: if you offer people the benefits of spending without asking them to pay taxes, they like that even more. So the Republicans developed their own political formula: “borrow, borrow; spend, spend; elect, elect.”

It was a bad lesson well learned by Republicans. Vice President Dick Cheney summarized it succinctly when he said to Treasury Secretary Paul O’Neill in late 2002, “Reagan proved deficits don’t matter.”36 Cheney is many things, but an economist is not one of them. What Reagan had shown was that deficits don’t matter politically. They certainly do matter in terms of the economy, and George Bush the elder and Bill Clinton were obliged to raise taxes in Reagan’s wake in order to reduce the deficit, revive the economy, and, ultimately, in Clinton’s last years in office, eliminate the deficit entirely before Bush’s son—a man who did not listen to his father, but did listen to Cheney—reintroduced Coolidge-Reagan tax slashing for the rich with a gusto matched by neither Silent Cal nor the Great Communicator. The result was that the 1920s were born again in the 2000s and 2008 replicated 1929.

It was Reagan’s willingness to accept massive deficits that allowed him to produce what had the appearance of a new amalgam of American political and social philosophy. As I note on this page, in the early part of the twentieth century, Theodore Roosevelt had begun to employ Hamiltonian means (big government) to reach Jeffersonian ends (uplifting the poor). Franklin Roosevelt added to this formula the use of Jeffersonian or Adamsite means (reliance on intellectuals) to reach Jacksonian ends (improving the lot of the “common man”). What Reagan seemingly did was to employ a portion of (Franklin) Rooseveltian means (deficit spending) to achieve Hamiltonian ends (further enriching the already well-to-do).

There are, however, two problems with this surface appearance of a new departure by the Reaganites. The first is that the ostensibly Rooseveltian means were something in which FDR never really believed. The means that Reagan used were actually Keynesian, and Roosevelt never fully accepted Keynesianism as an enduring approach, even though others in his administration did and it became Democratic orthodoxy in later years. In truth, though, there was nothing at all new in the Reagan approach. What it in fact amounted to was the defenders of privilege coming full circle. The Reaganites returned to the earliest days of the American republic by employing a portion of Hamiltonian means (government debt) to achieve Hamiltonian ends (again, further enriching the already well-to-do). Alexander Hamilton’s financial program called for 80 percent of federal expenditures to go to pay interest on the debt. Although we remain a long way from Hamilton’s objective, the massive expansion in the federal debt during the Reagan and George H. W. Bush presidencies (in round figures, from one trillion to four trillion dollars over a scant twelve years) had raised debt service back to nearly a quarter of regular federal expenditures by the early 1990s.

Obese Geese Don’t Lay Golden Eggs; They Take Golden Parachutes

The principal reason Hamilton and Reagan liked spending money on interest payments is that most of the debt is owed to wealthy investors (although in recent years increasing amounts of that debt has been owed to China and other foreign investors). Of course, a major part of the Reagan—and, even more, the George W. Bush—program was to restore the low tax rates that upper income groups had enjoyed in the Coolidge years, but which had been raised during the Roosevelt years; in that situation, if taxes are collected from the middle class a large debt produces a transfer of wealth from the middle class to the rich. Hamilton never made much of an attempt to hide the fact that this was his objective, but the sensibilities of late-twentieth-and early-twenty-first-century Americans (their sensibilities substantially, if unconsciously, influenced by the experiences of the Great Depression) do not allow for the admission of such a goal, so Reagan and the second Bush were less forthcoming about their intentions.

There is no question, however, that those intentions were achieved. The prosperity of the eighties, nineties, and first years of the 2000s, like that of the decade that preceded the Depression, was the nearly exclusive property of the wealthiest Americans.

The following graphs depict the changes in income concentration and in upper-bracket taxation from prior to the Great Depression into the second term of George W. Bush.

It should be noticed that the very high top tax rates on marginal income coincided with the long period of prosperity in the mid-twentieth century. (That is certainly not to say that the high rates produced the prosperity, but plainly they did not prevent prosperity, as “conservatives” often claim.)

Another point may be less apparent: Figures 3 and 4 are rough inverted images of each other, which seems to indicate that marginal tax rates on the highest income levels have a significant effect in lessening the concentration of income at the very top. (That effect is probably unsurprising to many readers, but it is often denied by opponents of steeply graduated income taxes.)

A look at snapshots of income distribution at three points suggests a great deal about the course of the American economy since the 1920s. Figure 5 compares the concentration of income in the richest segments of Americans in 1929, just before the Great Depression; in 1979, fifty years later and just before the Reagan Revolution began the attempt to reinstate the economic conditions of the 1920s; and in 2007, the most recent year for which data are available at this writing.









