Amity Shlaes takes a new look at the New Deal
NEH Chairman Bruce Cole: If somebody asked, ‘What do you do?,’ how would you answer?
AMITY SHLAES: I’m a writer. One of the strengths of the Council on Foreign Relations, where I work, is that journalists and people with doctorates work together side by side. So at the Council you get the strictly academic analysis but also the analysis from the seasoned State Department diplomat or from, say, the former foreign correspondent.
My own life? After college I did attend the Freie Universitaet in Berlin. But like so many journalists I decided to try to learn through writing, journalism, instead of graduate school. You could even say my graduate school was the Wall Street Journal, which is where I learned about writing and the economy. At the beginning of Moby-Dick, Melville says, “A whale-ship was my Yale College and my Harvard.” Well, the Wall Street Journal was my Yale College and my Harvard.
COLE: But you did go to Yale. What did you major in?
SHLAES: Yale is also my Yale. English.
COLE: But your beat is the economy, right? How did you make that transition?
SHLAES: Starting out, I gave journalism five years, and then I was going to go to law school. But I liked journalism, because it is a license to find out stuff. And I've always liked the challenge of explaining hard concepts from one arena to people who happen to work in another arena. I am interested in translating.
At first, I literally translated, I translated German to foreign correspondents and took them around Berlin, to the Wall or to meet the mayor. Then more figuratively I tried to translate Germany into the Wall Street Journal, and I tried to translate communism into the Wall Street Journal during the years of the Cold War.
I took econ and history in college but what awakened me to economics was working in communist East Europe, and especially in the two Berlins. After college I had a DAAD fellowship and that was when I attended Berlin’s FU. Berlin pre-1989 was the sort of experiment that appealed in its neatness. You had West Germany, West Berlin, on one side of the city, certainly capitalist, but also heavily subsidized by the West German government.
Then, on the other side, was communist East Berlin. The city taught about property and money, because the East German mark was worth nothing. And when a currency is worth nothing, you can be pretty sure property rights are worth nothing too.
In the nineties I went back to the Wall Street Journal, in the United States. I edited, first as deputy op-ed editor, then what they called features editor, op-ed editor. Dan Henninger, Paul Gigot, Melanie Kirkpatrick, and the late Bob Bartley taught me a lot about writing. George Melloan was the uberteacher. And then I made a flawed call. I said, ‘Well, it seems to me wars are over, foreign policy is over, so I'd better start translating the other big, important thing: economics.’
Wrong about the war part, right? But in any case I began to write economics editorials and eventually I became a board member of the Wall Street Journal.
This experience was what eventually took me to the Forgotten Man book. Writing editorials or columns you learn about all these big edifices that are here in Washington: the Securities and Exchange Commission, the Wagner Act, the Social Security Administration, the IRS, and you say to yourself, ‘Where do they come from?’ A lot of them came out of Roosevelt’s New Deal.
That period, our grandparents’ period, is awfully far away. How do we understand a grandparent? You know, the grandparent who saves rubber bands? And who thinks phone calls are sinful because they’re so costly?
COLE: ‘Make sure all of the lights are shut off.’
SHLAES: The grandparent of scarcity in all of our backgrounds, the Ghost of Scarcity. I began to wonder about that ghost. The shame that emanates upon us from that personage: What's that all about? And there’s also a little bit of rebellion in us. How can they possibly be right, those nasty people? Because Depression-era people are tougher than we are, and why are they so mean and tough, and do we, in ourselves, have the capacity to be as tough as they are? Maybe we don’t, maybe we're all soft.
COLE: And this is all leading to The Forgotten Man?
SHLAES: It does.
COLE: But let’s go back to Germany. How did you get there? I know you were a fellow at the American Academy. How did that all happen?
SHLAES: I did write part of the book while a fellow at the American Academy. It’s a special heaven for authors. Anne Applebaum is working on her new book there too. But getting to Germany originally: I come from Hyde Park, where the University of Chicago is, and this neighborhood has an old German-Jewish population. And Chicago, and the Midwest, has a heavy German population.
My grammar school, historically, taught German. And that has to do with the German-Jewish community’s connection to the German language, the motto being, “I will not let Hitler come between me and the language of Goethe.”
COLE: Yeah, Goethe. All those paradigms of civilization.
