Garet Garrett


There are those who still think they are holding the
pass against a revolution that may be coming up the
road. But they are gazing in the wrong direction. The
revolution is behind them. It went by in the Night of
Depression, singing songs to freedom.

There are those who have never ceased to say very
earnestly, "Something is going to happen to the
American form of government if we don't watch out."
These were the innocent disarmers. Their trust was in
words. They had forgotten their Aristotle. More than
2,000 years ago he wrote of what can happen within
the form, when "one thing takes the place of another,
so that the ancient laws will remain, while the power
will be in the hands of those who have brought about
revolution in the state."

Worse outwitted were those who kept trying to make
sense of the New Deal from the point of view of all that
was implicit in the American scheme, charging it there-
fore with contradiction, fallacy, economic ignorance,
and general incompetence to govern.

But it could not be so embarrassed and all that line
was wasted, because, in the first place, it never intended
to make that kind of sense, and secondly, it took off
from nothing that was implicit in the American scheme.
It took off from a revolutionary base. The design was
European. Regarded from the point of view of revo-
lutionary technic it made perfect sense. Its meaning
was revolutionary and it had no other. For what it
meant to do it was from the beginning consistent in

principle, resourceful, intelligent, masterly in work-
manship, and it made not one mistake.

The test came in the first one hundred days.

No matter how carefully a revolution may have been
planned there is bound to be a crucial time. That comes
when the actual seizure of power is taking place. In this
case certain steps were necessary. They were diffi-
cult and daring steps. But more than that, they had to be
taken in a certain sequence, with forethought and
precision of timing. One out of place might have been
fatal. What happened was that one followed another in
exactly the right order, not one out of time or out of

Having passed this crisis, the New Deal went on
from one problem to another, taking them in the proper
order, according to revolutionary technic; and if the
handling of one was inconsistent with the handling of
another, even to the point of nullity, that was blunder
in reverse. The effect was to keep people excited about
one thing at a time, and divided, while steadily through
all the uproar of outrage and confusion a certain end,
held constantly in view, was pursued by main intention.

The end held constantly in view was power.

In a revolutionary situation mistakes and failures
are not what they seem. They are scaffolding. Error
is not repealed. It is compounded by a longer law, by
more decrees and regulations, by further extensions of
the administrative hand. As deLawd said in The Green
Pastures, that when you have passed a miracle you
have to pass another one to take care of it, so it was
with the New Deal. Every miracle it passed, whether
it went right or wrong, had one result. Executive power
over the social and economic life of the nation was in-
creased. Draw a curve to represent the rise of executive

power and look there for the mistakes. You will not
find them. The curve is consistent.

At the end of the first year, in his annual message to
the Congress, January 4, 1934, President Roosevelt
said: "It is to the eternal credit of the American people
that this tremendous readjustment of our national life
is being accomplished peacefully."

Peacefully if possible -- of course.

But the revolutionary historian will go much further.
Writing at some distance in time he will be much less
impressed by the fact that it was peacefully accom-
plished than by the marvelous technic of bringing it to
pass not only within the form but within the word, so
that people were all the while fixed in the delusion that
they were talking about the same things because they
were using the same words. Opposite and violently
hostile ideas were represented by the same word signs.
This was the American people's first experience with
dialectic according to Marx and Lenin.

Until it was too late few understood one like Julius C.
Smith, of the American Bar Association, saying: "Is
there any labor leader, any businessman, any lawyer
or any other citizen of America so blind that he cannot
see that this country is drifting at an accelerated pace
into administrative absolutism similar to that which
prevailed in the governments of antiquity, the govern-
ments of the Middle Ages, and in the great totalitarian
governments of today? Make no mistake about it.
Even as Mussolini and Hitler rose to absolute power
under the forms of law... so may administrative
absolutism be fastened upon this country within the
Constitution and within the forms of law."

For a significant illustration of what has happened
to words -- of the double meaning that inhabits them --

put in contrast what the New Deal means when it
speaks of preserving the American system of free
private enterprise and what American business means
when it speaks of defending it. To the New Deal these
words -- the American system of free private enterprise
-- stand for a conquered province. To the businessman
the same words stand for a world that is in danger and
may have to be defended.

The New Deal is right.

Business is wrong.

You do not defend a world that is already lost. When
was it lost? That you cannot say precisely. It is a
point for the revolutionary historian to ponder. We
know only that it was surrendered peacefully, without
a struggle, almost unawares. There was no day, no
hour, no celebration of the event -- and yet definitely,
the ultimate power of initiative did pass from the hands
of private enterprise to government.

There it is and there it will remain until, if ever, it
shall be reconquered. Certainly government will never
surrenders without a struggle.

To the revolutionary mind the American vista must
have been almost as incredible as Genghis Khan's first
view of China -- so rich, so soft, so unaware.
No politically adult people could ever have been so
Little conscious of revolution. There was here no revo-
lutionary tradition, as in Europe, but in place of it the
strongest tradition of subject government that had ever
been evolved -- that is, government subject to the will
of the people, not its people but the people. Why should
anyone fear government?

In the na'ive American mind the word revolution had
never grown up. The meaning of it had not changed
since horse-and-buggy days, when Oliver Wendell

Holmes said: "Revolutions are not made by men in
spectacles." It called up scenes from Carlyle and Victor
Hugo, or it meant killing the Czar with a bomb, as he
may have deserved for oppressing his people. Defi-
nitely, it meant the overthrow of government by force;
and nothing like that could happen here. We had passed
a law against it.

Well, certainly nothing like that was going to happen
here. That it probably could not happen, and that
everybody was so sure it couldn't made everything
easier for what did happen.

Revolution in the modern ease is no longer an un-
couth business. The ancient demagogic art, like every
other art, has, as we say, advanced. It has become in
fact s science -- the science of political dynamics. And
your scientific revolutionary in spectacles regards force
in a cold, impartial manner. It may or may not be
necessary. If not, so much the better; to employ it
wantonly, or for the love of it, when it is not necessary,
is vulgar, unintelligent and wasteful. Destruction is
not the aim. The more you destroy the less there is to
take over. Always the single end in view is a transfer
of power.

Outside of the Communist party and its aurora of
radical intellectuals few Americans seemed to know
that revolution had become a department of knowledge,
with a philosophy and a doctorate of its own, a lan-
guage, a great body of experimental data, schools of
method, textbooks, and manuals -- and this was revo-
lution regarded not as an act of heroic redress in a
particular situation, but revolution as a means to power
in the abstract ease.

There was a prodigious literature of revolutionary
thought concealed only by the respectability of its dress.

Americans generally associated dangerous doctrine
with bad printing, rude grammar, and stealthy distri-
bution. Here was revolutionary doctrine in well print-
ed and well written books, alongside of beat sellers at
your bookstore or in competition with detectives on
 your news-dealer's counter. As such it was all probably
harmless, or it was about something that could happen
in Europe, not here. A little communism on the news-
stand like that might be gad for us, in fact, regarded
as a twinge of pain in a robust, somewhat reckless
 social body. One ought to read it, perhaps, just to know.
But one had tried, and what dreary stuff it had turned
out to be!

To the revolutionary this same dreary stuff was the
most exciting reading in the world. It was knowledge
that gave him a sense of power. One who mastered the
subject to the point of excellence could be fairly sure of
a livelihood by teaching and writing, that is, by im-
parting it to others, and meanwhile dream of passing
at a single leap from this mean obscurity to the prestige
of one who assists in the manipulation of great happen-
ings; while one who mastered it to the point of genius -
that one might dream of becoming himself the next

A society so largely founded on material success and
the rewards of individualism in a system of free com-
petitive enterprise would be liable to underestimate
both the intellectual content of the revolutionary thesis
and the quality of the revolutionary mind that was
evolving in a disaffected and envious academic world.
 At any rate, this society did, and from the revolution-
ary point of view that was one of the peculiar felicities
- of the American opportunity. The revolutionary mind
that did at length evolve was one of really superior in-

telligence, clothed with academic dignity, always sure
of itself, supercilious and at ease in all circumstances.
To entertain it became fashionable. You might en-
counter it anywhere, and nowhere more amusingly
than at a banker's dinner table discussing the banker's
trade in a manner sometimes very embarrassing to
the banker. Which of these brilliant young men in
spectacles was of the cult and which was of the cabal --
if there was a cabal -- one never knew. Indeed, it was
possible that they were not sure of it among them-
selves, a time having come when some were only playing
with the thought of extremes while others were in
deadly earnest, all making the same sounds. This was
the beginning of mask and guise.

The scientific study of revolution included of course
analysis of opportunity. First and always the master
of revolutionary technic is an opportunist. He must
know opportunity when he sees it in the becoming; he
must know how to stalk it, how to let it ripen, how to
adapt his means to the realities. The basic ingredients
of opportunity are few; nearly always it is how they
are mixed that matters. But the one indispensable
ingredient is economic distress, and if there is enough
of that the mixture will take care of itself.

The Great Depression as it developed here was such
an opportunity as might have been made to order. The
economic distress was relative, which is to say that at
the worst of it living in this country was better than
living almost anywhere else in the world. The pain,
nevertheless, was very acute; and much worse than
any actual hurt was a nameless fear, a kind of active
despair, that assumed the proportions of a national

Seizures of that kind were not unknown in American

history. Indeed, they were characteristic of the Ameri-
can temperament. But never before had there been one so
hard and never before had there been the danger that a
revolutionary elite would be waiting to take advantage
of it.

