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Tuesday, July 11, 2017

The Wacky World of 1932

Henry Hazlitt was pressed into service to edit a book of extremely unpractical ideas.

FEE has dug deep in its archive to discover the most interesting book from 1932: A Practical Program for America. It’s so revealing of where we’ve been and how far we’ve come. It’s a book purporting to provide a practical plan for dealing with the depression, which was not yet the “great” depression. 

Which way would liberalism finally turn? If you flip quickly through this book, you will see extremely naive defenses and celebrations of unemployment insurance, higher taxes, farm subsidies, national planning for electrical power, public housing, and countercyclical monetary policy. Any astute reader will ask: “Why in the world would the Foundation for Economic Education publish this sort of thing?”

Well, consider the original publication date. Then look at the publisher: The Nation, the leading journal of liberal opinion at the time. Then look at the editor: Henry Hazlitt, author of Economics in One Lesson and a FEE trustee.

You might expect, then, that there is a huge backstory here. Once you know it, you can see that this book is a treasure, a snapshot in time that reveals the corruption of the original liberalism at the very time it was fully mutating into its opposite.

Hazlitt the Liberal 

The role of Hazlitt here is fascinating. He worked for The Nation as its literary editor, not economics and not politics. I can only assume that it was his remarkable talent and media presence that led him to be tagged to be the editor of the collection.

Hazlitt was gaining confidence in his own ideological convictions. He was not the only one. In a sense, everyone needed to make a choice. The New Deal was coming. The sense among intellectuals was that capitalism had completely failed, and that some kind of planning was necessary. But planning means state power, and that stands contrary to the traditional liberal idea of freedom as the most exalted political value.

Which way would liberalism finally turn?

Editing this volume was clearly an uncomfortable project for Hazlitt because, frankly, the essays in this book are terrible.For Hazlitt, his affections for the free market were intensifying. He had been a Wall Street reporter in his early years, and he was never opposed to free enterprise. He had always been interested in economics, among his many intellectual pursuits. It seemed clear to him that the Depression was caused not by capitalism but by various interventions, including bad monetary policy, problems with the war debt, and growing protectionism.

Thinking these things, he was at odds with the prevailing trends at The Nation. In fact, Hazlitt was gone from the publication later in 1932, having accepted a new position at The American Mercury as the successor to H. L. Mencken.

Editing this volume was clearly an uncomfortable project for him because, frankly, the essays in this book are terrible. Edwin Seligman writes that high taxes would balance budgets and be great for economic recovery. Leo Wolman advocates nationwide unemployment insurance. Clarence Stein assures the reader that public housing would be fantastic and needs to replace private decision-making in housing. E. G. Nourse wants federal action to save the family farm. And so on it goes: one bad policy recommendation after another, each of which foreshadows New Deal policy—so in that sense the book is oddly prescient.

To get a flavor of the opinions in this book, consider this from Stein on housing: “We shall have decent communities for the vast mass of the population only when our cities—houses and all—are financed and built as public services.” 

Now think of the house or apartment complex you live in. Do you think you would be better off if it were built and financed by government? I’m not sure I’ve met anyone who believes such a thing today. Public housing as it came to be tried decades later turned out to be one of the great American public policy disasters, and it is fortunately so out of favor that few if any American politicians now push such a thing. 

This proposal turned to be anything but practical. We’ve come a long way. 

Free Trade

And what did Hazlitt himself write about? The one topic on which liberalism had not yet become corrupted (as of 1932): free trade. And it is a beautiful and powerful article. He takes us back to the writings of Adam Smith to show that free trade is essential for a modern economy.

I love his definition of a tariff: “A tariff is a device for insuring that a commodity which could be bought at a lower cost from abroad shall be produced at a higher cost at home.” And look at this comment which could have been written today: “The plain truth is that the pivotal business of the world today is everywhere conducted, not in separate national markets, but in what is, in effect, one great international market.”

I doubt that his choice of topic here was an accident. The liberals in his day rightly saw protectionism as a corporate racket to rob the people on behalf of a well-connected elite. He was on safe territory in pushing free trade, even given his position at The Nation. If nothing else, perhaps he could rally his colleagues on behalf of this one principle and against the protectionist tide. 

Big Business 

There are other fascinating blasts from the past in this book. Particularly interesting is the contribution on anti-trust by Walton Hamilton. Going into this essay, I tried to make a prediction on which way he would go. Would he be for anti-trust? My prediction was that he would. The answer is a bit surprising. He comes out against anti-trust on grounds that the purpose of the policy in the past was to restore competition. This is a problem for him. He says competition is an outmoded ideal. The country should drop it. “If our industries are to become instruments of national well-being,” he writes, “we must employ a varied program of economic control.”

The great Hazlitt kept his wits about him in a time of great upheaval.Indeed, this is what the New Deal did. It created trusts and proclaimed them to be in the public interest. It was nothing but corporate planning, also called fascism in the day, and liberals had to come to terms with it. They would have to adapt from their old suspicions of trusts and in favor of economic planning and the codification of trusts—a decidedly illiberal program.

In sum, what we see in this uncomfortable and strange collection is the great Hazlitt keeping his wits about him in a time of great upheaval, and we see the ideological convulsions of liberalism taking place before our very eyes. Only a few years later, the old liberalism had become something else entirely. Hazlitt lost the debate, but kept his integrity.

Liberalism, meanwhile, lost its soul.