increases in surtaxes on high incomes, and a graduated surtax on corporate earnings), and the tax increases imposed under the guise of closing loopholes in the 1937 Tax Act. He points to the abrupt reversal of some of these measures by the Congress in 19381939. He points to the uncertain consequences of the National Labor Relations Act, creation of the Temporary National Economic Committee in 1938, uncertainty about the enforcement of antitrust laws by the Department of Justice, and new regulation of securities markets by the Securities and Exchange Act. In arguments that anticipate recent criticism of President Obama for his allegedly anti-business rhetoric, he points to Roosevelt's criticism of business as creating a more uncertain business climate.Arguments hinging on the existence of perceived uncertainty and an unobservable hostile-to-business climate are intrinsically difficult to test, notwithstanding the depressed level of investment that is their alleged consequence. Higgs looks at time variation in investment and in the composition and policies of the Roosevelt Administration. He argues that 1938 saw a significant change in the makeup of the Roosevelt Administration, with the replacement of dedicated New Dealers by pro-business men, together with a stronger Conservative Coalition opposing the New Deal after the 1938 congressional election; this was followed by a substantial rise in gross private investment in 1939 and again in 1940. But the rise in investment is equally attributable to other factors, such as recovery from a 19371938 recession that was widely attributed to the Fed's decision to raise reserve requirements.Fortunately for us, an earlier paper by Mayer and Chatterji (1985) looks directly at the impact of policy shocks and other variables on industrial equipment orders and investment in non-residential structures. The authors construct dummy variables for the major policy innovations and shocks of the period and find no evidence that it was these as opposed to other plain-vanilla determinants of investment like the cycle that drove investment spending.An alternative hypothesis is that investment will recover fully only once capacity utilization returns to normal levels. This was the explanation for the less-than-complete recovery of investment of the original historian of US capacity utilization in the 1930s (Streever, 1960). Capacity utilization in US industry fell from 83% in 1929 to 42% in 1932; at its peak in 1937 it just matched the 1929 level of 83% before falling back again in 1938 and 1939. A level of 83% does not suggest inadequate capacity; this is more-or-less normal levels of utilization by second-half-of-20th-century standards. Moreover, the 1929 level was also down considerably from the earlier part of the decade. (See Figure 5)18Figure 5.US capacity utilization. Source: Streever (1960)Full figure and legend (17K)The bulk of the evidence, then, suggests that the failure in the 1930s of investment to recover more fully reflected not crowding out or policy uncertainty but the continuing low level of capacity utilization. The latter was a legacy of the singular depth of the slump. It was something that solved itself eventually in the event, with the intervention of World War II. This suggests that, with growth and with time, there is no