This revolutionary elite was nothing you could define
as a party. It had no name, no habitat, no rigid line.
The only party was the Communist Party, and it was
included, but its attack was too obvious and its prole-
tarianism too crude, and moreover, it was under the stigma
of not belonging. Nobody could say that about the
elite above. It did belong, it was eminently re-
spectable, and it knew the American scene. What it represented
was a quantity of bitter intellectual radi-
calism infiltrated from the top downward as a doctor-
hood of professors, writers, critics, analysts, advisers,
administators, directors of research, and so on -- a pre-
pared revolutionary intelligence in spectacles. There
was no plan to begin with. But there was a shibboleth
that united them all: "Capitalism is finished." There
was one idea in which all differences could be resolved,
namely, the idea of a transfer of power. For that a
united front; after that, anything. And the wine of
communion was a passion to play upon history with a
scientific revolutionary technic.

The prestige of the elite was natural for many
reasons; but it rested also upon one practical considera-
tion. When the opportunity came a Gracchus would be
needed. The elite could produce one. And that was
something the Communist Party could not hope to do.

Now given --
(1) the opportunity,
(2) a country whose fabulous wealth was in the

modern forms -- dynamic, functional, non-port-
(3) a people so politically naive as to have passed a
law against any attempt to overthrow their
government by force -- and,
(4) the intention to bring about what Aristotle
called a revolution in the state, within the frame
of existing law --

   Then from the point of view of scientific revolution-
ary technic what would the problems be?

They set themselves down in sequence as follows:

The first, naturally, would be to capture the seat of

The second would be to seize economic power.

The third would be to mobilize by propaganda the
forces of hatred.

The fourth would he to reconcile and then attach to
the revolution the two great classes whose adherence
is indispensable but whose interests are economically
antagonistic, namely, the industrial wage earners and
the farmers, called in Europe workers and peasants.

The fifth would be what to do with business --
whether to liquidate or shackle it.

(These five would have a certain imperative order in
time and require immediate decisions because they be-
long to the program of conquest. That would not be the
end. What would then ensue? A program of consolida-
tion. Under that head the problems continue.)

The sixth, in Burckhardt's devastating phrase,
would be "the domestication of individuality" -- by any
means that would make the individual more dependent
upon government.

The seventh would be the systematic reduction of all
forms of rival authority.

The eighth would be to sustain popular faith in an
unlimited public debt, for if that faith should break the
government would be unable to borrow, if it could not
borrow it could not spend, and the revolution must be
able to borrow and spend the wealth of the rich or else
it will be bankrupt.

The ninth would be to make the government itself
the great capitalist and enterpriser, so that the ulti-
mate power in initiative would pass from the hands of
private enterprise to the all-powerful state.

Each one of these problems would have two sides,
one the obverse and one the reverse, like a coin. One
side only would represent the revolutionary intention.
The other side in each case would represent Recovery --
and that was the side the New Deal constantly held up
to view. Nearly everything it did was in the name of
Recovery. But in no case was it true that for the ends
of economic recovery alone one solution or one course
and one only was feasible. In each case there was an
alternative and therefore a choice to make.

What we shall see is that in every case the choice was
one that could not fail:

(a) To ramify the authority and power of executive
government -- its power, that is, to rule by decrees and
rules and regulations of its own making;
(b) To strengthen its hold upon the economic life
of the nation;
(c) To extend its power aver the individual;
(d) To degrade the parliamentary principle;
(e) To impair the great American tradition of an
independent, Constitutional judicial power;
(f) To weaken all other powers -- the power of
private enterprise, the power of private finance, the
power of state and local government.

(g) To exalt the leader principle.

There was endless controversy as to whether the acts
of the New Deal did actually move recovery or retard it,
and nothing final could ever come of that bitter debate
because it is forever impossible to prove what might
have happened in place of what did. But a positive
result is obtained if you ask:

Where was the New Deal going?

The answer to that question is too obvious to be de-
bated. Every choice it made, whether it was one that
moved recovery or not, was a choice unerringly true to
the essential design of totalitarian government, never
of course called by that name either here or anywhere

How it worked, how the decisions were made, and
how acts that were inconsistent from one point of view
were consistent indeed from the other -- that now is the
matter to be explored, seriatim.



There was here no choice of means. The use of force
was not to be considered. Therefore, it had to be done
by ballot. That being the ease, and the factor of po-
litical discontent running very high, the single impera-
tive was not to alarm the people.

Senator Taft says that in the presidential campaign
of 1932 "the New Deal was hidden behind a program of
economy and state rights."

That is true. Nevertheless, a New Dealer might say:
"How could we tell the people what we were going to

do when we ourselves did not know?" And that also
may be true -- that they did not know what they were
going to do.

Lenin, the greatest theorist of them all, did not know
what he was going to do after he had got the power. He
made up plans as he went along, changed them if they
did not work, even reversed them, but always of course
in a manner consistent with his basic revolutionary
thesis. And so it was with Hitler, who did it by ballot,
and with Mussolini, who did it by force.

There was probably no blueprint of the New Deal,
nor even a clear drawing. Such things as the A.A.A.
and the Blue Eagle were expedient inventions. What
was concealed from the people was a general revolution-
ary intention -- the intention, that is, to bring about
revolution in the state, within the form of law. This
becomes clear when you set down what it was the
people thought they were voting for in contrast with
what they got. They thought they were voting:

For less government, not more;

For an end of deficit spending by government, not
deficit spending raised to the plane of a social principle,

For sound money, not as the New Deal afterward
defined it, but as everybody then understood it, in-
cluding Senator Glass, formerly Secretary of the Treas-
ury, who wrote the money plank in the Democratic
party platform and during the campaign earnestly
denounced as akin to treason any suggestion that the
New Deal was going to do what it did forthwith proceed
to do, over his dramatic protest.

The first three planks of the Democratic Party plat-
form read as follows:

We advocate:

"1. An immediate and drastic reduction of govern-
mental expenditures by abolishing useless commissions
and offices, consolidating departments and bureaus and
eliminating extravagance, to accomplish a saving of
not lees than 25 per cent in the cost of Federal govern-

"2. Maintenance of the national credit by a Federal
budget annually balanced....

"3. A sound currency to be maintained at all

Mr. Roosevelt pledged himself to be bound by this
platform as no President had ever before been bound
by a party document. All during the campaign he sup-
ported it with words that could not possibly be mis-
understood. He said:

"I accuse the present Administration (Hoover's) of
being the greatest spending Administration in peace
time in all American history -- one which piled bureau
on bureau, commission on commission, and has failed
to anticipate the dire needs or reduced earning power
of the people. Bureaus and bureaucrats have been re-
tained at the expense of the taxpayer.... We are
spending altogether too much money for government
services which are neither practical nor necessary. In
addition to this, we are attempting too many functions
and we need a simplification of what the Federal gov-
ernment is giving to the people."

This he said many times.

Few of the great majority that voted in November,
1982 for less Federal government and fewer Federal
functions could have imagined that by the middle of
the next year the extensions of government and the
multiplication of its functions would have been such
as to create serious administrative confusion in Wash-

ington,  which the  President, according  to  his own
words, dealt with in the following manner:

"On July eleventh I constituted the Executive Coun-
cil for the simple reason that so many new agencies
having been created, a weekly meeting with the mem-
bers of the Cabinet in joint session was imperative....
Mr. Frank C. Walker was appointed as Executive
Secretary of the Council."

Fewer still could have believed that if such a thing
did happen it would be more than temporary, for the
duration of the emergency only; and yet within a year
after Mr. Roosevelt had pledged himself, if elected, to
make a 26 per cent cut in Federal government by
"eliminating functions" and by "abolishing many
boards and commissions," he was writing, in a book
entitled On Our Way, the following:

"In spite of the necessary complexity of the group
of organizations whose abbreviated titles have caused
some amusement, and through what has seemed to
some a mere reaching out for centralized power by the
Federal government, there has run a very definite, deep
and permanent objective."

Few of the majority that voted in November 1982
for an end of deficit spending and a balanced Federal
budget could have believed that the President's second
budget message to Congress would shock the financial
reason of the country, or that in that same book, On Our
Way, he would be writing about it in a blithesome man-
ner, saying: "The next day, I transmitted the Annual
Budget Message to the Congress. It is, of course, filled
with figures and accompanied by a huge volume con-
taining in detail all of the proposed appropriations for
running the government during the fiscal year begin-
ning July 1, 1984 and ending June 80, 1985. Although

the facts of previous appropriations had all been made
public, the country, and I think most of the Congress,
did not fully realize the huge sums which would be
expended by the government this year and next year;
nor did they realize the great amount the Treasury
would have to borrow."

And certainly almost no one who voted in November,
1932 for a sound gold standard money according to
the Glass money plank in the platform could have be-
lieved that less than a year later, in a radio address
reviewing the extraordinary monetary acts of the New
Deal, the President would be saying: "We are thus
continuing to move toward a managed currency."

The broken party platform, as an object, had a
curious end. Instead of floating away and out of sight
as a proper party platform should, it kept coming back
with the tide. Once it came so close that the President
had to notice it. Then all he did was to turn it over,
campaign side down, with the words: "I was able, con-
scientiously, to give full assent to this platform and to
develop its purpose in campaign speeches. A campaign,
however, is apt to partake so much of the character of a
debate and the discussion of individual points that the
deeper and more permanent philosophy of the whole
plan (where one exists) is often lost."

