Roosevelt was even more aggressive on the monetary side. Before FDR, executives tended to stay away from questions like the gold price—J. P. Morgan, the young Federal Reserve, or the Treasury, at the very most, handled that. But in 1933, FDR took the country off the gold standard and even nullified promises to pay in gold in private contracts. He also launched a special executive program through which he would steer the gold price personally—from his bed, at breakfast time, while his advisers watched. One morning, FDR told his group he was thinking of raising the gold price by 21 cents. Why that figure, his entourage asked. "It's a lucky number," Roosevelt said, "because it's three times seven." As Henry Morgenthau later wrote, "If anybody knew how we really set the gold price through a combination of lucky numbers, etc., I think they would be frightened."
FDR was right in a global sense—there wasn't enough money in the economy. But Morgenthau was even righter—the manner in which FDR acted mattered as much as or more than the action. Wall Streeters such as James Warburg tried to explain to the White House that the inability to estimate exactly how far a president would go in a crisis was itself a problem. Warburg also explained that even bad market news was better than none. Another observer reported Roosevelt's reaction: "J. W. wants me to fix a definite price of gold, etc., as people now can't make future contracts," Roosevelt had said. "That's poppycock. The bankers want to know everything beforehand and I've told them to go to h—-," transcribed the economist Irving Fisher. In the end it was not the crash of 1929 or even the sharpness of the economic contraction of the early 1930s that made the depression so great. It was the duration.
What matters in the context of today is simply awareness that there's a tradeoff. When Henry Paulson, or for that matter President Bush, takes emergency action, the first reaction of markets will tend to be applause. But upon consideration, markets will drop, out of concern that the number of unknowns has widened. The scope of the $700 billion bailout package is a case in point. A chief executive can talk about reducing fear—Roosevelt's famous statement that "The only thing we have to fear is fear itself." But the same executive can also generate such fear.
Amity Shlaes, senior fellow in economic history at the Council on Foreign Relation, is author of the national bestseller The Forgotten Man: A New History of the Great Depression (HarperPerennial).