N.B. Another belated entry from FreedomFest. Gave a PPT instead of this speech on this one. Would copy the slides but I always found that difficult. So here is some text on the matter, which melds ideas from my forthcoming Liberty Lost (on nonprofits) with my almost finished New Deal ms.
If you think you have it bad today, exactly 90 years ago the U.S. was in the depths of the Depression and there was a progressive Democrat in the Oval Office pushing through a set of radical policies that dramatically and permanently transformed America, largely for the worse. His name was Franklin Delano Roosevelt (FDR) and his policies were collectively called the New Deal.
One of the many awful things to come out of FDR’s New Deal, which was a sort of proto-Great Reset, was the crowding out of private charity. Although private charity in America remains robust compared to other countries, it’s a shell of its former glorious self because of policies implemented by FDR.
Alexis D’Tocqueville famously pointed out that Americans loved to associate together to overcome problems. Other foreign visitors and contemporary legal scholars tracking court cases and precedents were similarly amazed at Americans’ ability to self organize.
Many early voluntary associations were little more than informal clubs but the most significant ones formed corporations, what we today called nonprofits.
The split between for- and nonprofits corporations began in England back in the day but the distinction became clearer in the early national period of the U.S. due to a dispute over the Bank of North America or BNA.
Some people wanted the BNA to provide services to the community instead of just its stockholders and depositors. After an extensive public and legislative debate, it was decided that “moneyed” corporations had no such obligations unless explicitly stipulated in their charters. Nobody would invest in institutions that sought to achieve non-monetary goals or that could be influenced by outside parties, a point proven when a Massachusetts life insurer later found it difficult to secure equity financing when its charter stipulated large payments to a charitable hospital.
People who wanted to pursue broader goals were welcomed, however, to form non-pecuniary corporations to pursue those ends.
And they did.
My forthcoming book, Liberty Lost, puts some concrete numbers on the size of America’s Third Sector. By tracing charters in state statute books, I can say with certainty that the various U.S. states between 1800 and the Civil War allowed the formation of over 15,000 nonprofit corporations, or about 1 per year for every 100,000 Americans.
Additional nonprofits chartered by general acts of incorporation are not included in that figure because they are much more difficult to track but they also likely numbered in the thousands.
Nonprofits included everything from charities, religious and secular, to marching bands and armed militia units. Many nonprofit schools also formed, as did fraternal organizations, scientific institutes, agricultural and medical societies, and abolitionist groups.
Even within the charity category, the range of services voluntarily provided was enormous, and literally cradle to grave, with charities devoted to helping pregnant women, postpartum women, infants and young children, and older children who were orphaned or simply unwanted.
Various nonprofit clinics helped people throughout life deal with health problems, from rotten teeth to abscesses and cancer, and deficiencies of food and fuel. Nonprofit hospitals helped the very sick to die and various fraternals made sure that members received proper burials and that their surviving spouses and children received some monetary aid.
During and after the Civil War, the nonprofit sector grew ever larger and broader. Progressives worked to replace parts of the Third Sector with government institutions, like mental asylums, by arguing for economies of scale and more uniform treatment, at least at the state level. They made some progress nationalizing services traditionally provided by the Third Sector but not until the Great Depression and New Deal was private charity truly assailed.
The New Deal’s overall agenda was to replace individual autonomy and initiative with federal government programs so that FDR would have the patronage leverage necessary to win re-election in 1936, 1940, and 1944.
New Deal critics like Garet Garrett and E.C. Harwood saw the New Deal for what it was, a major step toward state socialism and collectivism but the New Dealers won the battle for hearts and minds, a major theme of my forthcoming book FDR’s Great Reset: The Collectivist Miseries of the New Deal so most Americans were inculcated with the notion that FDR saved America and its economy, especially those worst off, who nobody else could or did help.
In fact, while the recession that began in August 1929 was caused by the business cycle, the subsequent downturn was due to the Federal Reserve’s bungling, that damnable tariff, and high wage policies. The New Deal prolonged the downturn, especially in employment, and squelched the bounce off the March 1933 nadir with unconstitutional power grabs like the NRA and its wretched Blue Eagle.
