this is such unabashed rubbish that i don't want to even comment on it (i already have in previous posts) but i feel compelled because of its direct challenge to ron paul. if we don't start getting rid of this rosy view of socialism, history will continue to repeat itself (do you really want to construct a gigantic federal apparatus that can be taken over by the likes of Mao, or Stalin, or Hitler--or even Bush for that matter?--all in the name of the "common good"?)

i think the following article by paul craig roberts sums it up nicely. market regulation and redistribution schemes have led to some of the biggest disasters in our history (i.e. the great depression).

libertarianism leaves room for socialism. but socialism leaves very little room for personal liberties. for example, a libertarian has no qualms with the statement:

"It is no mystery that the capitalist countries with the best living conditions have the longest and most successful history of workers' struggles, strongest union presence, student advocacy..."

but the libertarian would argue that by placing all their trust in a centralized authority (like the federal government), workers, unions, students, etc. have let down their guard and acquiesced, becoming complacent and ready-made for military-industrial exploitation. not all libertarians are randians. many (in the anarcho-socialist tradition) believe very strongly in community autonomy, local governance. yes, we can take care of our own roads, schools, hospitals, charities. we can do better than the department of education and the environmental protection agency--or, for that matter, FEMA (come on! this is a no brainer!). yes, through consumer education, we can take care of those ruthless corporations that exploit their employees and/or the environment by withdrawing our business and proposing alternative models that compete in the open marketplace of ideas. when you entrust the federal government with these powers, it only ends up consolidating the wealth of the workers--replacing direct union pressure with bureaucratic cronyism--and using it to fund their imperial wars. the lessons of history are clear on this.

also, i want to make it clear that paul does not believe that capital should be allowed to flow freely everywhere without boundaries...he believes a uniform tariff on trade with the u.s. is indeed constitutional. he is also the only one speaking out against socialist schemes to erase national sovereignty under the guise of economic integration--i.e. the EU with its newly proposed constitution from brussels, and the proposals for a North American Union. he has also criticized corporate exploitation of cheap labor at the expense of american jobs under "managed trade" schemes like the WTO. so the critics of globalization can sit comfortably with paul.

so, rather than going on, let's have paul craig roberts explain to us why the rosy view of socialist schemes like the new deal are not only TOTALLY MISTAKEN historically, but almost inevitably lead to the nightmare orwelian autocratic dystopias we face today; because all such schemes entail the willingness to sacrifice individual rights to the "commonwealth" (how many bloody revolutions and dictatorships do we need to see on the historical stage before the "ends justify the means" ideology is finally put to rest?)

------------------------------

HOW THE NEW DEAL LED TO THE RADICAL EXPANSION OF
FEDERAL POWER AND THE GRADUAL EVISCERATION OF THE
CONSTITUTION

(read article by paul craig roberts after my rant
below)

i am so sick of hearing people say that we need more
big government to take care of us because look what
happened with the great depression when we had free
markets...this is a mythology so ingrained in
so-called "progressive" thinking that they would
sacrifice every single one of our rights if it
appeased the will of the omniscient state
regulators...well, you folks need to wake up and learn
the history your state-sponsored college textbooks
will not tell you, because it threatens the onward
march of centralized federal power...when you give
this much power away to such a small group of
people--what else but tyranny do you expect from this
kind of equation? it's called fabian socialism. it is
the incremental socialism at the heart of the origins
of the democrat party. how could such a universal
catastrophic collapse occur without such a
consolidation? in a truly free market, if one sector
(or bank) fails, another takes over. democrats like to
point their finger in righteous indignation at the
military industrial complex, and talk about how bush
has taken dictatorial power upon himself--but
remember, the warfare state is only the flip side of
the welfare state coin. it is that grand old democrat,
wilson, who not only signed the federal reserve into
being, but also wanted to make the world "safe for
democracy" and sealed the fate of our disastrous
interventionist foreign policy (the origins of the
military industrial complex). it is that other grand
old democrat, FDR, who originated that nasty little
piece of legislation that gives the president the
authority to virtually negate the other branches of
government in times of "national emergency," along
with many of the other "constitutional compromises"
that resulted from his radical expansion of federal
powers under the New Deal (as explained below).

in the case of the stock market crash in 1929, only
one bank had to fail--our central bank, the federal
reserve--and the rest, like dominoes, fell down with
it. the lesson of history is clear: PROBLEM, REACTION,
SOLUTION. the elite financial dynasties of the world
(in this case J.P. Morgan and the "Jekyll island"
company back in 1913) with the help of their giant
think-tanks (the CFR) and media moguls (virtually all
the major newspapers of the time) create a problem and
blame it on the free market, there is widespread panic
as a result, and the solution they offer is big
government, at the expense of our constitution, so
they can continue on with their state-sponsored
monopolies, the private corporations they hoodwink us
into calling "federal," all the while shouting the
evils of capitalism from the rooftops and funding
false socialist revolutions (i.e. the bolsheviks)
everywhere that inevitably lead to the concentration
of of the wealth of the proletariat back in state and
corporate hands.

does the formula sound familiar? terrorist attack,
panic, patriot act. or, devalue our currency and our
purchasing power, blame it on tax cuts, and rather
than returning to sound money and re-investing in our
communities and the private sector, we re-engineer our
schools, our health care system, etc. to be run by
federal departments and bureaucrats.

