WEBVTT NOTE 43. Hazlitt and the Great Depression 1 00:00:00.000 --> 00:00:03.000 Hazlitt and the Great Depression 2 00:00:03.000 --> 00:00:14.000 Old right journalist Garrett Garrett described the New Deal as a revolution against America's tradition of private property, limited government and the rule of law. 3 00:00:14.000 --> 00:00:24.000 Indeed, it had all the earmarks. President Roosevelt ran against government spending and deficits, but once in office, acted like a dictator. 4 00:00:24.000 --> 00:00:29.280 Roosevelt overthrew the traditional limits on government's role and instituted central 5 00:00:29.280 --> 00:00:34.600 planning and welfareism in every sector of the economy. 6 00:00:34.600 --> 00:00:38.040 Then the statist juggernaut couldn't be stopped. 7 00:00:38.040 --> 00:00:44.000 Next came FDR's war socialism, Truman's unionism, Johnson's Great Society, Nixon's 8 00:00:44.000 --> 00:00:49.880 price controls, Carter's inflation, Reagan's deficit spending, Bush's regulation and 9 00:00:49.880 --> 00:00:53.300 Clinton's Fabianism. 10 00:00:53.300 --> 00:00:58.120 Because ideas matter as much as the lust for power, the New Deal couldn't have happened 11 00:00:58.120 --> 00:01:01.900 without a public intellectual justification. 12 00:01:01.900 --> 00:01:06.380 That entailed theories on the causes of the stock market crash and the economic downturn 13 00:01:06.380 --> 00:01:08.220 that followed. 14 00:01:08.220 --> 00:01:12.820 In order for socialism to prevail in the United States, the Academy and the public had to 15 00:01:12.820 --> 00:01:16.980 be convinced that capitalism had failed. 16 00:01:16.980 --> 00:01:22.060 Henry Hazlitt was at the center of that debate, holding forth in the pages of The Nation, 17 00:01:22.060 --> 00:01:25.340 a sophisticated and trendy fortnightly. 18 00:01:25.340 --> 00:01:31.380 He was hired as literary editor, a relatively non-political position, but as the politics 19 00:01:31.380 --> 00:01:36.660 of the day became more contentious, he was afforded more editorial latitude. 20 00:01:36.660 --> 00:01:42.140 He began to write against federal encroachment on private enterprise. 21 00:01:42.140 --> 00:01:47.260 Once Roosevelt reversed his campaign rhetoric and embraced the total state, the nation editors 22 00:01:47.260 --> 00:01:50.400 knew they had to take a stand. 23 00:01:50.400 --> 00:01:57.260 As Hazlitt's criticisms of FDR grew, so did the internal complaints about Hazlitt's philosophy. 24 00:01:57.260 --> 00:02:02.140 Rather than simply fire their editor of two years, they scheduled a knockdown, drag-out 25 00:02:02.140 --> 00:02:07.600 fight between those who said capitalism had failed, thereby making socialism the answer, 26 00:02:07.600 --> 00:02:13.440 and those who said interventionism had failed, and that capitalism was the answer. 27 00:02:13.440 --> 00:02:17.660 In one corner was Hazlitt, literary critic and financial journalist. 28 00:02:17.660 --> 00:02:23.300 And the other was Louis Fisher, Russian émigré, journalist and socialist. 29 00:02:23.300 --> 00:02:30.440 The exchange, depression and the profit system, ran in the May 24, 1933 issue, in the midst 30 00:02:30.440 --> 00:02:35.020 of FDR's monetary and fiscal revolution. 31 00:02:35.020 --> 00:02:39.060 Fisher adopted a Marxian explanation of the depression. 32 00:02:39.060 --> 00:02:44.060 Citing data from the Bureau of Labor Statistics, he argued that as productivity increased since 33 00:02:44.060 --> 00:02:49.260 Since the turn of the century, wages had declined relative to output. 34 00:02:49.260 --> 00:02:52.980 Laborers then were able to purchase less and less of their product, because capitalists 35 00:02:52.980 --> 00:02:56.460 were skimming their surplus value. 36 00:02:56.460 --> 00:03:00.420 The concentration of America's wealth and America's national income in fewer and fewer 37 00:03:00.420 --> 00:03:04.620 hands has gone on apace for many years. 38 00:03:04.620 --> 00:03:06.980 What triggered the crisis? 39 00:03:06.980 --> 00:03:11.980 Fischer explained it was a combination of Marxian crisis theory and Keynesian under-consumption 40 00:03:11.980 --> 00:03:13.580 theory. 