The first significant point to notice in these statistics is that in 2007 the share of income received by each of these categories of rich, very rich, and superrich, had climbed back to—indeed, to above—the level the same segment had in 1929, when the economy collapsed. The second point of importance is how substantially lower the shares going to each of these rich groups were in 1979, before the beginning of the restoration of the free-market economic faith under President Reagan.

The third point that jumps out from the table in figure 5 is how the concentration of income at the top is ever-more-pronounced the higher the income level. The share going to the richest 10 percent shot up from 1979 to 2007 by a very significant 45 percent, but the share going to the richest 1 percent far more than doubled—and that taken in by the hyperrich, the top one one-hundredth of a percent, more than tripled in less than three decades after the launch of the Reagan Revolution. This is to say that while the rich were getting richer and everyone else was at best stagnating, the very rich were getting very richer and the very, very rich were getting very, very, very richer.

One would have to be tone-deaf not to hear the rhyme with the pre-Depression years in this ever-growing concentration of income at the highest reaches of American society in the years leading up to the 2008 collapse.

Such were the intended results of policies under Reagan and Bush the younger and other admirers of Coolidge, McKinley, Sumner, et al.: a winner-take-all economy. Well, to be fair, it was only winner-take-almost-all: Economist Emmanuel Saez found that in the economic expansion under the second Bush from 2002 to 2006, the richest 1 percent (households making more than $382,600 a year) “captured almost three-quarters of income growth.” During those years of Bush’s Marketist policies, the annual real income gain for the richest 1 percent averaged 11 percent, while that of the remaining 99 percent was 0.9 percent.37

“Don’t kill the goose that lays the golden eggs” is one of the favorite sayings of champions of high profits, low taxes on the rich, concentrating wealth and income at the top, and the rest of the tenets of trickle-down economics. But when profits become too high and taxes on the very rich too low, the geese get obese, eventually stop laying eggs, and develop coronary problems.38

A Winner-Take-All Economy Is a Loser

In an economy such as the one that has been developed in recent years where the winners take more and more, by definition most people have to be losers. What may be less apparent is that in an economy increasingly set up on a winner-take-all basis, as the winners succeed in taking almost all, they find there is less and less left to be taken from the “losers.” If the winners win completely, nothing remains to be won, and everyone becomes a loser.

Despite what neoclassical economists tell us, such is not the natural order, the way the world works, or the only option. Rather than letting “nature” take its course, we can and should help nature—and the unnature in which we now live—take the right course.

Regulated capitalism is like damming a raging river—it serves to make the best use of a powerful force to help people but simultaneously protect them from the harm that that power, when unchecked, can cause.

Another critical factor in curbing the potential excesses and inequities of the unrestrained market that also emerged strongly during the Great Depression was an effective union movement. A look at the trajectory of organization of workers (Figure 6) shows that it has followed a path very similar to that of taxation on the highest income groups and is, like that line, roughly inverse to those tracking the concentration of income at the top.

As economists Frank Levy and Peter Temin have persuasively argued, in response to the Great Depression the New Deal developed policies that put in place a system of regulated capitalism with strong unions, and it worked very well from World War II to 1980. There was “a grand bargain between labor and corporate America involving New Deal-era protections for workers and high marginal tax rates.” During this period of the “Great Moderation,” “the middle class grew dramatically, income inequality decreased, and corporations generally enjoyed labor peace.”39

This period of the greatest and most broadly distributed prosperity in the nation’s history can be seen vividly in the U shapes of the graphs in figures 2 and 3, and the inverted-U shapes of those in figures 4 and 6. Is it mere coincidence that period of widely-shared prosperity coincided with higher tax rates on the upper income levels, less income inequality, and stronger labor unions?



Perhaps it all comes down to this: “We have always known that heedless self-interest was bad morals,” Franklin Roosevelt said in his second inaugural address. “We know now that it is bad economics.” “Economic morality pays,” the New Deal president proclaimed.40

However, as I discussed earlier in this Introduction, starting at the end of the 1970s (in the very period in which this book was first being researched and written) the economic beliefs, policies, and prescriptions that had been dominant in the 1920s—but rejected in the 1930s and for four decades there-after—staged a comeback. Top-end tax rates were slashed; government regulation was eased, unions were opposed; top corporate pay skyrocketed; the minimum wage was allowed to fall in real terms and the average wage flat-lined. The economy weakened and the only way to keep it from drowning was to tie it to a very large flotation device pumped up with lighter-than-air credit.

In the 2000s the severely imbalanced and top-heavy economic ship saw more and more of the ballast on the deck and below decks being jettisoned while an ever-higher superstructure was built. The flotation device that would keep that juggernaut from tipping over and sinking in the 2000s had to be far larger than the one that kept the economy afloat in the 1920s.

