Reprinted from New Deal 2.0 (November 18, 2010)

by Thomas Ferguson

What really went on in the first few months after FDR was elected?

“We didn’t actually, I think, do what Franklin Delano Roosevelt did, which was basically wait for six months until the thing had gotten so bad that it became an easier sell politically because we thought that was irresponsible. We had to act quickly.” – President Obama

Sometimes a chance remark trains a searchlight on aspects of the historical record that would otherwise be shrouded in Stygian blackness for a generation. So I think it was yesterday when in the Huffington Post, Leo J. Hindery, Jr. quoted from a transcript of President Obama’s remarks to a group of liberal bloggers who were querying his handling of the financial crisis.

Many readers responded in shocked disbelief: The President can’t mean what he said. He must have misspoken — he can’t really be claiming that Roosevelt sat on his hands, deliberately letting the Depression get worse and worse.

Perhaps it was just a slip. But in 2010, even slips can be revealing — and this one comes from a definite part of the political spectrum. The President was repeating a canard that goes back to the circle of die hards around President Herbert Hoover as he exited the White House in a cloud of bitterness in 1933. In recent years, as a vast campaign against the memory of the New Deal has gathered steam, such claims have gone mainstream. For example, take the carefully hedged version recently put forward by Amity Shlaes in her study of the New Deal, “The Forgotten Man“: “But Roosevelt was not interested in cooperation. We will never know all his motives, but it was clear that a crisis now could only strengthen his mandate for action come inauguration in March.”

We are unlikely ever to know for sure. But as President Obama took office, the Council on Foreign Relations was cranking up a remarkably one-sided conference purporting to be a “Second Look at the Great Depression and the New Deal.” Ms. Shlaes was a prominent participant, as was the Council’s co-chair, one Robert Rubin, whose myriad protégés thronged the Obama Treasury and economic councils.

Whether our highly intellectual president picked up the idea by reading it or hearing somebody else say it, it was, and is, in the air. And you can be sure that his words will now be rattling around for years to come and likely cited as proof of Franklin D. Roosevelt’s “irresponsibility.”

So it makes sense to look more closely at what really happened between Roosevelt and Hoover. This is not too easy to do, though one or two studies, notably Elliot Rosen’s “Hoover, Roosevelt, and the Brains Trust“, have written with insight on the subject.

I often joke that North America is the true “Dark Continent.” We probably know more about tribes in the Amazon jungle than we do about the real nature of power in the United States. Neither political science, nor history, nor economics do very well on this. If you want to understand what really happened between Hoover and Roosevelt between November 1932, when FDR won the election by a landslide, and March 1933, the old inauguration day before passage of the 20th Amendment to the Constitution, you need to comb through the papers of private bankers and the material in more easily available public sources such as the splendid Roosevelt Library in Hyde Park, New York. I have been engaged in this over more decades than I now care to admit. The bottom line is this: Hoover and a substantial bloc of New York bankers wanted Roosevelt to commit to staying on the gold standard and US participation in the upcoming London Economic Conference. These commitments would have meant continued austerity and completely destroyed any chance of fundamental reform — which was why the banks and Hoover were so insistent. In effect, they were hoping to continue with Hoover’s policies, if not Hoover himself.

Roosevelt exchanged some messages with them, but finally refused the whole package. He and his advisers correctly concluded that the idea was to suck them into a foolish set of commitments. FDR was simply not willing to make the kind of arrangements with bankers that President Obama was. That’s the heart of the matter.

Thomas Ferguson is Senior Fellow at the Roosevelt Institute and Professor of Political Science at the University of Massachusetts, Boston. He is the author of many books and articles, including Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems.