Freeman

ARTICLE

The Relics of Intervention: 5. New Deal Welfarism

AUGUST 01, 1982 by CLARENCE B. CARSON

Dr. Carson has written and taught extensively, specializing in American intellectual history. He is the author of several books and a frequent contributor to The Freeman and other scholarly journals.

The welfare state is largely a relic of the New Deal. That is, it was conceived, advanced, and articulated in particular programs during the 1930s. It is a relic of a depression-born animus to assert the power of the central government into the lives of Americans, of a faith in the beneficence of government intervention. For several decades before the Great Depression, reformers had been proclaiming the necessity for and desirability of government action on behalf of elements within the population. The depression provided an opportunity for them to use the power of government.

The welfare state began as an idea, of course. This idea, though it has long since become an assumption, still undergirds the welfare state. It is the belief that it is the duty and responsibility of government to provide for the economic well-being and security of the people, especially that portion of them most exposed in the modern world. It is premised upon the fact that government can confiscate wealth by taxation and redistribute it. Beyond that it can compel redistributions by legislation even when the wealth never enters government coffers, as by fixing a minimum wage, for example. By various means, then, government could provide for the well-being and security of the people. New Dealers not only implanted the general idea but also placed heavy emphasis upon the leadership of the Federal government in welfarism.

Historians often speak of two New Deals. The First New Deal is usually located primarily in the years 1933-1934. Its most characteristic feature was probably the National Recovery Administration (NRA) with its industrial codes and the impetus it gave to national planning within industries. In broad terms, the aim of the First New Deal was to stimulate recovery by cutting production, raising prices, and credit expansion. The Second New Deal is concentrated in the years 1935-1938. Industrial planning was sloughed off, and the emphasis shifted to even more direct government involvement in finding ways for protecting and aiding farmers, labor unions, and the poor more generally.

Actually, however, the New Deal cannot be broken up into any chronological pattern into which all the measures will fit neatly. For example, there is a continuity in the agricultural programs throughout the period that was broken only temporarily by Supreme Court decisions. National planning as an idea was never abandoned, though there were changes in emphasis. From the outset, too, there was a welfarist tint to the programs, although the emergency confronting credit institutions and national planning were in the forefront. But the shift toward the welfare state did become much more pronounced from 1935 onward. The most dramatic step in that di rection was the passage of the Social Security Act in 1935. Not only was the measure clearly welfarist in character but also it was not a temporary or emergency measure. It would extend indefinitely into the future if it were not nullified or repealed.

Social Security

In his message to Congress recommending the passage of Social Security, Roosevelt declared that the main objective “was, and is, the security of the men, women, and children of the Nation against certain hazards and vicissitudes of life. This purpose is an essential part of our task.”[1] He went on to enumerate the programs to be included in it:


At this time, I recommend the following types of legislation looking to economic security:

1. Unemployment compensation.

2. Old-age benefits, including compulsory and voluntary annuities.

3. Federal aid to dependent children through grants to States for the support of existing mothers’ pension systems and for services for the protection and care of homeless, neglected, dependent, and crippled children.

4. Additional Federal aid to State and local public-health agencies and the strengthening of the Federal Public Health Service. I am not at this time recommending the adoption of so-called “health insurance,” although groups representing the medical profession are cooperating with the Federal Government in the further study and definite progress is being made.[2]

In later pronouncements, Roosevelt set forth in broad and comprehensive terms the extent of his welfare aims. In his Second Inaugural Address, delivered in 1937, he declared: “In this nation I see tens of millions of its citizens . . . who at this very moment are denied the greater part of what the very lowest standards of today call the necessities of life.” He saw, he continued, “one-third of a nation ill-housed, ill-clad, ill-nourished.”

It is not in despair that I paint you that picture. I paint it in hope—because the Nation, seeing and understanding the injustice in it, proposes to paint it out. We are determined to make every American citizen the subject of his country’s interest and concern . . . . The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.[3]

In short, not to put too fine a point upon it, he intended to use the power of government to see that the wealth was distributed to care for those who had the least.

