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FDR and crisis

By Karen De Coster
web posted September 10, 2001

Robert Higgs, in his masterful 1987 book Crisis and Leviathan, asserts the facts so precisely: "the institutional revolution of the 1930's depended crucially on the existence of national emergency, a condition that was partly real, partly contrived, enormously exploited for political purposes."

The thesis of Crisis and Leviathan elucidates the explanations for the growth of government. That is, government creates crisis or exacerbates an already existing crisis that brings forth a shift in the ideology of the masses. The ideology of the masses, after all, tends to follow opinions conveyed by government leaders. This shift in ideology tends toward "Nannyism", or the notion that extensions of government power are both necessary and legitimate to maintain order and economic stability.

Hence, under the guise of crisis, the power grabs look less menacing to the masses. Therefore, big government has succeeded in getting bigger at the expense of individual liberties and in spite of Constitutional limitations.

Economy of Despair

Franklin Delano RooseveltFranklin Delano Roosevelt presided over two of the most austere crises in American history - the Great Depression and the Second World War. FDR, more than any other American president before him, unjustly exploited the country's economic crisis to put his death-grip on the Constitution and those whom it was intended to serve.

An economic crisis loomed large just prior to FDR taking his oath of office in March of 1933. State governments -- nationwide -- were declaring bank holidays to prevent runs on the banks, and Roosevelt, just days after taking office, initiated a national banking holiday under the semblance of "national emergency". This action suspended all banking transactions and created the opportunity for FDR to follow-up with the Gold Reserve Act, which meant the demise of the gold standard, and ultimately, a bonanza of runaway inflation for big government.

A result of this action was the prohibition of the private ownership of gold, except for jewelry and certain commercial/industrial uses. The government reneged on any and all promises to pay out gold, and also forbade private contractual commitments to pay in gold. It was thievery on a grand scale. Roosevelt's first fireside chat resulted from this banking predicament, as he assured the public -- in his charming aloofness -- that he could lead a nation through this drama intact.

Washington bureaucrats, with FDR in command, had successfully hoarded gold, devalued the dollar, and created a cry from the public for even more government intervention.
The Two "Deals"

Creating "emergency" became the stratagem for Roosevelt and his "Brain Trust" as he took the country from one zero hour to the next. The first New Deal addressed the crises blamed on the Hoover administration: economic isolation, monopolies run amok, unemployment, and problems regulating competition. Roosevelt urged that the federal government was the only solution to these crises, and only his New Deal legislation could save the country.

The labor crisis, assured FDR, could be solved if the government could put more people to work and raise the prices of products and services. After all, as Tom DiLorenzo points out in Reassessing the Presidency, the crisis presented by Roosevelt was "a Depression caused by low wages and prices", requiring the "obvious solution of government-mandated price and wage increases". How to do that? First, under the National Industrial Recovery Act (NIRA), the National Recovery Administration was set into motion to thwart the impending crisis. This managerial-state nightmare allowed every industry to be organized into a "Code Authority" or federally-managed type of cooperative. Under this, the business work week would be shortened and hours of labor would be reduced to better disperse employment and drive down production output. Then, a minimum wage was set, as well as minimum prices.

The National Recovery Administration, in effect, "cartel-ized" every American industry and regulated distribution, production, prices, wages, and hours worked. Effectively, Roosevelt's power grabs had managed to socialize American business, for the market system was almost entirely under government authority. Higgs tells us:

The industrial recovery act emerged from a grand compromise. The most prominent parties included businessmen seeking higher prices and barriers to competition, labor unionists seeking government sponsorship and protection of their organizational activities and collective bargaining, do-gooders concerned about working conditions and child labor, and proponents of massive governmental spending for public works.

All of the above were accomplished by a president who alleged that his predecessor, Herbert Hoover, had allowed government to grow to such absurd proportions, that it was he who would have to cut it down in size. Truth is, Hoover's big government was dwarfed by Roosevelt's bloated tyranny.

Then, government public works programs would invade the scene, supplying even more jobs in the name of forestry, flood control, soil protection, and general infrastructure. American workers welcomed these measures.

After all, a fragile population craves the safety net of big government when they are convinced that their way of life is threatened, which was the implied effect of the Depression era. No jobs meant a poor standard of living. New jobs, even government jobs created at the expense of sound economics, were welcomed with open arms. The populace was timorous, and they believed their standard of living to be in jeopardy. The crisis mentality had successfully wormed its way into the American psyche.