I argue here that the dire effects that the concentration of income at the top are likely to have on a consumption-based economy had been held at bay and the economic ship kept from sinking for a few years in the twenties by the extension of credit to the masses of potential consumers who didn’t have sufficient income to buy what mass production was putting on the market. The same end was achieved in the “Age of Finance” in the 1990s and 2000s through credit buying and consumers spending more than they earned by borrowing against the paper value of their rapidly appreciating homes.

Thus the credit bubble on which the economy was riding in the early and middle part of the first decade of the twenty-first century was a vastly larger one than that on which Americans danced the Charleston and drank bathtub gin eighty years earlier.

Where the puncturing of that bubble will take the economy and society in the years ahead cannot be foretold with any assurance, but a better understanding of what happened in the 1920s and 30s will surely be helpful in facing that unpredictable future.

Going Against the Grain in the ’30s: A Generous Expansion of Values

I am glad to report that in a careful rereading of these pages I found little that embarrasses me, quite a bit that still pleases me, and hardly anything with which I now disagree. There are, however, some additions, changes in emphasis, and slightly altered interpretations that I would make. I shall explain some of these in much of the remainder of this new introduction.

Aside from its analysis of the causes of the Depression, the parts of this book that have received the largest amount of attention and commendation are those dealing with the view of the Depression from the perspective of various groups of people who were most hurt by it, and with the Great Depression’s effects on American values. I would not appreciably alter my approach to either of these themes today. I would, however, expand the treatment of ethnic minorities. I would also devote more space to some topics with which the book deals, but perhaps not as fully as it might. Among these are the effects of the Dust Bowl, the influence of Marxist ideology and (a rather different matter) the Communist Party, and the events of the late thirties. There are also a few areas that were, for reasons I cannot now recollect, ignored almost completely, including religion, literature, radio, and sports. I would not repeat these errors of omission today.

I have come to understand the “fundamental shift in the values of the American people” of which I speak in the book in somewhat different and more complete terms over the years since I first wrote about that transformation. Then, I described the alteration of values that occurred during the Depression as a revival of earlier ideals centering on community, and pointed to the failure of acquisitive individualism in the thirties as the main reason for the return to a more cooperative ethic. I still believe all of that, but I now see the values shift of the Depression years in a much larger context.

The general trends of the modern Western world, beginning about five hundred years ago and accelerating rapidly in the nineteenth and twentieth centuries, have been the decline of community and an ever-greater emphasis on individualism. By the early twentieth century, these trends had become overpowering and they combined with the needs of an industrial economy capable of producing vast quantities of “goods” to establish new values intended to promote greater consumption. This consumption ethic encourages self-indulgence and identity based on consumption or “lifestyle.” As this book explains, these modern trends reached previously unprecedented levels in the 1920s, but were reversed under the impact of the Depression.

What I believe I inadequately emphasized in the first edition of this book (because I did not yet fully understand it myself)41 is that the most significant fact about the Depression era may well be that it was the only time in the twentieth century during which there was a major break in the modern trends towards social disintegration and egoism. Those trends were revived when World War II brought a return of prosperity, and they have been advancing with few impediments since the end of that war. Among the few restraints that have existed in post-World War II America on the modern forces of social atomization are carryovers from the values that were resurgent during the thirties.

The economic collapse that started in 1929 obliged people who had begun to accept the new values of unlimited consumption and extreme individualism to take another look at those beliefs in comparison with the more traditional, community-oriented values that had existed in earlier times. When John Kenneth Galbraith wrote that a “ruthless contraction of values” followed in the wake of the stock market crash of 1929,42 he meant the sort of “values” that are measured in monetary terms. As far as values in the broader moral sense are concerned, those self-centered values that had come to be so much stronger in the twenties did indeed contract in the thirties. But there also was during the Depression what might be termed a generous expansion of values: a regrowth of the more traditional, community-oriented values that have generally been in decline since the early twentieth century.

It was in this book that I first began to identify the values of cooperation and community that enjoyed a brief renaissance in the Depression years as attitudes that have usually been more associated with women than men. As I explain (see this pagethis page), many men began to move toward values more often linked with women when they found themselves in the position society traditionally assigned to women: on the bottom. In a larger sense, the system that had failed in the thirties, that of every-man-for-himself, the-devil-take-the-hindmost competition and acquisitive individualism, was an especially “male” system. Its collapse tended somewhat to discredit the more male approach to the world and open men, as well as women, more to the possibility of restoring values of mutualism. One example of this change was the increasing willingness to join labor unions.

