How FDR got us out of the Great Depression: Lessons for today

Conservatives and Liberals still argue about government’s role in ending the Great Depression and many people see the discussion more relevant today than ever before.  Conservatives point to a compelling 2004 study by two UCLA economics professors showing that Roosevelt’s New Deal policies actually prolonged the recovery.  Written four years before the recent crisis the report concludes that “ill conceived stimulus policies” prolonged the Depression.  But the conventional wisdom of history flows with such force that in 2008 George W. Bush dare not risk laissez faire.

The real story of how America came out of the Great Depression, and FDR’s role in the process, may be less about liberal and conservative government policies and more about good business sense than most modern ideologues might suspect.  The real story is about gold.  And FDR’s frugal, exacting, yes even “conservative,” management style.

What unfolding historic records now show is that FDR picked the British clean, that is, he rearmed Britain in her hour of need, giving her the weapons to stand up against Hitler, but only in exchange for “real wealth.”  First it was gold bullion.  At one point, when Britain dallied, claiming difficulty in getting the gold safely transported, a helpful FDR dispatched an American Battleship to Cape Town, South Africa to complete the task.  We not only took Britain’s gold, we took much of the French gold that had been smuggled out before the collapse of France and much of the Czech gold that had been smuggled out before the collapse of Czechoslovakia.

When the gold bullion was gone, we picked up anything else that wasn’t nailed down.  Two days after the British declaration of war, U.S. Treasury Secretary, Henry Morgenthau, suggested that America take possession of their prize cruise ships Queen Mary and the Normandie.  We picked up military bases on British soil around the world.  At one point, Churchill offered the American president entire islands but FDR was too shrewd for that.  It would mean caring for the natives, providing food and employment.  No, FDR just took naval bases, thank you.  And when those were all strategically selected, he took intellectual property, such as radar and the beginnings of our atomic research, a story that until now, has been conveniently ignored by history.  To hear our version, it all happened under the bleachers at the University of Chicago.  Any work of British scientists is downplayed.  The full story of the Maud Committee, which operated in Great Britain in 1940, and developed the concepts of uranium enrichment and fission bomb design, is quickly passed over.

To give you an idea of how all of this put America to work and not only primed the pump and brought us out of the Great Depression but launched us into Super Power status, consider a communiqué from British Prime Minister, Winston Churchill to Harry Hopkins, Franklin Roosevelt’s personal envoy.  The time is June, 1941, when Hitler is launching Barbarossa, his invasion of the Soviet Union.  On the 26th Churchill writes that Britain will need seven months, maybe even nine months, of all available American tank production.  Imagine, no show rooms, no salesmen, no newspaper advertising needed.  Everything being manufactured is already sold in advance.  You get a bit of the picture of how American rocketed out of the Great Depression.

Before the war was over workers at General Motors and Ford in Detroit, Michigan, Nash-Kelvinator in Kenosha, Wisconsin, Studebaker in South Bend, Indiana, were all working in shifts around the clock, manufacturing armed vehicles for the USA, Britain and the Soviet Union.  This was not government stimulus.  This was American work, productivity.  We were manufacturing something that others were willing to buy.

Many times FDR’s emissaries would return from visits to Churchill’s weekend retreat, completely convinced that the cupboard’s were empty, that there was nothing left in Britain to pay for more American production, that the British Empire had been stripped clean.  We now had a moral imperative to defend Britain freely, they would say, to save Western Civilization.  But the wily Roosevelt was always dubious.  There had to be something more, natural resources from the colonies, perhaps something more from Canada or elsewhere that can be bartered and sent our way.  Only when Great Britain was absolutely threadbare, and the Commonwealth reasonably raided as well, and FDR’s many envoys and spies assured him that there was nothing left, did he generously announce “Lend Lease,” which meant we would now finally “loan” Britain the money to buy even more from us.  That was 18 months after the beginning of World War Two.

This is not to say that we Americans were not generous.  At the end of the war, under Harry Truman we offered magnificent loans of product and equipment to Great Britain, with minimal interest.  Our Marshall Plan saved France and Germany and the rest of Europe from descending into poverty.  It alone represented a subsidy of $13 billion at a time when our national GDP was $258 billion. But rather this is to show how American production, not American deficit spending, brought us out of the Great Depression.  And how our initial management of that production created the wealth we could later shower upon the world. It was the biggest transfer of wealth in the shortest period of time in modern history.  It dwarfs what the oil cartel has done since the 1970’s.  The British finally paid back their debts to the United States in December, 2006.

Well, you might say, “Why haven’t I heard about all of this before?” And the answer is that only now are historians beginning to catch up with the truth of those years for much of it was buried as “classified” by the Anglo-American governments.  And then, interested parties had their own political reasons for crafting alternative versions.  Churchill, for example, had no desire to go down in history as the man who lost the British Empire.  Indeed as politicians often do, he successfully portrayed himself as the very opposite, the man who tried to hold it together, wrapping himself in the Union Jack and openly mourning the ongoing loss of British colonies.

Keep in mind.  Wealth is basically what people want.  It may be oil to run automobiles, or timber to build houses and schools.  In the middle ages, timber was so scarce in Great Britain that stealing wood was a hanging offense.  Just as stealing a horse was in the American West.  So wealth may be a horse, or timber, iron, oil, diamonds or gold.  And while man can often create his own wealth, such as mixing cooper with iron to create the more malleable bronze for fashioning new weapons or tools, or today building computers or automobiles in a manufacturing plant, much of the wealth of the world is natural, God given, taken from the land and then transformed by man.

