When President Roosevelt created and imposed the National Recovery Act (NRA) on Americans, a constitutionally aberrant labyrinth of confiscatory regulations and obtuse laws, The United States, in less than a decade, would be in far worse financial shape than when the stock market crashed in 1929. The Dow Jones, for example, would not recover its pre 1929 heights until ten years after President Roosevelt’s death. That is because the NRA statute contained mandates, which President Roosevelt would use to bludgeon wealth from private enterprise, and smear the reputations of men and women engaged in the pursuit of the creation of wealth, jobs and prosperity. For President Roosevelt and the Democrats, they were the villains of America’s fall from grace and power.
In his unconstitutional expansion of federal government, President Roosevelt showed his contempt, and that of the leftist cabal he controlled, for the American Constitution and the rule of law. In a U.S. Supreme Court case ironically, known colloquially as The Case of the Sick Chicken—of which more next week—the NRA would be declared unconstitutional. Ms. Amity Shlaes writes that,
NRA rules were so stringent they perversely hurt businesses. They frightened away capital, and they discouraged employers from hiring workers. Another problem was that laws like that which created the NRA—and Roosevelt signed a number of them—were so broad that no one knew how they would be interpreted. The resulting hesitation in itself arrested growth.
The Roosevelt administration, albeit on an infinitely smaller scale than the Obama administration, engaged in deficit spending. However, it confiscated personal income—there is no other word so accurately describes it—at draconian rates. The Democrats then used this once private wealth to fund a multitude of public programs that would increase the debt, depth, and damage of the depression. New Deal taxation and the new social security program drained money from private circulation where, of course, jobs are created or lost. Finally, a radical expansion of union power so increased wage demands that jobs were destroyed because businesses simply could not afford the cost of labor. Private investment, in light of failing corporate profits naturally declined.
…the Wagner Act [a New Deal statute empowering unions] was making businesses more expensive for employers. With the Wagner Act, wages had jumped far ahead of [prices and the cost of living]. In the first six months of 1937 alone wages rose 11 percent. In the steel industry the rate was higher, 33 percent from October to May. Taxes of course were a problem too. Private investment had been low all decade.
Confiscatory taxes caused foreign investment to plummet and with it jobs: from one billion in the 1920s to below 50 million at the height of the New Deal.
When the data came in, they showed that August had seen the steepest drop in industrial production ever recorded. The Dow Jones industrial Average dropped from its 190 level… to 114…, Jobs started to disappear, with unemployment moving back to 1931 levels. Emphasis added…. The only other country with a similar leap in wages was France, where Leon Blum had earlier in the 1930s put in his own New Deal. The French New Deal had caused a collapse in the economy.
Federal taxes on investment in business enterprises would consume as much as 83 percent of the investment return made—if any. Consequently, business individuals who through creativity and hard work had become wealthy even as they created jobs and opportunity for Americans were forced to put their money elsewhere.
As a matter of fact because of income tax laws which take up 83 percent of a rich man’s investment in private enterprise most of the very rich have been investing more and more in the flood of tax-exempt government securities’…. Especially problematic was the undistributed profits tax, which punished cautious business for failing to spend: If there is any strike of capital it comes from those millions of small investors not from the wealthy few. And punishing the rich at punitive rates encouraged them to escape.
American businesses sought to avoid The New Deal’s extraordinary taxes on stock dividends—a tax Americans will see increased precipitously next year—by holding rather than distributing profits. The Roosevelt Administration reacted by imposing taxes on undistributed profits. By doing do, the Roosevelt administration increased unemployment and were responsible for decrease in corporate profits.
The New York Times “carried a story on the consequences of the undistributed profits tax. Companies that had formerly sought to retain employees through downturns now no longer had the reserves to do so. They had likewise ceased to invest in new equipment, normally a traditional move in slow periods. The headline on the story was: ‘Levy on Profits Halts Expansion.’
Stocks had begun dropping in mid-August…. As for stock shares, they were down between $2 and $15 , the greatest drop in six years. The panic… was so broad and trading so furious that the ticker closed seventeen minutes late. .. the traders were finally awakening, just as everyone had hoped they would. But they were awakening only to run.
President Roosevelt’s advisers, many of whom were communists, Alger Hiss and Henry Dexter White for example, or who were psychologically beside themselves with affection for the likes of Lenin, Trotsky and Stalin, recommended the same strategy: Attack the “corporate tentacles of aristocratic anarchy.”
Later three of Roosevelt’s main men would spend the weekend with the president aboard his yacht the Potomac. Ms. Amity Shlaes, captures with elegance and irony the worldview of President Roosevelt and his acolytes.
The four prepared political strategy: specifically, an assault on the wealthy. Roosevelt caught a large mackerel early on, but it was Jackson who had the biggest catch of the trip, a barracuda of more than twenty-five pounds. If any of them considered the incongruity of planning a class war on a yacht, they did not mention it.”
Robert Harkins’ new book will be published later this year. You may find it at Amazon in e-book or hard cover, and at all major bookstores. Its title:
America, Sweet Land of Liberty. Of Thee I Sing.
 I heartily recommend the excellent history the forgotten man, by Amity Shlaes, (HarperCollinsPublishers,2007), from which all quotes are taken.