A Question of Constitutionality

Before looking more closely at some of the acts by which the welfare state was established, the question of the constitutionality of all this effort needs to be examined. I do not raise the question of my own will, of course; it was a burning constitutional issue in the period 1935-1938. By 1936, there was every reason to doubt that much of the New Deal legislation would make its way successfully through the courts. During the years 1935-1936, lower court federal judges issued some 1600 injunctions preventing officials from applying New Deal laws. “At no time in the country’s history,” the Harvard Law Review opined, “was there a more voluminous outpouring of judicial rulings in restraint of acts of Congress than the body of decisions in which the lower courts, in varying degree, invalidated every measure deemed appropriate by Congress for grappling with the great depression.”[4]

Moreover, beginning in January, 1935, the Supreme Court began to nullify major acts. In the next sixteen months, 10 major cases came before the court. “In eight instances the decision went against the New Deal. Stricken down in succession were Section 9(c) of the National Industrial Recovery Act, the N.R.A. itself, the Railroad Pension Act, the Farm Mortgage law, the Agricultural Adjustment Act, the A.A.A. amendments, the Bituminous Coal Act, and the Municipal Bankruptcy Act.”[5] Of the acts challenged all the way to the Supreme Court, only the monetary acts of 1933 and TVA had survived.

Nor was most of this legislation struck down simply on technicalities. The gravest of constitutional objections had been raised in the court decisions. One history summarizes the objections this way: “First, the Court firmly rejected all attempts to extend federal authority over production. It denied in succession that interstate commerce, appropriations for the general welfare, or taxation could be used to this end. Second, the Court denied the constitutionality of legislative delegation to the executive on the scale attempted in the N.R.A. or the Guffey Act. Third, and more broadly, the Court refused to accept the conception of constitutional growth, either by evolution or through economic emergency.”[6]

Not only had much of the legislation fallen, then, but there was good reason to suppose that such replacement legislation as the National Labor Relations Act and new legislation such as the Social Security Act would suffer a similar fate. As Schlesinger has said, “The succession of judicial vetoes in critical areas of federal action . . . seemed to express a clear determination on the part of the Court to nullify the New Deal.”[7]

Attacking the Court

Ever since, most historians have laid the blame for this state of affairs on several members of the Supreme Court. They made what amounted to ad hominem attacks on those justices who took the most consistent positions about New Deal legislation. Their ire has been most often focused on Justices Willis Van Devanter, George Sutherland, James C. McReynolds, and Pierce Butler. While the following may not be quite typical of the attacks on these justices, it does illustrate the ad hominem character of them:

The four stalwarts differ among themselves in temperament. I think that Mr. Justice Butler knows just what he is up to and that he is playing God or Lucifer to keep the world from going the way he does not want it to. Sutherland seems to me a naive, doctrinaire person who really does not know the world as it is. His incompetence in economic reasoning is amazing . . . . Mr. Justice McReynolds is a tempestuous cad, and Mr. Justice Van Devanter an old dodo.[8]

Justice Owen Roberts, who usually sided with the above four and wrote some of the most ringing opinions, has not usually been treated with so much disdain by historians. Nor has Chief Justice Hughes, who was most apt to shift back and forth between groups. Historians have usually been unstinting in their praise of Justices Harlan Stone, Benjamin Cardozo, and Louis Brandeis, who usually dissented about the unconstitutionality of New Deal measures.

That way of treating it was an excellent ploy for evading the issue, of course. The question was not the competence of the Court to make decisions. At least, no such question was ever raised to the relevant level of initiating impeachment proceedings. The question was whether or not the New Deal legislation was authorized by and in keeping with the Constitution of the United States. If it was not, and the Supreme Court had made that determination about much of it before the end of 1936, then the New Dealers were guilty of transgressing the bounds of the Constitution. The plausible course would have been to blame them for contempt of the Constitution, not the Court for applying it.

Unprecedented Action

Several considerations make this the more plausible interpretation. In the first place, much of the New Deal legislation was either without precedent—decidedly different in important features from any passed theretofore—or applied government power to new areas. Such precedents as existed were mostly in emergency measures passed during World War I, and these were too short-lived to have undergone full court testing. (In any case, for wartime measures to serve as precedents, it would have been necessary to buy the analogy between war and depression.)

Second, the acts nullified were not based on powers enumerated with any explicitness in the Constitution. The New Dealers relied generally either on the interstate commerce clause or the power to tax for the genera] welfare, the vaguest and most imprecise authority. This is not prima facie evidence of their unconstitutionality, but it did mean that where they were foraging into new territory, they could expect sharp challenges.

Third, the weight of precedent, so far as there was any, and the tendency of court decisions over the years made the constitutionality of the New Deal legislation doubtful. For example, the courts had gone to great lengths over the years to limit, confine, and define the commerce power. In one great swoop, the New Deal acted to override these limits.