As this book details, the sharp swing away from self-centered concerns and toward social values was evident in the popular culture of the decade. Many of the gangster films that were such a staple of the early thirties, for example, were thinly veiled attacks on the success-driven businessmen of the twenties. Hyperindividualism just does not work anymore, Depression-era gangster movies suggested to their viewers; it leads to disaster. In the thirties, the self-made man became the self-destroyed man.

A number of critics have contended that Hollywood in the 1930s became a champion of traditional American values.43 I believe that this is true, but not in the way that it is meant by most of those who say it. The traditional values that films sought to revive during the Depression were at substantial variance with those of the marketplace society that had arisen so strongly in the preceding decade.44 They were the values that had developed in an earlier America that was mobile and boundless, but which retained a sense of community because of the agricultural and small-town way of life practiced by so much of the nation prior to the late nineteenth or early twentieth century. This form of American “individualism” was one that did not seek the “liberation” of complete “independence,” but instead recognized a degree of interdependence. It was a cooperative individualism that placed the individual within the context of a community and so was distinct from the acquisitive individualism of the new industrial economy. People were seen as citizens and neighbors, not merely as consumers.

Nothing better demonstrates the shift in values after the economic collapse than the reversal of cultural attitudes toward rural and small-town life. The ridicule in the twenties for these communities (exemplified by the Sinclair Lewis classics Main Street and Babbitt) gave way in the thirties to a reverence for this way of life and the values it supported. Similarly, the twenties’ embrace of things “new” and its modern severance from the past were replaced in the Depression decade by a renewed affection for traditional ways. The human need for a sense of belonging, a context or place, in the excessively mobile society of the twentieth century became more apparent and acute under the impact of the Depression. Attachment to the land through agriculture—“putting down roots”—is an obvious counter to excessive mobility, a way of planting oneself and combating the disorientation of modern life.

From Scarlett O’Hara’s vow while digging roots in a vegetable garden that she’ll “never be hungry again” in Gone With the Wind (1939) to Dorothy’s famous line at the end of The Wizard of Oz (1939), “Oh, Auntie Em, there’s no place like home,” the attraction of the land and the values of the small town and traditional communities for people in the Depression era are evident. (These were not, to be sure, Scarlett’s values; but the point remains.) These values were made unmistakable in many of the most popular films of the period, particularly those of John Ford and Frank Capra, which are discussed in some detail in chapter 9.

Ford’s films consistently placed social obligations and community above personal interest, as in The Informer (1935). Sentimentalism and traditional values were even more the stock in trade of Frank Capra. In his classic movies, from Mr. Deeds Goes to Town (1936) through Mr. Smith Goes to Washington (1939) to the postwar It’s a Wonderful Life (1946), Capra glorified community-minded small-town heroes who follow the traditional values of cooperation and social-mindedness. But he did not entirely idealize small-town life: Capra showed its potential for abuse if greed entered the picture.45

In the thirties, unlike the preceding decade and virtually all of subsequent American history, the “new” and “modern” were suspect. A whole way of life—the modern, hyper-individualistic, “free” way of life—was challenged in the decade. Charlie Chaplin devastatingly criticized the impersonal life of the city and industry in his Modern Times (1936). The film is an all-out attack on … well, modern times, which is to say on the disintegrative forces of excessive individualism. The sarcastic comment at the film’s opening well summarizes the forces that have led to the horrors that befall Chaplin’s character in the movie: “A story of industry, of individual enterprise, of humanity crusading in the pursuit of happiness.” The effects of machine industry, mass society, the unlimited pursuit of personal happiness are seen to overwhelm the “individual,” who becomes a part of the machine.

There were many other sorts of indications in the thirties that people yearned for a connection with place, community, the land, belonging, and traditional values. Examples include the enormously popular depictions of small-town life in the paintings Norman Rockwell did for the Saturday Evening Post; Thornton Wilder’s 1938 play Our Town (which, like the Capra films, does not say that all is well in small towns, but urges that it be made so through greater caring); the mostly rural photographs taken for the Farm Security Administration; the New Deal’s Resettlement Administration and “greenbelt towns”; and the Twelve Southerners’ defense of agrarian values and denunciation of capitalism, industrialism, and “individualism” in I’ll Take My Stand (1930).