SHLAES: And we had a German teacher in our school named Gregor Heggen, from Paderborn, Germany. Herr Heggen was a child of the Depression himself and pretty young when the war ended. He was a wonderful man, and he ran the German department. I was in his curriculum from 1970 to 1978. Another important teacher was Wayne Brasler, the journalism teacher.
COLE: It’s always a teacher.
SHLAES: It is.
COLE: And from an interest in Germany, you proceeded to take an interest in taxes.
SHLAES: Well, Germany led me to taxes, because in some mysterious way, German and taxes are related. For one, they’re both logical. Also Latin. Something happening over here leads to a consequence over there. Some people just work that way; it’s sort of a Univac mindset.
Through The Greedy Hand, the tax book, the intermediate book, I realized the logic of history was what interested me. That book started with Beardsley Ruml, the man who invented the modern withholding format for Franklin Delano Roosevelt during World War II. What was surprising to me was that they had a lot of trouble getting withholding through, even in wartime. So, lawmakers put it in a larger legislative package. And the idea that the government would have a greedy hand and reach into everyone’s pocket and take their money, that was off-putting to a lot of Americans, even in the early forties, so they had to put it in combo with a sweetener, which was a general tax amnesty. And still withholding was a hard sell.
COLE: Was withholding supposed to be temporary?
SHLAES: I don't know whether they used that word, but everything had an excuse of being temporary in the New Deal or the war. A lot of the powers that Roosevelt invoked came from war powers or the war against the Depression. And there was the sometimes explicit, sometimes implicit, promise that it would end, when normalcy returned.
That part about Beardsley Ruml I put at the front of The Greedy Hand at the last minute. Originally, Greedy Hand had a general, social science-y introduction, and the book was already at some late stage in the publication process. But the editor Jon Karp and I said, ‘This is too boring. Let’s put the day that they created withholding, and created the modern American state as sentence number one of this book.’ So the first sentence of The Greedy Hand is something like, ‘The father of the modern American state was an obscure executive from R. H. Macy and Co. named Beardsley Ruml.’ And he had a funny name, so that made the line better.
Ruml understood that people will do things over time like borrow on credit, that they won’t do outright. And readers responded to that.
COLE: With The Forgotten Man, what do you think your training and your journalism bring to this book? Many of these books are written by academic historians who have gone through Ph.D. programs, but I think an increasing number of books that really strike a responsive chord are written by journalists.
SHLAES: You try to figure out what people want to read. Because if they don't want to read it, there’s little use in writing it. But the other side of that is, you don’t want to be inaccurate. It seems that if you go to traditional graduate school and get a doctorate, sometimes by the end you're sufficiently docile that you don't dare a lot of big stuff.
But there’s the “audacity of hope” in journalism. ‘I’ll try something big, and maybe I’ll look like a fool, but maybe it will matter.’
So, journalism makes everyone—not just me, but academics also—dare to be audacious. Journalism trains you to see the consequences of policies. Every hour, there are consequences of government policies.
And if you’re outside of Washington, reporting on those consequences, you begin to want to know what caused it all.
COLE: I also think journalists write in a way that academics often don’t. Some of the devices are different, like the trick at the opening of your book, in which you begin with a stark example of how the story of the Depression is usually told, with the young man in Brooklyn who hangs himself for want of food, but then you begin investigating the policies of the New Deal and the whole narrative takes an unexpected turn.
SHLAES: Well, academics are very important to us, because they do some of the best books of all. And they nearly always make the first forays.
COLE: They lay the groundwork.
SHLAES: Yes, they blaze trails. They order the material. They examine all of the questions, we learn from them and we compete with them.
But the question of quality of writing is a very tricky one. Normally, I’m suspicious of people declaring something “good writing” or “bad writing.” Not to sound like a Yale deconstructionist, but what is “good writing” is highly subjective.
And there’s a terrible tension in writing between the thematic and the chronological. History is not thematic, it’s just, as they say, one damn thing after another. So, do you replicate that reality? Or do you order it for your reader? And that’s what a narrative does. It makes that decision. Picks a point on the spectrum between the thematic and the chronological.
What is interesting to me about The Forgotten Man is that some people think the writing is terrible. And those are people who don’t like the underlying argument.
I tend to write thematically. The default mode is to write fifteen magazine articles and then sew them together with little segues at the beginning and the end, and then compose a unifying introduction, and there’s your book.