At that the platform sank.

And so the first problem was solved. The seat of
government was captured by ballot, according to law.



This was the critical problem. The brilliant solution
of it will doubtless make a classic chapter in the text-
books of revolutionary technic. In a highly evolved
money economy, such as this one, the shortest and
surest road. to economic power would be what? It
would be control of money, banking, and credit. The
New Deal knew that answer. It knew also the steps
and how to take them, and above all, it knew its oppor-

It arrived at the seat of government in the midst of
that well known phenomenon called a banking crisis,
such as comes at the end of every great depression. It
is like the crisis of a fever. When the banks begin to
fail, pulling one another down, that is the worst that
can happen. If the patient does not die then he will
recover. We were not going to die. The same thing
had happened to us before, once or twice in every
twenty years, and always before the cure had brought
itself to pass as it was bound to do again.

In his inaugural address, March 4, 1933, the Presi-
dent declared that the people had "asked for discipline
and direction under leadership"; that he would seek to
bring speedy action "within my Constitutional au-
thority"; and that he hoped the "normal balance of
executive and legislative authority" could be main-
tained, and then said: "But in the event that Congress
shall fail... and in the event that the national emer-
gency is still critical... I shall ask Congress for the
one remaining instrument to meet the crisis -- broad
executive power to make war against the emergency,

as great as the power that would be given to me if we
were in fact invaded by a foreign foe."

It is true that people wanted action. It is true that
they were in a mood to accept any pain-killer, and damn
the normal balance of authority between the executive
and legislative authority. That was an emotional state
of mind perfectly suited to a revolutionary purpose,
and the President took advantage of it to make the first
startling exposition of New Deal philosophy. Note his
assertion of the leadership principle over any other.
Discipline under leadership. Note the threat to Con-
gress -- "in the event that Congress shall fail." But
who was to say if the Congress had failed? The leader,
of course. If in his judgment the Congress failed, then,
with the people behind him, he would demand war
powers to deal with an economic emergency.

The word emergency was then understood to mean
what the dictionaries said it meant -- namely, a sudden
juncture of events demanding immediate action. It
was supposed to refer only to the panic and the banking
crisis, both temporary.

But what it meant to the President, as nobody then
knew, was a very different thing. Writing a year later,
in his book, On Our Way, he said: "Strictly speaking,
the banking crisis lasted only one week.... But the full
meaning of that word emergency related to far more
than banks; it covered the whole economic and there-
fore the whole social structure of the country. It was
an emergency that went to the roots of our agriculture,
our commerce, our industry; it was an emergency that
has existed for a whole generation in its underlying
causes and for three-and-one-half years in its visible
effects. It could be cured only by a complete reorganiza-
tion and measured control of the economic structure....

It called for a long series of new laws, new adminis-
trative agencies. It required separate measures affect-
ing different subjects; but all of them component parts
of a fairly definite broad plan."

So, what the New Deal really intended to do, what it
meant to do within the Constitution if possible, with
the collaboration of Congress if Congress did not fail,
but with war powers if necessary, was to reorganize
and control the "whole economic and therefore the
whole social structure of the country." And therein lay
the meaning -- the only consistent meaning -- of a series
of acts touching money, banking and credit which,
debated as monetary policy, made no sense whatever.

The first step, three days before the new Congress
convened, was an executive decree suspending all activ-
ities of banking throughout the country. Simply, every
bank was shut up. The same decree forbade, under pain
of fine and imprisonment, any dealing in foreign ex-
change or any transfer of credit from the United States
to any place abroad, and that was to slam the door
against the wicked rich who might be tempted to run

The second step was an act of Congress, saying,
"Acts of the President and Secretary of the Treasury
since March 4, 1933, are hereby confirmed and ap-

That made everything legal after the fact: and it
was the first use of Congress as a rubber stamp. The
same act of Congress provided that no bank in the
Federal Reserve System should resume business except
subject to rules and regulations to be promulgated by
the Secretary of the Treasury, gave the President abso-
lute power over foreign exchange and authorized the
Federal government to invest public funds in private

bank stock, thereby providing banks with new capital
owned by the government. And that was the act that
authorized the President to require people to surrender
their gold. Congress did not write any of these acts.
It received them from the White House and passed

The third step was a decree by the President requir-
ing all persons and corporations whatever to divest
themselves of gold and hand it over to the government.
The law authorizing him to do that had fixed the
penalty of non-compliance at a fine equal to twice the
value of the gold. The executive decree added the
penalty of imprisonment.

In view of further intentions not yet disclosed it was
imperative for the government to get possession of all
the gold. With a lot of gold in private hands its control
of money, banking, and credit could have been seriously
challenged. All that the government asked for at first
was possession of the gold, as if it were a trust. For
their gold as they gave it up people received paper
money, but this paper money was still gold standard
money -- that is to say, it had always been exchangeable
for gold dollar for dollar, and people supposed that it
would be so again, when the crisis passed. Not a word
had yet been said about devaluing the dollar or repudi-
ating the gold standard. The idea held out was that a:
people surrendered their gold they were supporting the
nation's credit.

This decree calling in the gold was put forth or
April 5. There was then an awkward interlude. The
Treasury was empty. It had to sell some bonds. If
people knew what was going to happen they might
hesitate to buy new Treasury bonds. Knowing that it
was going to devalue the dollar, knowing that it was

going to repudiate the gold redemption clause in its
bonds, even while it was writing the law of repudiation,
the government nevertheless issued and sold to the
people bonds engraved as usual, that is, with the
promise of the United States Government to pay the
interest and redeem the principal "in United States
gold coin of the present standard of value."

The fourth step was the so-called Inflation Amend-
ment attached to the Emergency Farm Relief Act. This
law made sure that the Treasury need not be caught
that way again. It forcibly opened the tills of the
Federal Reserve Bank System to three billions of
Treasury notes, authorized three billions of fiat money
to be issued in the President's discretion, and gave the
President power in his own discretion to devalue the
dollar by one-half.

The fifth step was the act of repudiation. By reso-
lution June 5, 1933, the Congress repudiated the gold
redemption clause in all government obligations, saying
they should be payable when due in any kind of money
the government might see fit to provide; and, going
further, it declared that the same traditional re-
demption clause in all private contracts, such, for ex-
ample, as railroad and other corporation bonds, was
contrary to public policy and therefore invalid.

The sixth step was a new banking act giving the
Federal government power to say how private banks
should lend their money, on what kinds of collateral
and in what proportions, and the arbitrary power to
cut them off from credit with Federal Reserve Banks.
This arbitrary power to cut them off from credit was
a strangle hold, and it was gained by changing one
little word in the country's organic banking law. From
the beginning until then the law was that a Federal

Reserve Bank "shall" lend to a private bank on suitable
security. This word was changed to "may." Thus a
right became a privilege and a privilege that could be
suspended at will.

The seventh step -- and it was the one most oblique
-- was to produce what may be described as monetary
pandemonium. This continued for six months. To
understand it will require some effort of attention.

When by the Inflation Amendment the dollar was
cut loose from gold it did not immediately fall. That
was because, in spite of everything, it was the best
piece of money in the whole world. Well then, when the
dollar did not fall headlong of its own weight the
government began to club it down, and the club it used
to beat it with was gold. In the President's words the
procedure was like this: "I am authorizing the Recon-
struction Finance Corporation to buy newly mined gold
in the United States at prices to be determined from
time to time after consultation with the Secretary of
the Treasury and the President. Whenever necessary
to the end in view we shall also buy or sell gold in the
world market. My aim in taking this step is to establish
and maintain continuous control. This is a policy and
not an expedient."

Each morning thereafter the Treasury announced
the price the government would pay for gold in paper
dollars, one day 30 paper dollars for one ounce of gold,
the next day 32 dollars, two days later 34 dollars, and
so on; and not only the newly mined gold in this
country but anybody's gold anywhere in the world.
Thus day by day the President and the Secretary of
the Treasury determined the value of gold priced in
American paper dollars, or the value of American
paper dollars priced in gold, which was the same thing;

and how they did it or by what rule, if any, nobody
ever knew.

The spectacle of a great, solvent government paying
a fictitious price for gold it did not want and did not
need and doing it on purpose to debase the value of
its own paper currency was one to astonish the world.
What did it mean? Regarded as monetary policy it
made no meaning whatever. But again, if you will
regard it from the point of view of revolutionary tech-
nic, it has meaning enough.

One effect was that private borrowing and lending,
except from day to day, practically ceased. With the
value of the dollar being posted daily at the Treasury
like a lottery number, who would lend money for six
months or a year, with no way of even guessing what
a dollar would he worth when it came to be paid back?
"No man outside of a lunatic asylum," said Senator
Glass, "will loan his money today on a farm mortgage"
But the New Deal had a train of Federal lending
agencies ready to start. The locomotive was the Recon-
struction Finance Corporation. The signal for the
train to start was a blast of propaganda denouncing
Wall Street, the hanks and all private owners of capital
for their unwillingness to lend. So the government, in
their place, became the great provider of credit and
capital for all purposes. It loaned public funds to
farmers and home owners to enable them to pay off
their mortgages; it loaned also to banks, railroads,
business, industry, new enterprise, even to foreign bor-
rowers. Thereby private debt was converted into public
debt in a very large and popular way. It was popular
because the government, having none of the problems
of a bank or a private lender, with no fetish of solvency
a restrain it, with nothing really to lose even though

the money should never come back, was a benevolent
lender. It loaned public money to private borrowers on
terms and at rates of interest with which no bank nor
any private lender could compete; and the effect was
to create a kind of fictitious, self-serving necessity.
The government could say to the people, and did say to
them: "Look. It is as we said. The money changers,
hating the New Deal, are trying to make a credit
famine. But your government will beat them."

