I’ve seen this quote a couple hundred times too many:
We are spending more money than we have ever spent before, and it does not work. After eight years we have just as much unemployment as when we started, and an enormous debt to boot.
It comes from Harry Morgenthau, FDR’s secretary of the treasury, via Burton Fulsom’s flawed history. It’s a darling of conservative pundits who want to say that government spending cannot reverse an economic downturn. Indeed, their whole case against government spending seems to hinge on this one moment, a supposed moment of clarity from Morgenthau.
Government spending would not in itself be the problem. It increased dramatically through the 1940s. But as easy as it is to argue in its favor, I’ve yet to read some dissection of Morgenthau’s statement … something that puts it in context to show that it is a less powerful assesment that conservatives would think. Indeed, the passage lacks any depth, and reads more like exasperation rather than reflection, and given that Morgenthau often disagreed with Roosevelt on spending (though not necessarily on its application), there is plenty of room for a historian to debunk the conservative interpretation.
Morgenthau, at the very least, represented the concerns of American businessmen that the goals of the New Deal were not clearly defined, and the consequential costs were excessive. Were they temporary or permanent? According to HW Brands, Morgenthau confronted Roosevelt with this issue, claiming that recent declines in productivity reflected businessmen’s frustration with Roosevelt’s opacity. FDR relished his caginess, refusing to choose between temporality and permanence, and preferring to keep that information from those whom he felt opposed his policies. Eventually, Roosevelt would associate economic security with stable democracy.
This is only a small bit of context. Beyond this moment, there is little evidence of Morgenthau’s sustained opposition to the New Deal, or that his proclamation was a blanket judgement of New Deal policies. But the bigger problem is that this is one quote, one full of ambiguities (what else was said at the same Congressional committee hearing?). Ultimatley, there are more fruitful ways to use history of the Great Depression to bolster their arguments. This isn’t it.
March 21, 2009 at 10:39 am
Fulsom is quite right. The Hoover/FDR interventionism only made things worse and the much needed capital investment that would create jobs vaporised as investors were scared off by the political uncertainty. To see the reality one needs to go no further than looking at the yield of long dated high grade corporate bonds in comparison to those that matured within a year.
The bond-yield data shows that investors’
confidence in the ability to collect interest payments and get their principal back collapsed between 1934 and early 1941. When FDR appointed business friendly cabinet secretaries to fight the war investor confidence increased sharply even as the country was getting into the biggest war in history.
The bottom line is that the Hoover/FDR meddling only served to prolong the crisis, just as the meddling by the Japanese government intervention served to prevent the needed liquidation in the 1990s and the Bush/Obama interventions are preventing a much needed liquidation of bad assets at this time.
March 21, 2009 at 11:17 pm
The writer is correct that the Morgenthau quote is treated superficially by Conservatives, more or less held in the air like a fishing trophy, with no contextual analysis.
However, the point being made is perfectly valid. Spending did not get the US out of the Great Depression. After a wealth of spending and jobs programs, the Depression’s unemployment rates (& sequel) were as follows: 1932: 23.6%, 1933: 24.9,
1934: 21.7, 1935: 20.1, 1936: 16.9, 1937:14.3, 1938: 19.0, 1939: 17.2,
1940: 14.6, 1941: 9.9, 1942: 4.7, 1943: 1.9, remaining in single digits until the present day.
The drop in 1941 came after we began producing goods for the Lend Lease program in support of the Allies prior to our entrance into WWII. The plunge in subsequent years came as US industry shifted into overdrive to satisfy the demand created both here and overseas once we joined the Allies in Europe and the Pacific.
In short, the production of tangible goods got us out of the production. It wasn’t even the war itself, else peacetime would have seen the economy plunge once again. Instead, returning servicemen and women brought home a pent-up demand for homes and consumer goods that required a conversion of factories from the manufacturing of swords into the making of plowshares — and cars, construction materials, new clothes, food that was no longer rationed, and so on. And, of course, with all the G.I. weddings, we got the baby boom with its explosion in the education sector — granted, helped along at the postsecondary level by the G.I. Bill.
The point is these were not make work government jobs or projects to build monuments to the egos of one politician or another. This was the creation of NEW goods and services, the infusion of new wealth, the only way one expands the economic base of a country. Printing more money, as the Federal Reserve did last week, not only does not create wealth, it dilutes the value of the legal tender already in circulation. Think of each dollar as a share in US “stock.” If there were 100 shares yesterday and they print up another 100 today without any change in the value of the US, each share of “stock” is now worth half of what it was yesterday. That’s why all the spending by the Obama Administration is dangerous. The Bush-Obama crisis is being addressed by throwing money with no intrinsic value at it. If you own a wheelbarrow, get it out and prepare to use it for trips to the grocery store.
May 1, 2009 at 5:57 pm
I think the quote comes from “From the Morgenthau Diaries, Years of Urgency 1938-41″, the 2d volume of John Morton Blum’s editing of the diaries. However, the quote has been significantly edited, eliminating portions that conservatives would not like. Among the omitted portions is the following: “There are four million that don’t have that much income. We have never done anyting for them…. We have never begun to tax the oepo;e in this country the way they should be….. People who have it should pay.”
July 29, 2009 at 12:41 pm
The Morgenthau quote is bogus – do the math professor: FDR was only in office for SIX years in 1939 not EIGHT. FDR took office in 1933. Other than the un-sourced quote in Folsom book, “New Deal or Raw Deal?: How FDR’s Economic Legacy Has Damaged America” the quote cannot be found. Nice try.