Peddling Panaceas: Popular Economists in the New Deal Era

Published by EH.NET (October 2005)

Gary Dean Best, Peddling Panaceas: Popular Economists in the New Deal Era. New Brunswick, NJ: Transaction Publishers, 2005. xii + 270 pp. $49.95 (cloth), ISBN: 0-7658-0288-0.

Reviewed for EH.NET by Ranjit S. Dighe, Department of Economics, State University of New York at Oswego.

The most popular economist in the New Deal era was John Maynard Keynes, right? Of course not. While many New Deal policies would later be called Keynesian, Keynes was little known to the American public prior to the publication of The General Theory in 1936, and his influence in New Deal policy circles was minimal. The story of Keynes’s 1934 audience with President Franklin D. Roosevelt is often recounted: Keynes came away wishing Roosevelt “was more literate, economically speaking,” while Roosevelt dismissed Keynes as “a mathematician rather than a political economist.”[1]

The classical or “orthodox” economists of the time fared even less well with the Roosevelt Administration and the public. It seemed natural to associate them with the old economic order and its collapse in the first four years of the Depression. Moreover, orthodox prescriptions like liquidating labor and commodities, hewing to the gold standard, and balancing the budget were pure castor oil — hardly a welcome tonic for people seeking relief. Those prescriptions, with some notable exceptions like the widespread opposition of economists to the Smoot-Hawley tariff, may also have sounded too similar to those of the discarded and discredited Hoover Administration.

Instead, the most popular economists of the time were liberal-leaning amateur economists who beat the drums for various reforms in the popular press. While the Depression spawned a host of would-be economists, offering reforms ranging from the radical to the reactionary, a few of these amateur economists exerted tangible influence. They pressed for policies that the Roosevelt administration eventually adopted and promoted them among the general public. Gary Dean Best’s new book, Peddling Panaceas: Popular Economists in the New Deal Era, deals with three of the most influential of these writers: Edward A. Rumely (and his Committee for the Nation), Stuart Chase, and David Cushman Coyle.

Best, a retired professor of history in the University of Hawaii system, is the author of a dozen books that deal directly or indirectly with interwar America, including five books on the New Deal. Despite his own prolific output on this era, Best is remarkably un-self-referential in this book, though the book does continue the policy grouping from his 1990 book Pride, Prejudice, and Politics. That book broke down Roosevelt’s advisers into three groups, and this one treats each of its subjects as a representative of one of those groups. Rumely and the Committee for the Nation were reflationists, whose great victory came early with Roosevelt’s decision to take the country off the gold standard in 1933; Chase was a planner, like Raymond Moley and Rexford Tugwell, who favored more centralized control of industry and agriculture, as embodied in the National Recovery Administration (NRA) and the Agricultural Adjustment Administration (AAA); Coyle was a “Brandeisian,” a trust-buster in the mold of Louis Brandeis, with a deep distrust of big business and high finance.

The title Peddling Panaceas, recalling as it does Paul Krugman’s caustic Peddling Prosperity (1995), may lead the reader to suspect that Best holds little brief for these “popular economists” and the New Deal policies they advocated. Such suspicions are correct, as is evident from the full title of Best’s 1990 book, Pride, Prejudice, and Politics: Roosevelt versus Recovery, 1933-1938. In that book and in a provocative interview with The Objectivist Center in 1990 [2], Best condemns the New Deal from a conservative economic perspective similar to that of Robert Higgs [3]; in a nutshell, both say the New Deal retarded recovery because it provided a poor investment climate for business. In this new book Best mostly soft-pedals his negative assessment of the New Deal in favor of relatively neutral histories of Chase, Coyle, and the Committee for the Nation and their respective beliefs and influences with the public and the administration.

The book is organized tidily, perhaps too tidily, into nine chapters, three each for Chase, Coyle, and Rumely’s Committee for the Nation. While this arrangement is numerically elegant, it sacrifices some context and clarity. The introductory and concluding sections are just a few pages each (and are not numbered as chapters), with the result that the general reader may be frustrated by the lack of background. A non-specialist would likely feel bewildered by the opening sentence of chapter 1, with its referencing of “the ‘war’ between the planners and the Brandeisians” and of the miscategorization of reflationists as inflationists. A longer introductory chapter, numbered as chapter 1, would have been helpful.

