“Let it rip.”

by Eric on April 22, 2008

Over at our joint I’ve been doing a fair bit of “this day seventy-five years ago” because of the anniversary of Roosevelt’s hundred days and, well, because. This one may hold some interest for an international readership:

On this day in 1933, British Prime Minister Ramsay MacDonald delivered an address from the National Press Club in Washington, DC, discussing the common problems of the US and UK: “In America at this moment and in Great Britain there are millions of men who want work and can’t get it…. Governments cannot be indifferent to a state of things like that.”

MacDonald looked forward to “wise international government action,” to be established at the upcoming international economic conference. He hoped it would revive “a freely flowing international exchange,” i.e., trade—“Self-sufficiency in the economic field on the part of nations ultimately ends in the poverty of their own people.”

He was mindful of the apparent irony in Britain’s having taken the nationalist, defensive action of going off the gold standard: “Can you imagine that in the early days of that crisis we said gayly and light-heartedly, ‘Let it rip. Let it rip. We will go off gold. There are benefits in being off gold, and we will reap them.’” Obviously he meant the answer to be “no.”—“And so on this currency question, agreement is the only protection.”1

But for many observers, especially the cross French cabinet ministers, there was plenty of blame to be laid on the UK and also the US—which had itself gone off gold while MacDonald and French representatives were sailing over to America to confer. The French insisted there could be only one basis for agreement, as Finance Minister Georges Bonnet said: “We hope every country will return as soon as possible to the gold standard. I need scarcely add that there cannot be for an instant any question of our abandoning it ourselves.”2

That wasn’t going to happen either. As Anne O’Hare McCormick wrote, “Today the secular scene is one of economic anarchy…. What moves the nations, so far as they move, is a save-himself-who-can policy, expressed in cut-throat competition for dammed-up trade.”3 The vast majority of the Senate wanted to say, to borrow from MacDonald, “Let it rip,” and realize the benefits of going off gold: 46 of 85 senators polled said they wanted inflation.4 And under the pending Thomas Amendment, Roosevelt would have discretionary power to give it to them. In general, Roosevelt used his unprecedented powers in a nationalist manner: he told the world economic conference, never mind; he sought inflation and used methods of managing the economy that presumed, more or less, autarky.5

It would not be until 1938, with the Anglo-American Trade Agreement, that MacDonald’s wish for a thaw in international exchange would be engineered; not till the postwar settlement—the creation of the IMF and World Bank and United Nations and the re-drafting of international law—that anything like McCormick’s wished-for “New Deal in World Affairs” would begin to be realized.

As Isaiah Berlin later wrote, Roosevelt’s “great social experiment was conducted with an isolationist disregard of the outside world.”6 In this era of transnational history, the New Deal presents a problem: while the Great Depression was a truly global event, with international causes and effects, the New Deal was not. People in other countries took notice of it, but its policies did not, despite the hopes of MacDonald and others, involve international cooperation.

Which makes the New Deal a problem not only for historians who like these days to show a transnational element wherever we can find it, but also a problem for modern liberals who fall heir to the New Deal. Roosevelt’s domestic agenda doesn’t provide the basis for a usable past until and unless you take account of the Bretton Woods Agreement, the United Nations, and the Nuremberg Tribunals as capstone achievements of New Deal liberalism. Then, and only then, do you have a New Deal way of being-in-the-world.


1“Text of Premier MacDonald’s Address Broadcast to Nation,” NYT 4/23/1933, p. 24.
2“France is Firm on Gold,” NYT 4/23/1933, p. 27.
3Anne O’Hare McCormick, “The New Deal in World Affairs,” NYT 4/23/1933, p. SM1.
4“Inflation Favored by 46 Senators,” NYT 4/23/1933, p. 26.
5For a list of such powers as of this day in 1933, see Arthur Krock, “Roosevelt, as Crusader, Seeks Unequaled Power,” NYT 4/23/1933, p. E1.
6Isaiah Berlin, “President Franklin Delano Roosevelt,” in The Proper Study of Mankind: An Anthology of Essays, ed. Henry Hardy and Roger Hausheer (London: Chatto and Windus, 1997), 629.

 

UPDATED to add, if you’re interested in reading more specifically on the relation of the postwar agreements to the New Deal, you should have a look at Elizabeth Borgwardt, A New Deal for the World.

