Regime Uncertainty During The Great Depression

by Mario Rizzo


The destabilizing “regime uncertainty” that has been analyzed by the economist Robert Higgs was already seen after the first few years of FDR’s administration by one of its most influential members, Raymond Moley.


He had been an economic advisor to Governor Alfred E. Smith of New York. He was a conservative Democrat who quit the administration in mid-1936 because he thought it was moving too far to the left.  


What Roosevelt and others saw as an “experimental” or “pragmatic” turn was, in reality, a confusing and destabilizing mix of ill thought-out policies and rhetoric.


The following is an excerpt from Raymond Moley’s book, After Seven Years, published in 1939:   

“The hitch came with Roosevelt’s failure to follow through. Pragmatism requires the application of the test of utility or workableness or success. And by this Roosevelt refused to abide. He would launch an idea as an experiment, but, once it had been launched, he would not subject it to the pragmatic test. It became, in his mind, an expression of settled conviction, an indispensable element in a great, unified plan.

That Roosevelt could look back over the vast aggregation of policies adopted between March, 1933, and November, 1936, and see it as the result of a single, predetermined plan was a tribute to his imagination.

But not to his grasp of economics. One had only to review the heterogeneous origins of the policies he had embraced by the time of his reelection, the varying circumstances, impulses, beliefs that had produced them, to guess at their substantive conflict and contradiction.” (pp. 365-66)


“Underlying these and a host of other incongruities were two misapprehensions which were basic.

The first centered in a failure to understand what is called, for lack of a better term, business confidence.

Confidence consists, on the one side, of belief in the prospect of profits and, on the other, in the willingness to take risks, to venture money. In Harry Scherman brilliant essay on economic life, The Promises Men Live By, the term is, by implication, defined much as Gladstone defined credit. “Credit,” Gladstone said, “is suspicion asleep.”

In that sense, confidence is the existence of that mutual faith and good will which encourage enterprises to expand and take risks, which encourage individual savings to flow into investments. And in an age of increasing governmental interposition in industrial operations and in the processes of capital accumulation and investment, the maintenance of confidence presupposes both a general understanding of the direction in which legislative and administrative changes tend and a general belief in government’s sympathetic desire to encourage the development of those investment opportunities whose successful exploitation is a sine qua non for a rising standard of living.

This, Roosevelt refused to recognize. In fact, the term “confidence” became, as time went on, the most irritating of all symbols to him. He had the habit of repelling the suggestion that he was impairing confidence by answering that he was restoring the confidence the public had lost in business leadership. No one could deny that, to a degree, this was true. The shortsightedness, selfishness, and downright dishonesty of some business leaders had seriously damaged confidence. Roosevelt’s assurances that he intended to cleanse and rehabilitate our economic system did act as a restorative.


But beyond that, what had been done? For one thing, the confusion of the administration’s utility, shipping, railroad, and housing policies had discouraged the small individual investor. For another, the administration’s taxes on corporate surpluses and capital gains, suggesting, as they did, the belief that a recovery based upon capital investment is unsound, discouraged the expansion of producers’ capital equipment.


For another, the administration’s occasional suggestions that perhaps there was no hope for the reemployment of people except by a share-the-work program struck at a basic assumption in the enterpriser’s philosophy. For another, the administration’s failure to see the narrow margin of profit on which business success rests–a failure expressed in an emphasis upon prices while the effects of increases in operating costs were overlooked–laid a heavy hand upon business prospects. For another, the calling of names in political speeches and the vague, veiled threats of punitive action all tore the fragile texture of credit and confidence upon which the very existence of business depends.  


The eternal problem of language obtruded itself at this point. To the businessman words have fairly exact descriptive meanings. The blithe announcement by a New Deal subordinate that perhaps we have a productive capacity in excess of our capacity to consume and that perhaps new fields for the employment of capital and labor no longer exist will terrify the businessman. To the politician, such an extravagant use of language is important only in terms of its appeal to the prejudices and preconceptions of a swirling, changeable, indeterminate audience.

To the businessman two and two make four; to the politician two and two make four only if the public can be made to believe it. If the public decides to add it up to three, the politician adjusts his adding machine. In the businessman’s literal cosmos, green results from mixing yellow and blue. The politician is concerned with the light in which the mixture is to be seen, the condition of the eyes of those who look.

Mutual misunderstanding and mutual ill will were, of course, unavoidable in the circumstances, and the ultimate result was a wholly needless contraction of business–a contraction whose essential nature was so little understood that it was denounced in high governmental quarters as a “strike of capital” and explained as a deliberate attempt by business to “sabotage” recovery.” (pp. 370 -372)






3 thoughts on “Regime Uncertainty During The Great Depression

  1. Eichengreen-O’Rourke article is definitely worth a read, especially for a non-US-centric view – one thing they don’t discuss, though, is the extent to which the world still is really globalized, despite falling trade.

    Hoping to blog on this over the coming week but even compared to 1990, the world will be twice as more globalized in 2013 as then, let alone 1930…

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