In one of the essays in that book, Lyle H. Lanier complained that under industrial capitalism “the stream of goods from the machines, the drive for ever-increasing production and consumption, and the generally accelerated tempo of social change” had “intoxicated the pliant imaginations of people loosened from traditional social moorings.” He went on to argue (quite rightly, as I see it)46 that “the only association or communication of any psychological import is that of face-to-face interaction among individuals, and it appears that instead of more association of this sort in the corporate age there is actually less of it.” Lanier pointed out that meeting people’s need for association is dependent upon “long acquaintances, since human beings do not bear spigots by which ‘fraternity’ can be drawn off for the asking,” and that the city, with its “casual, fleeting, formal contacts with great numbers of people only enhance [s] a sense of isolation.”47

Lanier was right on target in his analysis of why modern, mobile, mass society fails to provide people with what they need. This, I hasten to add, is not at all to say that the traditional Southern society that he and his colleagues were defending, with its oppression of African Americans and women, was good. It is merely to say that what was replacing that horribly flawed system was incapable of satisfying the demands of human nature.

The Social Consequences of the Keynesian Peace

As this book details, the Roosevelt administration in many ways adopted on a federal scale the cooperative values that the Depression rekindled in much of the American public. In the early years of their reign, many New Dealers entertained high hopes that they could bring the world into line with their ethos. But the dream of creating a harmonious economy and society was finally abandoned. By the later thirties, Roosevelt and his advisers were accepting the fact that it was easier to adjust their ethos to fit the modern world in which they found themselves than to bring that world into line with their ethos.48

The terms by which the modern world accepted the surrender of the New Deal and the Depression era values it partially embodied were written by John Maynard Keynes. Keynes had left the Versailles peace conference in disgust and written a book, The Economic Consequences of the Peace, in which he argued that the terms imposed in the ending of the Great War would create the conditions for a new war. Yet he failed to see that the terms he advocated for ending the Great Depression were likely, ultimately, to create the conditions for a new depression. Keynes’s curious prescription for curing the malady that unrestrained, consumption-ethic capitalism had induced was for government to do everything possible to increase consumption.

In a 1938 fireside chat, Roosevelt made a declaration that signaled a major shift in the New Deal’s approach to economic problems. “We suffer primarily from a lack of buying power,” FDR told his listeners. It was the duty of the government, the president said, “to make definite additions to the purchasing power of the nation.”49 From this point on, Roosevelt and Democratic liberalism were committed to the promotion of mass consumption as the fundamental economic panacea. This less than fully conscious acceptance of the basic premise of Keynesianism amounted to an endorsement of the consumption ethic against which the revived values of the Depression had struggled.

To revise Ronald Reagan, Keynesianism is not the solution to our problems; Keynesianism is part of the problem. But liberal Democrats were not alone in adopting it as the apparent solution. During the 1940 campaign, Republican presidential nominee Wendell Willkie joined in endorsing the consumption ethic by calling for a “philosophy of unlimited productivity.” And, of course, in the 1980s and 2000s Reagan-Bush “conservatives” practiced Keynesian stimulation to a degree unprecedented in peacetime. Conservatives could partially embrace Keynesianism because what Keynes and his liberal disciples did in the thirties was accept an approach that was utterly compatible with the needs of the consumption-oriented economy that had reached an early peak in the twenties.

A sort of “proto-Keynesianism” had in fact emerged in the 1920s among mass-production industrialists, retailers, and advertisers who wanted to use the state, along with other methods, to stimulate mass consumption.50 It might not be stretching the truth very far to suggest that Henry Ford, with his emphasis on mass consumption, was the first Keynesian, although Ford did not foresee the governmental role that Keynes prescribed.

It is not that Keynes’s prescription would not work; in the short run it worked marvelously, as was demonstrated by the economic effects of the huge government expenditures during World War II. But Keynes began with an acceptance of an economy based on ever-increasing consumption. He never challenged the basic assumptions that underlay that economic system. Instead, he devised what seemed to be the best way to make that system work. If growth was what the system needed, Keynes would inject the body economic with steroids. By the late thirties few New Dealers saw any alternative to this approach, and consumers began once again to replace producers as the focus of government interest. Expansion came once more to look like the painless way out of economic crisis. Growth would not harm the wealthy in a financial sense. In more recent times, though, we have come to understand the dangers of excessive growth, and it should now be clear that overdoses of Dr. Keynes’s economic steroids have the capacity to harm everyone psychologically, morally, and environmentally.

Despite all the large differences between the men and their times, the one deep continuity between the Roosevelt and Reagan eras was that both presidents and their parties came to embrace high consumption as the ticket to economic prosperity. This belief was so ingrained by the beginning of the new millennium that after the attacks of September 11, 2001, President George W. Bush urged Americans to “sacrifice” by buying more consumer products.

What may well be the greatest tragedy of the Depression era is that the New Deal government—and labor unions—moved to duplicate what had already been done in the corporate world. Large-scale, impersonal bureaucracies replaced personal, community-level institutions in government and unions alike. Industrialism had undermined family and community. It is a sad irony that in the midst of a decade that saw such a revival of community values, the New Deal chose to combat the problems emanating from these losses by creating in government a mirror image of the “efficient,” bureaucratic, impersonal corporate culture.

