Regime Uncertainty in the 1930s: A New Deal Insider’s Account

In the mid-1990s, when I was engaged in the research that would eventually be published early in 1997 in an article titled “Regime Uncertainty” (a modestly revised version of which appears as chapter 1 of my Depression, War, and Cold War), I had not read Raymond Moley’s book After Seven Years, published in 1939. Mea culpa. I should have read it much earlier. I am embarrassed to admit that although I purchased a copy in a used-book store many years ago, it sat on my shelf unread until recently.

Not for nothing is this book a standard source for New Deal historians. Moley was the leading figure in the “Brains Trust” that guided Franklin D. Roosevelt’s policy thinking and speaking during the 1932 campaign and, to a lesser extent, during the interregnum between Roosevelt’s election and his inauguration as president and, to a still lesser extent, even later (but then not as an organized group). Although Moley’s association with FDR grew somewhat strained after the president’s first year in office, he continued to work as a close adviser and speechwriter for several years until, in 1936 and 1937, he could no longer countenance the direction in which Roosevelt was taking the New Deal.

Had I read the book before the mid-1990s, I would have recalled then that Moley gave one of the clearest, best informed accounts ever written of the problem of regime uncertainty in the 1930s, an account all the more valuable and weighty because he was the ultimate insider, a man who had worked at the heart of the New Deal from its inception (he even lays claim [p. 23, fn. 6] to having given this political program its name). As I noted in my own article (see Depression, War, and Cold War, p. 8), my “hypothesis is a variant of an old idea: The willingness of business people to invest requires a sufficiently healthy state of ‘business confidence.'” Moley’s discussion proceeds under this well-worn rubric.

In the following long quotation, I present Moley’s most sustained and complete account, which appears on pp. 370-72 of the volume published in New York by Harper and Brothers in 1939. He begins this account by faulting the president for, among other things, “a failure to understand what is called, for lack of a better term, business confidence.” He then goes on to write (I omit here one small footnote giving publication details for a book cited):

Confidence consists, on the one side, of belief in the prospect of profits and, on the other, in the willingness to take risks, to venture money. In Harry Scherman’s brilliant essay on economic life, The Promises Men Live By, the term is, by implication, defined much as Gladstone defined credit. “Credit,” Gladstone said, “is suspicion asleep.” In that sense, confidence is the existence of that mutual faith and good will which encourage enterprises to expand and take risks, which encourage individual savings to flow into investments. And in an age of increasing governmental interposition in industrial operations and in the processes of capital accumulation and investment, the maintenance of confidence presupposes both a general understanding of the direction in which legislative and administrative changes tend and a general belief in government’s sympathetic desire to encourage the development of those investment opportunities whose successful exploitation is a sine qua non for a rising standard of living.

This, Roosevelt refused to recognize. In fact, the term “confidence” became, as time went on, the most irritating of all symbols to him. He had the habit of repelling the suggestion that he was impairing confidence by answering that he was restoring the confidence the public had lost in business leadership. No one could deny that, to a degree, this was true, The shortsightedness, selfishness, and downright dishonesty of some business leaders had seriously damaged confidence. Roosevelt’s assurances that he intended to cleanse and rehabilitate our economic system did act as a restorative.

But beyond that, what had been done? For one thing, the confusion of the administration’s utility, shipping, railroad, and housing policies had discouraged the small individual investor. For another, the administration’s taxes on corporate surpluses and capital gains, suggesting, as they did, the belief that a recovery based upon capital investment is unsound, discouraged the expansion of producers’ capital equipment. For another, the administration’s occasional suggestions that perhaps there was no hope for the reemployment of people except by a share-the-work program struck at a basic assumption in the enterpriser’s philosophy. For another, the administration’s failure to see the narrow margin of profit on which business success rests – a failure expressed in an emphasis upon prices while the effects of increases in operating costs were overlooked – laid a heavy hand upon business prospects. For another, the calling of names in political speeches and the vague, veiled threats of punitive action all tore the fragile texture of credit and confidence upon which the very existence of business depends.

The eternal problem of language obtruded itself at this point. To the businessman words have fairly exact descriptive meanings. The blithe announcement by a New Deal subordinate that perhaps we have a productive capacity in excess of our capacity to consume and that perhaps new fields for the employment of capital and labor no longer exist will terrify the businessman. To the politician, such an extravagant use of language is important only in terms of its appeal to the prejudices and preconceptions of a swirling, changeable, indeterminate audience. To the businessman two and two make four; to the politician two and two make four only if the public can be made to believe it. If the public decides to add it up to three, the politician adjusts his adding machine. In the businessman’s literal cosmos, green results from mixing yellow and blue. The politician is concerned with the light in which the mixture is to be seen, the condition of the eyes of those who look.

Mutual misunderstanding and mutual ill will were, of course, unavoidable in the circumstances, and the ultimate result was a wholly needless contraction of business [in 1937-38] – a contraction whose essential nature was so little understood that it was denounced in high governmental quarters as a “strike of capital” and explained as a deliberate attempt by business to “sabotage” recovery.

After Seven Years contains many more nuggets of valuable information for the student of the New Deal or of Franklin Roosevelt himself. If you are at an early stage of your learning, do not wait as long as I did to read it.

Robert Higgs is Senior Fellow in Political Economy at the Independent Institute, author or editor of over fourteen Independent books, and Editor at Large of Independent’s quarterly journal The Independent Review.
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