In a Fireside Chat, October 22, 1933, the President
said; "I have publicly asked that foreclosures on farms
and chattels and on homes be delayed until every mort-
gagor in the country shall have had full opportunity
to take advantage of Federal credit. I make the further
request, which many of you know has already been
made through the great Federal credit organizations,
that if there is any family in the United States about
to lose its home or about to lose its chattels, that family
should telegraph at once either to the Farm Credit
Administration or to the Home Owners Loan Corpora-
tion in Washington requesting their help. Two other
great agencies are in full swing. The Reconstruction
Finance Corporation continues to lend large sums to
industry and finance, with the definite objective of
making easy the extending of credit to industry, com-
merce and finance."

The other great lending agency to which he referred
was the one that dispensed Federal credit to states,
cities, towns, and worthy private organizations for
works of public and social benefit. In the same Fireside
Chat he urged them to come on with their projects.
"Washington," he said, "has the money and is waiting
for the proper projects to which to allot it."

Then began to he heard the saying that Washington

had become the country's Wall Street, which was liter-
ally true. Anyone wanting credit for any purpose went
no longer to Wall Street but to Washington. The trans-
fer of the financial capital of the nation to Washington,
the President said, would be remembered, as "one of
the two important happenings of my Administration."

What was the source of the money'! Partly it was
imaginary money, from inflation. Largely it was the
taxpayer's money. If the government lost it the tax-
payer would have to find it again. And some of it, as
the sequel revealed, was going to be confiscated money.
By this time the New Deal had got control of the public
purse. The Congress had surrendered control of it by
two acts of self-abnegation. One was the Inflation
Amendment and the other was an appropriation of
$3,300,000,000 put into the hands of the President to
do with what he liked as the architect of recovery.

All through the commotion of these unnatural events
one end was held steadily in view, and that was a
modern version of the act for which kings had been
hated and sometimes hanged, namely to clip the coin
of the realm and take the profit into the king's revenue.

The eighth step was the act of confiscation. At the
President's request the Congress, on January 30, 1934,
passed a law vesting in the Federal government abso-
lute title to all that gold which people had been obliged
to exchange for gold standard paper dollars the year
before, thinking as they did that it was for the duration
of the emergency only and that they were supporting
the nation's credit. They believed the statement issued
at the time by the Secretary of the Treasury, saying:
"Those surrendering the gold of course receive an
equivalent amount of other forms of currency and those
other forms of currency may be used for obtaining

gold in an equivalent amount when authorized for
proper purposes." Having by such means got physical
possession of the gold, it was a very simple matter for
the government to confiscate it. All that it had to do
was to have Congress pass a law vesting title in the

The ninth and last step was to devalue the dollar. In
his message to Congress asking for the law that con-
fiscated the gold the President said: "I do not believe it
desirable in the public interest that an exact value be
now fixed." Nevertheless, on January 31, 1934, the
day after the act of confiscation was passed, he did
fix the exact value of the dollar at 59 per cent of its
former gold content. The difference, which was 41
cents in every dollar of gold that had been confiscated,
was counted as government profit and took the form of
a free fund of two billions in the Treasury, called a
stabilization fund, with which the President could do
almost anything he liked. Actually it was used to take
control of the foreign exchange market out of the hands
of international finance.

Control of money, banking, and credit had passed to
Washington. Thus problem number two was solved.

The reason for giving so much attention to it is that
it was the New Deal's most brilliant feat; and certainly
not the least remarkable fact about it was the skill with
which criticism was played into making its fight on
false and baited ground. Each step as it occurred was
defended, and therefore attacked, on ground of mone-
tary policy, whereas the ultimate meaning was not
there at all.

Consider first the logical sequence of the nine steps;
consider secondly that if national recovery had been
the end in view many alternative steps were possible,

whereas from the point of view of revolutionary technic
these nine were the imperative steps and the order in
which they were taken was the necessary order. Then
ask if it could have happened that way by chance.

Not even a New Dealer any longer maintains that
the four steps directly involving gold, namely, the
seizure of it, the repudiation of the government's gold
contracts, then the confiscation of the gold, and lastly
the devaluation of the dollar, were necessary merely
as measures toward national recovery. In the history
of the case there is no more dramatic bit of testimony
than that of Senator Glass, formerly Secretary of the
Treasury, who in April, 19', rose from a sick bed and
appeared in the Senate to speak against the Inflation
Amendment. He said:

"I wrote with my own hand that provision of the
national Democratic platform which declared for a
sound currency to be maintained at all hazards....
With nearly 40 per cent of the entire gold supply of the
world, why are we going off the gold standard? With
all the earmarked gold, with all the securities of ours
they hold, foreign governments could withdraw in total
less than $700,000,000 of our gold, which would leave
us an ample fund of gold, in the extremest case, to
maintain gold payments both at home and abroad....
To me the suggestion that we may devalue the gold
dollar 59 per cent means national repudiation. To me
it means dishonor. In my conception of it, it is im-
moral... There was never any necessity for a gold
embargo. There is no necessity for making statutory
criminals of citizens of the United States who may
please to take their property in the shape of gold or
currency out of the banks and use it for their own
purposes as they may please. We have gone beyond the

cruel extremities of the French, and they made it a
capital crime, punishable at the guillotine, for any
tradesman or individual citizens of the realm to dis-
criminate in favor of gold and against their printing
press currency. We have gone beyond that. We have
said that no man may have his gold, under penalty of
ten years in the penitentiary or $10,000 fine."

And when the "gold eases" went to the United States
Supreme Court -- the unreconstructed court -- the judg-
ment was one that will he forever a blot on a certain
page of American history. The Court said that what
the government had done was immoral but not illegal.
How could that he? Because the American government,
like any other government, has the sovereign power to
commit an immoral act. Until then the American gov-
ernment was the only great government in the world
that had never repudiated the ward engraved upon its



"We must hate," said Lenin. "Hatred is the basis of
Communism." It is no doubt the basis of all mass ex-
citement. But Lenin was not himself the master propa-
gandist. How shall the forces of hatred be mobilized?
What are the first principles? These are questions that
now belong to a department of political science.

The first principle of all is to fix the gaze of hatred
upon one object and to make all other objects seem but
attributes of that one, for otherwise the force to be
mobilized will dissipate itself in many directions.

This was expounded by Hitler in Mein Kampf, where
he said: "It is part of the genius of a great leader to
make adversaries of different fields appear as always
belonging to one category. As soon as the wavering
masses find themselves confronting too many enemies
objectivity at once steps in and the question is raised
whether actually all the others are wrong and their own
cause or their own movement right.... Therefore a
number of different internal enemies must always be
regarded as one in such a way that in the opinion of
the mass of one's own adherents the war is being waged
against one enemy alone. This strengthens the belief in
one's own cause and increases one's bitterness against
the attackers."

How in a given situation to act upon this first
principle of strategy is a matter to be very carefully
explored. You come then to method and tactics, studies
of the mass mind, analysis of symbols and slogans, and
above all, skill of manipulation.

Lasswell and Blumenstock, in World Revolutionary
Propaganda, define propaganda as "the manipulation
of symbols to control controversial attitudes." Symbols
they define as "words and word substitutes like pictures
and gestures." And the purpose of revolutionary prop-
aganda "is to arouse hostile attitudes toward the
symbols and practices of the established order."

It may be however that people are so deeply attached
by habit and conscience to the symbols of the established
order that to attack them directly would produce a bad
reaction. In that case the revolutionary propagandist
must be subtle. He must know how to create in the
mass mind what the scientific propagandist calls a
"crisis of conscience." Instead of attacking directly
those symbols of the old order to which the people are

attached he will undermine and erode them by other
symbols and slogans, and there others must be such as
either to take the people off guard, or, as Lasswell and
Blumenstock say, they must be "symbols which appeal
to the conscience on behalf of symbols which violate the

This is an analytic statement and makes it sound
extremely complex. Really it is quite simple. For
example, if the propagandist said, "Down with the
Constitution!" -- bluntly like that -- he would be defeat-
el because of the way the Constitution is enshrined in
the American conscience. But he can ask: "Whose
Constitution?" That question may become a slogan. He
can ask; "Shall the Constitution be construed to hold
say it is." And that creates an image, which is a symbol
He can ask: "shall the Constitution be construed to hold
property rights above human rights?" Or, as the Presi-
dent did, he may regretfully associate the Constitution
with "horse-and-buggy days."

The New Deal's enmity for that system of free and
competitive private enterprise which we call capitalism
was fundamental. And this was so for two reasons,
namely: first, that its philosophy and that of capitalism
were irreconcilable, and secondly, that private capital-
ism by its very nature limits government.

In Russia capitalism, such as it was there, could be
attacked directly. The people were not attached to it
in any way. In this country it was very different.
Americans did not hate capitalism. They might criti-
cise it harshly for its sins, most of which were sins of
self-betrayal, but its true symbols nevertheless were
deeply imbedded in the American tradition, and, more-
over, a great majority of the people were in one way or
another little capitalists. To have said, "Down with

capitalism!" or, "Down with free private enterprise!"
would have been like saying, "Down with the Consti-
tution!" The attack, therefore, had to be oblique.