The essence of the modern paradox is that an ideology of extreme independence and self-reliance has arisen in tandem with a world that is ever more interdependent and impersonal. This clash was especially tangible during the Great Depression, when the problems of the new ideology of success, mobility, extreme individualism, and ever-expanding consumption became obvious.51 Under those conditions, many Americans temporarily rejected the new ideology, and returned to more traditional values based on community. The New Deal initially reflected those community values, but the solutions it finally settled for accepted the very modern forces that the Depression experience had led so many people to spurn.

We have not yet gotten beyond the New Deal’s answers, but it is time that we did so. Returning, under the impact of a new economic crisis, to the questions that so many Americans were asking in the early and mid thirties about the new economic system and what it was doing to their values may be the best way for us finally to begin to get beyond the solutions that the New Deal settled for in the late thirties.

Reagan’s Repudiation, Roosevelt’s Revival: “The Nation Cannot Prosper Long When It Favors Only the Prosperous”

As I was finishing the original writing of this book, I took note of the words of a political figure new to the national stage whose rhetoric echoed the values that had come to the fore during the years of the Great Depression. I used at the end of the book a quotation from Mario Cuomo’s first inaugural address as governor of New York in 1983 (this page).

A quarter century later, it seems appropriate to close this new introduction with words from another first inaugural address I recently heard, this time in person. In this case it is the inauguration as president of another political figure new to the national stage, one whose election was facilitated by a new collapse of the economy and of an economic philosophy that echoed the very similar collapses that had facilitated the election to the presidency of Franklin Roosevelt, and one who echoes FDR’s values and understanding of the necessity of both a market-based economy and of having mechanisms in place to curb the excesses of a system based on the pursuit of self-interest.

“Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched,” Barack Obama declared as he assumed the presidency in 2009. “But this crisis has reminded us that without a watchful eye, the market can spin out of control. The nation cannot prosper long when it favors only the prosperous.”52

“A watchful eye”—that is key to getting the obvious benefits of the market system while minimizing that system’s risks. Much as democracy is the best political system, but contains within it many inherent dangers and so needs a system of political checks and balances to make it work properly and lessen those dangers, capitalism is the best economic system, but contains within it many inherent dangers and so needs a system of economic checks and balances to make it work properly and lessen those dangers. One of the most prominent of those dangers is that income will become too concentrated at the top, undermining the functioning of a consumer-based economy.

Just a spoonful of “socialism” helps the capitalism go up.

President Obama also indicated that he, like Franklin Roosevelt, understands that “when you spread the wealth around, it’s good for everybody,”53 not simply as a matter of morality, but also as a practical requirement in a consumption-based economy.

“The success of our economy has always depended not just on the size of our gross domestic product, but on the reach of our prosperity; on the ability to extend opportunity to every willing heart—not out of charity, but because it is the surest route to our common good,” Obama proclaimed.54

The “common good”—that is what the Great Depression taught us we must pursue. It was a lesson forgotten by too many in the quarter century after this book was first published. Economic reality has now reminded us once more of this key lesson. Had we not failed our eyes and instead kept a watchful eye on the market, we would not again have had our “fingers pressed forcibly down on the fiery Braille alphabet of a dissolving economy.”

The Great Depression still speaks to us today with a voice we all need to hear. Indeed, now after the values and policies it brought to the fore have once again been submerged and their rejection has once again plunged the economy into collapse, we need more than ever to hear that voice calling on us to maintain a watchful eye on the market and focus on the common good. And this time, just maybe, we can not only revive what was best from the New Deal, but get beyond it and create a government that actually reflects the values that so many Americans developed during the Great Depression.

Robert S. McElvaine

Clinton, Mississippi

June 2009


1. Tennessee Williams, The Glass Menagerie, scene 1 (1945; New York: New Directions, 1949), p. 23. Emphasis added.

2. Robert S. McElvaine, “If Economic History Doesn’t Repeat Itself, Does It Rhyme-The 1920s and 2000s: Convergences and Divergences” (September 10, 2007),

3. “The Boxer” (lyrics by Paul Simon; Paul Simon Music/BMI).

4. Ben S. Bernanke, “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression” (1983), as quoted in Caroline Baum, “Bernanke Sees Lessons in Depression,” Bloomberg News, August 17, 2007, (accessed August 19, 2007).

5. A Gallup Poll in May 2008 found 85 percent of respondents saying they were dissatisfied with the way things were going in the United States. Only 14 percent said they were satisfied. (accessed July 13, 2008).

