Mills was not the only observer who commented on the detrimental impact that Roosevelt's impending industrial codes would have on production. Benjamin Anderson noted that businessmen took into account the coming National Recovery Act codes and the proposed tax increases when

They speeded up production to get as much done as possible before these increased costs began to operate. This undoubtedly brought the production curve to a higher point that it would otherwise have reached so soon. (Benjamin M. Anderson, Economics and the Public Welfare: A Financial and Economic History of the United States 1914-1946, LibertyPress, 1979,p. 332)

McMillion claims that the 1937-38 crash was caused by a reduction in Federal spending. As we can see from the chart below both Federal and total government spending increased until 1936 when Federal spending dropped from 10.94 per cent of GDP to 9.58 per cent of GDP while total spending (Federal and state) fell from 20.17 per cent of GDP in 1935 to 18.74 per cent of GDP in 1937. These are falls of 12.7 per cent and 7.1 per cent respectively.

	Federal spending as a percentage of GDP	Federal spending + state spending
1929	3.68	12.35
1930	4.34	13.22
1931	5.37	15.93
1932	7.27	21.19
1933	9.05	22.38
1934	9.00	19.40
1935	10.30	20.17
1936	10.94	20.00
1937	9.58	18.74
1938	9.81	20.53
1939	10.04	20.66

Let us put this in perspective. The fall in total government spending amounted to a paltry 1.43 per cent of GDP. Yet according to Roosevelt's disciples and various Keynesians this was enough to raise unemployment from 14.3 per cent in 1937 to 19 per cent in 1938 while at the same time slashing the production of durable equipment by 32 per cent and causing industrial production as a whole to crash by 33 per cent. (Lester V. Chandler, American Monetary Policy 1928-1941, Harper & Row, 1971, pp.248-9).

This nonsense became so entrenched that in 1943 Paul Samuelson confidently predicted that when the war ended and government spending was significantly cut mass unemployment would return on the scale of the 1930s. To the amazement of Keynes' disciples nothing of the kind happened. Between 1945 and 1947 the Truman government slashed Federal annual spending from $95 billion to $36 billion — a $59 billion cut in two years.

This was a staggering 62 per cent reduction and amounted to 26 per cent of GDP as it stood in 1945. Instead of America spiralling into a depression with 8 million unemployed — as predicted — it began the longest period of prosperity in its history. What McMillion and the rest of the leftists ignore is the fact that it was a massive union push for higher real wages that caused the 1937-38 crash. The following table clearly brings out this fact. The figures in the PARW (productivity adjusted real wages) column are real wages divided by productivity.

	Unemployment	PARW
1929	3.2	100
1930	8.7	113.0
1931	15.9	125.7
1932	23.6	128.3
1933	24.9	130.4
1934	21.7	125.6
1935	20.1	117.6
1936	16.9	114.9
1937	14.3	122.4
1938	19.0	132.1
1939	17.2	134.1

In economic theory there is a tendency for every factor to be paid the full value of its marginal product (the value of its additional output). When for any reason factors are paid in excess of this value they will become idle. In the case of labour this is called unemployment. It therefore follows that a period of prolonged widespread unemployment should be marked by wages rates exceeding the value of labour's output. This is exactly what the table shows.

We can see that the adjusted real wage fell from 117.6 in 1935 to 114.9 in 1936. Thanks to the union action — sanctioned by Roosevelt — the adjusted wage had jumped to 132.4 in 1938 and unemployment went from 14.3 per cent in 1937 to 19 per cent in 1938. It was estimated by two economists that in 1938 the adjusted wage exceeded the 1929 wage by 14 per cent. (See Richard K. Vedder and Lowell E. Gallaway's Out of Work, New York University Press, 1997, p. 103). The chart below shows who unemployment moved inversely with movement in the adjusted real wages

There is nothing new here. The grey area in the next chart represents the gap between real wages and productivity. It can be easily seen that throughout the 1930s real wages exceeded productivity. It was not until the two converged that unemployment declined. (Mind you, putting 12 million people into uniform also helped).

Source: This chart is designed so that a constant percentage increase would appear as a straight line. The values of product and wages are both expressed in dollars of constant buying power. The data for product are for the private sector, and are from the series by John W. Kendrick in his paper, National Productivity and Its Long-Term Projection (National Bureau of Economic Research, May 1951), brought up to date by the National Industrial Conference Board. For the data on wage rates, see Chapter 1, p. 11.