The first three chapters deal with Rumely and the Committee for the Nation, whose program Best clearly sees as the most reasonable. Rumely’s colorful resume included editing and publishing the New York Evening Mail, promoting vitamins and other products in the 1920s, and working in his family’s agricultural machinery business. From his background Rumely was acutely aware of the farm depression that had begun in the 1920s and reached new depths in the early 1930s. Like the Greenbackers and some of the Populists two and three generations earlier, he believed that deflation was devastating the farm sector and the economy as a whole, and that the solution was to take the dollar off the gold standard and regulate its value so as to stabilize prices at an earlier, pre-deflation level. This monetarist prescription was too radical for even William Jennings Bryan and his fellow bimetallists in 1896, but by the early 1930s it would receive strong support from two of America’s leading academic economists, George F. Warren (of Warren-Pearson Index fame) of Cornell and Irving Fisher of Yale. Rumely began forming his committee in the summer of 1932 and managed to recruit a number of prominent businessmen. He wrote frequently to President-elect Roosevelt, influential congressmen like Senator Elmer Thomas of Oklahoma, and Henry Wallace, who joined the group’s executive committee shortly before he became Secretary of Agriculture. By January 1933 he had settled on the name Committee for the Nation for Rebuilding Purchasing Power and Prices, or Committee for the Nation for short, and taken the group public. The group lobbied Congress and the White House, and added numerous economists and businessmen to its ranks. Its efforts bore fruit almost immediately, as Roosevelt took the country off the gold standard in April and the Agricultural Adjustment Act, signed into law in May, included Senator Thomas’s “inflation amendment,” authorizing the president to inflate prices using any of six methods. Rumely declared victory in a letter to his daughter that month: “The Administration has adopted the Committee’s policy and this country is on the way to restoration of the 1926 price level, we believe” (p. 21).

Dissatisfaction soon set in among Committee members, however. Merely de-linking the dollar and gold, and ending the deflation, was not the group’s whole agenda. Fisher and many others favored a “commodity-backed dollar,” with its value tied to an index of commodity prices, and were disappointed when the administration and Congress did not enact such a plan. Probably most Committee members thought the NRA and AAA approaches of raising prices by restricting production were counterproductive. Most demoralizing of all was the failure of prices to return to their talismanic 1926 level (the average of the Prosperity Decade price levels). The Committee won perhaps its greatest victory in January 1934 when Roosevelt raised the dollar price of gold to the level commensurate with a “1926 dollar,” but even with the simultaneous pledge to buy up unlimited quantities of gold that price, the price level rose only partway toward that target. (And of course, once prices finally did reach that level, they kept on rising. Small wonder, then, that the reflationists were often called inflationists.) Committee members pushed for further devaluation of the dollar relative to gold, but to no avail. By 1936, Rumely and others on the Committee continued to press for reflation but believed the country had a bigger problem, namely the New Deal itself, which they found coercive, anti-business, and socialistic. Like the Association against the Prohibition Amendment, another business-heavy lobby that allied itself with Roosevelt on a single issue and reconstituted itself later as an anti-New Deal group (the American Liberty League), the Committee transformed itself in 1937 into an anti-Roosevelt group, the National Committee to Uphold Constitutional Government. The group helped block Roosevelt’s court-packing scheme and raised money in 1938 to defeat congressmen who had supported it and re-elect those who had opposed it. When the “Roosevelt depression” began in late 1937, the National Committee called once again for a reflationary monetary stimulus but derided the administration’s planned fiscal “pump-priming” as an “economic fallacy” which will eventually and “inevitably lead to destruction of democracy and to one-man government” (p. 84).