In his first inaugural address, March 4, 1933, the
President said: "Values have shrunk to fantastic
levels; taxes have risen; our ability to pay. has
fallen;... the withered leaves of industrial enterprise
lie on every side; farmers find no market for their
produce; the savings of many years in thousands of
families are gone. More important, a host of unem-
ployed citizens face the grim problem of existence, and
an equally great number toil with little return.... Yet
our distress comes from no failure of substance....
Nature still offers her bounty. Plenty is at our door-
step, but a generous use of it languishes in the very
sight of the supply. Primarily this is because the rulers
of the exchange of mankind's goods have failed,...
have admitted their failure and have abdicated. Prac-
tices of the unscrupulous money-changers stand indict-
ed in the court of public opinion, rejected by the hearts
and minds of men.... They know only the rules of a
generation of self-seekers.... Yes, the money-changers
have fled from their high seats in the temple of our civil-
ization. We may now restore that temple to the ancient
truths. The measure of that restoration lies in the
extent to which we apply social values more noble than
mere monetary profit."

There was the pattern and it never changed. The one
enemy, blameable for all human distress, for unemploy-
ment, for low wages, for the depression of agriculture, .
for want in the midst of potential plenty -- who was he?
The money-changer in the temple. This was a Biblical
symbol and one of the most hateful With what modern
symbol did this old and hateful one associate? With the

Wall Street banker, of course; and the Wall Street
banker was the most familiar and the least attractive
symbol of capitalism.

Therefore, capitalism, obliquely symbolized by the
money-changer scourged out of the temple, was entirely
to blame; capitalism was the one enemy, the one object
to be hated. But never was it directly stacked or
named; always it was the old order that was attacked.
The old order became a symbol of all human distress.
"We cannot go back to the old order," said the Presi-
dent. And this was a very hateful counter symbol,
because the old order, never really defined, did in fact
associate in the popular mind with the worst debacle in
the history of capitalism.

It was never the capitalist that was directly attacked.
Always it was the economic royalist, the brigand of
the skyscrapers, the modern tory -- all three hateful
counter symbols. The true symbols of the three com-
petitive systems in which people believed were severely
let alone. The technique in every case was to raise
against them counter symbols. Thus, against the in-
violability of private property was raised the symbol
of those who would put property rights above human
rights; and against all the old symbols of individual-
ism and self-reliance was raised the attractive counter
symbol of security.

To bring hatred to bear upon the profit motive there
were two techniques. One was to say, as the President
said in his first inaugural, that social values were more
noble than mere monetary prost, as if in any free
scheme you could have social gains without plenty of
mere monetary profit; the other was to speak only of
great profits, as if in a free profit and lass system you

could have little profits and little losses without big
profits and big losses.

It is not unnatural for people to think envious
thoughts about large profits, and envious thoughts are
very easy to exploit, as every demagogue knows. But
no government before the New Deal had ever deliber-
ately done it. In a home-coming speech to his Dutchess
County neighbors, in August, 1933, the President ex-
plained why it had seemed necessary for the New Deal
to limit personal liberty in certain ways. It was to
make all men better neighbors in spite of themselves;
and as if this were no new thing he said: "Many years
ago we went even further in saying that the govern-
ment would place increasing taxes on increasing profits
because very large profits were, of course, made at the
expense of the neighbors and should, to some extent at
least, he used for the benefit of the neighbors."

Large profit as such becomes therefore a symbol of
social injury, merely because it is large; moreover, it
is asserted that large profit had long been so regarded
by the government and penalized for that reason.

Of all the counter symbols this was the one most
damaging to the capitalistic system. Indeed, if it were
accepted, it would be fatal, because capitalism is a
profit and loss system and if profits, even very large
profits, are socially wrong, there is nothing more to
be said for it. But it was a false symbol, and false for
these three reasons, namely: first, there is no measure
of large profit; second, large profits are of many kinds
and to say simply that large profits are "of course made
at the expense of the neighbors" is either nonsense or
propaganda, as you like; and; in the third place, the
history is wrong.

When the Federal government many years ago im-

posed a graduated income tax -- that is, taxing the rich
at a higher rate than the well-to-do and taxing the poor
not at all, the idea was not that large profits or large
incomes were gained at the expense of one's neighbor,
not that the rich were guilty because they were rich.
The idea was to impose taxes according to the ability
to pay. The well-to-do could afford to pay more than
the poor and the rich could afford to pay more than the
well-to-do, and that was all.

What made it all so effective was that this was the
American people's first experience with organized
government propaganda designed "to arouse hostile
attitudes toward the symbols and practices of the estab-
lished order" -- and that, if you will remember, was the
most precise definition of revolutionary propaganda
that Lasswell and Blumenstock could think of in their
scientific study of World Revolutionary Propaganda.



This is the problem for which revolutionary theory
has yet to find the right solution, if there is one. The
difficulty is that the economic interests of the two
classes are antagonistic. If you raise agricultural prices
to increase the farmer's income the wage earner has to
pay more for food. If you raise wages to increase the

wage earner's income the farmer has to pay more for
everything he buys. And if you raise farm prices and
wages both it is again as it was before. Nevertheless,
to win the adherence which is indispensable you have to
promise to increase the income of the farmer without
hurting the wage earner and to increase the wage
earner's income without hurting the farmer. The only
solution so far has been one of acrobatics. The revolu-
tionary party must somehow ride the see-saw.

In Russia it was the one most troublesome problem.
The peasants understood at first that there was to be
a free distribution of land among them. When the
Bolshevik regime put forth its decrees to abolish pri-
vate property and nationalize the land the peasants
went on taking the big estates, dividing the land and
treating it as their own; and for a while the govern-
ment had to let them alone. To have stopped them
at once would have hurt the revolution. And when
at length the government did come to deal with the
peasants as if they were its tenants, whose part was
to produce food not for profit but for the good of the
whole, the revolution all but died of hunger.

The American farmer was a powerful individualist,
with a long habit of aggressive political activity. His
complaint was that his relative share of the national
income had shrunk and was in all reason too little. This
was from various causes, notably, (1) the world-wide
depression of agriculture, (2) the low level of farm
prices in a market where competition acted freely, and
(3) the relative stability of industrial prices in s
market that enjoyed tariff protection against world
competition. Everything the farmer sold was too
cheap; everything he bought was too dear. What he
complained of really, though he did not. always put it

that way, was the economic advantage of the industrial
wage earner.

The New Deal was going to redistribute the national
income according to ideals of social and economic
justice. That was the avowed intention. And once it
had got control of money, banking, and credit it could
in fact redistribute the national income almost as by
a slide rule. The trouble was that if it gave the farmer
a large share and left the wage earner's share as it was
it would lose the support of labor, And if it used its
power to raise all prices in a horizontal manner, ac-
cording to the thesis of reflation, the economic injustice
complained of by the farmer would not be cured.

The solution was a resort to subsidies. If the prices
the farmer received were not enough to give him that
share of the national income which he enjoyed before
the world-wide depression of agriculture, the difference
would be made up to him in the form of cash subsidy
payments out of the public treasury. The farmer on
his part obliged himself to curtail production under
the government's direction; it would tell him what to
plant and how much. The penalty for not conforming
was to be cut off from the stream of beautiful checks
issuing from the United States Treasury, The pro-
cedure was said to be democratic. It is true that a
majority of farmers did vote for it when polled by the
Federal county agents. The subsidies were irresistible.
More income for less work and no responsibility other
than to plant and reap as the government said. Never-
theless, it led at once to compulsion, as in cotton, and it
led everywhere to coercion of minorities.

The total subsidy payments to farmers ran very
high, amounting in one year to more than eight hundred
million dollars. And beside these direct subsidy pay-

ments, the government conferred upon the farmer the
benefit of access to public credit at very low rates of
interest with which to refund its mortgages.

Actually, the farmer's income was increased. That
was statistically apparent. Whether his relative share
of the national income was increased, beyond what it
would have been, is another matter. On the whole,
probably not. For when the New Deal had done this
for the farmer it had to do the equivalent or more for
labor, and anything it did to increase labor's share
would tend to raise the coat of everything the farmer
bought. There was the see-saw again.

What the New Deal did for labor was to pass a series
of laws the purpose of which was to give organized
labor the advantage in its bargaining with the em-
ployer. As these laws were construed and enforced
they did principally three things. They delivered to
organized labor a legal monopoly of the labor supply;
they caused unionism to become in fact compulsory,'
and they made it possible for unions to practice intimi-
dation, coercion, and violence with complete immunity,
provided only it was all in the way of anything that
might be called a labor dispute. The underlying idea
was that with this power added to it, together with a
minimum wage and hour act that made overtime a
way of fattening the pay envelope, organized labor
could very well by its own exertions increase its share
of the national income enough to equal or to overcome
the farmer's new advantage. And this organized labor
proceeded forthwith to do.

But there was at the same time an indirect subsidy
to organized labor much greater than the direct subsidy
paid to the farmer. Federal expenditures for work
relief, amounting in the average to more than two

billions a year, must be regarded as a subsidy to or-
ganized labor. The effect was to keep eight or ten
million men off the labor market, where their compe-
tition for jobs would have been bound to break the wage
structure. Thus union labor's monopoly of the labor
supply was protected.

