Beyond the myth.

The Forgotten Man: A New History of the Great Depression, by Amity Shlaes (HarperCollins, 480 pp., $26.95)

THIS new book is the finest history of the Great Depression ever written. Hold on--this is supposed to be a review, not a dust-jacket blurb; but it can't be helped. Although there are several fine revisionist works about the Great Depression and the New Deal, Shlaes's achievement stands out for the devastating effect of its understated prose and for its wide sweep of characters and themes. It deserves to become the preeminent revisionist history for general readers.

The "forgotten man" theme arises from the ideological sleight of hand at the core of the New Deal. The phrase originated with the supposed "Social Darwinist" William Graham Sumner, who had in mind the taxpayer who was the forgotten third party when politicians dreamt up schemes of social improvement that depended on the forgotten man to provide the means. The New Deal turned this on its head through its portrayal of the "forgotten man" as the little guy left behind in the collapse of economic growth. Instead of being the productive citizen best left alone by government, the forgotten man of the New Deal was the lowly citizen whose salvation depended on government.

Most revisionist histories of the Depression depend on subsequent economic insights coupled with hindsight--a problem Shlaes notes early in her narrative: "Neither the standard history [that glorifies FDR and the New Deal] nor the standard rebuttal entirely captures the realities of the period." Shlaes's answer is to begin with a portrait of the 1920s that puts us inside the perspectives of the key figures of the time. "The 1920s was a great decade of true economic gains," she writes, "a period whose strong positive aspects have been obscured by the troubles that followed." Shlaes prompts the thought that the real tragedy of the Great Crash was that Calvin Coolidge had not sought re-election in 1928; he could have spared us the "priggish" (Shlaes's word) personality--and social-engineering mentality--of Herbert Hoover. (Of him, Coolidge shrewdly observed: "That man has offered me unsolicited advice for six years, all of it bad.") Had we followed the course we did in the sharp recession of 1921, when Warren Harding's government let markets correct and adjust, the aftermath of the Great Crash might have been short and mild compared with what happened.

Shlaes rids us of the temptation of thinking that Hoover, had he contrived reelection in 1932, might have avoided the macroeconomic mistakes FDR made. Instead of letting markets correct, Hoover raised taxes, signed the disastrous Smoot-Hawley tariff, and inveighed against short-sellers and other ostensible market manipulators. Shlaes is not the first to observe that Hoover and FDR represented, in political scientist Gordon Lloyd's phrase, "the two faces of liberalism," but she offers rich detail to the comparison. Both men lacked confidence in markets, and Hoover's interventions between the Crash in 1929 and FDR's accession in 1933 paved the way for the New Deal: "From 1929 to 1940, from Hoover to Roosevelt, government intervention helped to make the Depression Great."

Two things propelled FDR's New Deal beyond the depredations that would have come from Hoover's social-engineering mentality: the presence of the intellectuals and political operatives whom Shlaes calls "the pilgrims," and FDR's own intellectual instability combined with his political opportunism. "The pilgrims" refers to the handful of future New Deal intellectuals, Rexford Tugwell being the most prominent among them, who made a junket to the Soviet Union in 1927 that culminated in a six-hour interview with Stalin. Here Shlaes's prose is at its understated best. She does not portray the pilgrims as crypto-Communists bamboozled by Potemkin tours, though an element of that gullibility is inescapably present. Rather she discerns the "dreamy" cast of mind that was soon to create the New Deal's belief in vague, non-Marxist central planning. "The heroes [of the USSR] were not precisely their heroes," Shlaes writes. "Still, the meetings had their effect. The travelers were now transformed from obscure analysts of the Soviet Union into bearers of news.... The conservatives were having their day, and the planners would get theirs." Giddy with excitement, the pilgrims returned to the U.S. on the steamship Leviathan, "and the irony of that name may not have escaped some of them."

With the election of FDR, the pilgrims had their chance. Those conservatives who lately have inclined to some sentimental affection for FDR (this includes Conrad Black and, occasionally, this writer) will be roundly disabused by the damning portrait Shlaes offers. "Roosevelt was not an ideologue or a radical," she judges, but his affinity for experimentation and improvisation yielded inconsistent and destabilizing economic policy at a time when certainty was the most needful thing. FDR's intellectual instability was terrifying in its fullness; fortunately, it was tempered by the rivalries and disagreements within his menagerie of New Dealers, and by the countervailing power of American political institutions (which prevented him from, e.g., packing the Supreme Court).