This method sometimes works. It worked for a book like the tax book; it works for a short, radio-friendly book. But for a satisfying history, thematic alone doesn’t work. You just have to sort of inexorably say, ‘And then, and then, and then, and then, and then,’ and then go over the text afterwards and say, ‘Are the themes that struck me coming through?’
COLE: To me, the question when I pick up a book is, Do I want to keep going after the first paragraph?
SHLAES: The editor, Tim Duggan, and I thought about that paragraph a lot for The Forgotten Man. Well, this book starts with an event. It originally began with a terrible event in 1933 when a couple were hungry and had no money, and they went into a cabin in the Catskills and waited to die. This was a Dickensian event, from 1932 or 1933.
But when the first or second draft was done it became clear that the later 1930s were the added value of this book. The truly Forgotten Man for this period was the man of 1937—the so-called Depression within the Depression—who also suffered.
What I did therefore was I take the material from very late in the book, and it’s very late in the history of the 1930s, this material, around Chapter 10, which means the normal reader isn't even reading it. People only read half of books. And I moved that late material to the front of the book.
COLE: And there’s a shock factor. Because the reader assumes that this event is right at the beginning of the Great Depression, but it’s a couple of pages later you find out that this happened in 1937.
SHLAES: It was a terrible starvation story of the kind we've heard about ’33 or ’32, or certainly Hoover time, but we never knew in our national memory that there was such a thing in ’37. And that seemed to me to reflect the problems of the New Deal. A boy in Brooklyn, William Troeller, hanged himself because he was reluctant to ask for food. Also Dickensian. America was Dickensian.
COLE: What do you think the national memory is of the Depression? Is there one narrative?
SHLAES: Well, there was a national memory. On the conservative side it was foggy. Milton Friedman shone the light on the monetary. The first part of the Great Depression was banking, credit, deflation: monetary. Additionally, the National Bureau of Economic Research’s Claudia Goldin and others had an important conference that was also a book, The Defining Moment, that illumined much. But there was—and still is—much fog in the conservative Depression-scape.
The liberal picture was the clearer picture. John Kenneth Galbraith did the econ. From the late 1960s, the late Arthur Schlesinger, Jr., did the rest. Those Schlesinger books are wonderful. And if you go back, nearly every line of his series on the Great Depression has something interesting in it. Including on the econ. In Schlesinger, for example, I found material about FDR’s reading list while he was governor of New York, his own internal battles over budget balancing. FDR read some proto-Keynesians in the 1920s, Foster and Catchings. They had written popular books about how spending led to prosperity. On the flyleaf the skeptical governor wrote, “too good to be true.” That book, by the way, is at the FDR library with FDR’s little note in it. Anyhow Schlesinger was a great historian.
But there was a certain political component to his work: He believed that the New Deal economic errors were not very important.
And so Schlesinger-wise, the message was, the Depression came, it was like Katrina, and it was like a natural disaster. Roosevelt was compelling, he made some errors, but he was compelling. He saved democracy, from the extremism of Father Coughlin from Michigan and Huey Long of Louisiana. And we did not go the way of Mussolini or Hitler in Europe, because of the New Deal. And then he was on the right side of a very important war. So, the view was those little economic errors in the thirties did not matter so much.
The sad little fact is that war trumps econ. This is especially sad for people who are economically oriented. To other people it matters more where you side on war than it does where you side on economics. They will judge your economics by your position on war. These were different economic times. Arthur Schlesinger and John Kenneth Galbraith lived in the fifties, when the top tax rate was never below 80 percent. Yet America was doing fine. So, they could surmise that a big government America, an America of the military-industrial complex that Eisenhower feared, wasn’t such a bad America. And the issue of competition from abroad was minor, and the national GDP was set by four men smoking cigarettes in a room. Everything else was irrelevant, sort of like the TV series Mad Men, where it all happens among the advertising execs in the corner office, and everyone else goes along.
The Union Man, created by the Wagner Act, the John L. Lewis successor, the Government Man, the Central Banker Man, and the Business Man. And they wore suits, and they sat at a table, and said, ‘Let GDP grow 2.8 percent.’ It was a very macro, top-down view of the world.
But what we later learned, even as we forgot the facts of the New Deal, was something about markets and economics. And we relearned it in the seventies, eighties, nineties, and in this decade. And it is that a lot of what sets the rate of growth happens down below, in the roots, at the level of the firm, microeconomics, or the entrepreneur.