The Duty of the Court

The majority on the Supreme Court had moved resolutely and with careful deliberation to halt the intrusions and to affirm the constitutional limits on the government. As Justice Roberts said, in United States v. Butler, “The question is not what power the federal Government ought to have but what powers in fact have been given by the people.” He explained the role of the Court this way: ‘°the Constitution is the supreme law of the land ordained and established by the people. All legislation must conform to the principles it lays down. When an act of Congress is appropriately challenged in the courts as not conforming to the constitutional mandate the judicial branch of the Government has only one duty—to lay the article of the Constitution which is invoked beside the statute which is challenged and to decide whether the latter squares with the former.”[9]

President Roosevelt bided his time throughout the year, 1936, avoiding any public statements about court decisions. There was some talk of proposing constitutional amendments which would clearly provide the New Dealers the power to do what they wanted to do. But no such amendments ever made it off the drawing board. To have proposed the amendments would have been a tacit acknowledgement that the courts were right in their interpretation of the Constitution. To have stated in blunt constitutional language the powers sought would have been to expose the power grab involved. Had such amendments been proposed in 1936 they would almost certainly have provoked controversies which might have had political consequences unfavorable to Roosevelt and the Democrats. Besides, Roosevelt must have already had a different scenario in mind, one which would enable him to move from strength rather than weakness.[10]

At any rate, he waited until after the presidential election to make his move. He continued to push welfarist legislation, even to getting part of the Agricultural Adjustment Act, which had been nullified, re-enacted. It was not done under the old name, not yet, but this did not forestall charges that the New Dealers were acting in contempt of the Constitution. The election results provided him with the background for action. Roosevelt won a landslide victory; only Maine and Vermont went into the Republican presidential column. The Democratic majorities in both houses of Congress were overwhelming.

Still, Roosevelt moved secretly and deliberately. First, he gave his Second Inaugural Address with its vigorous call for government action to deal with the distress of one third of the nation. After that, work was begun in secret on a Judicial Reorganization bill which was sent to Congress February 5, 1933. A few days before that, Roosevelt held a gala dinner for the members of the Supreme Court, among others. No word had yet leaked about the forthcoming bill. Then, in the hours before the message and legislative proposal went before Congress, President Roosevelt called a special meeting of his cabinet and congressional leaders. He simply read his proposal to them and without significant discussion dismissed them.[11]

The Court Packing Scheme

The Judicial Reorganization bill quickly became known as Roosevelt’s “Court Packing Scheme.” It did indeed propose to enlarge the Supreme Court. In his message to Congress, Roosevelt emphasized the old age of most of those on the Court and the alleged inefficiency that followed from that. He proposed that when any federal judge reached the age of 70 and did not retire that the President be authorized to appoint another judge. For the Supreme Court, the number to be appointed was to be limited to 6 additional justices, so that the number could not go higher than 15 members of the Court. If a justice voluntarily retired at the age of 70, no additional member would be appointed, of course.

Roosevelt took the case to the American people. On March 9, 1937, in a Fireside Chat (radio speech), he set forth his grievances against the present Supreme Court. He charged that the “Court has been acting not as a judicial body, but as a policy making body.” He made it clear that in his opinion it was some of the men on the Court that were making difficulties. “Our difficulty with the Court today,” Roosevelt said, “rises not from the Court as an institution but from human beings within it. But we cannot yield our constitutional destiny to the personal judgment of a few men who, being fearful of the future, would deny us the necessary means of dealing with the present.”[12] It was necessary, Roosevelt declared, “to take action to save the Constitution from the Court and the Court from itself.”[13] The probable impact of such a direct assault by the President on a few men in a public speech could hardly be exaggerated. Moreover, it was made against men who, by tradition, could make no public answer.