 

{ 22 comments }

1

abb1 04.22.08 at 7:18 pm

I’ll be damned, I did not know that. Thanks, man.

2

Bob B 04.22.08 at 8:17 pm

Ramsay MacDonald: “In America at this moment and in Great Britain there are millions of men who want work and can’t get it…. Governments cannot be indifferent to a state of things like that.”

Unfortunately, apart from a few sensible, and aguably courageous policies, such as abandoning the link between the Pound and Gold and maintaining relatively open access for international trade (unlike the US – remember the Smoot-Hartley Tariff Act of 1931?), the MacDonald government in Britain had few notions of what to do about the depression. The official view of HM Treasury at the time was that the overall effect on employment from extra government spending on public works, funded out of additional taxes or new borrowing, would be negligible as equivalent private investment would be “crowded out”.

Keynes’s seminal book: The General Theory of Employment, Interest and Money, wasn’t published until 1936 and even then it wasn’t readily understood outside parts of academia and had little influence on the policies of most governments in north America or western Europe until during and after WW2.

Sad to say, Nazi Germany was among the few exceptions – Keynes had visited Hamburg to give a lecture in January 1932 and his idea of job-creation through public works seems to have been taken up by the Nazis then and applied after Hitler became Reich Chancellor in January 1933. Prof Brustein’s assessment:

“The Nazi Party leaders were savvy enough to realise that pure racial anti-semitism would not set the party apart from the pack of racist, anti-semitic, and ultranationalist groups that abounded in post-1918 Germany. Instead, I would suggest, the Nazi success can be attributed largely to the economic proposals found in the party’s programs, which in an uncanny fashion integrated elements of 18th and 19th century nationalist-etatist philosophy with Keynesian economics. Nationalist etatism is an ideology that rejects economic liberalism and promotes the right of the state to intervene in all spheres of life including the economy.” [Brustein: The Logic of Evil – The Social Origins of the Nazi Party 1925-33 (Yale UP, 1996), p.51

3

Jonathan Dresner 04.22.08 at 8:24 pm

There’s a very simple transnational connection with the New Deal: totalitarianism. I’m not arguing that FDR was a closet fascist, or communist, or rubbish like that. But there were these radical alternatives to liberal capitalism and they seemed to be doing quite well in their own countries and were gaining political ground in the US (both communist and fascist/nazi movements were better represented in the US political spectrum than we usually like to admit). In order to prevent either form of radicalism from becoming a mass movement and political force, FDR undertook aggressive government intrusions into unprecedented areas of economic and social life. Those programs may have been of limited use, macroeconomically (maybe; I’m not convinced by the Friedmanistas), but they were psychologically powerful and blunted the drive to replace democracy with a “more vigorous” alternative.

4

Eric Rauchway 04.22.08 at 8:36 pm

You know whose book is relevant, here? Liz Borgwardt‘s.

5

P O'Neill 04.22.08 at 8:48 pm

I’m wary of tying together exchange rate policy and trade policy to find a single protectionist thread. The post WWI Gold Standard was a poorly designed institution for reasons explained exhaustively by Barry Eichengreen. Once there was a banking element to the crisis, as there was, having monetary policy constrained by the gold standard was a serious problem, and countries helped themselves by getting off it, notwithstanding the French fixation with hard money, as they saw it. There are lots of countries today with floating exchange rates (and thus the freedom to run their exchange rate policy for domestic considerations) while still being relatively open economies in a trade sense. It’s also hard to think of how the New Deal could have been more international in scope, with significant parts of the world either going totalitarian, riven by enormous domestic tensions, or still facing the pull of the British Empire/Commonwealth.

Also, the line of thinking in this thread is getting dangerously Goldbergian.

6

Bob B 04.22.08 at 9:19 pm

I don’t think there was a coherent economic rationale running through the various elements of the New Deal – eg FDR believed it essential to try to balance the budget, which certainly isn’t a keynesian notion in that context – compare keynesian “functional finance”:
http://cepa.newschool.edu/het/essays/keynes/macropolicy.htm

In a TV documentary about FDR, there was a film clip with him saying to camera that he wanted “to save American capitalism, in which I passionately believe.” The New Deal was very much ad hoc – what went seemed a good idea at the time. FDR didn’t comprehend keynesian economics but then few of his contemporaries did.

