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FDR and the Limits of the New Deal

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In the course of the past five years, there has been an enormous shift in political discourse in the U.S. on the left. The huge popularity of Bernie Sanders’ campaigns for president and the re-popularization of the term “socialism” are perhaps the largest indication of this shift. 

Exactly what is meant by socialism and what ideas fall under this category is a matter of intense discussion. In important speeches in 2015 and 2019, Sanders identified his view of socialism with “tak[ing] up the unfinished business of the New Deal and carry[ing] it to completion.” Sanders identified the New Deal and President Franklin Delano Roosevelt’s administration (FDR) as a step toward socialism. While many of the New Deal programs and reforms are important even today – such as Social Security – the New Deal was not a step toward socialism, nor did FDR see it that way. In fact, it was a set of programs designed to save capitalism from itself in the depths of the Great Depression. 

The New Deal itself is the subject of much debate and many misconceptions. For example, did the New Deal help end the Great Depression? To what extent did the New Deal help working Americans survive the Great Depression? Is it possible to extend the New Deal programs to create a greater social safety net for working people in 2020 and beyond? Are New Deal-type programs “acceptable” to the capitalist class and therefore reforms we should fight for now?

To examine these questions, it is necessary to go through a brief history of the New Deal, its political and social context, and the ideas that underpin it. Along the way we will look at current interpretations and ideas. Crucial to this discussion is Keynesian economics with which the New Deal is closely associated. As such we will examine Paul Krugman, a modern “neo-Keynesian” as well as Bernie Sanders who argue that the fiscal stimulus 2008-2009 as well as the most recent round didn’t go far enough in stimulating demand. They believe that with the right policies capitalism can be made to work for ordinary people.

The Roots of the Great Depression

Triggered by the stock market crash on “Black Thursday” October 29, 1929, the Great Depression began with panicked ordinary Americans demanding their bank deposits back by the millions. Unable to meet this demand, banks shut their doors and blocked up the functioning of the economy.

The pain in the U.S. was felt throughout the capitalist world with no country left untouched. Only the planned economy of the USSR was immune as it did not rely on a for-profit banking system to grease its economy. 

This global crisis had roots in the first World War and the era of globalization that ended with it.

Prior to 1914, Britain was the leading economy in the world, being the most important banking center and still a key manufacturing center, but it faced increasing competition from a number of rivals. During that period, much like during the recent neoliberal/globalization era of capitalism, Foreign Direct Investment (FDI) globally was at a very high level as capitalists sought out high-yield investments throughout the world. The U.S. had become the workshop of the world with the largest productive capacity, but still was in competition with France and Germany as second fiddles to Great Britain.

The slaughterhouse that was World War I changed everything. Huge loans during the war were floated from the U.S. and American corporations to the major combatants on the Allied and Axis side. The war destroyed factories and productive capacity on a massive scale in Europe, not to mention an entire generation. At the end of the war, the Treaty of Versailles forced Germany to pay massive reparations for war costs to France and Great Britain, most of which was then used to pay debts incurred during the war to the U.S.

Economically, the U.S. had switched from being a debtor nation to a creditor nation and through the “roaring ‘20s” with a massive influx of debt repayment, U.S. investors took that extra cash and gambled it in an unregulated stock market and economy – in this case that meant there were no controls for the legitimacy of stock on the market and ponzi schemes abounded. The whole international financial system was a precarious machine of indebtedness where, if any gear failed, all others had no other option than to seize up as well.

A system with a boom and bust cycle built into its very essence, capitalism has many different ways it can fall into crisis. In 1929, the trigger was a financial crisis exacerbated by protectionist policies. But underlying this was a crisis of overproduction – meaning that many more commodities were produced by working people than could possibly be purchased by working people worldwide. The financial gridlock led to deflation – the lowering of prices which leads to the reduction of production and in some cases pushes prices below the costs of production, in turn leading to further layoffs and constriction of demand – a spiral that is particularly difficult for capitalism to work its way out of. 

Despite its change in economic status, in 1929 the world was still looking to Great Britain to be the financial hub and take charge to lead the way out of any depression. However, due to its massive World War I debts and the rise of the U.S., Great Britain was unable to play this role and the U.S. bankers, capitalists, and politicians did not yet realize it was up to them.

Through the 1920s capitalism was facing a different challenge: the organized working class. The Russian Revolution of 1917 took Russia out of the war and sparked revolutionary movements  throughout Europe. Most prominent was Germany, first sailors revolted making it impossible to continue the war, triggering a revolution and leading to Germany’s surrender. While the German capitalists were able to hold on thanks to the role of the Social Democratic leadership, capitalism in Europe barely survived 1917-1923. 

