Did Roosevelt's New Deal Save America? Talk about the division between logic and reality

Roosevelt's New Deal is almost entirely a positive image in today's history textbooks, but if you take a closer look at this history from an economic perspective, you're bound to find something new. For example, the famous Shechter Poultry Company v. United States, commonly known as the Shechtert case, is a well-known Supreme Court case in the history of the United States.

The case was set against the backdrop of the Great Depression in the United States, when Roosevelt introduced a piece of legislation, the National Industrial Recovery Act (NIRA), and established the National Recovery Administration (NRA), a federal government agency, to restore the economy and promote employment by promoting industrial cooperation, reducing competition, and regulating wages and prices. However, the actual content is some small and detailed regulations.

These regulations regulate the scale of production, price levels, market allocation, wage standards, working hours, etc., and give rent-seeking opportunities and privileges that law enforcement officials did not previously have. It was against this backdrop that the Schechtt Poultry Company was targeted, charged with violating the provisions of the National Industrial Recovery Act on the quality of live poultry, including minimum wages, maximum working hours, allowing customers to pick poultry, and selling "substandard" chickens from other states, so-called "sick chickens." So this case is also known as the "sick chicken case".

The case began with twists and turns before the Schechter brothers were found guilty, and after being rejected by the Circuit Court, the case went to the Supreme Court. In court, the lawyer representing the Industrial Rehabilitation Agency said: "The country is in a state of emergency, so emergency laws must be implemented in order to truly solve the problem." If the government does not play a role and only protects freedoms in the abstract, rather than protecting the people from the ravages of the Great Depression, it will lead to even greater losses. ”

How high-sounding their rhetoric sounds, how ridiculous their actions are. On May 27, 1935, the U.S. Supreme Court ruled unanimous 9-0 that the National Industrial Recovery Act was unconstitutional. The Supreme Court held that the bill delegated legislative power to the president and the executive branch, going beyond the powers conferred on Congress by the Constitution. In addition, the court held that regulation of the poultry industry did not fall under Congress's commercial terms authority because it involved intrastate sales, not interstate trade.

Although the National Industrial Recovery Act was ruled unconstitutional, some of the ideas in the Act were implanted in the hearts of the people by the Roosevelt administration and were difficult to change. In the years that followed, a number of similar laws and regulations were enacted. The National Industrial Recovery Act is a microcosm of Roosevelt's New Deal, and it is also the source of various trade union movements and labor protection laws in the United States that have come to this day.

The relationship between logic and history

Today, Roosevelt has always been highly regarded as the one who ended the Great Depression and revived the American economy. So, what kind of logic should we use today to judge Roosevelt's New Deal measures at that time? Can we use today's logic to judge history? To answer this question, we must first sort out the question of the relationship between logic, history, and reality. From the perspective of economics, logic is not a summary of historical experience, but a purely theoretical deductive derivation.

Logically, we can define an absolute circle, but in reality, due to the limitations and errors of the production process, we can never really make an absolute circle. But this does not prevent us from using logic, because we demand according to the logical circle, and the closer we get to our requirements, the more this round product will be able to play its role. For example, tires, bearings, and balls.

The perfect circle in logic may never be realized, but as long as this definition is taken as a standard, the closer we get to it, the more we can achieve our goal. Therefore, logical clarity and accuracy is the first step, and logically it should not give an inch, and it is wrong to let one step go. To clarify the relationship between logic and reality, let's look at what Roosevelt and his predecessor Hoover did back then.

Hoover is often cited as a pro-"laissez-faire" president, but Rothbard's book The Great Depression in America makes it clear that Hoover was not much of a "laissez-faire" supporter, but an outright interventionist. Hoover single-handedly created inflation and exerted influence on the Federal Reserve by sharply lowering the discount rate, from 6% to 1% at most, in order to stimulate consumption by lowering interest rates.

He also intervened in employment, claiming that the shock of the depression should be reflected in a reduction in profits, not a reduction in wages. Under pressure from Hoover, Ford Motor Company defended the Great Depression by announcing wage increases, and other companies had to follow suit. The Hoover administration also established the Federal Commission on Agriculture to subsidize agriculture and passed the notorious Smoot-Hawley Tariff Act to raise tariffs, which led to tariff retaliation worldwide. In addition, he has increased spending on public projects in the name of providing employment.