Stuart Chase, unlike Rumely, found a natural affinity with the New Deal program in general. His most common complaint was that it did not go far enough. An engineer turned accountant turned social critic, and a gifted prose stylist, Chase may well have been America’s most popular economist in the 1930s despite having no formal training as an economist. (The closest he came was spending several years researching the meat-packing industry for the government. To be fair, the Ph.D. credential was less important in Chase’s time than it is now.) He was technically employed as a research economist by the Labor Bureau, Inc., from 1922 to 1939, but for all practical purposes he was a professional pundit, as the nature of the research seemed to be to advocate for various liberal economic reforms in books and magazine articles for popular consumption. In scores of opinion pieces in magazines like The Nation, The New Republic, and Harper’s, Chase attacked waste, deplored the phenomenon of poverty amidst plenty, and cheered the New Deal. A technocrat by nature, Chase found the decentralized American economy hopelessly chaotic, wasteful, and unstable. His timing was perfect, for he had been making these charges all through the 1920s, most notably in a book written just before the crash and published just after, Prosperity: Fact or Myth?. As the Depression deepened and people lost faith in the economy’s ability to right itself, Chase became the pop prophet of economic planning.

Chase’s 1932 book A New Deal was especially prophetic. It may even have been the source of the phrase “new deal” as used by Roosevelt for the first time a few months later at the Democratic convention. Unlike the orthodox economic planks in the Democratic platform, which bore little resemblance to the eventual New Deal policies, Chase’s proposals amounted to a comprehensive reform program that did look a lot like the First New Deal. Chase called for a managed currency to replace the gold standard, drastic curbs on stock speculation, higher wages and shorter work weeks, a massive public works program, and rural electrification. Most strikingly, Chase, a self-proclaimed “collectivist,” called for national and regional planning boards and collectivized production in moribund sectors like railroads, coal, oil, electric power, steel, meat packing, wheat, and cotton. He refined those recommendations in subsequent articles in 1932 and said the ideal would be to shepherd “all basic industries into state trusts, under government supervision but operating as independent units as far as possible.” While these ideas did not originate with Chase, his eloquent exposition of them surely helped popularize them, making for a ready reception when Roosevelt finally proposed them himself.

Like the administration, Chase thought much about the twin evils of overproduction and underconsumption. To Chase, industrial overcapacity was a problem that would only get worse without new restrictions and regulations on private investment. He seemed to view new capital investment as something that firms undertook blindly, without considering whether idle plant and equipment could be obtained more cheaply or whether new goods in the industry could be sold. While viewing the Depression economy as well below full employment, he seemed to regard full-employment output as a fixed value, not one that grew a few percent each year. “Gentlemen, the market has come to the end of its adolescent growth,” he wrote in his 1934 book The Economy of Abundance. “The boy has reached maturity.” Toward solving the problem of overproduction, Chase also recommended shorter working hours for all. His main approach toward bringing production and consumption into balance, however, was to raise mass purchasing power through expanded public-works employment, higher minimum wages, and guaranteed subsistence income for everyone willing to work.

Chase’s faith in collectivism was little shaken by the mounting evidence that the NRA philosophy of restricting production was also retarding recovery, nor by the rising tide of public and business disaffection with the NRA, nor by the Supreme Court’s invalidation of the NRA in May 1935, which effectively ended the First New Deal. By this time business and the administration had grown exasperated with each other, and no attempt to revive the NRA was made. The Second New Deal, which commenced almost immediately thereafter, was characterized by a decided preference for labor over capital and a zeal for permanent reform. Chase remained loyal to the New Deal, and even did some consulting work for various New Deal agencies from 1935 to 1939, but by this time he was swimming against the tide. Regulation had become the order of the day, whereas Chase in 1935 and 1936 was still pushing as hard as ever for more direct government control of production and investment. By 1938, however, he was back on the same page as the administration, muting his support for collectivism and arguing for more of what the administration was already doing: enlarged and permanent public-works programs to absorb the remaining unemployed, greater progressivity in tax and transfer programs so as to redistribute income from savers to spenders, and a more expansionary fiscal policy in general. As fascism engulfed Europe, Chase made the by-now-commonplace argument that Roosevelt’s New Deal had saved America from a similar fate. “It is a safety valve which protects us against the explosion of totalitarianism.”