HISTORY WILL CONTINUE TO REPEAT ITSELF UNTIL WE GET RID OF THESE
SACRED BIG GOVERNMENT MYTHOLOGIES. I REALLY BELIEVE
THAT THIS SINGLE ARTICLE ALONE, IF PROPERLY
UNDERSTOOD, VINDICATES THE LIBERTARIAN POSITION ON OUR
IMPENDING SOCIAL AND ECONOMIC CRISIS AND MAKES IT EVEN
MORE URGENT THAT WE ELECT RON PAUL AS PRESIDENT.

PLEASE REPOST!

-------------------- -----------

The Fed's "Depression" and the Birth of the New Deal

By Lawrence M. Stratton and Paul Craig Roberts

Market failure reconsidered

-------------------- -------------------- --------------------

According to new deal historians, capitalism failed in
the 1930s. What, then, is it doing flourishing in the
United States, Britain, and Europe and taking root in
Latin America and China, where it was never previously
present? For the past 20 years there has been a large
and growing incompatibility between the verdicts of
historians and the performance of capitalism.

In 1981 the United States reduced tax rates and reined
in money growth. For two decades the economy has
experienced an economic boom characterized by large
income gains, high employment, and negligible
inflation. In the U.K. similar reforms introduced by
Margaret Thatcher have produced similar results.
Heavily socialized countries such as France, Italy,
and Spain have abandoned public ownership and
privatized their economies. Political regimes in
Eastern Europe and the Soviet Union, where a planning
model had operated, failed both economically and
politically and collapsed. Capitalism has appeared in
Latin America and has taken hold of the Mexican,
Chilean, and Argentinean economies. Even China?s
rulers have found it necessary to risk their political
power by endorsing markets and private property in
order to participate in the global economy.

Big government (in terms of its presence in the
economy) is everywhere in retreat. A Democratic
president, Bill Clinton, declared that ?the era of big
government is over.? Yet the history books and much
analysis of public policy during the 1930s remain
unadjusted and still proclaim the failure of
capitalism. The disconnect between historians and
reality grows with each passing day, because
historians cannot explain the Great Depression except
in terms of capitalism?s failure.

Historians came to the subject with views colored by
the despair of the Depression and by a belief in the
efficacy of government action. This belief had been
growing ever since Jeremy Bentham introduced it into
the English-speaking world in the late eighteenth
century. Successes attributed to the fledgling
communist government in Russia and the rise of fascism
in Italy led many to believe that government-directed
economy was the wave of the future. This belief was
kept alive into recent years by claims made for French
?indicative planning? and Japanese ?industrial
policy.?

But historians could not have failed so badly in their
judgments if economists had been able to explain the
Great Depression. And economists could not. It was not
until 1963, when the National Bureau of Economic
Research published Milton Friedman and Anna Schwartz?s
monumental study, A Monetary History of the United
States, 1857-1960, that an economic explanation of the
Depression appeared. This was not a propitious time
for the authors. The belief in market failure had had
three decades to harden into an unchallenged
orthodoxy, one reinforced by exaggerated claims for
Soviet economic performance under central planning.
Moreover, Friedman and Schwartz?s analysis was keyed
toward explaining inflation and recession in terms of
the behavior of monetary aggregates. Their account of
the Depression is in one chapter and has to be
fashioned out of copious material by the reader?s own
mind. Although their work and its implications became
known to many economists, it appears to have had scant
impact on historians or on the public?s understanding
of the Great Depression.

A country that doesn?t understand its own history is
not well equipped to deal with its future. The Great
Depression was not a failure of the old order. It was
the failure of the new order that had just begun.

The Federal Reserve is the most powerful institution
of a new order that believed in the efficacy of
government and its ability to do good. The same
Federal Reserve caused the Great Depression when its
wise men made a series of cumulative mistakes that
contracted the money supply by one-third and wiped out
purchasing power in an unprecedented fashion.

Economists could not at first explain the Depression
because they were unaware of the dramatic shrinkage in
the quantity of money. It was not until Friedman and
Schwartz dug into the facts that the culpability of
the Federal Reserve became known. Moreover, most
economists found this culpability to be unwelcome
information. In the 1960s economists were uniformly
Keynesian in outlook. They were emotionally supportive
of government intervention, and their human capital
was invested in policies that rested on their belief
in the effectiveness of government action. Although
they could not refute the evidence, they did not
warmly endorse the revelation that the Fed had caused
the Great Depression.

So the great disconnect remains between the history
books and the success of capitalism. By the
mid-twentieth century, no country thought it could
succeed with capitalism. By the beginning of the
twenty-first century, no country thinks it can succeed
without it.

Mistakes play a dramatic role in history. The Fed?s
mistakes led to others even more serious ? the New
Deal and the massive delegation of legislative
authority that breached the separation of powers.
Here, then, is the history of those terrible mistakes,
offered in the hope that it will challenge historians
to abandon their ideologies, return to their craft,
and give us a history that will better guide our
future.

