[James Piereson, a senior fellow at the Manhattan Institute, is the author of Camelot and the Cultural Revolution: How the Assassination of John F. Kennedy Shattered American Liberalism (Encounter Books).]

It was 75 years ago, on March 4, 1933, that Franklin Delano Roosevelt appeared on the steps of the Capitol to take the presidential oath, declaring in his inaugural address that "the only thing we have to fear is fear itself" and promising "direct, vigorous action" to confront the unprecedented economic crisis facing the nation.

Roosevelt's speech was short on specifics about his bold new measures, and he did not use the term "New Deal"--though he had used it extensively during his presidential campaign. But the "New Deal" soon became the catchall phrase for the philosophy and the legislative accomplishments by which his administration is known. Roosevelt's leadership during those difficult years turned him into the most popular figure of his era, an authentic hero in the eyes of liberals and Democrats--and for many Republicans, a sinister demagogue and a traitor to his class.

The passage of time has not settled the controversies that grew up around the New Deal. It is easy today to find enthusiasts who look back on it as the foundation of the American welfare state and critics who see in it as an attack on American capitalism. There are leftwing historians who think Roosevelt should have gone much further in the direction of public ownership and welfare provision, and there are respected economists who say that the New Deal actually impeded recovery from the Depression. Ronald Reagan was accused of trying to roll back the New Deal, though this was manifestly untrue; if he tried to roll back anything, it was Lyndon Johnson's Great Society. Eminent liberals like Arthur Schlesinger Jr. and John Kenneth Galbraith claimed that the Depression discredited free market capitalism. They must have thought that history was playing a cruel joke when Reagan led a revival of market doctrines during the 1980s.

There is little political support today for rolling back any of the New Deal programs that continue to operate. (President Bush got nowhere with his modest proposal to introduce private savings accounts into Social Security.) But the New Deal remains an ideological touchstone in any debate about the appropriate role for government in our economy.

Roosevelt sounded an urgent populist theme in his inaugural address, placing the blame for the Depression squarely on the shoulders of bankers and industrial leaders who had put profit above the public interest. "The money changers have fled from their high seats in the temple of our civilization," he said. "We may now restore that temple to ancient truths. The measure of restoration lies in the extent to which we may apply social values more noble than mere monetary profit." Somewhat more ominously, he suggested that if the nation's inherited constitutional arrangements should prove inadequate to the task, he was prepared to call for a "temporary departure from that normal balance of public procedure." Roosevelt would pound on these two themes--hostility to big business and a readiness to break with tradition--throughout the 1930s.

The fact that Roosevelt's rhetoric was warmly received is a measure of the desperation felt by many Americans at the time. The dimensions of the catastrophe were overwhelming by any known measure. Following the stock market crash of 1929, real economic output in the United States declined by 30 percent and unemployment rose from 4 percent to 25. Stocks fell from a high of 381 in September of 1929 to 42 in mid-1932, turning Wall Street into a virtual ghost town and wiping out investors large and small. The dollar value of U.S. exports fell by two-thirds between 1929 and 1933. Nearly half of the banks in the United States had either failed or merged with other banks by the time Roosevelt came to office in 1933. In the process, millions lost everything. Worse, they saw little hope of getting it back.

The Depression was viewed in many circles as a sign of the impending doom of the capitalist order. Few were confident that the economy could be revived on the basis of the old principles. Intellectuals began to choose sides between socialist and fascist solutions to the crisis. Socialist parties received more than a million votes in the 1932 presidential election. Once in office, Roosevelt was attacked from both ends of the spectrum by extremists like Huey Long and Father Coughlin demanding measures to "share the wealth." Fascist and Communist parties advanced abroad in the wake of the worldwide economic collapse. Hitler came to power in Germany only five weeks before Roosevelt's inauguration.

Viewed in this context, Roosevelt's New Deal measures do not appear quite so radical. He would eventually say in response to critics that it had been his own actions "which saved the system of private profit and free enterprise after it had been dragged to the brink of ruin." He had a point. Among the industrial nations of the time, the United States was one of the few that did not eventually take the socialist path. From the distance of seven decades, it seems fair to suggest that the New Deal did far more to modernize and stabilize American capitalism than it did to undermine it.

Roosevelt's first term is conventionally divided into two periods: the so-called First New Deal, which was largely enacted in 1933 during Roosevelt's first hundred days in office, and the Second New Deal of 1935, in which Roosevelt pushed into territory that went well beyond the immediate economic crisis of the time.