Meanwhile, the economics that New Dealers and their successors practiced had great flaws. And that was the lesson of the seventies. Stagflation was the lesson of the downside of Keynesianism, and we studied, and we went back, and we found that those errors in the thirties really led to the errors of the seventies. The seventies are directly the consequence of the thirties.
There was also a pessimistic premise that informed postwar Keynesianism. It said growth can indeed happen, but it comes out of government. If government is not there, another depression will happen. But in the 1930s not everyone believed that.
In the thirties, there was a man who was prosecuted—Andrew Mellon, the hero of the twenties, the Greenspan of the twenties—he was prosecuted in the thirties. And at his trial, reporters came up to him and said, ‘What do you make of everything, it’s your eightieth birthday, Mr. Mellon?’ And Mellon said, ‘The Depression is just a bad quarter hour, in the glorious history,’ now I'm paraphrasing, ‘of American growth.’ And this the press actually thought was kind of interesting, because the press was not so left-leaning in those days, but the New Dealers thought, I imagine, ‘What a ridiculous statement. The Depression shows where capitalism is weak, it shows where we need a Great Society. Looking forward, the Depression is one of those terrible things that go with an industrial economy.’
Well, what became clear from 1960 to 2008 is that Mellon was right. The Depression was just a bad quarter hour in the glorious history of American growth. And, so, all those assumptions—that we need that much protection, a big government as a baseline—are questionable, and lots of economists have questioned them.
COLE: What was the conventional wisdom regarding the New Deal before the arrival of your book?
SHLAES: In the schools, in the intellectual salon, what you generally have is the Keynesian/Galbraith interpretation, cum Schlesinger, who was interesting, but one-sided.
No one else was allowed in. And politics seemed to justify that. Republicans softened up. On the right, you had Barry Goldwater losing so badly that the more ideological, more principle-oriented Republicans took an important beating. Even when Reagan came along there was no review of the New Deal. The Republican party, as personified by Ronald Reagan said, ‘We’re not going to go far right, and one of the viewpoints of the far right is being skeptical of the New Deal.’ And Reagan himself liked Roosevelt, and he didn’t mess with Social Security, particularly. Reagan situated himself so you didn’t have to choose between Reagan and Roosevelt.
And that’ s what we grew up with. You could be for Reagan and for Roosevelt. But if you assailed Roosevelt, you were a paleo-con, which is worse than a neo-con, and even The Wall Street Journal did not go there. And to address the entitlements problem you have to be skeptical about the New Deal culture.
Reagan could get away with that. But only for a while. Now the entitlements problem is larger. People are beginning to realize that America has to choose between Reagan and Roosevelt, because some of the things that Reagan permitted—keeping all of these entitlements—we have to question now, because we cannot afford them.
John Marini gave an important speech at Hillsdale about Reagan and Roosevelt, showing how they represent two competing views of government. His speech makes the case most clearly.
COLE: The New Deal was so important in bringing about societal changes that are still with us. This was a real watershed in American history.
SHLAES: Yes. Put it this way, Which is more important, Washington or the states? You say, ‘Well, Washington.’ We have a general feeling that Washington is strong and the states are weak. But Washington wasn't more important in the first third of the twentieth century.
It wasn’t until 1936 that the federal government budget outpaced the combined budgets of state and local governments in peacetime. That was the tipping point. Afterwards, Washington was always bigger.
People didn’t necessarily expect that to happen in peacetime, even Hoover didn’t expect that. You had federal spending going from 3 percent of GDP, during the twenties, to 9 percent of GDP. It went up two or three percentage points, I believe, within 18 months during ’35 and ’36. That's an incredible amount of spending, even when the denominator is the Depression.
The enormous public works programs that I talk about in The Forgotten Man, the Public Works Administration (PWA) and the Works Progress Administration (WPA), they changed the political culture. There are just over three thousand counties in the United States, and all but a few dozen got a Public Works Administration building.
COLE: That’s amazing.
SHLAES: Schools, swimming pools.
SHLAES: Yes. Americans were reluctant to let the federal government into their towns, so the New Dealers were quite careful about how they did it.