Iconic pictures of long lines of unemployed men waiting for soup and stale bread were caused, in large part, by the New Deal’s destruction of America’s traditional social safety net, the ability to work for room and board, with minimum wage laws.
Part of the New Deal’s disinformation campaign included bashing America’s Third Sector, especially the charitable component, as ineffective in the face of the greatness of the Depression. In 1938, for example, WPA researchers dug up the fact that Mrs. James John Roosevelt, one of FDR’s ancestors, had asked the New York Common Council to aid unemployed seamstresses in 1851 because QUOTE all assistance from Charitable Societies is withdrawn UNQUOTE.
The withdrawal occurred but the New Deal friendly factoid excluded crucial context: charities stockpiled funds during relatively good years, like 1851, so they would have ample resources for relatively bad years, like 1857. That strategy also helped to mitigate free rider problems because if a worker was unemployed during a depression, it may not have been the worker’s fault but if a worker was unemployed for an extended period in good times, it probably was the worker’s fault for not taking the ubiquitous room and board option.
In part because they had stocked up on assets during the Roaring 20s, nonprofits did a tolerable job during the Depression. Most fraternals continued to pay promised benefits and charities continued to fulfill their missions. New England, which had long since developed the deepest charity network in the nation, held up particularly well.
If that seems incredible, keep in mind that the Depression was pretty sweet if you remained employed, as 3 out of 4 Americans did even at the worst point. Real wages, that is nominal wages adjusted for deflation, were high and assets were dirt cheap. Many could afford to increase their charitable contributions, and did.
The biggest threat to charities was not the Depression, but the New Deal’s large tax increases, which of course fell hardest on those most able to donate to charities. Later, charities were able to fight back by securing tax deductions for charitable contributions but they had already lost much ground to Uncle Sam.
The New Deal did not directly attack charities like it did for-profit corporations but it clearly favored some over others, like FDR’s charity, the Warm Springs Foundation for Infantile Paralysis, which raised much money starting in 1934 thanks to celebrity endorsements from Mickey Rooney, Lucille Ball, and others. Even staunch Republicans like Robert Taylor were forced, by the terms of their Hollywood contracts, to pitch in too.
The misinformation campaign surrounding Social Security was particularly intense. New Dealers noted that 50 percent of the elderly lived in poverty in 1935 without noting that most of those received additional assistance from families, charities, and/or local governments.
The percentage of Americans aged 65 or older who were institutionalized indeed doubled during the Depression, but only from 1.5 to 3 percent, a level lower than that recorded in 1910. The system of private security, which included saving for superannuation via a prudent mix of investment in real estate, insurance, and securities, bent but did not break. The New Deal simply assumed it away, as it did much else in the name of the national “emergency.”
The ramifications of this sea change are still being felt today. Many churches, for example, allowed the government to begin providing relief and in the process reduced demand for their services, pun very much intended. They still passed the hat to fund their own activities but no longer stood as bulwarks against community deterioration as Uncle Sam crowded out an estimated 30 percent of religious charity.
Instead of combatting incursions like Social Security and poor relief, leaders of secular charities also caved to the New Deal. Some even liked the idea of turning over the most costly problems to the federal government so they could concentrate on more niche issues. But of course that led to a decrease in contributions because many donors found their new missions less important.
What everyone seems to have forgotten is that nonprofits are the most democratic means of alleviating social problems. Instead of voting for politicians who then do what they want, which often means aiding their re-election campaigns, individuals vote with their time and dollars in a voluntary system.
The most important and effective charities thrive while the ineffective ones fail due to lack of funds. That induces them to compete with each other for donor dollars instead of currying favors from politicians and bureaucrats, as many do today to secure government grant money. That makes them mere appendages of government instead of independent expressions of the will of donors and the strength of volunteerism, which is exactly what New Dealers wanted.
To regain some liberty, the American people need to not just shrink federal spending, they also need to step into the resulting vacuum with privately funded charities and other nonprofits organizations. And as they did in the 1780s and periodically thereafter, they need to remind people that for-profit corporations thrive only when they are allowed to earn profits and not turned into the unwilling vehicles of government policymakers.
I argue that maintenance of a vigorous system of voluntary association is one of the many unenumerated rights that should be, but currently isn’t, protected by the Ninth Amendment.
But I’ll save that discussion for another time and place.
Thank you!
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