The economics of the Great Depression

In one of the great paradoxes of human history, a
federal regulatory institution ? created for the
purpose of stabilizing the banking system and,
thereby, the overall economy by functioning as a
lender of last resort ? caused the worst depression in
our history. President Woodrow Wilson promised that
the Federal Reserve Act of 1913 would provide the
economy with a ?Supreme Court of Finance? that would
ensure the liquidity for economic growth and
prosperity. Instead, the Federal Reserve collapsed
purchasing power and forced 25 percent of the
workforce into unemployment. The inattention and
incompetence that caused this disaster are so great as
to warrant, in the words of economist Clark Warburton,
?a charge of lack of adherence to the intent of the
law.?

This massive destruction of liquidity began when the
Federal Reserve responded to the 1929 stock market
crash by allowing the quantity of money to decline by
2.6 percent over the next year. This extremely tight
monetary policy put the economy into severe recession.

All that was needed to turn the economy around was for
the Federal Reserve to add to bank reserves by
purchasing government securities. This would have
expanded the money supply and was the policy called
for by the Federal Reserve?s charter. Instead, the
Federal Reserve made another mistake.

The most important charge in the Federal Reserve?s
charter is to be a lender of last resort. This means
that when a bank is in trouble and cannot meet its
depositors? demands for cash, the Federal Reserve must
provide the liquidity. Otherwise, panic from inability
to withdraw funds can spread throughout the banking
system, forcing banks to disrupt business and shrink
the money supply by calling loans and reducing
deposits. The main rationale for creating twelve
Federal Reserve District Banks was, as Sen. John
Shafroth, Colorado Democrat, put it:


no bank should be more than one night?s train ride
from its Federal Reserve bank. In cases of a run on
his bank, a banker could gather up his commercial
paper with maturities of thirty, sixty and ninety
days, catch the train and be at the Federal Reserve
Bank by morning, discount his notes and wire his bank
that there was plenty of money to pay depositors. To
place Reserve banks more than a night?s train ride
from the member banks it served would make it
impossible to meet one of the very needs for which it
was designed.

When a bank exhausts its vault cash, it needs to raise
more by selling (discounting) its loans to the Federal
Reserve or by selling bonds from its investment
portfolio to the Federal Reserve. The most direct way
the Federal Reserve can provide liquidity is to
conduct open market operations and purchase bonds from
the banking system.

The Federal Reserve was derelict in this
responsibility during the three banking crises that
culminated in the Great Depression. Indeed, more often
than not the Federal Reserve sold bonds and raised the
discount rate, thus reducing banking liquidity when it
should have increased liquidity. The first banking
crisis began in the autumn of 1930 when the Federal
Reserve stood aside and permitted banks to fail in the
South and Midwest. The result was to undermine
confidence in banks. Runs on banks spread as
depositors rushed to convert their deposits into
currency.

By December the Bank of the United States in New York
closed from inability to meet depositors? demand for
cash. The bank was sound, as evidenced by its ability
to pay off depositors 92.5 cents on the dollar when it
was liquidated during the worst of the Depression. If
the Federal Reserve had done its job, the bank would
have remained open. The bank?s size and
official-sounding name meant that its failure
frightened depositors all over the country and led to
a general run on banks. By the time it was over,
hundreds of banks had failed, reducing the money
supply by the amount of their deposits.

The second banking crisis began in the spring of 1931
when the Fed stood aside negligently while banks
reduced their lending in order to meet their
depositors? demands for cash. By August commercial
bank deposits had shrunk by 7 percent, a further
contraction in the supply of money. Then in September,
in response to the British leaving the gold standard,
the Fed further deflated a deflating economy by
pushing through the biggest hike in the discount rate
in history. This extraordinary mistake caused
commercial banks to stop their use of the discount
window and to hoard cash in order to meet rising
withdrawals stemming from the public?s declining
confidence in banks. As Milton Friedman and Anna
Schwartz put it, this put the famous multiple
expansion of bank reserves into vicious reverse. By
January 1932 bank deposits had declined another 15
percent. Large monthly declines in the money supply
continued through June 1932.

The commercial banks? response to the Federal
Reserve?s failure to act as lender of last resort was
to accumulate excess reserves in order to meet
depositors? demands for cash without jeopardizing the
banks? loan portfolios. The Fed?s negligence left
banks with unacceptable alternatives to hoarding cash
? discounting their loans at a loss or calling loans
that could force cash-strapped borrowers into
bankruptcy. The Fed foolishly misinterpreted the
excess reserves as a sign of an easy monetary policy
and took no action to ease the tremendous pressures on
the banking system and supply of money.

In January 1933 the three-year banking crisis brought
on by Federal Reserve mismanagement of the money
supply entered its final phase. This time the Federal
Reserve System itself panicked. Banks were failing
because they could not meet frightened depositors?
demands for cash. Statewide bank holidays spread. By
March 1933 bank holidays (during which banks were not
required to meet their obligations to depositors) had
been declared in about half of the states. The Fed
responded to these events by again raising the
discount rate, making it harder for banks to meet the
cash demands of depositors. From January to March the
money supply fell dramatically. On March 4 the Federal
Reserve Banks themselves closed. Examining this gross
negligence 30 years later, Friedman and Schwartz
concluded: ?The central banking system, set up
primarily to render impossible the restriction of
payments by commercial banks, itself joined the
commercial banks in a more widespread, complete and
economically disturbing restriction of payments than
had ever been experienced in the history of the
country. One can certainly sympathize with President
Hoover?s comment about that episode: ?I concluded the
Reserve Board was indeed a weak reed for a nation to
lean on in time of trouble.??