41 00:03:13.580 --> 00:03:17.100 People who wanted to consume all did not have the means, and the people who had the means 42 00:03:17.100 --> 00:03:22.100 could not consume all, hence a reduced purchasing power. 43 00:03:22.100 --> 00:03:23.900 What needs to be done? 44 00:03:23.900 --> 00:03:25.940 Divide and re-divide profits, he said. 45 00:03:25.940 --> 00:03:27.620 That is the way out. 46 00:03:27.620 --> 00:03:32.660 There should be provision for a perfectly equal division of surplus value in years to come. 47 00:03:32.660 --> 00:03:38.860 We should eliminate the profit of the capital owner and create socialism. 48 00:03:38.860 --> 00:03:44.060 Hazlitt responded by showing Fischer's figures on surplus value to be based on a fallacy 49 00:03:44.060 --> 00:03:46.420 of selection. 50 00:03:46.420 --> 00:03:52.420 Fischer had picked base years, 1899 and 1929, with a purpose in mind, and then confused 51 00:03:52.420 --> 00:03:56.100 anomalies with a general trend. 52 00:03:56.100 --> 00:04:00.180 To could play that game, Hazlitt showed that Labour's product could be said to have been 53 00:04:00.180 --> 00:04:06.260 increasing relative to output by picking other years, 1869 and 1921. 54 00:04:06.260 --> 00:04:12.380 Moreover, Hazlett asked, if labor's decreasing share of profits is the cause, how do we explain 55 00:04:12.380 --> 00:04:15.660 economic recoveries during the same period in question? 56 00:04:15.660 --> 00:04:21.520 How can we explain, using this reasoning, why the crisis did not come sooner? 57 00:04:21.520 --> 00:04:26.280 As Hazlett said, Marx's theory makes it difficult to explain why we are not always 58 00:04:26.280 --> 00:04:30.880 in a crisis and impossible to explain how we ever surmount one. 59 00:04:30.880 --> 00:04:36.060 On that basis, he dismissed the broader implication that the 1929 crash represented anything 60 00:04:36.060 --> 00:04:47.460 But what if Fisher was right that labour really was earning a smaller return relative to capital? 61 00:04:47.460 --> 00:04:51.980 Hazlitt noted that this would not necessarily mean that people were being exploited – it 62 00:04:51.980 --> 00:04:55.620 could just mean that the volume of capital in industry was increasing at a greater rate 63 00:04:55.620 --> 00:05:00.820 than that of labour, which indicates increasingly efficient technology. 64 00:05:00.820 --> 00:05:05.860 If so, that might lend weight to the expectations of the classical economists that labour would 65 00:05:05.860 --> 00:05:10.720 to own more capital as productivity increased – for example, the number of stockholders 66 00:05:10.720 --> 00:05:14.480 increased dramatically during the 1920s. 67 00:05:14.480 --> 00:05:19.460 Having dispensed with Fischer's sweeping Marxian theory, he argued that the best period 68 00:05:19.460 --> 00:05:24.240 to examine from an economic point of view was the time between the last crisis and the 69 00:05:24.240 --> 00:05:30.000 present one – the period, say, from 1922 to 1929. 70 00:05:30.000 --> 00:05:34.920 In this period, one notices that the prices and output of capital and labor in the industrial 71 00:06:04.920 --> 00:06:20.440 A stable market order, he said, requires an atmosphere free of shocks, or at least a government 72 00:06:20.440 --> 00:06:25.320 that allows the economy to correct once those shocks had occurred. 73 00:06:25.320 --> 00:06:29.920 The war had artificially inflated the prices of commodities, and they needed to correct 74 00:06:29.920 --> 00:06:32.660 downward to a more realistic level. 75 00:06:32.660 --> 00:06:39.000 He argued that the crisis of 1929 was that downward correction. 76 00:06:39.000 --> 00:06:43.640 But the focus of this collapse, he wrote, was aggravated enormously by the whole series 77 00:06:43.640 --> 00:06:46.740 of post-war policies. 78 00:06:46.740 --> 00:06:51.500 Among these, he listed the vicious Treaty of Versailles, the disorganization caused 79 00:06:51.500 --> 00:06:57.020 by reparations and war debts, the preposterous tariff barriers thrown up everywhere, the 80 00:06:57.020 --> 00:07:01.980 abandonment of the gold standard and the adoption of the gold exchange standard, and the reckless 81 00:07:01.980 --> 00:07:05.160 First Lending to Foreign Countries 82 00:07:05.160 --> 00:07:10.340 Most importantly, he blamed the artificial cheap money policy pursued both in England 83 00:07:10.340 --> 00:07:16.320 and America, leading here to a colossal real estate and stock market speculation under 84 00:07:16.320 --> 00:07:21.700 the benign encouragement of Mrs. Coolidge and Mellon. 