So, they would go to the mayor of the town and say, ‘What do you need?’ And he would say, ’I need a new town hall.’ Or an auditorium. There are auditoria all over this country that are PWA. And then Harold Ickes, the father of the Democratic party strategist, would say, ’Okay, so send me the plan, I'll approve it. You can have the money, you can work on the architecture, you can help hire the people.’
The towns felt empowered. ‘Wow, money. Here’s a check to get me something I need, that rewards me politically with my constituency, but the money is from Washington, with very few strings attached.’ It all seemed benign. And when you see these buildings, they’re fine buildings, the workmanship on them was excellent. These people were very grateful for the jobs, the country needed jobs, and you can almost say, biblically, ‘America looked upon the PWA and saw that it was good.’ These were not arrogant structures, architecturally.
Rexford Tugwell, who is in the book, paraphrased the rules about these buildings as something like, ‘A park around every structure, no big, bossy Washington federal architecture, regional architecture.’ And you see a parallel in the print material from the WPA, the Work Projects Administration, which included the guidebooks to the regions and the states. Again, it’s unthreatening material, full of content, not gratingly propagandistic.
The idea was the federal government and the states can live together and help each other. But the net of it was that the federal government began to play a larger role, with the consequences that we saw later.
COLE: Your book has been called a revisionist history. Do you agree with that?
SHLAES: That’s fine. To revise means to look back again.
COLE: That’s right, to re-look.
SHLAES: And that’s what I ended up doing. I thought when I started that I would read all of the other books about the subject, and then I would synthesize. That’s what journalists do. Well, it turned out, there weren’t enough other books. Not enough secondary sources.
COLE: That’s where I was going next.
SHLAES: And so I actually spent a lot of time with primary sources, and that was intensely comforting, because I found people of the time looking at the New Deal and some of them having legitimate and skeptical insights. Here are some of their names: Benjamin Anderson of the Chase Bank, Raymond Moley, Andrew Mellon, H. L. Mencken, Walter Lippmann. So, if it’s revision, it is so in allowing these people of the period to be heard.
The people of the period revised their own history for us, even as it was happening, saying, ‘You know, I’m not sure this is right.’ That’s why I really liked Wendell Willkie. When you’re an author, you look for a character who can pull together for the reader the story you have found, and for me it was Wendell Willkie who pulled it together.
Willkie, if we know him at all, we know him from World War II. We know that in World War II he helped FDR, even though he ran as a Republican against FDR in 1940, and we view his presidential campaign as ridiculous.
COLE: I read that book on the election of 1940.
SHLAES: By Charlie Peters?
SHLAES: People viewed Willkie, Charlie didn’t, but a lot of them did, as ridiculous. But he got a lot of votes. He didn’t get a lot of electoral votes, but he got a lot of popular votes, and he was enormously powerful in terms of foreign policy. He wrote a book called One World that sold just hundreds, and hundreds, and hundreds of thousands of copies. And Roosevelt sent him as an emissary to London.
But here’s the less discussed part. How did he get into politics? He was a businessman. And he had this idea in the twenties that you could create a power company that could electrify the half of the country that was not yet electrified.
Willkie and others worked very hard on that company, Commonwealth and Southern. They were going to light up the South, and they didn’t think they were crooks. They thought their intellectual enlightenment would lead to the literal enlightenment of the powerless rural areas. The phrase in those days was “The South is tired of living in the dark.” Willkie and the other executives thought their job as business people was serving the small man, and there's plenty of argument that they were correct.
And then along came the Roosevelt administration and created the Tennessee Valley Authority, which said, and I paraphrase, ‘We’re the ones who are going to light up the South. You are all bad people, maybe criminal. When you put up a line, we'll call it a spite line, a bad line. We are virtue and you are vice. And Willkie could not believe it.
Willkie went to the Cosmos Club in Washington to meet with the lawyer, one of the heads of the TVA, a man named David Lilienthal, and they were both from Indiana. Lilienthal went to DePauw and Willkie went to IU, and then Lilienthal went to Harvard Law School, and Willkie went to IU for law school. They were meeting as grownups. Willkie thought, ‘Well, we can get along here, at the Cosmos Club, we’re both from Indiana, two guys, two lawyers, let’s be realistic about this here. TVA is grandiose, it's a grandiose law.’ Willkie says to Lilienthal, again I’m paraphrasing, ‘In two years a new Congress will come in, and they won’t fund it, you’re going to have trouble with the executive, maybe, you know, the cabinet secretaries will make it hard for you, so let’s be reasonable, and my private company can distribute the power, and you make it. Or you can have one state, and I’ll have the other. We’ll divide it up, and it’ll all work out, because one day you’re going to want a job in the private sector yourself, that’s where the growth is.’