Many countries in western Europe maintain larger annual tax burdens than the US has now and have governments with more interventionist industrial and social policies but we don’t regard these governments as inevitably despotic or protectionist – far from it.

A crucial insight is that there isn’t a uniform alternative to the (notorious) Anglo-Saxon model across Europe now. Try this recent influential paper on: Globalisation and the reform of the European social models, prepared by André Sapir for the think-tank Bruegel, and presented at the ECOFIN Informal Meeting in Manchester in September 2005 during the UK’s presidency of the EU. The paper argued that there is not one European social model, but rather four – the Nordic, Anglo-Saxon, Mediterranean and the Continental:

• The Nordic model (welfare state, high level of social protection, high level of taxation, extensive intervention in the labour market, mostly in the form of job-seeking incentives)
• The Anglo-Saxon system (more limited collective provision of social protection merely to cushion the impact of events that would lead to poverty)
• The continental model (provision of social assistance through public insurance-based systems; limited role of the market in the provision of social assistance)
• The Mediterranean social welfare system (high legal employment protection; lower levels of unemployment benefits; spending concentrated on pensions)

http://www.euractiv.com/Article?tcmuri=tcm:29-146338-16&type=News

7

Vance Maverick 04.23.08 at 3:54 am

The New Deal was very much ad hoc

One of the lessons of our good guest-host’s book….

8

Bob B 04.23.08 at 9:46 am

Thanks – I didn’t know of that and will have to add it to the ‘must read’ pile!

For any readers who might wish to know, IMO this is perhaps the best, concise overview of the interwar European economy – including a revealing comparison of the Nazi German versus British ways of addressing depressed economies:
Feinstein, Temin and Toniolo: The European Economy Between the Wars (OUP, 1997).

It goes against prevailing popular impressions now, I know, but Britain’s economy generally performed well after the trough of 1931 – apart from regions dependent on the traditional heavy industries where unemployment remained intractably high through to WW2.

The many rows of 1930s speculative semidetached houses, built in prosperous regions, is eloquent testimony as to the potent stimulus of low interest rates after Britain left the gold standard in September 1931. With that and a floating exchange rate for the Pound, the British economy grew strongly through to 1938 without much by way of government intervention or controls.

It tends to be overlooked nowadays but the Conservatives won the November 1935 general election with a landslide – arguably, partly, because of the commitment to rearmament announced in the government’s white paper of March that year when George Lansbury, Labour leader and an avowed pacificst, oppose rearmament on principle. Lansbury lost his seat in the election and Clement Attlee became party leader.

9

Barry 04.23.08 at 10:48 am

“There’s a very simple transnational connection with the New Deal: totalitarianism. I’m not arguing that FDR was a closet fascist, or communist, or rubbish like that. “

Merely a closet totalitarian – or does your first sentence mean nothing?

Eric, it’s likely that this thread will bring in the FDR haters; expect bad things.

10

Bob B 04.23.08 at 12:05 pm

“Eric, it’s likely that this thread will bring in the FDR haters; expect bad things.”

Of which name-calling is surely one.

IMO we should rather look at the substantive details of what FDR’s New Deal consisted and consider the counterfactual of what could have happened had nothing been done. After all, the Republican presidents at the time of the 1929 asset-price crash and through into the early 1930s were pretty adept at doing nothing. As Dorthy Parker memorably asked when Calvin Coolidge died in 1933, “How could they tell?”

FDR didn’t lack successive electoral mandates – in 1932, 1936, 1940, and 1944. Congress even amended the constitution in 1951 (Amendment 22) to make sure no one after President Truman (FDR’s last VP) retired could ever again serve more than two terms as President.

11

Barry 04.23.08 at 3:46 pm

bob, what do you call “There’s a very simple transnational connection with the New Deal: totalitarianism.”?

a) A good analysis.

b) Total BS.

12

Bob B 04.23.08 at 4:04 pm

“There’s a very simple transnational connection with the New Deal: totalitarianism.”

You’d best ask Eric himself as I didn’t write that and am unsure what it means.

13

Barry 04.23.08 at 4:38 pm

BTW, bob – sorry for being snappish at you. I had read the first paragraph only (always a bad idea).

14

Barry 04.23.08 at 4:39 pm

bob, perhaps I should explain: I can’t think of a single way that jonathan’s statement can be true; neither can I think of a way that it could honestly be made, without profound ignorance.