Roosevelt’s Interpretation

That Roosevelt held a different view of the Constitution and of the role of courts in its interpretation from that traditionally held either by the courts or the American people should be made clear. A Roosevelt biographer reports that when Roosevelt took the oath of office, a few weeks before the above events, it was administered to him by Chief Justice Hughes. The old Chief Justice “read the oath with slow and rising emphasis as he came to the words ‘promise to support the Constitution of the United States.’ Roosevelt gave the words equal force as he repeated the oath. At this point, he said later, he wanted to cry out, ‘Yes, but it’s the Constitution as I understand it, flexible enough to meet any new problem of democracy—not the kind of Constitution your Court has raised up as a barrier to progress and democracy.’”[14]

Roosevelt dropped hints as to his view of the Constitution rather than making a legal argument for it. He said that “we must have Judges who will bring to the Courts a present-day sense of the Constitution . . . .” courts which would take up their “high task of building anew on the Constitution ‘a system of living law.’”[15] More specifically, he proposed a line the courts might take to validate welfare legislation. He noted that “In its Preamble, the Constitution states that it was intended to form a more perfect Union and promote the general welfare . . . . But the framers went further. Having in mind that in succeeding generations many other problems then undreamed of would become national problems, they gave to Congress the ample broad powers ‘to levy taxes . . . and provide for the common defense and general welfare of the United States.”[16]

Underlying Roosevelt’s remarks was a theory, a theory known as legal realism. Legal realism may also be described as legal relativism. On this view, the law at any given time is relative to the conditions which prevail and the aims and purposes of those who expound it. Rather than being fixed by constitution makers and legislators, it is growing, expanding, and changing. The beliefs, ideologies, and predilections of those who expound the law are determinative. The ideals which had guided, or at least been claimed by exponents of, American jurisprudence over the years were given short shrift by legal realists. Here, for example, is a more recent statement by a legal realist of his attitude toward them:

. . . In the interest-balancing procedure of constitutional adjudication, neutrality has no place, objectivity is achievable only in part, and impartiality is more of an aspiration than a fact . . . . In making choices among competing values, the Justices of the Supreme Court are themselves guided by value preferences. Any reference to neutral or impersonal principles is . . . little more than a call for a return to a mechanistic jurisprudence [which, he goes on to assert, never existed] . . . . Even in the often-quoted assertion by Mr. Justice Roberts about the duty of the Court to lay the statute against the Constitution to ascertain if the one squares with the other, one would indeed have to be naive to believe that this statement in fact described the process.[17]

It might be supposed that there would be no way for legal realists to distinguish between good laws and bad laws. That is not the case, however. A good law is one that is “progressive”; a bad law is one that is “reactionary.” Of course, reformers had co-opted the idea of progress for themselves.

The Court Upheld

Roosevelt did not succeed in getting his plan for reorganizing the judiciary through Congress. He labored to do so through a rather lengthy session, for those days, but to no avail. The Senate Judiciary Committee recommended its defeat in the most vigorous language it could summon for a public document. The report declared that “this bill is an invasion of judicial power such as has never before been attempted in this country.” So far as the majority of the Committee could see, “The only argument for the increase which survives analysis is that Congress should enlarge the Court so as to make the policies of this administration effective.” Further,

This is the first time in the history of our country that a proposal to alter the decisions of the court by enlarging its personnel has been so boldly made. Let us meet it. Let us now set a salutary precedent that will never be violated. Let us, of the Seventy-fifth Congress, in words that will never be disregarded by any succeeding Congress, declare that we would rather have an independent Court, a fearless Court, a Court that will dare to announce its honest opinions in what it believes to be the defense of the liberties of the people, than a Court that, out of fear or a sense of obligation to the appointing power, or factional passion, approves any measure we may enact. We are not the judges of the judges. We are not above the Constitution.”[18]

The end did not come so dramatically as the Committee apparently hoped, but the bill did not pass.

But neither the stirring words of the Committee report nor the refusal of Congress to enact the bill into law came soon enough to bolster the Court. The barn door had been locked after the horse had been stolen. The Court had shifted its stance before these decisions had been made. Justice Roberts apparently succumbed to Roosevelt’s pressure on the Court and changed sides. Chief Justice Hughes, who had wavered back and forth in any case, went along with him to form a new majority on the Court. In March, 1937, the new majority on the Supreme Court sustained a Washington minimum wage law, reversing its position in a New York case made only the year before. In April, the new majority on the Court sustained the National Labor Relations Act in a series of decisions. In May, the Court sustained significant portions of the Social Security Act.

In short order, too, the slim majority on the Court was broadened. Beginning with the retirement of Justice Van Devanter in May, 1937, most of the older justices retired or died over the next couple of years. They were usually replaced by such known New Dealers as Hugo Black, William O. Douglas, and Felix Frankfurter. Roosevelt had lost the battle for court reorganization but won the war for a Court that would sanction New Deal legislation.