When banks reopened in mid-March, 15,000 out of 25,000
commercial banks remained. The collapse in the banking
system wiped out bank deposits. The result was
shrinkage of the money supply by one-third and a
severe depression that dramatically altered the U.S.
Constitution and the character of our government.
President Franklin D. Roosevelt?s New Deal, the
massive delegation of legislative authority to newly
created executive branch regulatory agencies, and the
supplanting of the public?s faith in the market system
by faith in government intervention all have their
origin in these Federal Reserve mistakes.

The coming of the planners

The great depression?s most serious and long-lasting
consequence was not the collapse of prices and
employment, but the displacement of the traditional
reliance on individual responsibility with government
guarantees of security. Beginning with Social
Security, these guarantees have grown into the
all-encompassing welfare state.

This has changed the character of the American people,
and it has changed the character of their government.
Together with the growth in government income support
programs came growth in government power. From a few
basic agencies regulating monopolies, railroads, and
food processing, federal presence in the economy has
expanded to about 150 agencies, a growing number of
which have independent police powers. Most of this
burgeoning regulatory activity was justified by the
belief that the unregulated market was the cause of
the Great Depression. As Roosevelt put it in his
inaugural address:


The rulers of the exchange of mankind?s goods have
failed, through their own stubbornness and their own
incompetence, have admitted their failure, and
abdicated. Practices of the unscrupulous money
changers stand indicted in the court of public
opinion, rejected by the hearts and minds of men.

Business ?self seekers without vision? were accused of
?callous and selfish wrong-doing? and scapegoated.

The Great Depression was a life-saver for the
political left displaced by 1920s prosperity. The
prosperity caused by the limited government of Calvin
Coolidge and Andrew Mellon had shoved intellectual
schemers off the U.S. political stage. As E. Digby
Baltzell noted in The Protestant Establishment,
Protestants gave up intellectual pursuits and moved to
Wall Street. Left-wingers enamored of the use of
government power to improve society went off to pay
their homage to the new Soviet state. Leftovers from
the progressive era were demoralized by the workers?
contentment with Coolidge prosperity. Their spirits
lifted as the country sank into depressionary gloom.

As prices sank and unemployment soared, blue collar
workers, farmers and businessmen alike all looked to
Washington for aid. On June 24, 1931, Business Week
magazine poked fun at laissez-faire, ?the legend of an
?automatic equilibrium? upon which we can rely.? In an
editorial, ?Do You Still Believe in Lazy-Fairies?? the
magazine concluded that planning had to replace the
market.

?Why should Russians have all the fun of remaking a
world?? asked Stuart Chase in his book, A New Deal,
published in 1932. Like other progressives, Chase was
convinced by Soviet propaganda of the efficacy of
government planning. During the 1920s Chase and Lewis
Mumford led the Regional Planning Association, a group
of economists and engineers enamored of social
management of unified geographic areas.

Planning quickly became the intellectuals? solution to
unemployment and idle factories. Indeed, there was
such a predilection for planning that the intellectual
class, whose job it was to analyze the situation,
remained willfully blind to the drastic monetary
contraction before their eyes. On the eve of the new
regulatory era and birth of the administrative state,
no progressive was going to admit or acknowledge that
the first foray into control by experts ? monetary
management by the Federal Reserve ? had quickly
produced the worst depression in history.

With a planning and regulatory agenda waiting in the
wings, it was convenient to blame the Depression on
the breakdown of the unregulated market, on private
property and private profit, on ?cutthroat
competition,? on an unequal distribution of income,
and on distrust of government.

Progressives were quick to invoke science in behalf of
their planning and coordination schemes. The few
skeptics were promptly branded ?stupid men.? Rule by
wise elites, Chase thought, ?may entail a temporary
dictatorship.? Chase dressed it up as ?the Third Road?
between dictatorship of the red (Communists) and the
black (Big Business). In his inaugural speech,
Roosevelt actually threatened Congress with a
dictatorship if all else failed in the ?war against
the emergency.?

Chase?s call for a new deal was picked up by FDR in
his speech accepting the presidential nomination of
the Democratic Party. Roosevelt?s advisors were called
?the Brains Trust? of New Dealers. In practice New
Deal policies were ad hoc, but there was undeniably a
common thrust.

This common thrust was to overturn the ?nondelegation
doctrine.? Prior to the New Deal, elected
representatives crafted the law in detail. The New
Deal?s expansion of government activities and
regulatory authority changed this. Today a ?statute?
passed by Congress and signed by the president is
nothing but an authorization for ?expert? regulators
to legislate. This practice, formerly impermissible,
has been upheld by the federal judiciary, which
routinely gives great deference to the regulatory
agency when interpreting the law.

But in the 1930s, this great expansion of executive
branch powers raised numerous constitutional issues.
The federal courts balked at the regulatory intrusions
into business relationships. The New Dealers were
infuriated that the judiciary, ?locked in horse and
buggy days,? was rejecting the emergency measures.
Constitutional issues were reduced to ?nine old men?
who stood in the way of remaking a broken society.
Roosevelt finally overcame the judiciary?s
constitutional scruples with his threat to pack the
Supreme Court with New Dealers.