85 00:07:21.700 --> 00:07:26.120 This malinvestment caused by inflationary policies created distortions in the capital 86 00:07:26.120 --> 00:07:30.300 stock that called for correction. 87 00:07:30.300 --> 00:07:34.620 Peter Haslett would conclude that malinvestment was the central problem not only in the Great 88 00:07:34.620 --> 00:07:38.460 Depression, but in all business cycles. 89 00:07:38.460 --> 00:07:44.660 He did so under the influence of Ludwig von Mises, whom he met about a decade later. 90 00:07:44.660 --> 00:07:49.960 Together they advocated the gold standard and the Austrian theory of the business cycle. 91 00:07:49.960 --> 00:07:55.380 The theory developed by Mises points to the way markets coordinate plans over time, and 92 00:07:55.380 --> 00:08:01.940 and the way central bank money and credit expansion disrupt those plans. 93 00:08:01.940 --> 00:08:06.520 Hazlitt was inclined to the Austrian theory even before he knew it formally. 94 00:08:06.520 --> 00:08:10.360 It was most consistent with his manner of thinking. 95 00:08:10.360 --> 00:08:16.180 As a literary critic, his specialty was exploding the pretensions of ideologues. 96 00:08:16.180 --> 00:08:21.460 He loved picking up a fashionable academic text, dissecting its essential claims from 97 00:08:21.460 --> 00:08:26.820 overblown prose and showing how patently absurd it was. 98 00:08:26.820 --> 00:08:31.980 He had a gift, in short, for finding the essence of an argument and testing it relentlessly 99 00:08:31.980 --> 00:08:34.840 against standards of reason. 100 00:08:34.840 --> 00:08:40.500 These are all traits the Austrian School carried with it since its birth in 19th century Vienna, 101 00:08:40.500 --> 00:08:44.740 traits that had also been essential in the late scholastic tradition of 16th century 102 00:08:44.740 --> 00:08:52.060 to Spain, which was indebted to Thomist and thus Aristotelian reasoning. 103 00:08:52.060 --> 00:08:57.020 One patently absurd recommendation in Fischer's essay, according to Hazlitt, was his call 104 00:08:57.020 --> 00:09:00.820 for high new taxes on capital. 105 00:09:00.820 --> 00:09:06.140 This measure would violently aggravate the catastrophe, Hazlitt said, by causing business 106 00:09:06.140 --> 00:09:12.000 to take another downturn that would make the 1929 crash look trivial. 107 00:09:12.000 --> 00:09:16.560 An increase in wages would be undesirable as well, Hazlitt said, because that would 108 00:09:16.560 --> 00:09:22.160 cause the cost to business to increase and lead to even more unemployment. 109 00:09:22.160 --> 00:09:27.000 In order to make the economy recover, he said, we need more private capital, not less. 110 00:09:27.000 --> 00:09:31.960 And that means letting markets work. 111 00:09:31.960 --> 00:09:37.880 More than anything, said Hazlitt, we don't need socialism, communism, or that ambiguous 112 00:09:37.880 --> 00:09:40.400 thing called planning. 113 00:09:40.400 --> 00:09:44.520 Based on the type of people who would be in charge, and the nature of politics, he was 114 00:09:44.520 --> 00:09:51.720 sure the economy would be run by economic illiterates – people he no doubt meant, 115 00:09:51.720 --> 00:09:54.040 like Louis Fisher. 116 00:09:54.040 --> 00:09:59.420 Virtually everything Haslett wrote in this powerful essay, his analysis of cause, effect 117 00:09:59.420 --> 00:10:04.800 and the solution, was later vindicated in the work of scholars like Murray Rothbard 118 00:10:04.800 --> 00:10:06.920 and Robert Higgs. 119 00:10:06.920 --> 00:10:12.120 In his book Modern Times, Paul Johnson sketches the same scenario that Hazlitt laid out in 120 00:10:12.120 --> 00:10:15.360 the thick of the New Deal onslaught itself. 121 00:10:15.360 --> 00:10:21.080 More recently, Richard Vedder and Lowell Galloway presented essentially the same position in 122 00:10:21.080 --> 00:10:23.640 Out of Work. 123 00:10:23.640 --> 00:10:29.040 Hazlitt might have been spared his job had his attack on the emerging consensus not been 124 00:10:29.040 --> 00:10:32.080 so complete and so devastating. 