Going against the laws of the market, Hoover would definitely not end well in doing so, so Roosevelt defeated Hoover's re-election by an absolute margin. But Roosevelt was more leftist and more violent than Hoover in his policies, and perhaps it was this fierceness that made people mistakenly think that Hoover's policies were a kind of "laissez-faire". As a result, many people further reasoned that the exacerbation of the crisis and the Great Depression were blamed on the market, on Hoover's "laissez-faire".

As soon as Roosevelt took office, he asked Congress to pass the "Emergency Banking Act" to straighten out the banking industry, essentially controlling the entry threshold and qualifications of banks, and ending the history of the American Free Bank. Then there was the abolition of the gold standard, which forbade the people from owning gold, and deprived the currency of gold, the most important and stable anchor.

At the time, many Americans were well aware that the government's forced purchase of gold was a blatant violation of citizens' property. However, in the face of the "Roosevelt's New Deal" under the state of emergency, the constraints of the US Constitution on the government were all invalid. In addition, Roosevelt's New Deal promulgated a minimum wage law, requiring companies not to cut wages or lay off employees. The rationale is simple and crude, companies should not be too greedy, and should cut profits instead of making workers bear the losses.

Roosevelt's "Agricultural Adjustment Act" intervened in the agricultural market and solved the problem of overproduction of agricultural products, which was actually price control. The new "Tax Law" was promulgated to block the previous methods of tax evasion and tax avoidance by enterprises, and then raise taxes. Like Hoover, a large number of public works were invested and constructed, and the employment problem was solved through cash-for-work. And, of course, the National Industrial Recovery Act, which we mentioned earlier.

In his book The Great Depression in the United States, Rothbard revealed through theory and historical facts that the economic cycle and economic crisis are not the inevitability of the market, but the normal adjustment after the excessive prosperity brought about by credit expansion. Without intervention, the market correction will soon end the crisis. Before the massive intervention of the U.S. government in the economy in the 1930s, all recessions were short-lived. Hoover-Roosevelt's intervention prolonged the crisis and prolonged the recession, culminating in the Great Depression.

A small step in logic, a big step in reality

Returning to the previous question, did Roosevelt save or harm the United States? There will be different answers to the question of whether he understands the logic of economics and those who do not. We all know that "learning from history" generally means drawing lessons from history, but this is an inductive approach. The way to look at history from the perspective of economics is to have theory first and then history.

Of course, strictly speaking, all history is a historical picture laid out according to a certain theory. To study economics, we must learn to change perspectives, learn to understand the transcendental and pure nature of theories, and then use theories to re-examine history, rather than simply using history and data to verify theories.

This is very important, and it is also a mindset that is not easy for ordinary people to change. It is only when we are proficient in correct economic theory that we can see Roosevelt's problems at a glance and not be fooled by those bluffing statistics. Only in this way, even if many Americans today believe that Roosevelt saved the United States, you can further see that there is something wrong with American economics education, without doubting your own judgment.

This kind of reasoning in economics can only be misled by data if it maintains this purity. It is for this reason that Mises has always been unoptimistic about the planned economy, and has been able to consistently oppose the planned economy without using actual statistics.

If certain policies are logically wrong, but in reality they need to find some seemingly scientific reasons to endorse them, such reasons are actually easy to find, and there is no shortage of economists who stand up for policies.

As an old Chinese saying goes, "Seek the best in the middle, and seek the lower in the middle", once the logic begins to give in, there are countless reasons to advance wrong, clearly infringing policies, such as the National Industrial Recovery Act of Roosevelt's New Deal, or the Prohibition of Alcohol in the United States.

Therefore, a small step in logic is a big step in reality. If logic takes a small step back, civilization will take a big step back. Therefore, logically one step cannot be allowed, and it is wrong to let one step be made. To protect the fruits of civilization, we need to start by sticking to logic.

• (This article is only the author's personal opinion and does not represent the position of this newspaper)

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Editor-in-charge: Chen Bin