Roosevelt succeeded in adjusting the Constitution to
?extraordinary needs? because he won the propaganda
war. The public accepted Roosevelt?s depiction of
constitutional scruples and economic rights as
expressions of reactionary interests. Thus, just as
the public was misled by elites as to the cause of the
Depression, the public was deceived about the cure.
The modern American administrative state was born in
this failure of the intelligence and integrity of
American elites.

Once the dike of judicial resistance was broken, the
programs came fast and furious. New Deal statutory
creations included: the Emergency Banking Act (1933),
the Economy Act (1933), the Federal Securities Act
(1933), the Tennessee Valley Authority (1933), the
Civilian Conservation Corps (1933), the Federal
Emergency Relief Administration (1933), the
Glass-Steagall Act (1933), the Civil Works
Administration (1933), the Public Works Administration
(1933), the National Recovery Administration (1933),
the Agricultural Adjustment Administration (1933), the
Farm Credit Administration (1933), the Federal Housing
Administration (1934), the Gold Reserve Act (1934),
the Reciprocal Trade Agreements Act (1934), the Works
Progress Administration (1935), the Public Utilities
Holding Company Act (1935), the Social Security Act
(1935), the National Labor Relations Act (1935), the
Soil Conservation and Domestic Allotment Act (1936),
the National Housing Act (1937), the Farm Security
Administration (1937), and the Fair Labor Standards
Act (1938).

These acts altered the relationship between employees
and employers, between businesses and their customers,
between state and federal governments, between
citizens and the state, between owners and their
property, and between individual and collective
responsibility. The gold specie backing for money was
terminated, and redistribution was made the basis of
democratic politics.

This radical alteration of legal rights and political
relationships was met with 1,600 federal court
injunctions preventing executive branch officials from
implementing unconstitutional New Deal laws. The tide
turned for Roosevelt with his reelection in 1936,
which allowed him to claim a mandate to reject the
judicial rulings. The next year he exercised the
mandate by sponsoring a bill to pack the Supreme
Court.

The bill failed in Congress by a narrow margin, but
Justice Owen J. Roberts, a Republican, lost his nerve
and acceded to Harvard Law Professor and later New
Deal Justice Felix Frankfurter?s importuning to be
?the switch in time that saved nine.? The votes
remained 5-4 but the majority switched to the New Deal
side.

The four main issues before the courts were the
delegation by Congress of lawmaking powers to the
executive branch, the New Deal redefinition of all
economic activity as interstate commerce subject to
regulation, new takings of private property as a
result of agricultural allotments and price controls,
and the gutting of the Tenth Amendment, which reserves
to the states all powers not expressly given to the
federal government by the Constitution. The federal
government ceased to be restrained by the U.S.
Constitution and became whatever the New Dealers
wanted it to be. As Justice George Sutherland observed
at the time, this revolutionary change did not occur
through constitutional amendment but as a result of
changes in the attitudes of a few men.

To what effect? As the textbook American Legal
History, Cases & Materials (1996) acknowledges,
?Despite the rich harvest of legislation and the rapid
growth of the new administrative network in
Washington, the Great Depression persisted.? The New
Deal legislation had no significant impact on the
Depression.

The popular case

T he new deal lawyers thought of themselves as
reformers. The Depression was attributed to the old
order. Arthur M. Schlesinger Jr. dedicated his life to
promoting this view. The Crisis of the Old Order is
the first volume of his trilogy, The Age of Roosevelt.

But the Great Depression was the crisis of the new
order. The Great Depression was the product of the
first institutional creation of the new regulatory
order and most certainly could not have happened
without the creation of the Federal Reserve System.
Until the Federal Reserve came into being, it was not
possible for regulatory mismanagement to shrink the
money supply by one-third. This Pulitzer Prize-winning
historian gives an account of the Great Depression
that leaves the Federal Reserve?s contraction of the
money supply out of the story!

In Schlesinger?s crude rendering, unregulated business
greed caused the Depression. He argues that ?the
central economic challenge? of 1920s prosperity ?was
to distribute the gains of productivity in a manner
that would maintain employment and prosperity.? If the
price and market systems had been working, prices
would have fallen and/or wages would have risen. But
Schlesinger says that business concentration had made
the price system sluggish. Consequently, the rising
productivity pushed up profits, which pushed up stock
prices and brought on speculation. The Mellon tax cuts
?served to make more money available for speculation,?
as did Federal Reserve policy. Greed leveraged the
speculation with loans until the edifice collapsed.

Let us assume that Schlesinger?s account is correct.
It would explain the stock market crash ? but not the
contraction in the money supply that caused the
Depression. Twenty-five percent of the labor force was
not forced into unemployment because of a correction
in the value of narrowly held assets.

New Dealers are schizophrenic about concentration,
both of business and of wealth. Stuart Chase believed
business concentration facilitated planned economic
management, but Schlesinger blames concentration for
excessive profits. Wealth concentration was blamed for
preventing a healthy diffusion of buying power, thus
leaving goods unsold.