15

abb1 04.23.08 at 4:52 pm

I thought he was saying that what FDR did had to be done to prevent the emergence of totalitarian movements. Thus transnational connection with totalitarianism. Kinda trivial.

16

Bob B 04.23.08 at 9:06 pm

One terrible lesson from that era is this: by rejecting the usual economic orthodoxy at the time for dealing with depressions – cutting public spending to match falling tax revenues – the Nazis in Germany were very successful in reducing unemployment:

” . . from 6 million in October 1933 to 4.1 million a year later, 2.8 million in February 1935, 2.5 million in February 1936, and 1.2 million in February 1937.” [CP Kindleberger: The World in Depression 1929-1939 (Allen Lane, 1973) p.240]

In that context, perhaps it shouldn’t be that surprising the Nazis could win large majorites in popular plebiscites in Novermber 1933 and August 1934 – the first to endorse a one-party state and the second to endorse combining the constitutional functions of Reich President and Reich Chancellor in the person of the Führer – see the account in William Shirer: The Rise and Fall of the Third Reich.

Schacht – the main source of economic advice for the Nazis – had been providing impeccably orthodox advice on dealing with the depression, according to the account in Avraham Barkai: Nazi Economics (Berg, 1990) but somehow, the Nazis latched onto to Keynes’s idea of job creation through spending on public works.

This proposal had surfaced in a pamphlet for the Liberal Party in Britain: Can LLoyd George Do It?, which Keynes had co-authored for the 1929 general election, Lloyd George being the Party leader. In the event, the Liberals only won 59 seats out of 615 in the election and – as mentioned above – HM Treasury persistently pushed the line thereafter that this couldn’t work because the additional public spending would crowd out equivalent private spending.

It is a supreme irony that Lloyd George visited Germany in 1936 and met Hitler:
http://www.youtube.com/watch?v=b7_UiikaPiI

LG came away very favourably impressed, so impressed that he wrote an article for the Daily Express on 17 November saying how wonderful Hitler was: “He is the George Washington of Germany . . The establishment of a German hegemony in Europe which was the aim and dream of the old pre-war militarism, is not even on the horizon of Nazism. …”
http://www.icons-multimedia.com/ClientsArea/HoH/LIBARC/ARCHIVE/Chapters/Stabiliz/Foreign/LloydGeo.html

17

Jonathan Dresner 04.23.08 at 9:09 pm

I thought he was saying that what FDR did had to be done to prevent the emergence of totalitarian movements. Thus transnational connection with totalitarianism. Kinda trivial.

Thanks, abb1. It really does help if people read the whole comment, or at least a sentence or two past the beginning.

There’s actually a long history, in politics, of mainstream parties taking up reforms and programs initially suggested by more radical ones when it seems that the ideas are catching on and the more radical parties might become popular as a result. The German establishment of social welfare programs in the late 1800s is a good example — stealing the thunder of the socialist and communist labor movements — as is the establishment of labor laws in most places. Environmental legislation in Japan in the early 1970s is another: the Socialist parties were gaining ground on the LDP on that issue before the (overdue, by any measure) application of a broad and rigorous government regulatory program.

18

Jonathan Dresner 04.23.08 at 9:21 pm

somehow, the Nazis latched onto to Keynes’s idea of job creation through spending on public works.

Wouldn’t it make more sense to look at the examples of Italy and Japan, both of whom had weathered the Depression quite well by engaging in massive public spending, including militarization? It seems unlikely that Keynes was that convincing, in the absence of an already existing political ideology which privileges the role of the state (as a stand-in for the nation) as an organizing tool for collective welfare.

Despite recent history to the contrary, most political leaders seem to work by copying concrete examples of successful programs, rather than following untried theoretical paths.

19

Bob B 04.23.08 at 11:28 pm

“Wouldn’t it make more sense to look at the examples of Italy and Japan, both of whom had weathered the Depression quite well by engaging in massive public spending, including militarization?”

Not sure whether that question is addressed to me or hypothetically to Keynes.

Keynes visited Hamburg in January 1932 to lecture and on returning to Britain wrote an article for the New Statesman: “Germany today is in the grips of the most powerful deflation any nation has experienced . . “
[source: DE Moggridge: Maynard Keynes (1992) p.539]

I don’t recall what may be termed the British establishment taking Mussolini very seriously and there were few contacts with distant Japan. If anything, Italy and Japan had little impact on thinking in Britain at the time whereas parts of the establishment increasingly took the manifestation of the Nazis in Germany very seriously.