Bending the Constitution

An historian of the New Deal has said, “On the whole, the Founding Fathers sought to contain government, not promote change. It was remarkable that the New Deal was able to break through these carefully devised constitutional barriers for so long.”[19] I quote the above two sentences because they place the emphasis where it belongs, not upon the Courts but upon the Constitution. After all, the Supreme Court survived the assault, indeed, survived and prospered. But the breaking of the barriers in the Constitution to the establishment of a welfare state is a different matter. The New Deal assault was like punching holes in a dam. Over the years, the holes have widened, so that more and more legislation, much of it not authorized by any stretch of the imagination by the Constitution, could get through.

That the clauses referring to the “general welfare” were grants of power to do anything, much less establish a welfare state, is highly doubtful. The reference to the “general welfare” in the Preamble is not a grant of power. It is a part of the statement of the purpose of the government being established. The phrase occurs again in the first clause of Article I, Section 8. It reads, “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States . . . .” The most plausible interpretation is that the phrase is a limitation of the taxing power. Specifically, the term “general” is a limitation. That is, it is the general welfare for which taxation is authorized, not the local welfare or that of some special class or group of people. In any case, “welfare” did not then have the connotation that it has had since the New Deal.

Using the Power of Government to Redistribute Wealth

The most characteristic economic feature of welfarism is the use of the power of government to redistribute wealth. It is true, of course, that any government activity may result in the incidental redistribution of wealth. But it becomes welfarist activity when the main purpose is to transfer wealth from one group or class to another.

The Revenue Act of 1935 signaled the welfarist direction, though it was not the first measure that year of this character. In his message to Congress asking for increased taxes, President Roosevelt made the aim of redistribution clear. He said, “Our revenue laws have operated in many ways to the unfair advantage of the few, and they have done little to prevent an unjust concentration of wealth.”[20] The revenue measure that was passed was blatantly discriminatory toward those with greater wealth. It increased the surtax on individual incomes over $50,000; the tax on incomes over $1 million was graduated steeply upward to 75% for all income over $5 million. Estate and gift taxes were increased. Taxes on small corporations were lowered slightly, while the rates on corporations with incomes over $50,000 were raised. Taxes were also levied on profits above 6%.

The largest scale redistribution effort in 1935 was undertaken under the Works Progress Administration (W.P.A.). It was set up under the Emergency Relief Appropriation Act passed in April, 1935. Harry L. Hopkins, an administrator with considerable experience already in spending money, was placed in charge. Hopkins had said on one occasion, “Why accept the evil of poverty? . . . I believe they are poor because we haven’t wit and brains enough to divide up our national income each year so they won’t be poor.”[21]

At any rate, the WPA plunged vigorously into work relief programs. In the course of its career, nearly $11 billion was spent on 1,410,000 projects on which 81/2 million different persons were employed. Although much of the WPA work was done on projects which are customarily in the domain of government, such as building roads and bridges, its primary purpose was the transfer of wealth to those reckoned to be needy. A means test was applied in the selection of workers, which certainly would not have been the case if the projects were the main concern. Moreoever, much, probably most, of the building was on projects ordinarily financed by local and state governments.

A Resettlement Administration was set up in May, 1935, to move destitute families into new areas and foster subsistence homestead communities. (This was one of Roosevelt’s pet projects, enlivened by the idea of moving urban inhabitants to family farms, and such like. In the main, it provided temporary dwellings for transients.) In the same month, the Rural Electrification Administration was organized to make electricity available by low interest loans to isolated rural areas. A National Youth Administration, created by executive order in June, 1935, made jobs for young people, especially for those in schools and colleges needing part-time work.

The NLRA

It might not appear, on first examination, that the National Labor Relations Act, passed in July, 1935, was a redistribution program. This act, however, completed the work of empowering labor unions begun under the National Recovery Act. It placed the power of government behind the organization of labor unions, mainly by way of the National Labor Relations Board, weighted the legal scales in favor of unions, and signaled a determination by the federal government that unions should prevail. Thereby, unions were able to extort higher wages from employers than they could have received in the market. The differential is a redistribution of wealth from employers to employees.

