Timing in Academics - the Intellectual Origins of Rexford Tugwell and his influence on the New Deal

This afternoon as I returned from a meeting in the Bay Area, I was listening to a podcast on Econtalk that featured John Nye from the Mercatus Center at George Mason. I've written about Econtalk before - Russ Roberts is an excellent interviewer. John Nye recently published a paper which argues that the common assumptions about the Great Depression are wrong. He makes a convincing case, similar to the one made by Amity Shlaes (also written about in this blog) in The Forgotten Man. Shlaes made the point that the common perception that a) Hoover fiddled in responding to the depression and b) FDR's stimulus actions brought us out of the depression are both wrong.

Nye points out in the podcast that there was a short and significant downturn in 1920-21 where no fiscal stimulus was tried but where monetary policy tried to be stimulative and that we came out of that downturn, caused in part by the post WWI transition, much more smoothly. The Federal Reserve, which was then about 7 years old, flexed its muscles and that helped.

Part of Nye's argument rests on the work and thoughts of Rexford Tugwell. Tugwell was one of a group of left leaning intellectuals that went to the Soviet Union in 1927. They met with Stalin although Tugwell seems to have missed the meeting.
He was also perhaps the key member of the FDR brain trust. His original role with FDR was in Agriculture but his influence in the administration was far wider.

Tugwell studied at Wharton and during his doctoral work seems to have come under Scott Nearing and SImon Patten (who was an economist with an institutional focus). Nearing was dismissed from Penn for his radical ideas. Patten was a transitional figure to at least speculate on the effects of advancing technology on the traditional notions of scarcity in economics. Both of his mentors raised questions about classical economics (including Smith and Ricardo). At the time when Tugwell was doing his doctoral work there was also a lot of academic ferment on the merits of planning. Remember that he came of age in a time when muckrakers were decrying excesses of capitalism and a number of seemingly promising ideas about the capacity of the human intellect to control things were advancing.

A lot of the ideas championed by Tugwell were based on a model of centralized planning. He once said: “Make no small plans, for they have not the power to move men’s souls”, which sounds a lot to me like the quote that Rahm Emmanuel said about crises early in the Obama administration. Tugwell championed a controlled market system where big producers would be heavily regulated by the government. A lot of those ideas were prevalent in the early years of FDR. The efforts in trying to control supply in factories and agriculture come from these bounds. According to Nye, those activities may have actually slowed down the recovery in the 1930s. FDR's one successful plan was to get us off the gold standard and to de-value the dollar - both of which could be seen as monetary policies to loosen monetary policy. Thus, in many ways Tugwell's ideas were no different than the economic policies of the National Socialists in Germany.

In a speech after he left government he referred to planning as "The Fourth Power of Government." After he retired from government service he spent the latter years of his life in Santa Barbara and at one point proposed a massive revision of the US Constitution. Among those proposals (drafted in the 1970s) was one to establish a planning and regulatory branch of government.

Tugwell may have come to his doctoral work with notions already imbedded. Or he could have developed his philosophies in reaction to the prevailing teaching of the day about economics. Or he could have been influenced by the generation of academics of his day. Most likely he came to these "quaint" notions from a combination of influences. What is most interesting to me is to speculate about how he came to a set of ideas which before this administration were so thoroughly discredited.

As Nye points out, the academic consensus thirty years ago was that FDRs policies helped to pull us out of the Great Depression. The current orthodoxy suggests that a) most of FDRs policies did nothing to help get us out of the problem and b) some that Tugwell championed most fiercely actually extended the crisis for more years. Indeed, academic ideas go in and out of fashion. But it is interesting to speculate what might have happened had Tugwell's commitment to big government and big industry been absent. Nye suggests that we seem to have come out of the 1920 crisis, where no such programs were suggested, a lot more quickly.