Seventy-Five Years Ago in the International Herald Tribune

By December 5, 2010Economy

The feature today, “100, 75, 50 Years Ago, prompts an exercise in compare and contrast.

1935 Manufacturers Attack New Deal

Demanding that American business throw off the yoke of the New Deal, the National Association of Manufacturers today [Dec. 5] drafted a platform urging the maintenance of Constitutional guaranties, the preservation of freedom of enterprise, the maintenance of sound tax and financial policies by the government, and a search for security through economic progress rather than brain-trust theories. The business men, who yesterday heard their officers and other speakers bitterly attack the New Deal from all angles, today received the report of the Resolutions Committee, couched in terms most critical of the Administration. Last year, there had been some criticism, but a general air of co-operation.

Obviously things have changed. Now it’s business men and business women.

The year 1935 marked the “Second New Deal,” involving even greater federal goverment control and direction of the private sector. Congress passed and the President signed the Wagner Act, inviting a period of greater labor unrest. James Pierson’s review in “Commentary” of Amity Shlaes’s The Forgotten Man, hits the high points of the period.

What emerges from these stories is a New Deal that was more experimental in its policies, more hostile to business, more vindictive toward its foes, and far less successful in reviving the economy than previous writers have acknowledged. The sluggish economic response to New Deal policies, Shlaes suggests, was due partly to Roosevelt’s need to bait businessmen and bankers for their supposed role in bringing about the crisis.

They were “economic royalists” who had hoarded profits, exploited workers, fixed prices, and grown rich by speculation. FDR even egged on Morgenthau, his Treasury Secretary, to initiate tax-evasion cases against Mellon and Thomas Lamont (the head of J.P. Morgan), going so far as to urge prosecution for their having taken deductions that were perfectly legal when their tax returns were filed.

As for Roosevelt’s policies themselves, part of the “second” New Deal in 1935 was an undistributed-profits tax, which forced businesses to disgorge proceeds typically withheld for investment. That same year, the Wagner Act, authorizing a process of collective bargaining between unions and business, led to a rapid increase in wages—and thus in corporate costs. As Shlaes emphasizes, the New Dealers tended to see business as an institution to be squeezed rather than as a source of investment, invention, and growth. Their moves against private enterprise, and their threats to regulate large sectors of the economy, created a political climate hostile to investment.

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