Roosevelt went for the throat during his Second New Deal. Here, what may be considered to be one the most corrupt government programs ever, the Social Security Act, was forged. Essentially a fund to pay pensions, it doubled as a Treasury reserve fund for the purpose of lending for spending. Author John T. Flynn explains:

The plan was to make the payroll tax big enough to pay the benefits, plus enough more to create a so-called reserve of $47,000,000,000 in 40 years. It was given the fraudulent name of Old-Age Reserve Fund. The Security Board would collect the taxes each year, use a small part of it to pay the pensions and put the rest in the "Fund". That is, it would lend it to the Treasury and the Treasury would then spend it for any purpose it had in mind. At the end of 40 years, Roosevelt was told, this money could be used to pay off the national debt.

Security was the crisis, and old-age was the hook. And what better way to ensure security than to guarantee monetary payment from an "insurance" fund beyond the age of 65? Roosevelt clearly had endeared himself to a generation that was being ravaged by Depression and unemployment. The freedom-for-security trade-off seemed a good deal at the time. Still and all, Roosevelt's Nipple-in-the-Sky offering had assured his constituency of prolonged government intervention on the basis of need, and unfailing indemnity against any and all hardship.

What more could the people ask for?

The populace wanted jobs, and the Works Progress Administration (WPA) promised jobs. In April of 1935, the Roosevelt régime put this program into motion, one that employed over eight million people on the dole of the national government. Public projects were undertaken on everything from building bridges and recording music to establishing federal writing projects and theatre projects. With a twenty-percent unemployment rate looming at the time, the masses were jobless and restless, and were unwilling to turn down handouts of government jobs and makeshift careers. FDR had successfully entrapped the populace behind a wall of fear and vulnerability; they had become disciples of the New Deal dominion, embracing government appropriations beyond that which had ever been seen before. They were trapped and begging.

Nonetheless, not everybody had to beg for work. Those who had jobs met up with the "security" of Roosevelt's National Labor Relations Act, which empowered labor union monstrosities using coercion and extortion to collectively bargain, and essentially gave unions the license for violence under the guise of "right to organize". This kind of empowerment had the appearance of providing for the well-being of the common worker, however, it was merely a ploy to further centralize and expand government control over industry, gain the favors of big business, and empower a leading democratic political force. Only government decree could put such power into the hands of an elite few.

And only government can create such a monopoly on labor. The heavily appeased unions became a powerful political force and permanent fixture in perpetual support for the Democratic Party, and remains so to this day. The labor unions, after all, had been on the decline - in terms of both membership and might -- prior to Roosevelt's political gratuities. FDR had managed to stimulate this declining movement and turn the unions into a useful and influential force.


As a whole, Roosevelt's fabricated crises - banking, labor, wellness, old-age subsistence -- gave birth to a centralized, planned economy, one that began an irreversible encroachment on individual livelihood. The masses fully consented to government usurpation while falling under the spell of "crisis". Government acted in ways that, typically, without a crisis hanging overhead, it could not get away with. Even when each crisis was over, we were left with remnants of this big government that weren't there before the crisis. Robert Higgs refers to this as the "ratcheting effect". We ratchet back some of the "new" big government usurpation, but keep the majority of it long after the bogus "crisis" is over. Each ratchet leaves us with more government and less freedom.

Mainstream historians, journalists, and commentators often speak of the vast legacy left behind by Franklin Delano Roosevelt. In reality, the only legacy left behind by this tyrant is the residuum of his departure from the gold standard, which gave us a managed currency system producing massive inflation and destructive business cycles; gigantic welfare state programs for the aged and for the unwilling; sanctioned malignancy of unionism; collectivization of industry; unconstitutional shift of unmitigated authority to a hand-assembled judicial branch; and a public takeover of formerly private business endeavors. And he used economic depression - and later, war -- as the crises that required his heavy hand.

The crisis-mongering Roosevelt, like Lincoln and Wilson before him, aided in paving the way for the czarism that was to permeate our modern executive branch of government. ESR

Karen De Coster is a politically incorrect CPA, and an MA student in economics at Walsh College in Michigan.

Buy Robert Higg's Crisis and Leviathan : Critical Episodes in the Growth of American Government at for $24.95

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  • Is the "National Emergency" of FDR still in place? by Charles A. Morse (August 27, 2001)
    Back in 1933 Congress gave FDR emergency powers to deal with the Great Depression. Charles Morse wonders if those powers are still in use despite being repealed in 1976
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