Lilienthal could not believe it. He said something to the effect of ‘Sorry, Willkie, no go.’ He and the other heads reported more or less directly to Roosevelt. The TVA was not part of one of the old departments. Lilienthal did not need to beg cabinet members for help. He could call FDR up that afternoon, he had plenty of budget. He not only controlled power, he was a big power. Willkie then realized that his company was facing the enemy of its life, and he just walked out of there dizzy. The sources for these things are Lilienthal’s papers and Willkie’s, by the way, as well as some great bios of Willkie. I recommend Joseph Barnes and Steve Neal in addition to Charles Peters.
And for about five years, speaking for his company, Commonwealth and Southern, but also the rest of the industry, Willkie was the voice of reason. He said, again paraphrasing, ‘Don’t knock us out, we think we can help the communities, too. Why can’t we work side by side? Why do you need to pass a law that constrains our company so much, the Public Utilities Holding Company Act of 1935, which we call the Death Sentence Act? Why do you need to sue us in court all over the place? Why do you need to bribe the towns with gifts?’ That is what they were essentially doing, though it was legal. There were financial advantages for towns who went along with the federal supply of power, and the Tennessee Valley Authority, instead of with private power. ‘This doesn't seem right,’ Willkie was saying, in his quiet voice and then louder voice, saying, ‘This doesn’t seem right, this doesn't seem right, this doesn’t seem right.’ But he lost. In the end, the TVA bought up a good part of his company, and he was very sad, but it drove him into politics.
Willkie was expressing something that we have heard since. ‘This doesn’t seem right for the private sector to have no role. And I think it’s making the Depression worse.’ This is the voice for classical liberalism. He was saying something that a lot of people believed. One of the Forgotten Men in The Forgotten Man is the commonsense fellow who sensed that the New Deal was over the top.
COLE: Who else has written about Willkie?
SHLAES: There’s also a biography by Ellsworth Barnard. And there are the Willkie Papers at IU. And I had the good fortune to interact with Wendell Willkie, the grandson, to talk through some of my analysis, to see if it rang true for his family.
And I did the same thing with the Schechters, by the way, the chicken family.
COLE: Yes, you bring up these far-flung characters. Before reading your book, I had never heard of the Schechters, the kosher butchers in Brooklyn prosecuted by the New Dealers, or of the black self-improvement evangelist Father Divine, or of the guy who started Alcoholics Anonymous. And one of the things I like is how you interweave these really interesting personal stories into the economic and political narrative.
SHLAES: Right. As important as Willkie are the Schechters. They were small-time butchers in New York, successful but nowhere near the level of, say, a big-city utility. Their English was limited. They liked FDR. They were prosecuted for violating codes from the National Recovery Administration. And they fought back, realizing, even as they did so, that the codes were counterproductive. This I saw only when I read the lower court case at NYU law library. What was great about the Schechters is that like many of us they were ambivalent. The relative who was especially helpful I want to mention, Glen Asner, a historian at NASA.
COLE: You show that there were a number of personal tragedies brought about by the New Deal, and that the New Dealers could be ruthless in squelching their opponents. Andrew Mellon, of course, comes to mind.
And what I think you do in your chapter on Mellon—which you also did in your article in The American—is re-evaluate.
SHLAES: Well, in the twenties, Mellon was a hero. A hero greater than Greenspan in the nineties. He was Treasury Secretary under Harding, Coolidge, Hoover—
COLE: “Three Presidents served under him,” as they say.
SHLAES: Yes, in those days the Fed was weaker, so the Treasury secretary was more like a Fed chairman.
Mellon loved to create value. First, he created value in his business, this great steel conglomerate. But he was also an early venture capitalist. He would give money to somebody with a good idea, and leave him alone. What a wonderful formula. As opposed to making the loan and checking on it every week, like a bank. He felt he could do the same with charity. And in the twenties, he was thinking about charity, and he was already becoming a great collector. He said, ‘Well, I think I’ll pick some art, and I'll create a national gallery,’ and he interacted with Herbert Hoover about this gallery and its location, on the Mall, and he had it all in his mind. And he would show that the private sector can give a better gift to the people, or as good a gift, as the public sector.