What Options for the Capitalist Class?

In Italy, corporations ran through option after option for subduing or buying off working-class movements and finally turned to Mussolini and his fascist Black Shirts who physically beat the working class into submission. When the fascists took power in 1922, Mussolini directed the economy, choosing winners and losers among the capitalists. The dictatorial and fascist tide expanded in the 1930s to Germany and then Spain where the forces of fascism were bankrolled by desperate capitalists who wanted to defend their system at all costs.

Leon Trotsky, a leader of the Russian Revolution and of the forces of genuine anti-Stalinist Marxism before World War II, explained the capitalist class’ political response to the Great Depression  in 1939

Two methods for saving historically doomed capitalism are today vying with each other in the world arena – Fascism and the New Deal, in all their manifestations. Fascism bases its program on the demolition of labor organizations, on the destruction of social reforms and on the complete annihilation of democratic rights, in order to forestall a resurrection of the proletariat’s class struggle. The fascist state officially legalizes the degradation of workers and the pauperisation of the middle classes, in the name of saving the “nation” and the “race” – presumptuous names under which decaying capitalism figures.
The policy of the New Deal, which tries to save the imperialist democracy by way of sops to the labour and farmer aristocracy, is in its broad compass accessible only to the very wealthy nations, and so in that sense it is American policy par excellence. The government has attempted to shift a part of the costs of that policy to the shoulders of the monopolists, exhorting them to raise wages and shorten the labor day and thus increase the purchasing power of the population and extend production.

Enter FDR

Black Thursday caught nearly everyone off-guard. In the underbelly of the roaring ‘20s, poverty was deep and widespread. The Great Depression extended and deepened that misery. Neighborhoods of shanty towns, called Hoovervilles, sprang up in every city. Unemployment rose to 25%. The prices of agricultural goods sank below farmers’ costs. The extreme misery felt by working people during the depression is documented in many photographs, books, songs, and movies. 

President Herbert Hoover approached the depression as a shock that needed just a return of confidence to bring the economy back to normal. He put up barriers to international trade and spectacularly ordered federal troops to attack the “Bonus Army” of World War I veterans who marched on Washington demanding the war bonuses promised to them. By the end of his term, Hoover was a hated president and lost by a landslide to FDR in the election of 1932.

President Hoover had begun some modest infrastructure development to put people to work – most notably the Hoover Dam – but it was his successor FDR who took this to its next logical step. 

Through his campaign in 1932, FDR sought to inspire the hope that if elected he could turn around the American economy and the plight of working people. He spoke of a “new deal for the American people” when he accepted the Democratic Party nomination in July 1932. His Secretary of Labor, Frances Perkins would later say: “The New Deal was not a plan with form or content. It was a happy phrase he had coined during the campaign, and its value was psychological. It made people feel better.” 

By the time of his inauguration in March 1933, these ideas had developed further: 

Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganize the use of our natural resources. …

Through this program of action we address ourselves to putting our own national house in order and making income balance outgo[ings]. Our international trade relations, though vastly important, are in point of time and necessity secondary to the establishment of a sound national economy. I favor as a practical policy the putting of first things first. I shall spare no effort to restore world trade by international economic readjustment, but the emergency at home cannot wait on that accomplishment (FDR Inaugural Address, 3/4/1933).

Roosevelt was not – contrary to Bernie Sanders’ portrayal – focused on attacking bankers and industrial capitalists, rather he was focused on saving them from the catastrophe created by their own system. During his campaign and up until taking office, FDR was a fiscal conservative. As late as October 19, 1932, his speeches stressed balancing the budget and lowering taxes – he campaigned on cutting the federal budget!

However, unlike Hoover, FDR recognized that society had entered a new era in which the government had to take an active role. His first 100 days in office showed just that. FDR and his “brain trust” of advisors’ first priority was restarting the banking system. FDR introduced regulations to secure small deposits and temporarily closed all the banks until a short audit was performed. He then turned to agriculture, setting up farm subsidies to raise the price of crops so that farmers could pay their bills. The Civilian Conservation Corps (CCC) put hundreds of thousands of young men to work in national parks. Several more programs – Tennessee Valley Authority, Public Works Administration, etc. – focused on building useful infrastructure around the country. 

FDR played a balancing act by pointing to greedy speculators and big corporate monopolies as being a cause of the Depression. On the other side, he was resolute in his desire to save and reinvigorate the capitalist system. Then and today, corporations are always trying to increase their market share and aiming to create monopolies. This was an essential contradiction of FDR’s administration. 