David Cushman Coyle, though less well remembered than Chase, was possibly even more influential, especially within the administration. Another engineer with a utopian bent and a talent for getting his message out, Coyle published at least three books that sold over a million copies, countless articles in the popular press, and a number of articles in scholarly and semi-scholarly journals as well. Coyle shared much of Chase’s agenda, though he never embraced collectivism, and like Chase he did some advisory work for various New Deal agencies. Best describes Coyle’s program as a synthesis of the proto-Keynesian writings of 1920s “popular economists” William T. Foster and Waddill Catchings and the anti-big-business, social democratic views of Supreme Court Justice Louis Brandeis. The basic prescriptions of Foster and Catchings, including large-scale countercyclical public works, were broadly consistent with the New Deal. But Brandeis’s Jeffersonian disdain for “bigness” was at odds with the First New Deal, in particular the NRA. After the NRA’s court-ordered dissolution in 1935, Brandeis exerted tremendous influence on the New Deal, most of it indirectly through his close friend Felix Frankfurter and Frankfurter’s New Deal prot?g?s, Thomas G. Corcoran and Benjamin V. Cohen. But nobody articulated the Brandeisian aspect of the New Deal better than Coyle, whom Moley called the “economic philosopher” of the Second New Deal.

Coyle’s influence on the New Deal began early, with a 1932 article in Corporate Practice Review that caught the eye of Frankfurter, then a Harvard law professor and Roosevelt adviser. The article argued that the key economic problem was how to divert money from saving and investment to “consumption of the goods that business is trying to sell.” The interests of business and finance were irreconcilable, he believed, because the “man-eating ogre Finance” thrived on high levels of saving and investment, which inevitably led to overbuilding, underconsumption, and instability. Such investment helped only Wall Street, not Main Street. “The normal processes of finance are poisonous to business.” Coyle recommended higher taxes on large incomes and inheritances as a way to soak up those unproductive savings, so that they would not be invested in overcapacity. Frankfurter was so impressed that he helped Coyle distribute a thousand copies of the article, under the new title The Irrepressible Conflict: Business and Finance. It ended up circulating through the Roosevelt White House as well, attracting the attention of the president himself. Coyle quickly became a New Deal insider, celebrated by the Brandeisian faction of the administration and also popular with Federal Reserve Chair Mariner Eccles.

Coyle was much more at home in the Second New Deal than in the First, and 1935 produced a bumper crop of laws that were in line with his recommendations. Social security legislation had been part of his program to raise mass purchasing power, and the Social Security Act made it a reality (though he objected to the Social Security tax, which he thought should not fall on wage-earning consumers but on the rich). The Wheeler-Rayburn Public Utility Holding Bill, aimed at breaking up large holding companies, made life difficult for Big Finance. The Banking Act of 1935 gave the Federal Reserve greater control over bank credit and imposed interest-rate ceilings on deposits, possibly deterring saving. The Revenue Act of 1935 was the “soak the rich” bill Coyle had long wanted, as it raised taxes on top earners, corporations, and estates. In 1936 Coyle saw another cherished cause become law, when Congress imposed a tax on undistributed corporate profits. Although Roosevelt said the tax was intended to raise revenue, it seems likely that part of the administration’s rationale for it and the new taxes in the Revenue Act was the same as Coyle’s: a penny saved (or re-invested) is a penny wasted. If this is so, then, from the New Dealers’ perspective, the much-noted failure of investment during the New Deal was actually a success!

The severe economic contraction that began in the summer of 1937 seems to have brought the New Deal’s legislative activism to a halt. With the government hemorrhaging revenue and the public growing impatient with the administration’s management of the economy, there was little support for bold new spending proposals of the type Coyle was advocating. Coyle had become passionate about natural resource conservation, and sought a massive expansion of programs like the Civilian Conservation Corps, as well as big federal subsidies for education and public health. Needless to say, this latest wish list went unfulfilled. Coyle had insisted all along that a program like his was necessary to keep capitalism alive, with “adequate markets free of paralytic spasms,” and in late 1939 he warned that continued paralysis could push America toward a fascist system of centralized production and dictatorship.