125 00:10:32.080 --> 00:10:37.260 If he had made a few more concessions, or possibly not totally smashed Fisher, he might 126 00:10:37.260 --> 00:10:39.180 have lasted. 127 00:10:39.180 --> 00:10:45.280 But it was not in Hazlitt's nature to withhold the truth for the sake of expediency. 128 00:10:45.280 --> 00:10:49.760 He must have sensed the end was near for his prestigious job at The Nation, and decided 129 00:10:49.760 --> 00:10:53.040 to go out with a bang. 130 00:10:53.040 --> 00:10:59.080 The dramatic debate between Fisher and Hazlitt ended with an ominous note from the editor. 131 00:10:59.080 --> 00:11:05.240 The discussion will be commented upon editorially in a forthcoming issue. 132 00:11:05.240 --> 00:11:10.960 Indeed, it was the next issue in which the nation announced its devotion to the socialist 133 00:11:10.960 --> 00:11:11.960 cause. 134 00:11:11.960 --> 00:11:17.560 Mr. Roosevelt is attempting to preserve capitalism, said the editorial, echoing conventional wisdom 135 00:11:17.560 --> 00:11:23.080 of the day, to save it from itself by robbing it temporarily of several of its most fundamentally 136 00:11:23.080 --> 00:11:26.780 capitalistic prerogatives. 137 00:11:26.780 --> 00:11:31.620 If the New Deal passes, said the editors with rare insight, he will have the power to tell 138 00:11:31.620 --> 00:11:36.860 industry what and how much it may produce, what it may charge for its products, how much 139 00:11:36.860 --> 00:11:41.620 it shall pay to labor, what hours labor shall work. 140 00:11:41.620 --> 00:11:44.740 But this was not enough for the nation. 141 00:11:44.740 --> 00:11:49.780 We tend to agree with Fisher, said the editors, that a collective society offers the best 142 00:11:49.780 --> 00:11:52.780 hope for this desirable end. 143 00:11:52.780 --> 00:11:58.100 and they favored a move toward collectivism as rapidly as possible. 144 00:11:58.100 --> 00:12:03.380 Criticizing Roosevelt's alleged timidity, they said the country's steps towards an 145 00:12:03.380 --> 00:12:09.120 integrated socialized industrial society should be deliberate and purposeful. 146 00:12:09.120 --> 00:12:14.520 The pages of a magazine devoted largely to pushing progressive cultural reform had swung 147 00:12:14.520 --> 00:12:18.280 fully in favor of collectivism. 148 00:12:18.280 --> 00:12:23.460 The esoteric doctrine had been made explicit for the first time, and Hazlitt was pushed 149 00:12:23.460 --> 00:12:28.720 out and forced to find other outlets for his work. 150 00:12:28.720 --> 00:12:35.380 After his death, socialist propagandist Irving Howe, editor of Dissent, was eulogized again 151 00:12:35.380 --> 00:12:42.120 and again in the popular media, even though – or possibly because – his anti-property, 152 00:12:42.120 --> 00:12:47.360 anti-bourgeois ideas were utterly alien to the pre-New Deal American experience. 153 00:12:47.360 --> 00:12:52.880 This is even after the failure of socialism around the world. 154 00:12:52.880 --> 00:12:58.720 Hazlitt was right many times over about socialism, welfarism, inflation and the gold standard, 155 00:12:58.720 --> 00:13:01.760 popular culture and much else. 156 00:13:01.760 --> 00:13:06.440 And unlike Howe, Hazlitt wrote as clearly as he thought. 157 00:13:06.440 --> 00:13:12.800 He never used his position to spread disinformation in the service of ideology as Howe did. 158 00:13:12.800 --> 00:13:18.280 had a profound faith in truth and let logic and facts speak for themselves. 159 00:13:18.280 --> 00:13:23.360 It's a measure of the corruption of official culture that the death of Henry Hazlitt was 160 00:13:23.360 --> 00:13:25.920 hardly noticed. 161 00:13:25.920 --> 00:13:31.920 In his death, I feel sure, his greatest hope was that this country would realize the errors 162 00:13:31.920 --> 00:13:35.560 of its history and rectify them. 163 00:13:35.560 --> 00:13:41.680 When our history is rewritten and the Irving Howes are seen as the social menaces they were, 164 00:13:41.680 --> 00:13:47.000 Hazlitt will be remembered as a prophet who spoke truth to power. 165 00:13:47.000 --> 00:13:53.440 The nation, in a stunning reversal of socialist editorial policies, will concede that Hazlitt 166 00:13:53.440 --> 00:13:55.240 was right all along.