He picked paintings the way venture capitalists pick firms to invest in. Competitively. Raphael’s Madonna Alba, for example.
Mellon’s notion of charity went along with his notion of taxes. Taxation should be less important, because it is less efficient in terms of creating value, even value for everyman. Taxation stops the miracle of compounding. And we think only government can create something for everyman. What Mellon was saying is, ‘I challenge that. I trump that. I think the private sector can do something better for everyman. My building won’t be merely limestone, it will be marble.’ And that ferocity you see in his philanthropy.
He had this all in his mind in the twenties, and he bought some art from the Soviet Union, and then along came the downturn—which was not his fault—and he was scapegoated. Wright Patman was then a young congressman, who attacked him and tried to impeach him.
And FDR really turned on him. First it should be mentioned that Mellon was not only suspicious of high taxes, he was also quite a tax theorist. He wrote a wonderful book in the twenties called Taxation: The People’s Business. He disapproved of municipal bonds, the idea of their deductibility; nor did he like high rates. He was an early supply-sider. He took a business-like view. Using a railroad metaphor, he said that when it came to taxes, we should charge what the traffic will bear.
FDR and Morgenthau turned on Mellon for his tax returns. The horrifying thing about Roosevelt's assault on Mellon was that Roosevelt didn't care whether what Mellon was doing was tax evasion or tax avoidance. He didn't care whether what Mellon did was legal. He wanted to paint Mellon as a bad man, who didn't pay taxes, even though he was rich. Even if the devices that Mellon used were legal devices.
And so, Morgenthau sent Robert Jackson, who was later on the Supreme Court, and also a prosecutor at Nuremberg, after Mellon. There are some interesting exchanges in the memoirs of Treasury Secretary Henry Morgenthau, where Morgenthau insists that democracy itself is on trial in the case against Andrew Mellon. That is so extreme. And Mellon bravely fought back in court.
Meanwhile, there was a separate series of assaults on Mellon’s aluminum companies—what is now Alcoa—for antitrust. They made the end of Mellon’s life a plague, even while he was in the process of giving America the gift we have on the Mall now.
When the gift was ready, Roosevelt accepted it graciously. There was a wonderful meeting between FDR and Mellon in the winter of ’36. That was when Roosevelt had just won his astounding landslide reelection victory. Around Christmas, Mellon went to see Roosevelt, and you can imagine Mellon thinking he is probably not going to live until this president who hates him is gone, and, well, maybe Roosevelt doesn’t really matter, it is the gift that does. Mellon wants to give this to the people, so he has to tell Roosevelt about this, and make Roosevelt want it, and Roosevelt, of course, already knows, because one of the ways they were prosecuting Mellon was over the paintings, and the way he had acquired the paintings.
But Roosevelt accepted the gift in the early 1940s, and the gallery was built, and it was marble, and it’s a wonderful gallery, and the paintings in it are also of great value. What I like is that the paintings that Mellon selected were different from the art fostered by the New Deal.
The New Deal fostered New Deal realism, and the mural, and Diego Rivera, and in Mellon’s collection of paintings there was little political component to them at all. He just wanted what he considered to be the best paintings, which were European paintings, Raphael, and so on. He thought their value would compound better, and he was right.
And as all this was happening, Mellon died.
COLE: Before his building was finished.
SHLAES: And if you go to the National Gallery website, you can hear Roosevelt inaugurating the gallery.
COLE: In 1941.
SHLAES: In 1941, and it’s a beautiful speech. Did Roosevelt change, or was Roosevelt just terribly cynical? My own sense is that Roosevelt was so uncomfortable with econ that he became a better man when he was leading a war. The gallery that came from private-sector money did public-sector service in World War II. Servicemen walked there on leave. The gallery was part of what made Washington civilized in war.
COLE: How about that. It’s interesting, as you point out, that he didn’t want to call it the Mellon Gallery of Art. He gave his collection and looked to attract other great donations like the Samuel H. Kress Collection.
SHLAES: And then he said, ‘Let other people send their pieces, to join my pieces, from these various schools, and let’s not make this a monument to vanity.’