What are we to make of Coyle, Chase, and Rumely? Even though none of them spoke for the administration directly, Coyle and Chase served as key popularizers of its economic program and all three exerted some influence on that program, at least indirectly. While it is easy in hindsight to dismiss some of their proposals as quackery, in the crisis of the Depression the line between quackery and “bold, persistent experimentation” must have been hard to discern. And few would deny that some of that quackery became law (e.g., the NRA). As for Rumely and the Committee for the Nation, one might argue that they do not belong in the same category as Chase and Coyle, since the Committee not only included top-flight economists like Fisher and Warren but had a goal (taking the dollar off the gold standard) that seems entirely orthodox today. But in the financial circles of 1932-33, a monetary crank was probably defined as someone who favored going off the gold standard. By doing more to highlight the Committee’s orthodox opposition, which must have been considerable, Best could have established a greater commonality between Coyle, Chase, and the Committee.

A bigger complaint is that Best’s disdain for Roosevelt too often gets the better of him. For example, he characterizes Roosevelt’s first inaugural address as “a speech more worthy of a backwoods rabble rouser … Unfortunately, it was not simply a wild shot, but the opening gun in a prolonged assault that would prolong the tragedy of the depression for another eight years.” More worrisome for an economic historian is when Best mentions various phases of the Depression business cycle and crudely connects them to the New Deal without supporting detail. It is simplistic to say, as he does, that the apparent reason for the economy’s continued slide after a minor uptick in mid-1932 was anxiety over the possible policies of the Roosevelt administration. Net investment was already negative by then, and the monetary collapse of that period, brought on by general runs on the banks, seems hard to pin on the election returns alone. The debt-deflation of 1929-33, exacerbated by real wage deflation in 1932, was also a likely factor in the decline. (Also, if anxiety over Roosevelt was to blame for the ten percent drop in industrial production in the four months before his inauguration, then shouldn’t he receive at least some credit for the 69 percent increase in industrial production in the four months right after his inauguration?) Still dicier is Best’s statement that the 1937-38 contraction occurred because “the massive spending in [1936] to ensure Roosevelt’s reelection had triggered an inflationary wage-price spiral that triggered a collapse of the economy in late 1937.” It is by now well established that the 1937-38 contraction was preceded by severely contractionary monetary and fiscal policies, including a doubling of bank reserve requirements and a sharp swing of the full-employment budget from a small deficit to a huge surplus.[4] Best seems less interested in a careful examination of these fluctuations than in telling tales of crime and punishment.

All told, these flaws are easy enough to overlook. Peddling Panaceas offers a coherent and compelling alternative intellectual history of the New Deal (a “public intellectual history”?) and provides new detail on three important factions of New Deal policymaking. The chapters on the Committee for the Nation will be of particular interest to anyone researching the political economy of the end of the gold standard. The book would make a useful counterpart to more sympathetic histories of New Deal policymaking such as Arthur M. Schlesinger, Jr.’s classic The Age of Roosevelt trilogy (1960) or Irving Bernstein’s A Caring Society (1985). Perhaps an even better match would be William J. Barber’s Designs within Disorder (1996), a history of Roosevelt and the “real” economists.

Notes: 1. Irving Bernstein, A Caring Society (Boston: Houghton Mifflin, 1985), p. 109.

2. “The New Deal’s War against Economic Recovery” (interview with Gary Dean Best), The Objectivist Center, July 2000. Internet: http://www.objectivistcenter.org/articles/interviewnew-deal-war-against-economic-recovery.asp

3. Robert Higgs, “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War,” The Independent Review 1(4): 561-90 (Spring 1997).

4. Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867-1960 (New York: Princeton University Press, 1963), p. 545; Larry C. Peppers, “Full-Employment Surplus Analysis and Structural Change: The 1930s,” Explorations in Economic History 10: 197-210 (1973), p. 200.

Ranjit S. Dighe is Associate Professor of Economics at the State University of New York at Oswego. He is the author of several papers on American labor markets in the Great Depression, as well as The Historian’s Wizard of Oz: Reading L. Frank Baum’s Classic as a Political and Monetary Allegory (2002). He is currently researching business support for Prohibition.