The First New Deal was made up of measures designed to stabilize the banking system, to restore agricultural production, and to provide relief to the destitute. Few of them were radical in nature, and there was no clear ideological pattern.

Reversing the cascade of bank failures was an especially high priority for the New Deal, and in the process Roosevelt modernized the American banking system. He took the United States off the gold standard (one of the last nations to do so), provided for a system of deposit insurance, regulated the public sale of securities by requiring the registration of stocks and the disclosure to markets of pertinent information, and created a wall of separation between commercial and investment banking--the latter arising from the conviction that many bank failures had been caused by inappropriate speculation in stocks.

Most of these reforms, though crafted to deal with the immediate crisis, remain with us today. Deposit insurance, securities regulation, and the federal regulation of banks remain pillars of the modern system of credit and capital. The abandonment of the gold standard, while criticized by bankers at the time as an attack on sound money, is generally viewed as a necessary step to reverse the credit contraction. Central bankers, when faced with speculative attacks on their currencies, generally responded by raising interest rates and tightening credit in order to preserve exchange values in relation to gold--moves which only worsened the Depression. (The Glass-Steagall Act, which separated commercial from investment banking, was repealed in 1999.)

The New Deal is closely associated among critics with large-scale public employment programs and with heavy-handed regulatory initiatives that sought to create a centrally managed economy. What is important to note is that none of these highly controversial programs survived Roosevelt's terms in office, and they cannot be regarded as parts of the New Deal legacy.

Two major public employment programs, the Civilian Conservation Corps (CCC)--the model for Lyndon Johnson's poverty program--and the Public Works Administration (PWA), were erected during Roosevelt's first hundred days. The CCC created more than 1,000 work camps to provide jobs for the young in various conservation efforts (reforestation, flood control, and management of public parks). The PWA put unemployed adults to work building roads, dams, and public buildings. These programs were augmented in 1935 by the Works Progress Administration, which also employed several million workers in the late 1930s. Yet all of these programs were out of business by 1943, when mobilization for the war made them unnecessary.

One clear exception to the pattern of legislation under the First New Deal was the National Industrial Recovery Act (NIRA), which created a regulatory body (the National Recovery Administration) with broad powers to regulate wages, prices, and competitive practices. The act originated in the belief that the Depression had been caused by price cutting and unfair competitive practices in major industries (yes, competitive price cutting was thought to be unfair). NIRA reflected the corporatist outlook of Roosevelt advisers like Rexford Tugwell who believed that some form of economic planning was needed to prevent another collapse. The planners had their way as they hammered out complex wage and price codes in consultation with major manufacturers and labor unions. Yet the system rapidly proved to be too complex to be workable. NIRA is an obvious source of the New Deal's reputation for ham-fisted regulation. It was also short-lived; in 1935 the Supreme Court struck it down, by unanimous decision, as an unconstitutional delegation of power from Congress to the executive branch.

The Second New Deal took shape in 1935 following the 1934 midterm elections in which the Democrats added to their majorities in the House and Senate. The election was a mandate, Roosevelt said, and proved "that we are on the right track." The Second New Deal added two pillars to the nation's political economy: the Social Security Act, which established old-age insurance, unemployment insurance, and welfare benefits for widows and orphans, and the Wagner Act, which provided federal mechanisms for organizing unions and for collective bargaining in private industry. Over the long term, these proved to be the most politically potent of the New Deal measures.

Little needs to be said about the popularity of Social Security and the difficult challenges faced even today by reformers who would adjust the system. The Wagner Act greatly facilitated the formation of unions in major industries in the late 1930s much to the consternation of big business. Union membership expanded in the United States, from around one million in 1935 to nearly 10 million in 1940 and continuing upwards through the 1960s--a period during which industrial unions were key elements of the Democratic political coalition.

With these measures, Roosevelt laid the basis for the New Deal's long-running political appeal and influence. They established a precedent for building political majorities through federal programs and employment. Here, then, was a legacy of the New Deal that, in retrospect, was far more influential than its various regulatory measures.

The legislative breakthroughs of 1935 marked the high point of the New Deal. Roosevelt, in keeping with his political practice, saw the landslide election of 1936 as a mandate to make another bold step, this time in taking on the Supreme Court which had declared unconstitutional his farm program and NIRA and seemed on the verge of striking down both the Wagner and the Social Security Acts. Roosevelt's proposal to expand the Court to give him as many as six new appointments drew immediate opposition from members of Congress and the public, who appeared ready to draw the line on the New Deal when it came to fundamental alterations of the Constitution. The court-packing plan was a fiasco for Roosevelt and effectively marked the end of the creative period of the New Deal.