Mellon was really a great man. I recommend the Paul Mellon book about his father. And I also recommend the Cannadine book, especially for its coverage of the gallery. Some of the Mellon descendants helped Cannadine in his work, and he dug up things no one else has.
The old left allegation against Mellon was that he was bribing the government with the gallery to lay off him, to stop prosecuting him. It’s like Bill Gates: Is he bribing the government when he gives a school a gift? No. In Mellon’s case, certainly not. The idea of the gift existed when Mellon was at the peak of his power as Coolidge’s Treasury secretary.
COLE: Let’s talk about the art of the New Deal. Is there a good book on this?
SHLAES: There’s a nice biography of Hallie Flanagan.
COLE: She’s in theater, right?
SHLAES: The theater lady. There's a good book just out now by Nick Taylor, called American-Made, about the WPA. Taylor gets down into the minutiae. LaGuardia Airport construction. The art? There’s not a good book that I found about the political component of it.
COLE: That subject interests me.
SHLAES: Imagine if today there was a market crash—we may even be in one—and everyone who worked in new technology lost his job, then the federal government created a program that said, ‘I will employ all of your unemployed artist children—the photographers, the writers—I will find a job for your son.’ That’s what the WPA was like.
I enjoyed the book cowritten by Roy Stryker. He was the man who commissioned Dorothea Lange to take pictures, and she, of course, created that iconic photograph, Migrant Mother, that is our image of the Depression.
And somewhere in the text of that book, Stryker wrote that what these photographers had to do to stay on the job was make the government program look good. I’m paraphrasing again.
Now, when we think of Dorothea Lange’s Migrant Mother, we think it has the integrity of Henry Luce, and Life, or Time, or whichever periodical it first appeared in. But it was photographed by someone who was on the government payroll. And that fact is not irrelevant to the work, or to all of the other images.
It was propaganda. It was good art, but it was also propaganda.
COLE: WPA art was ideological in nature. And I think that’s a really important point you make, about how the New Deal sold itself.
SHLAES: Well, you can still love the art, and be aware that it sold itself. But it helps to be aware of the context.
COLE: And it was a completely new occurrence, I think, especially on that scale, of the U.S. government actually provisioning art.
So, at the end of the day, what do we think of the New Deal? Its lasting ramifications?
SHLAES: You can honor the New Deal. You can see how important it was to people at the time. But you also want to see its negative consequences. A commonsense foundation did a thousand-page report on the centerpiece of the New Deal, the National Recovery Administration, which was Roosevelt’s great pride, created seventy-five years ago. And it concluded that, on the whole, the NRA retarded recovery. The name of that foundation was the Brookings Institution.
COLE: What are the lasting benefits of the New Deal?
SHLAES: The idea that making markets transparent is a benefit. And that the rules should be fair. The new Securities and Exchange Commission helped us, because it made America a financial center. People knew that, in the American market, there was more of a rule of laws than men. Deposit insurance helped smooth over the banking experience, made it and the risks of life bearable to the smaller man. Even Milton Friedman approved of deposit insurance.
COLE: So, what’s next?
SHLAES: For my editor at HarperCollins, Tim Duggan, I'm writing a history of the 1960s, a companion book to The Forgotten Man. It’s called The Silent Majority. The Forgotten Man is about a battle between two speeches. The first is FDR’s speech about the Forgotten Man, which talked about the man at the bottom of the economic pyramid. The second is a much earlier, important speech and book by a philosopher named William Graham Sumner, in which Sumner spoke of the taxpayer as the Forgotten Man, the man who subsidizes the progressive project that may or may not benefit the man at the bottom of the economic pyramid.
This discussion continued. Senator Paul Douglas, who was a Democrat and a great man, the sort of Spencer Tracy of the Senate, was aware of both The Forgotten Man and The Silent Majority, and linked the concepts many decades later. So, there is a metaphorical bridge between the two books. And the Great Society, of course, is the second New Deal.
COLE: That sounds quite interesting.
SHLAES: I’m also doing, hopefully, a short write-up of the Schechter case, because the chicken case in The Forgotten Man is the Gideon’s Trumpet for the small business man. Gideon’s Trumpet is the Tony Lewis book about the right to counsel. Gideon’s Trumpet rallies people to the civil rights cause. And the Schechter case rallied for the retailer. So I am writing that out as a long essay.
Thank you for the time.
COLE: Well, this has been great.