Some, like Churchill and his coterie of close advisers, regarded the Nazis as a looming threat to stability in Europe while others were admiring or mildly sympathetic, like Lloyd George and Lord Halifax: “Although there was much in the Nazi system that profoundly offended British opinion, I was not blind to what he (Hitler) had done for Germany, and to the achievement from his point of view of keeping Communism out of his country.”
http://www.spartacus.schoolnet.co.uk/2WWhalifaxL.htm

There is also the case of Sir Oswald Mosley, a cabinet minister in MacDonald’s Labour government of 1929-31 until he resigned in 1930, saying the government was doing too little to address the problem of rising unemployment.

He went on to found the British Union of Fascists in 1932, which sought to emulate the paramilitary style of the Nazi Brownshirts in its public demonstrations and marches, hence the Public Order Act 1936 banning the wearing of uniforms by political parties. After the death of his wife in 1933, Mosley married his mistress, Diana Guiness, in Berlin in October 1936 at the the home of Josef Goebbels.

We have this entry in George Orwell’s research diary for: The Road to Wigan Pier, about Mosley speaking at a public meeting on 16 March 1936 in Yorkshire:

“Last night to hear Mosley speak at the Public Hall, which is in structure a theatre. It was quite full – about 700 people I should say. About 100 Blackshirts on duty, with two or three exceptions weedy looking specimens, and girls selling Action etc. Mosley spoke for an hour and a half and to my dismay seemed to have the meeting mainly with him. He was booed at the start but loudly clapped at the end. Several men who tried to interject with questions were thrown out . . . one with quite unnecessary violence. . . . M. is a very good speaker. His speech was the usual clap-trap – Empire free trade, down with the Jew and the foreigner, higher wages and shorter hours all round etc. After the preliminary booing the (mainly) working class audience was easily bamboozled by M speaking as it were from a Socialist angle, condemning the treachery of successive governments towards the workers. The blame for everything was put upon mysterious international gangs of Jews who were said to be financing, among other things the British Labour Party and the Soviet. . . . M. kept extolling Italy and Germany but when questioned about concentration camps etc always replied ‘We have no foreign models; what happens in Germany need not happen here.’ . . . “
[source: George Orwell: The Collected Essays, Journalism and Letters, Vol. 1 An Age Like This 1920-1940; Penguin Books, p. 230]

Note this part: “the working class audience was easily bamboozled by M speaking as it were from a Socialist angle.”

Note too: “An MP is trying to secure the release of official papers which might shed light on the alleged Nazi sympathies of King Edward VIII. . . “
http://news.bbc.co.uk/1/hi/uk/2074100.stm

20

Barry 04.23.08 at 11:42 pm

I see; I apologize for not reading with comprehension turned on.

I *do* still disagree with the last part: “…FDR undertook aggressive government intrusions into unprecedented areas of economic and social life. Those programs may have been of limited use, macroeconomically (maybe; I’m not convinced by the Friedmanistas), but they were psychologically powerful and blunted the drive to replace democracy with a “more vigorous” alternative.”

Growth under FDR was freakin’ huge; the one year where a GOP Congress forced him to pull back (1937? 8?) adds strong evidence that his policies were what was needed at the time. The efforts of the right amount to 60-odd years of pretending that a little more Hoover would have fixed things up.

21

Jonathan Dresner 04.24.08 at 11:07 am

Growth under FDR was freakin’ huge…

We can both be right on this point. My impression has always been that the economy didn’t really approach full recovery until the war industries start kicking in post-’39 (and especially post-’41) but that New Deal programs kept unemployment down somewhat and kept the human costs of unemployment down as well, which kept the political crisis under control. Simple macroeconomic growth doesn’t impress me — then or now — because it’s distribution which people notice. (A quick google search turns up this discussion which seems to confirm my impression that the mid-30s were a period of GDP growth but slow employment recovery.)

22

Jonathan Dresner 04.24.08 at 11:09 am

I don’t recall what may be termed the British establishment taking Mussolini very seriously…

No, I meant as an explanation of the Nazi’s adoption of “Keynsian” policy. I suspect their economic programs were more influenced by the success of their ideological allies than by the contrarian views of Englishmen.

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