Both the subsidies to agriculture and those to labor
came out of the United States Treasury, and since the
money had to be borrowed by the government and
added to the public debt, you would hardly say the
solution was either perfect or permanent. But from
the point of view of revolutionary technic that did not
matter provided certain other and more important ends
were gained. What would those other ends be? One
would be the precedent of making the Federal govern-
ment divider of the national income; another would be
to make both the farmer and the union wage earner
dependent upon the government -- the farmer for hie
income and union labor for its power. Neither the
farmer who takes income from the government nor
the union wage earner who accepts from the govern-
ment a grant of power is thereafter free.



There was a Director of the Budget who was not
at heart a New Dealer. One day he brought to the
President the next annual budget -- the one of which
the President afterward said: "The country, and I
think most of Congress, did not fully realize the large

sums which would be expended by the government this
year and next, nor did they realize the great amount
the Treasury would have to borrow."

At the end of his work the Director of the Budget
had written a paragraph saying simply and yet in a
positive manner that notwithstanding the extraordi-
nary activities indicated by the figures and by the
appropriations that were going to be made, the govern-
ment had really no thought of going into competition
with private enterprise.

Having lingered for some time over this paragraph
the President said: "I'm not so sure we ought to say

The Director of the Budget asked, "Why not, Mr.

The President did not answer immediately, but one
of his aides who had been listening said: "I'll tell you
why. Who knows that we shall not want to take over
all business?"

The Director of the Budget looked at the President,
and the President said: "Let's leave it out." And of
course it was left out.
It may have been that at that time the choice was
still in doubt. Under the laws of Delaware the govern-
ment had already formed a group of corporations with
charter powers so vague and extremely broad that they
could have embraced ownership and management of all
business. They were like private corporations, only
that their officers were all officers of the government,
and the capital stock was all government owned. The
amount of capital stock was in each case nominal;
it was of course expansible to any degree. Why they
were formed or what they were for was never ex-
plained. In a little while they were forgotten.

Business is in itself a power. In a free economic
system it is an autonomous power, and generally hostile
to any extension of government power. That is why a
revolutionary party has to do something with it. In
Russia it was liquidated; and although that is the short
and simple way, it may not turn out so well because
business is a delicate and wonderful mechanism; more-
over, if it wi11 consent to go along it can be very helpful
Always in business there will be a number, indeed, an
astonishing number, who would sooner conform than
resist, and besides these there will be always a few
more who may be called the Quislings of capitalism.
Neither Hitler nor Mussolini ever attempted to liqui-
date business. They only deprived it of its power and
made it serve.

How seriously the New Deal may have considered
the possibility of liquidating business we do not know.
Its decision, at any rate, was to embrace the alterna-
tive; and the alternative was to shackle it.

In his second annual message to Congress the Presi-
dent said: "In the past few months, as a result of our
action, we have demanded of many citizens that they
surrender certain licenses to do as they please in their
business relationships; but we have asked this in ex-
change for the protection which the State can give
against exploitation by their fellow men or by combi-
nations of their fellow men."

Not even business would be asked to surrender its
liberties for nothing. What was it going to receive in
exchange? Protection against itself, under the eye of
the Blue Eagle.

That did not last. The Blue Eagle came and went.
Gen. Hugh Johnson, the stormy administrator of the
NRA, said afterward that it was already dying when

the Supreme Court cut off its head. Yet business was
not unshackled. After all, one big shackle for all busi-
ness was clumsy and unworkable. There were better

Two years later the President was saying to Con-
gress: "In thirty-four months we have built up new
instruments of public power." Who had opposed this
extension of government power? He asked the question
and answered it. The unscrupulous, the incompetent,
those who represented entrenched greed -- only these
had opposed it. Then he said: "In the hands of a
people's government this power is wholesome and
proper. But in the hands of political puppets, of an
economic autocracy, such power would provide shackles
for the liberties of the people."

There, unconsciously perhaps, is a complete state-
ment of the revolutionary thesis. It is not a question of
law. It is a question of power. There must be a trans-
fer of power. The President speaks not of laws; he
speaks of new instruments of power, such as would
provide shackles for the liberties of the people if they
should ever fall in other hands. What then has the
government done? Instead of limiting by law the
power of what it calls economic autocracy the govern-
ment itself has seized the power.



This was not a specific problem. It was rather a line
of principle to which the solution of every other prob-
em was referred. As was said before, in no problem

to be acted upon by the New Deal was it true that one
solution and one only was imperative. In every case
there was some alternative. But it was as if in every
ease the question was, "Which course of action will
tend more to increase the dependence of the individual
upon the Federal government?" -- and as if invariably
the action resolved upon was that which would appeal
rather to the weakness than to the strength of the

And yet the people to be acted upon were deeply
imbued with the traditions and maxims of individual
resourcefulness -- a people who grimly treasured in
their anthology of political wisdom the words of Grover
Cleveland, who vetoed a Federal loan of only ten thou-
sand dollars for drought relief in Texas, saying: "I
do not believe that the power and duty of the general
Government ought to be extended to the relief of in-
dividual suffering.... A prevalent tendency to disre-
gard the limited mission of this power should, I think,
be steadfastly resisted, to the end that the lesson should
be constantly enforced that though the people support
the Government the Government should not support
the people.... Federal aid in such eases encourages the
expectation of paternal care on the part of the Govern-
ment and weakens the sturdiness of our National char-

Which was only one more way of saying a hard truth
that was implicit in the American way of thinking,
namely, that when people support the government they
control government, but when the government supports
the people it will control them.

Well, what could be done with a people like that? The
answer was propaganda. The unique American tra-

dition of individualism was systematically attacked
by propaganda in three ways, as follows:

Firstly, by attack that was direct, save only for the
fact that the word individualism was qualified by the
uncouth adjective rugged; and rugged individualism
was made the symbol of such hateful human qualities
as greed, utter selfishness, and ruthless disregard of
the sufferings and hardships of one's neighbors;

Secondly, by suggestion that in the modern environ-
ment the individual, through no fault or weakness of
hie own, had become helpless and was no longer able to
cope with the adversities of circumstances. In one of
his Fireside Chats, after the first six months, the Presi-
dent said: "Long before Inauguration Day I became
convinced that individual effort and local effort and
even disjointed Federal effort had failed and of neces-
sity would fail, and, therefore, that a rounded leadership
by the Federal Government had become a necessity
both of theory and of fact." And,

Thirdly, true to the technic of revolutionary propa-
ganda, which is to offer positive substitute symbols,
there was held out to the people in place of all the old
symbols of individualism the one great new symbol of

After the acts that were necessary to gain economic
power the New Deal created no magnificent new agency
that had not the effect of making people dependent
upon the Federal government for security, income,
livelihood, material satisfactions, or welfare. In this
category, its principal works were these:

For the farmer, the AAA, the FCA, the CCC, the
FCI, the AMA, and the SMA, to make him dependent
on the Federal government for marginal income in the

form of cash subsidies, for easy and abundant credit,
and for protection in the market place;

For the landless, the FSA, making them dependent
upon the Federal government for a complete way of
life which they did not always like when the dream
came true;

For union labor, the NLRB, making it dependent on
the Federal government for advantage against the
employer in the procedures of collective bargaining,
for the closed shop, and for its monopoly of the labor

For those who sell their labor, whether organized or
not, the FLSA-WHD (minimum wages and minimum
hours), making the individual dependent on the
Federal government for protection (1) against the
oppressive employer, (2) against himself lest he be
tempted to cheapen the price of labor, and (3) against
the competition of others who might be so tempted.
Thus for better or worse the freedom of contract be-
tween employee and employer was limited.

For the unemployed, to, any number, the WPA,
making them directly dependent on the Federal gov-
ernment for jobs, besides that they were kept off the
labor market;

For the general welfare and to create indirect em-
ployment, the PWA, causing states, cities, towns,
counties, and townships to become dependent upon the
Federal government for grants in aid of public works;

For home owners in distress, the HOLC, making
them dependent on the Federal government for tempo-
rary out-door employment, rehabilitation, and voca-
tional training, besides that these too, were kept off the
labor market;

For bank depositors, the FDIC, making them de-

pendent on the Federal government for the safety of
their bank accounts;

For the investors, the SEC, making them dependent
on the Federal government for protection against the
vendors of glittering securities;

For the deep rural population, the REA and the
RHFA, making them dependent on the Federal gov-
ernment for electrical satisfactions at cost or less;

For those who live by wages and salaries the SSB,
making them dependent on the Federal government
for old-age pensions and unemployment insurance; also
for stern protection against the consequences of their
own personal thriftlessness, since half of what goes into
the social security reserve fund is taken out of their pay
envelopes by the government, whether they like it or
not, the government saying to them, "We will save it
for you until your winter comes." And since there is
no saying anything back to the government this be-
comes compulsory thrift.

No individual life escaped, unless it was that of a
desert rat or cave dweller.

It was thus that the hand of paternal government,
leaving first seized economic power, traced the indelible
outlines of the American Welfare State.

In the welfare state the government undertakes to
see to it that the individual shall be housed and clothed
and fed according to a statistical social standard, and
that he shall be properly employed and entertained, and
in consideration for this security the individual accepts
in place of entire freedom a status and a number and
submits his life to be minded and directed by an all-
responsible government.

When New Dealers speak in one breath of a welfare

economy and with the next breath bitterly denounce
pressure groups it may seem that they involve them-
selves in an ironical dilemma. It is easy to say: "What
would you expect, since you have made division of the
national income a matter of political bargaining where
before it had been always a matter of economic bar-

Yet they are right, the New Dealers. In the welfare
state pressure groups, representing willful political
action, cannot be tolerated. They will have to be sup-
pressed at last, because in the welfare state the govern-
ment cannot really guarantee social security until it
goes to the logical end, which is to ration the national
income in time of peace just as all goods and satis-
factions are rationed in time of war.