Schlesinger offers no explanation or transmission
mechanism by which a reduction in the wealth of rich
people (with excessive savings), perhaps some 60,000
families, caused a gigantic depression. Looking back
from a Keynesian standpoint, Schlesinger blames
Hoover?s frugality for letting pass the opportunity to
check ?the cumulative forces of breakdown? with ?a
small amount of spending.? Schlesinger also blames the
government for ignoring the ?imbalance between farm
and business income,? the imbalance between wages and
productivity, and imbalances in the banking and
financial systems. ?Seeing all problems from the
viewpoint of business, it had mistaken the class
interest for the national interest.?

The economy failed, in Schlesinger?s account, because
government served the narrow interests of business.
Missing from his list of imbalances is the crucial
imbalance of money. Schlesinger writes that President
Wilson

had established the Federal Reserve System as a means
of steadying the economy. The System had two chief
instruments of credit policy. Through open market
operations, it used the purchase or sale of government
securities to alter the reserves of member banks and
thus enlarge or contract the base of the money supply.
Through the discount rate, it made the money supply
tight or easy by raising or lowering the rate at which
banks borrowed from the Federal Reserve.

There is something remarkable about Schlesinger?s lack
of curiosity about how the Federal Reserve performed
this important role during the critical period
1929-33. In the Federal Reserve he had a newly created
regulatory institution, a product of progressive
politics, with more power than all New Deal agencies
combined. Was the Fed expanding or contracting bank
reserves when bank failures were shrinking the money
supply, causing dramatic imbalances between money,
prices, and employment? Was the Fed raising or
lowering the discount rate when banks had a desperate
need for liquidity? These are the questions on which
all turns, yet Schlesinger did not address them.

If the Fed drove the economy into depression with
inappropriate policy, where is the justification for
New Deal confidence in the wisdom of regulators vested
with new powers? On the other hand, if the Fed?s
actions were appropriate but unable to avert the
Depression, where is the justification for the New
Deal?s belief in the power of regulation? If all that
was needed to restore full employment was expansion of
the money supply, what is the justification for the
New Deal?

The cost of the New Deal

T o those of us living in more knowledgeable times,
Schlesinger?s excitement over The Coming of the New
Deal, the second volume of the Age of Roosevelt
trilogy, is difficult to fathom. The New Deal
legislation was ad hoc and the programs ineffectual in
reducing unemployment. The basis of Schlesinger?s
excitement lies not in the efficacy of New Deal
solutions but in the growth of government as such. In
the third volume, The Politics of Upheaval,
Schlesinger disposes of New Deal opponents as people
lacking in compassion who are opposed to the
utilization of government to provide economic security
to the common man.

Yet the New Deal achieved a diminution in rights, not
in unemployment. This became apparent by 1942, when
Ohio dairy farmer Roscoe Filburn was prosecuted
successfully by the compassionate federal government
for violating the Agricultural Adjustment Act by
growing grain for his family?s direct use. In a
unanimous decision, the now-tamed Supreme Court ruled
that Filburn had engaged in interstate commerce by not
engaging in it. Filburn, the Court ruled, should have
purchased the grain with which he fed his cows,
chickens, and family, not raised it himself. In order
to permit the federal government a wide range of
action, New Dealers destroyed the doctrine of
enumerated powers.

This constraint on federal power had to be removed if
New Dealers were to deal with the ?national emergency?
by expanding Washington?s reach. The removal of this
constraint meant that federal power came to occupy
territory formerly inhabited by individual rights.
Principal among these lost rights are the protections
the Constitution gives to property and to contracts.
The result has been an explosion in economic
regulation and uncompensated takings of various uses
of private property. With the onset of the New Deal,
government abandoned its function of securing property
and began violating it in the interest of
redistribution and ?worthy goals.? Today property
rights are tenuous. They are gradually diminishing as
government regulation increasingly dictates an owner?s
use of property.

The New Dealers put their trust in government, not in
the Founders? Constitution. Roosevelt told the
chairman of the House Ways and Means Committee in
1935, ?I hope your committee will not permit doubts as
to constitutionality, however reasonable, to block the
suggested legislation.? New Dealer Rexford Tugwell
said that New Deal policies ?were tortured
interpretations? of the Constitution in support of
actions that the framers ?intended to prevent.?

This constitutional revolution was, as Justice
Sutherland said, the work of a few men. The elites
entrusted with government wanted a bigger stage. They
used the fear and economic uncertainty that afflicted
the population to get it. The New Deal was not
Congress?s idea. Nor was it the people?s.
Paradoxically, the New Deal discredited democracy,
especially in the eyes of those who most love liberty.
Today, libertarians, eloquent in their denunciations
of the New Deal, blame the people and, hence, blame
democracy for doing the wrong thing. Today every camp
has an agenda, which it hopes to implement by seizing
control of the judiciary, not by persuading the
public. Coercion of the public is the preferred, or
trusted, method of change.

Coercion becomes increasingly arbitrary as time
passes. Its arbitrariness provokes anger, resistance,
and reaction by the public. When farmers are harassed
by Environmental Protection Agency officials for
cleaning drainage ditches or maintaining dikes that
protect fertile bottom-lands, and ranchers are
indicted for protecting their livestock or their own
lives from a marauding endangered grizzly, respect for
authority declines.

