FDR saved capitalism – now it's Obama's turn

We have to learn how to curb capitalism's excesses.

By Robert S. McElvaine

from the November 24, 2008 edition

Jackson, Miss. - A wealthy man in a fine suit and top hat fell into deep water. He didn't know how to swim and was on the verge of drowning. Hearing his cries, another man dived into the water and saved him as his top hat floated away. The man who had almost drowned regained his breath and, for a moment, seemed grateful. Three years later, though, he returned and denounced his rescuer for not saving his hat, too.

That story is one that Franklin D. Roosevelt is said to have told describing what he had done for big- business men in 1933 when, in the words of Raymond Moley, a member of Roosevelt's New Deal brain trust, "capitalism was saved in eight days." Those were the days.

Capitalism is in dire straits again. Governments around the world have been taking bold actions for weeks, but so far those actions don't seem to add up to another saving of capitalism.

The drowning businessman has again had to be pulled out of the water by the lifeguard he long disdained: the government. Once again, we see the need for some rules and regulations to keep the free market from going off the deep end.

When FDR addressed a demoralized nation at his inauguration, a de-moralized economic philosophy had caused the high-flying economy of the 1920s to go into free fall. In the days before he took office, the banking system had completely collapsed. And bankers had become the hated group.

Roosevelt prescribed principles to accomplish a restoration of honesty amid our society, applicable to re-moralizing our current demoralized economy: "The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit," he said.

Herbert Hoover asserted for years that what was needed was to bring back confidence. But Hoover, who was perhaps even less popular than bankers, had been unable to accomplish that objective.

So what did Roosevelt do to save capitalism? He did what Hoover had advocated. He eased fears and restored confidence through the power of his reassuring personality and rhetoric. The incoming president, Barack Obama, may be able to perform a similar feat.

Roosevelt "saved capitalism" by quickly pushing through Congress an emergency banking bill that would have been spurned had it been presented by Hoover. But Roosevelt had a radio "fireside chat" to discuss banking with the American people. He explained the banking situation in terms that the people could understand.

Today, President Bush is at least as unpopular as Hoover was in 1932 and 1933. With a disapproval rating above 70 percent, Mr. Bush is as incapable of leading as Hoover was late in his term. And even proposals from his Treasury secretary are now looked upon with suspicion.

When Roosevelt took office, he was in the position to condemn with authority "a generation of self-seekers"– the "unscrupulous money changers" who had used "the lure of profit" to "mislead people." He pointed out that what capitalism had to be saved from were the capitalists themselves.

Winston Churchill liked to say that democracy is the worst of all possible systems of government – except for all other systems of government that have ever been devised. In this low time for the economy, it is high time for us recognize that the same is true of capitalism: It is the worst of all possible economic systems – except for all others that have ever been thought of.

In both cases, we need to base our arrangements on these least-bad systems, but also find ways to curb their excesses. The Founding Fathers accomplished this essential goal in the American political system by creating checks and balances to guard against the dangers inherent in democracy. We need to have similar checks and balances in our economic system to guard against the dangers inherent in capitalism – dangers of which we are once again just being painfully reminded.

Capitalism can't be saved in eight days or eight years. It has to be saved from the capitalists on a continuing basis through proper regulation and by a sensible tax policy that keeps income from being heavily concentrated among the very rich.

Disappointingly, the current administration has pursued exactly the opposite policies, but this provides the new Obama administration with an opportunity similar to that of Roosevelt in 1933: to restore the system by protecting it from its self-destructive tendencies.

Robert S. McElvaine is a professor at Millsaps College and author of "The Great Depression." His latest book is "Grand Theft Jesus."