Trotsky made this point by examining a statement by Secretary of the Interior Harold L. Ickes: 

Secretary of the Interior Harold L. Ickes considers it “one of the strangest anomalies in all history” that America, democratic in form, is autocratic in substance: “America, the land of majority rule but controlled at least until 1933 (!) by the monopolies that in their turn are controlled by a negligible number of their stockholders.” The diagnosis is correct, with the exception of the intimation that with the advent of Roosevelt the rule of monopoly either ceased or weakened. Yet what Ickes calls “one of the strangest anomalies in all history,” is, as a matter of fact, the unquestionable norm of capitalism. The domination of the weak by the strong, of the many by the few, of the toilers by the exploiters is a basic law of bourgeois democracy.  (Marxism in Our Time). 

The Goal of the “New Deal”

What were FDR’s intentions? What did the corporate elite think and was there ruling class agreement on these programs?

Again, contrary to the portrayal of the New Deal by Bernie Sanders, the goal of New Deal programs and policies were not to remake the capitalist system. FDR did not enter office as a Keynesian. John Maynard Keynes (see “Keynesianism and the Crisis of Capitalism,” Socialist World No. 3) was a British economist who argued, contrary to classical economists at the time, that the state could and should make up for a lack of demand in times of decreased consumption and investment. FDR entered office doing a balancing act. While shoring up and restarting business, FDR had to gain the trust of the working class and farmers who were showing early signs of a willingness to fight. 

Internationally, the U.S. was suddenly the center of the capitalist world with the Soviet Union – its economy still functioning – looming large as an example to working people on one side, and fascism as a last resort for capitalists against workers on the other. “When asked his ‘political motive,’ FDR replied “My desire [is] to obviate revolution. …I work in a contrary sense to Rome [Mussolini and Italian fascists] and Moscow’” (The Coming of the New Deal, Schlesinger).

Striking this balance was not without political consequences. Within months of FDR taking office, a section of big business turned against the New Deal and formed the American Liberty League, initiated by the DuPont family among others. The American Liberty League campaigned against New Deal programs and especially against unions. Separately there was also a plot in 1933 that included some major capitalists to overthrow FDR in favor of a fascist dictatorship. 

Ferdinand Lundberg in his 1937 book America’s 60 Families wrote: “The New Deal is not revolutionary nor radical in any sense; on the contrary, it is conservative. Its mild, tentative reformist coloration is but a necessary concession in the face of widespread unrest. Art Pries noted in Labor’s Giant Step that the Unemployed League described the New Deal as: “Not enough to live on and just too much to die on.”

Even within his Democratic Party, FDR found enemies, with one rival saying the New Deal was closer to the Socialist Party platform than the Democratic Party platform. Even within Congress, FDR was attacked from the left for not going far enough. Wisconsin Senator Robert La Follette, Jr and others argued for nationalization of the banks rather than rescuing them. The “Radio Priest,” the populist Father Coughlin – who had a mass audience and later moved toward a fascist position  – argued in his weekly broadcasts for the nationalization of key industries and the Federal Reserve. Over the course of his terms as president, FDR would battle various sections of the capitalist class, each seeing him as an enemy for various policies which were intended by FDR to keep them in their positions of power.

New Deal Programs

The programs that put the employed to work, that built infrastructure, and gave relief to the poor undoubtedly helped millions throughout the Depression. However, at any given time New Deal programs left as much as 75% of the unemployed unaided. 

At the time, John Maynard Keynes argued that the New Deal programs didn’t go far enough, a position later echoed by Paul Krugman during the Great Recession nearly 80 years later. What was their argument?

Up to 1936, $6 billion went to aid an average of 12 million unemployed people. The 1933 Emergency Relief Act gave $500 million in aid to states (Labor’s Giant Step, Art Preis, p. 32). The New Deal government expenditures stayed below 20% of GDP. In comparison, in 2018, U.S government. expenditure was 37.8% of GDP.

In 1943 alone, Roosevelt spent $79 billion on the war effort. Government expenditure soared to nearly 50% of GDP but the capitalists accepted this because of the massive profits they expected to come out of the war. To combat the depths of the Great Depression, FDR had spoken of putting the nation on war footing. The numbers alone show that he was only able or willing to do this on the scale of a little war, not on the scale of World War I or II. In truth the kind of state-led mobilization of resources required to decisively reverse the Depression would have required taking on the capitalists and their system; it would have required a workers’ government, precisely the thing Roosevelt sought to stop. 