The British Empire had virtually ruled the world for a hundred of its three hundred years of existence.  The sun never set on their Empire.  So for years this natural wealth flowed in ships to the British Isles or was traded with neighboring nations for something else and that resource or luxury was then brought home.  It was extracted from the earth by colonial labor, a more politically acceptable form of serfdom.  And all those years those tiny British Isles were defended by the world’s greatest navy.

Now, all of this begs the following questions.  If FDR would not accept paper notes as repayment for American loans to our English speaking brothers, if he demanded gold bullion, iron ore, oil, diamonds, timber, intellectual property, military bases, all at a time when Hitler threatened western civilization, then why would the communist regime in the People’s Republic of China accept anything less?  Why would China subsidize and finance a trillion dollar American war in Iraq and accept printed paper money, diluted in value by inflation, as its repayment?

In 1940-41, Great Britain used her wealth to buy product from the United States, the greatest manufacturer on earth.  And when she had no wealth, we loaned her the money to buy even more and indebt future generations.  Today, the United States has used its wealth to buy product from the People’s Republic of China, the greatest manufacturer on earth.  And now that we have no wealth, she is loaning us the money to buy more.

So what will China now demand in repayment?  Will she demand intellectual property?  Weapon research? Military bases? Natural resources? The British repaid us in 2006, when will we repay China?

America’s economic and political future depends on your view of history.  If you still believe that she emerged from the great depression through government deficit spending and stimulus programs, our future will be bright indeed.  For our spending today in relation to GDP is staggering and is not far off from our spending of 1941-45.  But if you believe that America worked or produced her way out of the Great Depression in exchange for “wealth.”  If you believe that the bulging gold reserves of Fort Knox made us the world’s richest nation, then we may soon find ourselves in the position of Great Britain and Europe at the end of World War Two.  They were then at the mercy of the generosity of the United States.  We will be at the mercy of the People’s Republic of China.

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15 Responses to How FDR got us out of the Great Depression: Lessons for today

  1. Tex says:

    At least we won a war during Roosevelt’s time. Now we’re using our money to pay for “shovel ready” road projects that employ illegal aliens.

  2. Jan Payne says:

    Well I believe that we never get wealthy by studying poverty and we will get out of this dilemma by being creative and looking for better ways to serve! If we spend all our time criticizing then we can not be creating…soooooo

  3. Bill Welch says:

    I really appreciate that a historian has addressed what so many of us have suspected was the failure of FDR’s programs. The fear I have is that today we have no industry to re-establish our economic wellbeing, as it seems to have all been outsourced. That, coupled with the massive debt, appears to be a prescription for self-destruction unless something is done very soon to re-establish our industrial base. Without it we are also vulnerable to foreign militaries. Thanks for the great article. I look forward to future presentations.

  4. Curt Ansell says:

    As a Canadian I was aware of some of the transactions you touched on, and learned a few more, as I trust your information.The ending of the gold standard for many countries has left many of us vulnerable economically. We are blessed with an abundance of natural resources which I fear are being exploited to our own detriment. We also need to increase our own production and manufacturing of marketable items, while keeping control and ownership. I feel that we will need each others strengths and bonds of friendship and co-operation, in order to break out of this world crisis. We are all passengers on the ship of commerce and must man the pumps or sink. Thank you Captain Wead for bringing some clarification to us of the situation.

  5. Doug you are indeed a brilliant man. I ask that you please share any cited books or documents on this.

    Also I think there is a missing factor few chime in on when discussing our economic situation.

    And that the very thing we are all reading with now. The world wide web. I don’t believe that either manufacturing nor heavy government spending will help us out of this crisis.

    The answer is in virtual real estate property and sales. Which as of now are untraceable. Perhaps our GDP lies within our ability to deliver virtual value. Whether it be to China or around the world.

  6. Michael Fitzgerald says:

    Doug this is awesome. Keep up the good work.

  7. Doug,
    You are getting very, very close the the core of our dilemma.I know there is an answer out there .
    I am grateful for your time in the research you have shared here.
    I hope that greater minds than mine will share the solution.

  8. Tammy Frost says:

    Doug,

    It is always fun to hear your point of view!

    Good hard work with a positive focus is what the world needs!

  9. Great post! Fascinating stuff.

  10. Rita Silic says:

    I find it fearful to follow the logic of Britain’s giving away the store in order to save the country and America’s attempts to buy it’s way out of debt to China by giving away its store now. It is too scary of a senario.

    China’s governmental reputation has never been one of benevolence. America gave Great Britain, in order to save face, honorable loans to purchase goods and save the country. My doubt is emmence that China would be as kind.

    America’s government has turned it’s frugal eye away from a balanced budget, prudent reserve and fairness to its citizens. Placing, instead, its focus on the preposition of serving itself at all costs.

    Hard thinking blog, Doug, thanks for writing it.

    Rita

  11. tex2 says:

    China needs us for our product demand as we need their money to fund our debt.

  12. Haley Falconett says:

    I’m curious as to what ur opinions on Obama taking after FDR in making America into a socialistic country to be.

    • Doug Wead says:

      I’m not happy. I am a free marketplace guy. At the same time, Dr. Paul has shown how many insiders rig the market. Often times “free markets” aren’t ver free. What are your thoughts?

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