6. Robert S. McElvaine, “Rough Patch, Downturn, or Sideways Waffle: They All Spell Recession,” Christian Science Monitor, June 20, 2008.

7. Christian Saint-Etienne, The Great Depression: Lessons for the 1980s (Stanford, CA: Hoover Institution Press, 1984); John A. Garraty, The Great Depression: An Inquiry into the Causes, Course, and Consequences of the Worldwide Depression of the Nineteen-Thirties, as Seen by Contemporaries and in the Light of History (San Diego: Harcourt, Brace, Jovanovich, 1986); Michael A. Bernstein, The Great Depression: Delayed Recovery and Economic Change in America, 1929–1939 (New York: Cambridge University Press, 1987); Hans F. Sennholz, The Great Depression: Will We Repeat It? (Spring Mills, PA: Libertarian Press, 1988); Pierre Berton, The Great Depression, 1929-1939 (Toronto: McClelland & Stewart, 1990), R. Conrad Stein, The Great Depression (Chicago: Children’s Press, 1993); T. H. Watkins, The Great Depression: America in the 1930’s (Boston: Little, Brown, 1993); William Dudley, ed., The Great Depression: Opposing Viewpoints (San Diego: Greenhaven Press, 1994, 2004) [subsequent editions edited by Don Nardo, 1998, 2000; Dennis Nishi, 2001; Louise I. Gerdes, 2002]; JoAnne Weisman and Janet Beyer, eds., The Great Depression: A Nation in Distress (Lowell, MA: Discovery Enterprises, 1995); David F. Burg, The Great Depression: An Eyewitness History (New York: Facts on File, 1996), Jacqueline Farrell, The Great Depression (San Diego: Lucent Books, 1996); Thomas E. Hall and J. David Ferguson, The Great Depression: An International Disaster of Perverse Economic Policies (Ann Arbor: University of Michigan Press, 1998); JoAnn A. Grote, The Great Depression (Uhrichsville, OH: Barbour, 1998); JoAnne Weisman Deitch, ed., The Great Depression (Carlisle, MA: Discovery Enterprises, 2000), The Great Depression (Evanston, IL: Nextext, 2000); David Downing, The Great Depression (Chicago: Heinemann Library, 2001); Michael Burgan The Great Depression (Minneapolis: Compass Point, 2002); Nathaniel Harris, The Great Depression (Chicago: Heinemann Library, 2003), R. G. Grant, The Great Depression(Hauppauge, NY: Barron’s Educational Series, 2003; Detroit: Lucent Books, 2005), Peggy L. Parks, The Great Depression (San Diego: KidHaven Press, 2004), Cory Gunderson, The Great Depression (Edina, MN: ABDO, 2004); Adriane Ruggiero, The Great Depression (New York: Benchmark, 2005), David F. Burg, The Great Depression (New York: Facts on File, 2005); Stanley Schultz, The Great Depression: A Primary Source History (Milwaukee: Gareth Stevens, 2006); Elaine Landau, The Great Depression (New York: Children’s Press, 2006); Don Nardo, The Great Depression (Detroit: Lucent Books, 2008).

8. Robert S. McElvaine, ed., The Great Depression and New Deal: A History in Documents (New York: Oxford University Press, 2000); Robert S. McElvaine, ed., Franklin Delano Roosevelt (Washington: CQ Press, 2002); Robert S. McElvaine, editor-in-chief, Encyclopedia of the Great Depression (New York: Macmillan Reference USA, 2004).

9. Ben S. Bernanke, “The Macroeconomics of the Great Depression: A Comparative Approach,” Journal of Money, Credit, and Banking, vol. 27, no. 1 (February 1995), reprinted in Bernanke, ed., Essays on the Great Depression (Princeton, NJ: Princeton University Press, 2000), p. 5.

10. Michael Bordo, Claudia Goldin, and Eugene N. White, eds., The Defining Moment: The Great Depression and the American Economy in the Twentieth Century (Chicago: University of Chicago Press, 1998), p. 7.

11. IMF Report, “When Bubbles Burst” (2003), p. 5, (accessed August 21, 2007).

12. Amity Shlaes, The Forgotten Man: A New History of the Great Depression (New York: HarperCollins, 2007).

13. Shlaes, Forgotten Man, p. 7.

14. Shlaes, Forgotten Man, p. 69.

15. Shlaes, Forgotten Man, pp. 38–39.

16. Shlaes, Forgotten Man, p. 89.

17. Murray Klein, Rainbow’s End: The Crash of 1929 (New York: Oxford University Press, 2001), p. 204.

18. Shlaes, Forgotten Man, p. 195.

19. Shlaes, Forgotten Man, pp. 3–4.

20. Andie Collier and Patrick O’Connor, “Why GOP Is Devouring One Book,” Politico, April 24, 2009. (accessed June 11, 2009).