Even now the sheer destructiveness of Roosevelt's NRA is scarcely appreciated. Benjamin M. Anderson was scathing about the destructive consequences of this product of Roosevelt's economic illiteracy:

[The] NRA was not a revival measure. It was an anti-revival measure. . . Through the whole of the NRA period industrial production did not rise as high as it had been in July 1933, before the NRA came in. Following disappearance of NRA, after the Supreme Court decision in May 1935, there cam the first real recovery. We passed the July 1933 peak in the autumn of 1935, and then, with rapidly growing volume of production and with decreasing unemployment, had approximately two years of growing business activity. . . (Anderson, pp. 333-34).

Frederick C. Mills observations were no less damning:

During the ten months that followed the end of [Roosevelt's] code operations employment rose 7 per cent, and average hourly earnings remained constant. Over the entire period of recovery we have a pronounced advance in total wages paid, a considerable rise in man hours worked and a notable increase in hourly rates of pay. (Mills, p. 325).

McMillion stated that the crisis was the fault of the largely unregulated financial and commercial sector. This is an outrageous lie. These sectors are heavily regulated. To state otherwise — as he did — is to show utter contempt for the truth. A contempt that is revealed by his refusal to acknowledge the role that Democrats played in aggravating the crisis by corrupting Fanny Mae and Freddy Mack and looting them for their own personal gain.

Then there is his refusal to acknowledge the fact that Democrats — helped by the thugs at ACORN — intimidated banks into making sub-prime loans. But we should not be surprised by Mr McMillion's double standards. Like all dedicated leftists he will not hesitate to lie in order to advance the socialist cause.

The crisis was both predictable and avoidable. In 2004 I predicted that America would suffer financial problems in around 2008. And so it came to pass. I pointed out time and time again that the Fed's grossly mismanaged monetary policy had laid the foundations for another recession, and that once again the market would be blamed. The Austrians are forever pointing out loose monetary policies create economic imbalances (malinvestments) that must sooner or later be dealt with.

The crisis first strikes at manufacturing and then works its way down the production structure. Consumption always suffers the least while the capital goods industries suffer the most. The following table illustrates this point. Therefore, if we wish to avoid future financial crises the central banks must learn the power of money and how it affects relative prices and the capital structures.

Comparative Producion of Producers' and Consumers' Goods in the United States (1925-1929 average=100)
	1925	1926	1927	1928	1929	1930	1931	1932
Producers' Goods	93	99	92	104	113	83	54	29
Consumers' Goods	97	97	102	100	104	88	89	82
Source: C. A. Phillips, T. F. McManus and R. W. Nelson, Banking and the Business Cycle, Macmillan and Company 1937, p. 127.

A note on Campaign for America's future: This is a hate-America organisation determined to destroy its institutions and transform it into a socialist slagheap. Needless to say, it has received funding from George Soros, the man who thinks America needs to be "de-Nazified". CAF belongs to a network of extreme leftist organisation that share its contempt for ordinary Americans and their love of country.

CAF was co-founded in 1996 by Robert Borosage, a man who thinks America's military is a threat to world peace and should be dismantled. He also admires the sadistic Castro. From 1979 to 1988 Borosage served as Director of the Institute for Policy Studies. This is important because the IPS served as a front for the KGB and the Castro regime during the Cold War. So close were its links that it openly used KGB agents has lecturers.

After the collapse of the Soviet Union it maintained its links with the DGI (Castro's version of the KGB). It is viciously anti-American and has done everything in its power to fatally cripple the country's intelligence agencies and the military. As Brian Crozier said of this organsiation :

The IPS is the perfect intellectual front for Soviet activities which would be resisted if they were to originate openly from the KGB.

Crozier is one of the World's leading experts on the Soviet Union and was an advisor to the British Secret Service, the British Foreign Office and the CIA. He is a fellow and founder of the prestigious Institute for the Study of Conflict. He is also a Distinguished Visiting Fellow on War, Revolution, and Peace of Stanford University's Hoover Institution. His memoirs were published in 1993: Free Agent: The Unseen War 1941-1991.

In other words, the IPS is a nest of traitors whose existence would not be tolerated in any other country. This tells us all we need to know about Borosage and the real motives behind the Campaign for America's Future.

The following articles concern the IPS's treasonous activities

Did the KGB help plan America’s Foreign Intelligence Surveillance Act?

John Kerry and his anti-American IPS playmates

Institute for Policy Studies and 9/11: will Congress blame the IPS instead of the CIA?

Institute for Policy Studies targets President Bush and Cheney

Gerard Jackson is Brookesnews' economics editor

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