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April 6, 2008
Bryan Caplan
Remember last year's blogosphere debate on whether FDR was an "American Mugabe"? I just came across a 1997 piece by Robert Higgs that I should have been quoting in my defense. But late is better than never. His thesis: In retrospect it seems hyperbolic to put much weight on the fears of investors in the latter half of the 1930s that the regime might soon undergo changes that would seriously jeopardize their private property rights—after all, we know quite well that the U.S. economy
did not fall into outright fascism, socialism, or some other variant of government takeover. Roosevelt, we now know, never became a dictator along the lines of his contemporaries Stalin, Mussolini, and Hitler; the New Dealers were no Brown Shirts. But what seems so obvious to us in retrospect had a quite different appearance to many contemporaries... As I shall demonstrate shortly, the possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely. Higgs presents a lot of evidence, but here's the clincher: In November 1941, just before the Japanese attack on Pearl Harbor propelled the United States into total war, the Fortune pollsters asked a sample of business executives a question that bears quite directly on the regime uncertainty at issue in this article. The question was “Which of the following comes closest to being your prediction of the kind of economic structure with which this country will emerge after the war?” The respondents were presented with four options, as follows (the percentage of respondents selecting that option as the closest to their own prediction is shown in brackets):
(1) A system of free enterprise restored very much along the prewar lines, with modifications to take care of conditions then current. [7.2 percent]
(2) An economic system in which government will take over many public services formerly under private management but still leave many opportunities for private enterprise. [52.4 percent]
(3) A semi-socialized society in which there will be very little room for the profit system to operate. [36.7 percent]
(4) A complete economic dictatorship along fascist or communist lines. [3.7 percent] (Cantril 1951, 175)
...If these poll data are even approximately indicative of the true expectations of American investors, then it is astonishing that the recovery of investment had proceeded as far as it had.
HT: Cafe Hayek
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CATEGORIES: Economic History (84)
There is a very good reason that Americans did not expect a return to laissez-faire. They hadn't had it for over a decade. During most of the 1930s they had experienced severe controls on wage negotiation, production, price setting, hours of labor, and in the event of a labor dispute faced the prospect of nationalization. The Supreme Court had ruled in favor of the government.
Money had been severely debased and the government was printing money with no more promise of gold backing - using gold for promise of payment in contracts had been made illegal, even holding it was illegal. All this quite obviously for the purpose that government hold the reigns of purchasing power.
There was no light at the end of the tunnel at that point to be seen - not until 1947. It is indeed surprising that recovery was so possible.
(I have more on this era - and more coming - in the corporatism section of my blog).
I think a closer match for FDR was Agentina's Perone.
It seems to me this is a clear example of bias, an erroneous extrapolation. You wouldn't use one example of mild nationalization as a predictor of socialism, just as you wouldn't use the current rising price of food as a predictor of mass starvation. Things have a way of balancing out, and Bryan Caplan's book seems to argue that people are too irrational to understand this. The fact that business men got it so incredibly wrong seems like a clear example of this.
This is just like how people think the election of Hillary Clinton will lead us to communism. One act does not make a trend. 70 years from now, we'll be looking back at the irrational people who thought that Hillary Clinton was going to nationalize the economy.
brian,
just because we managed, by the skin of our teeth, to avoid full-fledged fascism does not mean people were irrational or foolish to see it coming. The state was controlling prices, wages, production and work-hours in huge portions of the economy, and was cutting the value of the dollar in half with inflationary policy.
We made it through, and have something of a market system left. That is good. But it is too easy post-facto to assume that it was inevitable that we would. It could have turned out the other way.
Note that it would have been far easier at that time because of the crisis - if that was a hurricane, the downturn we have today cant masquerade as a drizzle. Many of the massive reforms - laws that passed and remained on the books for years or even to this day - were passed within the first 90 days of FDR's term. But they didn't stop after 90 days, and unions and corporations kept lobbying for more restrictions, and subsidies, and many passed.
Anything could have happened, and it is testament to rationality and awareness of the people that they recognized that the economy might fully become fascist or socialist.
Brian, Hillary Clinton intends to essentially nationalize health care, which is about 15% of the economy. True, about a half of that is already nationalized, but this is palpable.
-dk
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