21. Shlaes, Forgotten Man, p. 37.

22. Shlaes, Forgotten Man, p. 263.

23 “A Nation of Whiners,” Washington Post, July 11, 2008.

24. Sen. Mitch McConnell, speech on Senate floor, February 6, 2009. RealClearPolitics, (accessed February 8, 2009.)

25. Denis Staunton, “Spending Bill Hits Hurdle in US Senate.” Irish times, March 7, 2009, (accessed March 7, 2009).

26. Testimony of Alan Greenspan, Committee of Government Oversight and Reform, October 23, 2008, (accessed January 15, 2009).

27. “Greenspan Concedes Error on Regulation,” New York Times, October 24, 2008.

28. Robert S. McElvaine, “Their Party Crashed. Ours May Too,” Washington Post, September 28, 2008.

29. Ronald Reagan, First Inaugural Address, January 20, 1981, (accessed July 17, 2008).

30. Harold Meyerson, “What McCain Economic Policy?” Washington Post, July 17, 2008.

31. Shlaes, Forgotten Man, p. 41.

32. Shlaes, Forgotten Man, p. 310.

33. Shlaes, Forgotten Man, pp. 187, 368, 376.

34. Bill Clinton, State of the Union Address, January 23, 1996, (accessed July 16, 2008).

35. Clinton, 1996 State of the Union.

36. Dick Cheney, as quoted in John Cassidy, “Taxing,” New Yorker, January 26, 2004.

37. Emmanuel Saez, “Striking It Richer: The Evolution of Top Incomes in the United States,” March 15, 2008, pp. 2, 8, (accessed July 22, 2008).

38. McElvaine, “Their Party Crashed. Ours May Too.”

39. Daniel Gross, “Income Inequality, Writ Larger,” New York Times, June 10, 2007, citing Frank Levy and Peter Temin, “Inequality and Institutions in 20th Century America,” National Bureau of Economic Research, Working Paper 13106, May 2007.

40. Franklin D. Roosevelt, Second Inaugural Address, January 20, 1937, in Franklin Roosevelt and J.B.S. Hardman, Rendezvous with Destiny: Addresses and Opinions of Franklin Delano Roosevelt (1944; Whitefish, MT: Kessinger Publishing, 2005), p. 53.

41. The larger analysis into which this point fits is contained in Robert S. McElvaine, Eve’s Seed: Biology, the Sexes, and the Course of History (New York: McGraw Hill, 2001).

42. John Kenneth Galbraith, The Great Crash: 1929 (Boston: Houghton Mifflin, 1954, 3rd ed., 1972), p. 140.

43. For example, Richard H. Pells, Radical Visions and American Dreams: Culture and Social Thought in the Depression Years (New York: Harper & Row, 1973), pp. 278–81.

44. Robert Sklar, Movie-Made America: A Social History of American Movies (New York: Random House, 1975), pp. 191–92.

45. Andrew Bergman, We’re in the Money: Depression America and Its Films (New York: New York University Press, 1971; reprint ed., Harper & Row, 1972), pp. 132–48.

46. My views on human nature and the need for membership in a personal community are discussed extensively in Eve’s Seed.

47. Lyle H. Lanier, “A Critique of the Philosophy of Progress,” Twelve Southerners, I’ll Take My Stand: The South and the Agrarian Tradition (New York: Harper & Brothers, 1930; reprint ed., New York: Peter Smith, 1951), pp. 132, 145–46. Emphasis added.

48. Alan Brinkley, “The New Deal and the Idea of the State,” Steve Fraser and Gary Gerstle, eds., The Rise and Fall of the New Deal Order, 1930–1980 (Princeton: Princeton University Press, 1989), pp. 93–94.

49. As quoted in Brinkley, “The New Deal and the Idea of the State,” pp. 96–97.

50. Fraser and Gerstle, The Rise and Fall of the New Deal Order, p. xiii.

51. This clash of values is especially well examined in the context of the Dakotas in Catherine McNicol Stock, Main Street in Crisis: The Great Depression and the Old Middle Class on the Northern Plains (Chapel Hill: University of North Carolina Press, 1992).

52. Barack Obama, Inaugural Address, January 20, 2009,

AR2009012001866_2.html (accessed January 20, 2009).

53. Barack Obama, as quoted in “Real Deal on Joe the Plumber Reveals New Slant,” New York Times, October 18, 2008.

54. Obama, Inaugural Address, January 20, 2009.

* Shlaes includes this book in her bibliography but does not cite it in her notes and gives no indication of having read it.

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