Consider the expanded police powers of federal
regulatory agency personnel. According to the U.S.
Department of Justice, ?As of June 1996 Federal
agencies employed about 74,500 full-time personnel
authorized to make arrests and carry firearms.? Only
60 percent of these armed agents are in agencies that
the public associates with police powers ? the FBI,
U.S. Marshals, Bureau of Alcohol, Tobacco, and
Firearms, federal prison guards, immigration border
guards, Drug Enforcement Administration agents, and
the U.S. Secret Service. Americans should be amazed
that the Internal Revenue Service, the Small Business
Administration, the U.S. Railroad Retirement Board,
the Social Security Administration, the General
Services Administration, the Environmental Protection
Agency, the U.S. Fish and Wildlife Service, the Army
Corps of Engineers, the U.S. Forest Service, the
National Aeronautics and Space Administration, the
Federal Deposit Insurance Corporation, and the
Departments of Health and Human Services, Agriculture,
Labor, Housing and Urban Development, Education,
Transportation, Veterans Affairs, Energy, Interior,
and Defense all have federal officers authorized to
carry firearms and make arrests.

This proliferation of federal police forces mirrors
our lost rights. Consider the sanctity of contract. In
1934, the Supreme Court vitiated, over the dissent of
Justice Sutherland, joined by Justices James C.
McReynolds, Willis Van Devanter, and Pierce Butler,
the contract clause of the U.S. Constitution. This
clause, ?No State shall . . . pass any . . . Law
impairing the Obligation of Contracts,? was put in by
the framers for the express purpose of forbidding
state governments from rewriting contracts in favor of
debtors, especially in time of financial distress. The
framers viewed this practice, in which states had
engaged after the Revolutionary War, to be
reprehensible and undermining of the rights of
property. Property has no protection when contracts
can be vitiated.

In 1933 Minnesota responded to the economic crisis by
protecting mortgage debtors (mortgagors) in default
from foreclosure. No compensation was offered the
equally straitened lenders. The purpose of a contract
is to protect the parties from a lack of performance
by either party to the contract. The Minnesota law
constituted an uncompensated taking of this core
constitutional protection, thus leaving future
contracts subject to being rewritten in the interest
of the nonperforming party. As Justice Sutherland
observed, ?If the provisions of the Constitution be
not upheld when they pinch as well as when they
comfort, they may as well be abandoned.?

If the federal government had wanted to protect
mortgage debtors, it could have printed money and paid
down the mortgages. This would have harmed no one, and
it would have stopped the monetary deflation. The
increase in the money supply would have halted the
deflation that was the source of the problem. But the
proclivity in favor of actions directed against
business blinded policymakers to the real cause of the
crisis. Indeed, the mortgage debtors and everyone else
were in trouble because the Fed failed to protect the
supply of money.

The road not taken

The great depression and its offspring, the New Deal,
could both have been avoided if the Federal Reserve
had performed the task assigned to it. All the Federal
Reserve had to do to avoid the Depression and the
subversion of the American constitutional order was to
purchase $1 billion in government securities during
the 10-month period from December 1929 to October
1930. The result would have been an increase, instead
of decrease, in high-powered money, and the banking
crisis that began in the autumn of 1930 would not have
occurred.

Without this initial decline in the supply of money,
the public would not have lost confidence in the
banks, and the banks would not have become concerned
about their own safety. This would have removed the
causes of the second crisis ? the run on banks and the
reduction in bank lending to meet depositors? demands
for cash. It was still not too late for minor action
by the Federal Reserve to prevent the disaster.
Friedman and Schwartz calculate that if the Federal
Reserve had increased its security holdings by $1
billion during the first eight months of 1931, these
purchases would have offset the drain of currency from
the banking system and increased bank reserves.

The increase in bank reserves would have freed banks
from the necessity of strengthening their reserve
positions at the expense of money supply growth. By
its failure to protect the reserves of the banking
system, the Federal Reserve caused a second decline in
the supply of money. As Friedman and Schwartz note, a
$1 billion purchase program by the Fed would probably
have prevented the second banking crisis, but even if
it had not, the open market purchases would have
completely eliminated the crisis?s effect on the money
supply.

Even after the second banking crisis, it was still not
too late for the ?wise regulators? to awake to the
responsibilities in their charter. If the Federal
Reserve had purchased $1 billion in government
securities between September 1931 and the end of
January 1932, it would have more than offset the
decline in bank reserves that caused a multiple
contraction in bank deposits. As Friedman and Schwartz
show, ?only a moderate improvement in the
deposit-currency ratio? would ?have enabled the stock
of money to be stable instead of falling by 12
percent.?

The Great Depression occurred because the Federal
Reserve missed every opportunity to take active
measures to ease the internal drain on bank reserves.

The Federal Reserve did not fail in its
responsibilities because central banks did not know
how to stop panics. Indeed, the prescription is in the
Fed?s charter. Walter Bagehot described the
appropriate policies in a famous book published in the
nineteenth century. The Bank of England stopped the
panic of 1825 by doing exactly what the Federal
Reserve should have done in 1930. The Fed failed
because of ?committee work? and personal rivalries and
jealousies. Moreover, the existence of the Fed
prevented banks from using measures taken in past
panics, such as banding together to funnel reserves to
troubled banks, or, when all else failed, taking
concerted action as in 1907 to restrict payments of
cash to customers. Banks would honor checks drawn by
customers so that the payments mechanism could
continue, but would not honor cash withdrawals except
for regular purposes such as payrolls. By acting to
prevent the loss of cash from the banking system,
banks prevented the decline in reserves and multiple
contraction of the money supply.

