In order to understand the New Deal, you need to understand why it became necessary in the first place. When the Great Depression hit the American people, the blame game started immediately. Unfortunately for the free market system, there were no advocates to speak on its behalf. There was, however, a strong public relations campaign that ran interference for the real culprit, the federal government and its bully pulpit.
The Federal Reserve was established in 1914. Its failure to do its job, along with protectionist tax policy, created the conditions that led to the Great Depression. Not the activities of business. The function and purpose of the Federal Reserve was to protect the banks from a run. Its purpose was to have enough cash on hand to cover the demands of individual bank patrons if there was a run on the banks.
The Federal Reserve System instead decreased the amount of available funds, which caused the deflation of our Currency. This action doubled the prices on the costs of goods and services in a short period of time from the early to the late inflation.
The amount of money needed on hand was growing because the economy at that time was growing, but because the reserve was, in my words, “fooling” with the value of money, it caused a recession. By not solving this problem by balancing out the amount of cash on hand, it led to the Great Depression.
This process has happened again since the Great Depression. In most cases, the federal government attempted to tax the wealthy in order to gain control of a larger percentage of available funds. This printing of too much cash and over-taxation created massive inflation. One notable point in history that reflects this is the the New. The decade was another point in history that led to the massive increases in federal bureaucracies and government-run welfare programs funded by the taxpayer, the very people these programs were designed to benefit.
For many Americans, this idea of printing cash sounds counterintuitive. We have an aversion to the notion that the Federal Reserve needs to grow the amount of money available. You might say, "Doug, that's called inflation! We can't do that." And that inclination is true, if they make too much cash that exceeds the rate of growth of our economy. That formula will create inflation if the amount of cash printed exceeds the rate of growth of our economy. The purpose of the Federal Reserve and our monetary system is to do the best it can to keep cash production on track with the rate of growth of our economy. Too little cash created equals deflation, too much cash created equals inflation.
The intention of this essay is not to close the Federal Reserve (not that I would be entirely opposed to that). I am only aiming to identify the real culprit in the Great Depression.
That culprit is the Federal Government, not the free market capitalist system. The reason we must identify the culprit is to point out the hypocrisy of the federal government. The villain and the hero in this case are one and the same. The narrative pushed by the federal government was that the free-market capitalist system has failed the American people, that the capitalist system cannot be relied upon to push prosperity for all. Therefore, to that end, more government is needed to provide for the common welfare of the American people.
This is the federal government's self-imposed perfect storm that led to the tragedy that is the "New Deal.” As Milton Friedman rightly pointed out, it was up to the federal government, because they had failed the American people in creating a temporary short-term emergency measure to help the American people during the Great Depression.
Sadly though, that was not the aim of the New Deal. This was a program designed to grow the size and scope of the powers controlled by the federal government. Where as, in its beginning, perhaps, many involved we're doing it with a noble purpose, that notion was not meant to last.
Several politicians after the establishment of the new deal saw this series of programs as an opportunity to manipulate large groups of our population specifically within the minority groups to control votes and grow their own power. This power has been maintained by an ever-growing bureaucracy, bolstered by leftist politicians and a hard left media system. As previously stated the Federal Government has a very powerful public relations apparatus. They've also been adding to the "free stuff" giveaways in order to cover up their mistakes as it relates to monetary policy.
Like a dog frantically kicking dirt to cover up a pile of its own waste, the intervention of government has led to the failure of businesses through over-regulation and over-taxation. The results of this has led to further unemployment, an increase of private debt and yet the illusion that more intervention is needed. This is the vicious cycle that has led to our current predicament: crony capitalism along with the ever-growing welfare state. A system that only increases in size, it never shrinks. And, as Ronald Reagan pointed out in the 60s, every year the cost grows greater and every year the need grows greater. One would think with the trillions upon trillions of tax dollars that have been redistributed into these welfare programs that the opposite would be true. One would also think every year the growth would be in the reverse and that the need for such programs would decline. Sadly, that is contrary to reality.
This argument seems counterintuitive to anyone with a brain, and five minutes of economics based research. And yet every election cycle welfare and social security reform is pointed out to be the third rail of politics.
In this series I'm going to break down the methodology of the left and its self-perpetuating poverty cycle. Also I'm going to point out the dramatic adverse effects that it has had on individual sections of society and private business in America today. The series, “The ‘New Deal’ and the Decline of America,” will initially be a three-part series that leads to an ongoing conversation.
- Part 2: The Failures and Trappings of the Welfare State.
- Part 3: Dispelling Myths and Curing the Welfare State
This article also appeared at Douglas Coon and STAY RIGHT.