The provisions of the Social Security Act have already been alluded to. Social Security redistributes wealth in several ways. First, unemployment compensation is financed by a payroll tax on employers. When it is paid out as unemployment compensation, it is a compulsory redistribution from employers to employees. For most of the old age and survivors program, em ployers are taxed an equal amount to that of the employees. This is a forced transfer from employers to employees. Moreover, although there is a Social Security fund into which receipts go, current benefits have been taken increasingly from current receipts. Hence, the program has become virtually a device for transferring wealth from those presently working to retirees and their survivors. (That is not to deny, of course, that those who contributed in the past have a just claim to some benefits.) Also, the act authorized treasury payments to aid states with old age pensions and for various classes of disabled persons.

Other Interventions

Welfare programs continued to proliferate through 1938, as new ones were regularly added. The Revenue Act of 1936 placed a tax on undistributed corporate profits. The Soil Conservation and Domestic Allotment Act of the same year paid farmers to take land out of cultivation. This was a transfer from taxpayers generally to farmers who complied with the program. The National Housing Act of 1937 provided low interest loans to public authorities for slum clearance and the building of low rent housing. It also provided rent subsidies for the tenants. Finally, the Fair Labor Standards Act of 1938 required employers to pay minimum wages for work during a maximum 44-hour week (any work beyond that amount would have to be compensated at a higher rate), and forbade child labor. So far as wage rates were higher than they would have been in the market, this was a forced transfer of payments from employers to employees.

The welfare state, then, is a relic of the New Deal. The rudiments of it were established during the years 1935-1938. It is a relic of the determination to use the power of government to redistribute and transfer wealth. It is a relic of the New Deal thrust to centralize and concentrate government power. Above all, the welfare state is a relic of the use of political strength to overawe the Federal courts and secure their enforcement of welfare and other legislation. Since the days of the New Deal many new welfare programs have been added and others expanded. Entitlements have now reached such a level that the budget is virtually out of control, and social programs are a huge burden on the economy. []

Next: Conclusion: The Relic of an Idea.


1.   Franklin D. Roosevelt, Nothing to Fear, Ben D. Zevin, ed. (New York: Popular Library, 1961), p. 55.

2.   Ibid., p. 57.

3.   Ibid., p. 105.

4.   Arthur M. Schlesinger, Jr., The Politics of Upheaval (Boston: Houghton Mifflin, 1960), p. 447.

5.   Alfred H. Kelly and Winfred A. Harbison, The American Constitution (New York: W. W. Norton, 1955, rev. ed.), p. 728.

6.   Ibid., p. 744.

7.   Schlesinger, op. cit., p. 452.

8.   Quoted in ibid., p. 457.

9.   Henry S. Commager, ed., Documents of American History, vol. II (New York: Appleton-Century-Crofts, 1963), p. 249.

10.   See James M. Burns, Roosevelt: The Lion and the Fox (New York: Harcourt, Brace and Co., 1956), p. 295.

11.   See ibid., pp. 293-94.

12.   Roosevelt, op. cit., p. 115.

13.   1bid., p. 112.

14.   Burns, op. cit., p. 291.

15.   Roosevelt, op. cit., pp. 112, 114.

16.   Ibid., p. 110.

17.   Arthur S. Miller & Ronald F. Howell, “The Myth of Neutrality in Constitutional Adjudication” in Judicial Review and the Supreme Court, Leonard W. Levy, ed. (New York: Harper Torch-book, 1967), pp. 212-13.

18.   Ray A. Billington, et. al., eds., The Making of American Democracy, vol. II (New York: Holt, Rinehart and Winston, 1962), p. 338.

19.   Alonzo L. Hamby, “Introduction” in The New Deal (New York: Weybright and Talley, 1969), p. 8.

20.   Quoted in Richard B. Morris, ed., Encyclopedia of American History (New York: Harper & Bros., 1953), pp. 352-53.

21.   Quoted in Schlesinger, op. cit., p. 357.


Lack of Purchasing Power

In the early Nineteen Thirties, in the depth of the Great Depression, the theory became fashionable that the cause of all depressions was Lack of Purchasing Power. The people just did not have enough money, and because of unwarranted pessimism they were refusing to spend enough even of what they had. The solution was therefore simple: at such a time the government should boldly increase its own spending, “prime the pump,” and “get things moving again.” . . .

Unless there were some serious lack of coordination among prices, costs, and wages, mass unemployment would not exist in the first place. When it does exist, the only appropriate cure is individual adjustment of prices, costs, and wages to each other—the return of coordination. But this can be brought about automatically only if the competitive forces of the market are given free play.

Henry Hazlitt,
Man vs. the Welfare State

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August 1982

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