The attack on this problem was progressive, with
changing features, but the strategy throughout was
consistent. The principal forms of rival authority were
these four:

The Congress,
The Supreme Court,
Sovereign States, and,
Local Self-Government, for which we may take the
symbol to be the County Court House.

The Congress is the law-making power. Under the
Constitution, which is the supreme organic law, there

is no Federal law-making power but the Congress.
What it represents is the parliamentary principle in
free government.

It is the function of the Supreme Court, representing
the judicial principle, to interpret the laws when the
question is raised whether or not an act of Congress is
contrary to the supreme organic law, which is the
Constitution, and which only the people can change.

It is the function of the President, representing the
executive principle, to execute the laws.

Lastly, each state in the Union has certain sovereign
rights; these are rights which in the beginning no state
was willing to surrender to the Federal government.

Such is the form of the American government. The
idea was that it should be a government of law, not a
government of men.

In the special session called by the President to
launch the New Deal the Congress for the first time
was under the spell of executive leadership and em-
braced the leadership principle. It did not write the
New Deal laws. It received them from the White
House, went through the motions of passing them, en-
grossed them, and sent them back to the President.
That was called the rubber stamp Congress. So long as
it was content to keep that role everything was lovely.
In the book On Our Way the President wrote: "In the
early hours of June sixteenth, the Congress adjourned.
I am happy once more to pay tribute to the members
of the Senate and House of Representatives of both
parties who so generously and loyally co-operated with
me in the solution of our joint problems."

Loyalty of the law-making power to the executive
power was one of the dangers the political fathers fore-

In that special session the Congress had surrendered
to the President its one absolute power, namely, control
of the public purse; also in creating for the New Deal
those new instruments of power demanded by the
President it delegated to him a vast amount of law-
making power -- so much in fact that from then on the
President and the agencies that were responsible to
him made more law than the Congress The law they
made was called administrative law. Each new agency
had the authority to issue rules and regulations having
the force of law. After that for a long time nobody
knew what the law was or where it was, not even the
government knew, because the law might he a mimeo-
graphed document in the drawer of an administrator's
desk. When this confusion became intolerable a rule
was made that all pronouncements of administrative
law should be printed in a government publication
called The Register. That was some improvement,
because then if you wanted to know what the law was
it was necessary, besides consulting the statute books,
only to search the files of The Register.

In the next regular session of Congress the spell
began to break, and ever since, with increasing anxiety,
it has been running after the power and prestige it
surrendered. But the minute it began to do that all
the New Deal's power of propaganda was turned
against it, in derision, belittlement, and defamation;
and in every struggle over principle it was adroitly
maneuvered into the position of seeming to stand
against the people for wrong reasons, on mere pretense
of principle. The attack upon Congress was designed
both to undermine the parliamentary principle and to
circumscribe the political rights of people.

It is a long story, but well summarized in the report

of a specia1 committee of the House of Representatives
appointed to investigate un-American activities. It

"The effort to obliterate the Congress of the
United States as a co-equal and independent
branch of our government does not as a rule take
the form of a bold and direct assault. We seldom
hear a demand that the powers with which Con-
gress is vested by the Constitution be transferred
m toto to the executive branch of our government,
and that Congress be adjourned in perpetuity.
The creeping totalitarianism by which we are
menaced proceeds with subtler methods. The
senior United States Senator from Wyoming has
called attention to the work of men who 'in the
guise of criticizing individual members of Con-
gress are actually engaged in the effort to under-
mine the institution itself.' Many of the efforts
to purge individual members of Congress are
based upon an assumption which reflects discredit
upon the entire legislative branch of government.
That assumption consists of the view that the sole
remaining function of Congress is to ratify by
unanimous vote whatever wish is born anywhere
at any time in the whole vast structure of the
executive branch of Government down to the last
whim of any and every administrative official....
Over a large part of the world today democracy
has been long dead. Political processes which once
assured the common man some degree of genuine
participation in the decisions of his government
have been superseded by a form of rule which we
know as the totalitarian state. The essence of
totalitarianism is the destruction of the parlia-
mentary or legislative branch of government. The
issue simply stated is whether the Congress of the
United States shall be the reality or the relic of
American democracy."

No one can have forgotten the bitterness of the
struggle over the New Deal's attempt to pack the Su-
preme Court after it had killed the Blue Eagle. Nor can
anyone who saw it forget the spectacle of C.I.O. strik-
ers, massed in Cadillac Square, Detroit, intoning with
groans the slogan prepared by New Deal propagan-
dists: "Nine old men. Nine old men." That was col-

At this point the President suffered his first serious
defeat. The Congress would not pass his court-packing
law. It did not dare to EBB it. Public opinion was too
much aroused. Nevertheless, it was possible two years
later for the President to boast that he had won.
Vacancies on the bench caused by death and retirement
enabled him to fill it up with justices who were New-
Deal minded, and so at last he did capture the judicial

Reduction of the sovereign power of states was ac-
complished mainly in four ways, as follows:

One, by imposing Federal features on the social
security systems of the states and making the adminis-
tration of old-age pensions and unemployment in-
surance a function of the Federal government;

Two, by enormous grants in aid out of the Federal
Treasury to the states on condition in every ease that
the states conform to Federal policies, the state govern-
ments, under popular pressure to accept Federal funds
because they looked like something for nothing, finding
it very difficult to refuse;

Three, the regional design for great Federal works
and the creation of regional authorities like the T.V.A.,
with only a trivial respect for the political and property
rights of the overlaid states, and,

Four, by extreme and fantastic extensions of the
interstate commerce clause.

The Constitution says that the Congress shall have
the power "to regulate commerce with foreign nations,
among the several states, and with the Indian tribes."
That is the famous clause. Commerce among the
several states is of course interstate commerce. Now,
when the New Deal undertook to regulate wages or
hours or labor conditions in the nation, it did not write
a law saying that such should be the minimum national
wage or such the minimum national day's work, nor
that the rules of the National Labor Relations Board
should govern all employee-employer relations through-
out the nation. Not at all. It could hardly say that with-
out first tearing up the Constitution. What it did say
was that only such goods as were produced under con-
ditions that conformed to the Federal law -- only those
and no other -- should be permitted to move in interstate
commerce. And then the New Deal courts stretched the
definition of interstate commerce to the extreme of say-
ing that the Federal government may regulate a wheat
farmer who feeds his own wheat to his own chickens,
on the ground that if he had not raised his own wheat
he would have had to buy wheat for his chickens and
buying it would be in the way of interstate commerce;
or, that the Federal government may regulate the hours
and wages of elevator operators, janitors, and char-
women in a Philadelphia office building because some
of the building's tenants are engaged in interstate com-

On the reduction of local self-government, hear the
Governor of Kansas. He was visiting Iowa and made
a speech in Des Moines. Twenty years ago, he recalled,
the county -- for example, the one in Kansas where he

began to practice law -- offered an almost perfect ex-
ample of responsible self-government.

"We were able, I believe, to do a reasonably good
job of local government. In meeting and solving our
problems we looked to the state government very little
and to the national government not at all. The citizens
of the county knew who their elected officers were.
They came and talked with us frequently. We knew
their difficulties. We dealt with them across the desk,
over the counter, and sometimes down at the corner
drug store. They had definite opinions about the affairs
of the county. They spoke their minds freely and they
registered their approval and disapproval directly at
the polls on the second Tuesday of the next November.
There was no doubt and no uncertainty about it.

"Now, that has been a matter of only about twenty
years -- a short time indeed in the history of people.
But in that twenty years there has taken place a most
astonishing change. The court house is the same. The
theoretical structure of county government is un-
altered. But in practical operation the picture now is
very different. Federal agencies are all around us.
There is scarcely a problem presented to the county
officials of today which is not either directly or in-
directly involved with implications and issues related
occasionally to state, but more often to Federal, regu-
lation. There are Federal offices in the basement and
in the corridors on the second floor. Except during the
regular term of court there are extra employees of
some Federal agency in the court room. A couple of
Federal auditors or investigators are usually using the
jury room. The whale warp and woof of local govern-
ment is enmeshed in the coils of bureaucratic control
and regulation.

"And that is only the story so far as county govern-
ment is concerned. You know that parallels could be
drawn in our cities, in our educational districts, and
even more clearly in our state capitals. Let me cite just
one example. In 1874 the western part of Kansas suf-
fered a very severe calamity in the form of a horde of
grasshoppers. Our state was young, only thirteen
years old. The ravages of the grasshopper threatened
the livelihood of many of the settlers. Upon that occa-
sion the Governor called a special session of the legis-
lature. It met, considered the problem and enacted
proper legislation for relief and aid... and a disaster
was averted.

"If that same situation should occur today we all
know what would happen. It would take practically a
photo finish to determine which would land first -- the
grasshoppers or a horde of Federal agents. The state
and the county would have absolutely and exactly
nothing to say about it. The policy and the means and
the method of dealing with the problem would all be
determined in Washington, D.C. The benefits, all from
the Federal Treasury, in such manner and such form as
Washington should dictate, would come to the farmers
without their scarcely knowing what it was about --
and we take it for granted. The other day a great
number of farmers in my state did receive Federal
checks, and dozens of them were wondering what in
the world they were for, as they knew of no payment
that was due under any of the existing programs in
which they were participating."