When presidential candidate Ronald Reagan remarked that "fascism was really the basis of the New Deal," liberals and the media hooted; the Washington Post huffed that "several historians of the New Deal period questioned by the Washington Post said they had no idea what Reagan was referring to." Thanks to Shlaes's book, journalists in the future will not be able to plead such ignorance: She notes that FDR's first attempt at centralized economic planning, the National Recovery Administration (NRA), owed its inspiration in part to Mussolini's Italian model. The NRA's ineffectuality could be demonstrated in a number of theoretical or technical ways, but Shlaes captures the futility of the enterprise in two magnificent sentences: "In a period of a year, 10,000 pages of law had been created [by the NRA], a figure that one had to compare with the mere 2,735 pages that constituted federal statute law. In twelve months, the NRA had generated more paper than the entire legislative output of the federal government since 1789."

But when the Supreme Court saved FDR from this folly by ruling it unconstitutional, FDR veered farther left, with punitive tax measures that deterred capital formation and investment, and prosecutions of the rich (especially Samuel Insull and Andrew Mellon) that were purely political. The result of these and other ill-conceived measures was a needlessly prolonged Great Depression.

Shlaes offers a new gloss on the old theme of how FDR used the Depression to craft the durable New Deal coalition. Here her narrative sparkles, as she recounts how FDR transformed the failures of his economic policy to his political advantage in the 1936 election. The failure of the New Deal to deliver meaningful economic growth lent paradoxical validity to FDR's class-warfare rhetoric: "Many in the country believed that the United States was actually becoming the society of social classes that Roosevelt now described in his speeches. And they responded accordingly," that is, by reelecting Roosevelt. The secret was purposely dividing people into interest groups, and pandering to enough of them to create a majority.

As the story approaches the end of the 1930s, Shlaes's most interesting subtext comes to the fore: the evolution of FDR's 1940 challenger Wendell Willkie. In the early chapters Willkie is seen as a naive utility executive with reformist sympathies who thought he could cut deals with FDR, only to be bitterly disappointed when he was ground up along with the rest of the malefactors of great wealth. He couldn't say he wasn't warned. Insull told Willkie in 1934: "Mr. Willkie, when you are older you will know more."

Insull was right. By 1938, by which time the Depression was coming to seem permanent, Willkie had joined the Republican party, and, because of his trenchant criticisms of the New Deal, was emerging as a surprise candidate for the GOP presidential nomination. The GOP had done well in 1938, and, according to Shlaes, "the reputation of the New Deal was continuing to drop": "People were taking in the longer-term consequences of all the experiments." Willkie's themes in the campaign that followed in some ways prefigure Reagan in 1980: "I saw that we must substitute for the philosophy of distributed scarcity the philosophy of unlimited productivity," Willkie said in his kickoff speech; "I stand for the restoration of full production and reemployment by private enterprise in America." Willkie manfully attempted to reclaim the "forgotten man" theme for Republicans: "What that man wanted us to remember was his chance--his right--to take part in our great American adventure." The Gipper could hardly have put it better.

But looming in the background, Shlaes thinks, was the European war, and the Republicans' latent isolationism diluted their appeal. Although Willkie was an internationalist, FDR was a more convincing one. "As leaders and oppositions since have discovered," Shlaes writes, "war trumps everything--economics as well as politics." In the absence of the specter in Europe, Shlaes thinks Willkie might have defeated Roosevelt. Shlaes's judgment about Willkie and the 1940 election is probably correct, but it is the only thinly argued part of The Forgotten Man. To complete this account, more needs to be said about the cognitive dissonance that characterizes public opinion toward America's global involvement. (FDR, for example, was quietly consulting pollsters during this time to determine how far he could go with his European policy.)

Shlaes leaves it to the reader to project lessons forward to our own time. The Democratic party lived large on FDR's high-tax, class-warfare playbook for nearly two generations. The Reagan Revolution put some of it into receivership, but the impulse to tax, regulate, and plan the economy remains embedded in contemporary liberalism, with John Edwards, among others, doing his best to revive New Deal-style populism and animus against wealth. We are now so far removed from the economic ruin of the New Deal's ill-considered economic interventionism that resistance to grand central fixes for health care, global warming, or outsourcing may be on the wane. With this prospect in mind, Shlaes's book could be called The Forgotten Lesson.

Mr. Hayward is a fellow at the American Enterprise Institute and the author of The Age of Reagan: The Fall of the Old Liberal Order, 1964-1980.