Conservatives used to hate the New Deal. Now it seems only libertarians do. At the time, a diverse collection of intellectuals, business executives, journalists, and politicians openly loathed Roosevelt and his policies. Sterling Morton, the CEO of Morton Salt, gave a humorous bent to this antipathy when he wrote:

It is funny…how the people feel about the late FDR. Coming down the Hudson on my last trip to New York, I pointed out a landmark to a young man from the West coast…. He got a rapt expression on his face and said, “We must be near the grave of the greatest American.”

I reminded him gently that the river was the Hudson and not the Potomac.

Conservatives of all persuasions used to feel this way. But then they gained political power and became enamored with solving problems in (and from) Washington. On the whole, contemporary conservatives accommodate quite well to New Deal-style policies and speak ill only of liberals like Bill Clinton (arguably more conservative in his policies, albeit not in the bedroom, than any Democrat since Grover Cleveland). In 1964, Barry Goldwater talked about ending Social Security; 40 years later, it remains with us, a legacy of conservative failure. Conservatives once aspired to roll back the Great Society. Today, an ostensibly conservative president and Congress have enacted huge increases in discretionary government spending, a new prescription drug entitlement for seniors, a massive new bureaucracy (the Department of Homeland Security), and a federalized education policy. FDR would be quite proud; so would Lyndon Johnson.

Jim Powell’s FDR’s Folly provides a useful reminder of the dangers inherent in embracing governmental solutions to social problems. Powell’s book is quite instructive on what the New Deal did not achieve: economic recovery from the Great Depression. Indeed, FDR’s folly, Powell argues, was precisely the prolongation of the Depression through ill-advised economic policies, most of which worsened the economic picture for millions of Americans. Powell’s intent is to “explain what went wrong and why.” He does so, focusing on complex economic issues with remarkably clear prose, providing a useful corrective to the (mostly) liberal historiography (or is it hagiography?) on the New Deal. Powell quotes eminent liberal historian Arthur M. Schlesinger, Jr., who admitted he “was not much interested in economics” when he wrote his classic three- volume history of the New Deal. But it is only through an economic history of the Depression that historians will gain a complete understanding of how and why the New Deal failed.

In the standard histories of the era, Roosevelt is a savior, the New Deal an extension of the legacy of progressive reform stifled by the reactionary Republicans of the 1920s. FDR was what the people needed, a steadying captain for unquiet seas. Most historians see Roosevelt as a great president, great both in political leadership and in the power he accumulated and wielded.

In March 1933, he asked Congress for broad executive power to wage war against the Depression. Revealing words, inasmuch as he modeled the New Deal on the World War I experience. Progressives had used that war as a laboratory for reform. Not surprisingly, eager reformers filled the ranks of New Deal agencies and FDR’s Cabinet. Progressives like Frances Perkins and Harry Hopkins worked feverishly to get long delayed progressive goals, like Social Security, enacted during the emergency. In other ways, too, Roosevelt arrogated powers to himself far greater than had Woodrow Wilson during the Great War. FDR employed executive orders (some 3,728 of them, 678 during the first hundred days) to enact many of his programs, e.g., the Works Progress Administration, skirting a subservient Democratic Congress in the process. He was determined, according to Powell, to build a liberal coalition dependent on government.

This book will probably draw unfavorable comment from the mainstream press and from academia, if it receives any attention at all. His critics will charge that Powell, a CATO Institute senior fellow and editor of the libertarian Laissez-Faire Books, is not an unbiased or objective historian. (Only liberals can write objective history.) But Powell has a thorough knowledge of the pertinent literature and draws heavily from the work of economic historians like Michael Bernstein and economists like Milton Friedman. He is no John Flynn, the erstwhile FDR supporter whose exposé of “the Roosevelt myth,” in a book of the same name, drew liberal ire for its vituperation of the president.

Powell’s main contribution is to explain how the New Deal prolonged the Depression. He points first to New Deal banking laws. The prohibition of branch-banking—the failure to allow banks to establish branches throughout the country—contributed to the banking panic and bank failures during the early 1930s. Most banks were undercapitalized institutions that should remind readers of the two-bit Bailey Building and Loan in Frank Capra’s “It’s A Wonderful Life.” Economic rationality suggested that capital reserves be sufficient to provide depositors a guarantee that deposits would be safe. Powell argues that government regulation of banking, the New Deal’s solution to the banking crisis, was unnecessary. Instead, permitting banking institutions with sufficient capital reserves to open branches and to invest their reserves would have solved the problem. Canada, which allowed branch-banking, suffered hardly any bank failures during the Depression.

Powell indicts federal monetary policy, as well. He accepts the argument, developed by economist Murray Rothbard in America’s Great Depression, that the Federal Reserve system contributed to the Depression in the first place. And the Banking Act of 1935, which created the Fed’s Open Market committee and further strengthened its role in shaping monetary policy, helped spark the 1938 Roosevelt recession, the third worst economic collapse in American history.

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Powell’s book serves also as a superb defense of the Supreme Court’s famous “four horsemen of reaction,” George Sutherland, Willis Van Devanter, James McReynolds, and Pierce Butler. The conservative members of the Court, famous, or infamous, for declaring unconstitutional the National Industrial Recovery Act and the Agricultural Adjustment Act, are stoutly defended by Powell. All four, joined at times by Charles Evans Hughes and Owen Roberts, “did a splendid job articulating vital principles of economic liberty—fac[ing] enormous political pressure from a popular president.” Rather than being reactionaries—horse-and-buggy conservatives—the four were well-regarded practitioners of the law who served ably on the Court.

At its strongest, FDR’s Folly is a powerful synthesis of the economic damage wrought by the New Deal. The book shows how New Deal farm programs helped large landowners at the expense of tenant farmers and sharecroppers; how the National Industrial Recovery Act contributed to monopoly and to the development of cartels within industries, undercutting recovery; how Social Security slowed the recovery, taxing workers, removing money from the wider economy, and contributing to higher unemployment; and how African-Americans were hurt by the Agricultural Adjustment Administration and the Wagner Act’s sponsorship of unions.

Many of these arguments are well known. New Left historians in the 1960s, like Stanford University’s Barton Bernstein, reached similar conclusions about the New Deal’s failure, for example, to address issues of black poverty (of course, Bernstein is also critical of Roosevelt for saving capitalism). Powell does not claim that Roosevelt was a socialist. Rather, he was an opportunist, concerned with cementing his political power and little interested in how his programs affected the very constituencies he relied on for votes.
For all its strengths, FDR’s Folly does not come to grips with the man’s political understanding and ambition. Although the New Deal failed economically, politically it was a stunning success. FDR’s liberalism dominated American politics for the next four decades. Only in the ’60s and ’70s, when the failures of modern liberalism were apparent for all to see, did conservatives begin to make headway against the liberal establishment. But conservatives have still not proven that they can mobilize a public commitment to decreasing the size of government comparable to FDR’s commitment to increasing it.

In the meantime, FDR’s Folly explains why conservatives once despised the New Deal for all the right reasons, and why they should do so again.