This problem has its greatest importance in the first
few years. Ultimately the welfare state outgrows it
because the perfect welfare state must in the end ration
the national income, and when it does that money comes
to be like coupons in a war-time ration book. At first,
however, the government must borrow heavily. In
order to transfer wealth from the few to the many --
wealth in the modern forms, so largely imponderable
and non-portable -- it must be able to borrow and spend,
and unless people who have savings to lend believe in
the public credit and trust it the government cannot
borrow. If it cannot borrow in order to spend the revo-
lution will be bankrupt in the preface. That is why in
the second and third months, with the Treasury empty,
the New Deal was obliged to sell government bonds
under the false promise to pay the interest and redeem
the interest in gold dollars -- a promise it was preparing
to repudiate.

Well, the rest is simple because the method was

For a while, and to the limits of credulity, the New
Deal kept saying it was going to balance the Federal
budget -- honest to goodness it was, and anybody who
said to the contrary belonged to darkness. In July of
the first year the President said: "It may seem incon-
sistent for a government to cut down in regular ex-
penses and at the same time to borrow and to spend
billions for an emergency. But it is not inconsistent,
because a large portion of the emergency money has

been paid out in the form of sound loans which will be
repaid to the Treasury over a period of years; and to
cover the rest of the emergency money we have imposed
taxes to pay the interest and the installments on that
part of the debt."

If true, that would mean a solvent government with
a balanced budget; but it wasn't true.

At the beginning of the second year, going to the
Congress with a budget that stunned all old-fashioned
ideas of public finance, the President blandly postponed
a balanced budget for two years, and said afterward to
the people: "Nevertheless, the budget was made so
clear that we were able to look forward to the time,
two years from now, when we could hope the govern-
ment would be definitely on a balanced financial basis,
and could look forward also to the commencement of
reduction of the national debt." And that was the end
of that line.

The second line was a resort to the European device
of double bookkeeping. There were two budgets. The
one representing the ordinary expenditures of govern-
ment was balanced. The other one, representing extra-
ordinary expenditures, for recovery and so on -- that
one would have to be regarded separately for a while.
It would be balanced when recovery had been really
achieved and when the national income could stand it.
That was the line for several years.

The third line was the idea of the investment state.
The government's continued deficit spending; with
enormous additions to the public debt, was not what
it seemed. Actually, whether you could account for it
physically or not, the debt was balanced by assets. The
government was investing its borrowed funds not only
in the things you could see everywhere -- beautiful and

socially useful things that were not there before; it was
investing also in the health and welfare and future
happiness of the whole people. If there was any better
investment than that, or one likely in time to pay
greater dividends, what was it? In a while that line
wore out, and although it was never abandoned it was

The fourth line was a doctrine invented and pro-
mulgated by New Deal economists -- the doctrine of
perpetual unlimited public debt. What difference did
it make how big the debt was? It was not at all like a
debt owing to foreign creditors. It was something we
owed only to ourselves. To pay it or not to pay it meant
only to shift or not to shift money from one pocket to
another. And anyhow, if we should really want to pay
it, the problem would be solved by a rise in the national

Many infuriated people wasted their time opposing
this doctrine as an economic fallacy. But whether it
was a fallacy or not would be entirely a question of the
point of view. From the point of view of what the New
Deal has called the fetish of solvency it was a fallacy.
But from the point of view of scientific revolutionary
technic it was perfectly sound, even orthodox. From
that point of view you do not regard public debt as a
problem of public finance. You think of it only in
relation to ends. A perpetual and unlimited debt repre-
sents deficit spending as a social principle. It means
a progressive redistribution of wealth by will of gov-
ernment until there is no more fat to divide; after
that comes a level rationing of the national income. It
means in the end the cheapening of money and then
inflation, whereby the middle class is economically

murdered in its sleep. In the arsenal of revolution
the perfect weapon is inflation.

(And all of that was before the war, even before the
beginning of the defense program.)



Before coming to regard the problem let us examine
a term the economists use. They speak of capital for-
mation. What is that? It is the old, old thing of saving.

If you put a ten dollar bill under the rug instead of
spending it, that is capital formation. It represents ten
dollars' worth of something that might have been im-
mediately consumed, but wasn't. If you put the ten
dollar bill in the bank, that is better. Hundreds doing
likewise make a community pool of savings, and that
is capital formation. Then thousands of community
pools, like springs, feed larger pools in the cities and
financial centers. If a corporation invests a part of its
profit in new equipment or puts it into the bank as a
reserve fund, that is in either case capital formation.
In a good year before the war the total savings of the
country would be ten or twelve billions. That was the
national power of capital formation. These saved
billions, held largely in the custody of the banking
system, represented the credit reservoir. Anybody with
proper security to pledge could borrow from the reser-
voir to extend his plant, start a new enterprise, build s
house, or what not. Thus the private capital system
works when it works freely.

Now regard the credit reservoir as a lake fed by
thousands of little community springs, and at the same
time assume the point of view of a government hostile
to the capitalistic system of free private enterprise.
You see at once that the lake is your frustration. Why?
Because so long as the people have the lake and control
their own capital and can do with it as they please the
government's power of enterprise will be limited, and
limited either for want of capital or by the fact that
private enterprise can compete with it.

So you will want to get rid of the lake. But will you
attack the lake itself? No; because even if you should
pump it dry, even if you should break down the retain-
ing hills and spill it empty, still it would appear again,
either there or in another place, provided the springs
continued to flow. But if you can divert the water of
the springs -- if you can divert it from the lake con-
trolled by the people to one controlled by the govern-
ment, then the people's lake will dry up and the power
of enterprise will pass to government. And that is
what was taking place before the war; notwithstanding
the war, that is what still is taking place.

By taxing payrolls under the social security law of
compulsory thrift and taking the money to Washington
instead of letting the people save it for themselves; by
taxing profits and capital gains in a system that is, or
was, a profit and loss system; by having its own power-
ful financial agencies with enormous revolving funds,
the Reconstruction Finance Corporation being incom-
parably the great banking institution in the world;
by its power to command the country's private bank
resources as a preferred borrower, and by its absolute
ownership of more than twenty billions of gold, which
may be one-half of all the monetary gold in the world,

the Federal government's power of capital formation
became greater than that of Wall Street, greater than
that of industry, greater than that of all American
private finance. This was an entirely new power. As the
government acquired it, so passed to the government
the ultimate power of initiative. It passed from private
capitalism to capitalistic government. The government
became the great capitalist and enterpriser. Un-
consciously business concedes the fact when it talks of
a mixed economy, even accepts it as inevitable. A
mixed economy is one in which private enterprise does
what it can and government does the rest.

While this great power of capital formation was
passing to the government the New Deal's economic
doctors put forth two ideas, and the propagandists im-
planted them in the popular imagination. One was the
idea that what we were facing for the first time in our
history was a static economy. The grand adventure
was finished. They made believe to prove this with
charts and statistics. It might be true. No one could
prove that it wasn't, because all future belongs to faith.
The effect of this, of course, was to discourage the
spirit of private enterprise.

The other idea was that people were saving too much;
their reservoir was full and running over, and they
t ere making no use of their own capital because the
spirit of enterprise had weakened in them. There was
actually a propaganda against thrift, the moral being
that if the people would not employ their own capital
the government was obliged to borrow it and spend it
For them.


So it was that a revolution took place within the
form. Like the hagfish, the New Deal entered the old
form and devoured its meaning from within. The revo-
lutionaries were inside; the defenders were outside. A
government that had been supported by the people and
so controlled by the people became one that supported
the people and so controlled them. Much of it is irre-
versible. That is true because habits of dependence are
much easier to form than to break. Once the govern-
ment, on ground of public policy, has assumed the re-
sponsibility to provide people with buying power when
they are in want of it, or when they are unable to pro-
vide themselves with enough of it, according to a
minimum proclaimed by government, it will never be
the same again.

All of this is said by one who believes that people
have an absolute right to any form of government they
like, even to an American Welfare state, with status
in place of freedom, if that is what they want. The
first of all objections to the New Deal is neither political
nor economic. It is moral.

Revolution by scientific technic is above morality.
It makes no distinction between means that are legal
and means that are illegal. There was a legal and
honest way to bring about a revolution, even to tear up
the Constitution, abolish it, or write a new one in its
place. Its own words and promises meant as little to
the New Deal as its oath to support the Constitution.
In a letter to a member of the House Ways and Means
Committee, urging a new law he wanted, the President
said: "I hope your committee will not permit doubt as
to Constitutionality, however reasonable, to block the

suggested legislation." Its cruel and cynical suspicion
of any motive but its own was a reflection of some-
thing it knew about itself. Its voice was the voice of
righteousness; its methods therefore were more dis-
honest than the simple ways of corruption.

"When we see a lot of framed timbers, different
portions of which we know have been gotten out at dif-
ferent times and places, and by different workmen...
and when we see those timbers joined together, and see
that they exactly make the frame of a house or a mill,
allthe tenons and mortises exactly fitting, and all the
lengths and proportions of the different pieces exactly
adapted to their respective places, and not a piece too
many or too few... in such a case we find, it impossible
not to believe that... all understood one another from
the beginning, and all worked upon a common plan or
draft, drawn up before the first blow was struck." --
Abraham Lincoln, deducing from objective evidence
the blueprint of a political plot to save the institution
of slavery.

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