The Federal Reserve was formed to make such measures
unnecessary. But the wisdom of regulators proved to be
far short of the ability of bankers themselves to
prevent panics from collapsing the money supply. By
concentrating power over the money supply in a few
hands, progressives greatly leveraged the power of
mistakes. The New Deal and the Great Society are the
unfortunate consequences of the progressives? trust in
wise men and their lack of faith in the market. Now
that the market has triumphed everywhere and its
supposed greatest failure can be seen to have lain
with the unwise actions of the wise men themselves,
the legacy of the progressives looks more dubious than
ever.
 

I must say, Lo, that I appreciate the sentiment of Socialism; that urge to level the playing field so all the players get time in the game, and none get too much or too little. It is this desire for fairness that leads me, and all Libertarians I know, to forswear force insofar as possible.

In theory, communism is great! In practice, fat cats ride in limos.

The author of this piece does not understand Libertarians, or the difference between a union and a government. He states that unions are responsible for things like child labor laws, and crows that Libertarians would throw such things out.

Nothing could be further from the truth. Unions are VOLUNTARY associations, which all the Libertarians I know fully endorse. Governments are compulsory, demanding obeisance under threat of violence. Liberty does not equate to capital. The author confuses Libertarians and capitalists completely, and his comments imply that Libertarianism is just about economics.

Libertarians do not, so far as I have ever heard, grant that children are sovereign. Children are wards of their parents. The parents are sovereign, and have authority over their children, just as government exercises authority over citizens. Just so.

Now, child labor is not a Libertarian institution. Liberty does not depend on capital. Child labor is a result of capital gaining undue influence in government, and forcing parents to cede their children to factories to work.

This is NOT Libertarianism, but Socialism! While no Socialist I know is slavering at the gums to force hordes of hapless children into servitude for megacorporations, the power over our people inherent in Socialist government is the only thing that can make that happen.

Libertarian government simply would leave such power in the hands of parents.

This author, methinks, is gravely in error regarding very basic matters, and conflates capitalism with Libertarianism either out of seemingly willful ignorance, or deliberately, in order to alarm those who are less capable of discerning the difference into reacting to his characterizations by painting Liberty with the same brush as capital.

I will let the fact of his apparently deliberate mistatements determine how the rest of his assertions are met.

How do you respond when lied to? I discount the words of the liar, and look for honest speakers. I hope you do too. It is the wise thing to do.
 

Why would a Libertarian vote for Kucinich?


I don't worry about Libertarians voting for ROn Paul, they should, he is their man.

What I don;t understand is the love affair some liberals have with Ron Paul, as he stands for almost everything liberals are against.

If we want to re-learn the lessons from the late 1800's - early 1900's, then let's relearn them I suppose.

The funny thing is, bankers practice free market capitalism and they are condemned by the Libertarians.

Fractional reserve banking is the free market at work folks. Banks keep the amount of 'currency' or 'specie' (in the past) that they thought the market could bear. If they were wrong, they had a run on their bank and they went bankrupt.

Isn't this the essence of free market capitalism?
 

while i *do* have a problem with fractional reserve banking, it may not be so much as a libertarian, per se, but rather the fact that it is an outright fraud. either you have the reserves--or you don't. either your currency is backed by something with real intrinsic value--or it isn't.

what libertarians DO take issue with, however, is the corporatism, the merger of a private corporation and the state, that takes place when a private for-profit bank masquerades as a "federal reserve" with the criminal consent of congress--as such, the ability our constitution gives solely to the treasury to issue our currency and regulate the value thereof is hijacked by a secretive cartel that is not accountable to anyone.

yes, we are re-learning the "lessons" from the late 1800's, early 1900's--we are also re-learning the "lessons" of 1930, with the great depression and the new deal.

the lesson is this (as the article above demonstrates so clearly): the more government regulation, the more taxation and redistribution, the worse the wear for our civil liberties and our economy.

if the wages of workers are so low today, if they have such poor health care coverage, etc. it is not because of the evils of the free market--it is because workers have abandoned their unions in favor of relying on the government to take care of wage and health care related issues for them (welcome, HMOs).

libertarians respect voluntary transactions that do not result in harm to others or the use of brute force as a matter of principle. union membership is one of those things. it also represents the kind of competition that levels the price range of certain goods in the free market--in this case, the "competition" for wages between the employees and the employers.

-b-
 

also, you hit the nail on the hit. there is a very profound difference between libertarians and liberals.

liberals believe that the ends justify the means, and that it is ok, even proper, to give up a little bit of freedom for a little more security--as long as it helps combat global warming, or helps the eating habits of americans by choosing their food for them.

of course, it is not necessary to spell out the bloody results of these two self-defeating ideologies. they are in full swing with the bush administration, and as soon as the liberal elite gets into power in 2008, the onward march of the departmental regulation of every aspect of our daily lives will continue unabated and unabashed.

remember, folks. orwell was warning the liberals, not the conservatives.

-b-
 

and unions are cartels formed by labor to increase the price the laborers receive for thier wages.

or that was what a Liberetarian once described them to me.