Fortunately for Roosevelt, Justice Owen Roberts switched his vote in key decisions in 1937, turning a 5-4 majority against the New Deal into a similar majority in support. An early sign of this shift was the Court's decision in April 1937 to uphold the constitutionality of the Wagner Act. When conservative justice Willis Van Devanter retired at the end of the 1937 term, FDR was given the appointment he needed to place his own stamp on the Court.

Though critics and supporters alike have said that the New Deal laid the foundations for the American welfare state, it is more accurate to say that it set up a social insurance state. The enduring pillars of the New Deal--old-age insurance, deposit insurance, unemployment insurance--were not redistributionist measures but insurance provisions compatible with traditional notions of individual responsibility. Even the welfare provisions of the Social Security Act were drawn up to aid only widows and orphans. The New Dealers were borrowing from the various insurance provisions that were enacted in Germany in the 1880s under Bismarck who saw in them a means to outmaneuver the socialists who were calling for more extreme measures on behalf of workers. In the battle within the New Deal--between the collectivists and planners on the one hand and the advocates for traditional ideals of individual responsibility--the individualists clearly had their way on the most important questions.

Despite their best efforts, however, the New Dealers were unable to pull the economy out of depression. While it began to grow again after 1933 and the unemployment rate fell to 14 percent by 1937, a recession that year provoked Roosevelt and fellow New Dealers into ever more extreme attacks on the business community. Roosevelt denounced the rich for bringing about the recession through a "capital strike"--precisely the kind of nonsense that would later give the New Deal a bad name among business leaders. Many economists argue that New Deal policies, to the extent that they promoted unionization and imposed new taxes on business, created an environment that discouraged business investment and thus impeded full recovery from the Depression.

The New Deal was based on a couple of propositions about the Depression that appear in retrospect to have been highly questionable. The first was that the Depression was a crisis of overproduction that led to falling prices and unemployment, a proposition that was the basis for the industrial codes of the NIRA and of the New Deal's agricultural programs, which sought to limit farm production even as people around the country were in need of food. The second proposition was that the crisis had been caused by the malfeasance of bankers and stock manipulators in tandem with the monopoly power exercised by industrialists, a conviction which encouraged much of the anti-business rhetoric of the New Deal. This latter proposition was incorporated into the official histories of the period written by luminaries like Schlesinger (The Crisis of the Old Order) and Galbraith (The Great Crash). When these two propositions were joined, they suggested that the old order of individualism and competition was discredited and should be replaced by a system of managed capitalism. Though this was not the actual agenda of the New Deal as it developed, it was thought by some to be the logical next step beyond it.

The Great Depression was actually caused by the restrictive interest-rate policies followed by the Federal Reserve Board in 1928 and 1929. Milton Friedman and Anna Schwartz pioneered this interpretation in their Monetary History of the United States (1963). The economic crisis, which they termed "the great contraction," was triggered when the Federal Reserve Board began to tighten interest rates in 1928 to discourage speculation in stocks and then continued a tight money policy even after the stock market collapsed and banks began to fail. Things were exacerbated by the failure of the monetary authorities to step in with infusions of capital to rescue failing banks and by political decisions like the Smoot-Hawley tariff bill which shut down trade and led to more restrictive credit policies around the world. The New Deal attacks on big business were nothing more than so much flailing in the wind.

This interpretation of the Depression is held by no less a figure than Ben Bernanke, the current chairman of the Federal Reserve Board and a careful student of the crisis. At a testimonial occasion to mark Milton Friedman's 90th birthday, Bernanke went so far as to say to the economist: "Regarding the Great Depression, you were right. We [the Federal Reserve Board] did it. We're very sorry. But thanks to you, we won't do it again."

In the end, the constitutional system that Roosevelt sought to alter imposed its limits on the New Deal, casting aside its more extreme measures while digesting its more constructive elements. By the time Republicans returned to power in the 1950s, New Deal programs were no longer seen as radical or even controversial. If Roosevelt did not "save" capitalism, he at least steered it through its greatest crisis by engineering a package of moderate and constructive reforms that, for the most part, met the test of time. For this reason alone, he richly earned the admiration of Americans at the time and a place in the pantheon of America's great presidents.