The first phase of the New Deal started with FDR’s first 100 days and really only lasted a couple years. By the time he delivered his 1935 state of the union address, FDR declared “The Federal Government must and shall quit this business of relief.” If there was any question about FDR’s intentions regarding the New Deal, they should be answered by his 1936 campaign speech

“It was this Administration which saved the system of private profit and free enterprise after it had been dragged to the brink of ruin by these same leaders who now try to scare you.…
“The struggle against private monopoly is a struggle for, and not against, American business. It is a struggle to preserve individual enterprise and economic freedom.”

Most of the “first” New Deal programs didn’t even make it two years. The Civil Works Administration lasted only three months, the Federal Emergency Relief Administration only nine months. It wasn’t until the “second” New Deal that more lasting reforms were passed. 

Black workers benefited from many  New Deal programs. However, discrimation continued in various ways as Roosevelt also sought to keep the Jim Crow wing of his own party on board.  Labor codes passed for each industry in a number of cases effectively accepted lower pay for Black workers forced into particular unskilled jobs in factories. Little farm aid went to poor black farmers.

Despite this, black workers made significant gains in the 1930s. This was mostly due to the organizing of integrated unions in the CIO. Unlike most trade-based AFL unions which dominated previously, some of which were explicitly racist. Industrial organizing meant bringing all workers into the union at any given workplace, no matter their skills, experience, language, or skin color. The left and particularly the Communist Party also played a key role in organizing mass anti-racist campaign such as that defending the Scottsboro Boys.

The Working Class Moves Into Action

In addition to the programs that gave relief to working people and farmers, the National Industrial Recovery Act contained Section 7(a) which codified the right of workers to form unions. In Labor’s Giant Step, Art Pries points out that this right had in fact been codified a year earlier under Hoover, but it was the public perception that mattered. Labor organizers used Section 7(a) as part of their recruitment pitch, saying “the president wants you to join a union,” which bolstered the confidence of workers to fight back and get organized. 

Section 7(a) gave a push to the labor movement which was already heating up on its own. As early as 1932, unemployed workers in Detroit undertook the “Ford Hunger March” to a Ford plant in Dearborn. Police killed four marchers. In the Bronx, the community fought back against evictions, organizing “The Great Rent-Strike War.” However these were just the early tremors of the earthquake to follow.

In 1934, three militant and ultimately successful local strikes paved the way for a mass unionization drive on a scale that had not been seen in the U.S. previously. In Minneapolis, coal drivers organized with the Teamsters and led by Trotskyists, went on strike and shut down the whole city. In San Francisco, dockworkers, led by members of the Communist Party, shut down the city. In Toledo, Ohio, autoworkers struck. 

What followed was the blossoming of the labor movement. Within four years, union density doubled. Millions joined unions especially in the newly founded Committee for Industrial Organization (later Congress of Industrial Organizations). 

Working people joined unions in order to fight for power on the job. Even before forming unions workers went on wildcat strike for reasons stretching from the length of shifts to hourly wages. Socialists, communists, and other radicals played a key role in building the new industrial unions.

The corporations and capitalists hated this new wave of unionization more than any New Deal program. Business leaders like Pierre Du Pont, at one point an appointee to the National Labor Board, said “Abuse of the strike privilege has become a national evil” (quoted in The Corporate State and the Broker State: The Du Ponts and American National Politics, 1925-1940, Robert F. Burk). Other members of the Du Pont family lobbied against child labor laws. 

On the city, state, and national levels corporations and capitalists banded together to decry unions and coordinate action against them. Roosevelt attempted to present a public face that balanced the interests of workers and corporations. But behind the scenes, his role was repeatedly to try to convince labor leaders to back down. This was the case in the 1934 Teamsters’ strike in Minneapolis. In addition, he worked with or gave tacit approval to the national guard being used against striking textile workers across the nation in 1934, leading to a crushing defeat for the unions and labor. Nevertheless, for a section of the capitalists, FDR became a public enemy.

The Second New Deal and Brief Respite

Roosevelt was wary of the labor upsurge. In order to not lose control of the economy completely, he saw that more concessions to the working class were needed.  The “Second New Deal” was reform-minded where the first New Deal had been recovery minded. This phase included the National Labor Relations Act (Wagner Act), the foundation of Social Security, as well as a new round of infrastructure spending called the Works Progress Administration (WPA). These developments came as the organizing drive and strike wave in the U.S. continued to build, showing that real reforms were passed as a result of working class struggle, not from the kindness of any politician.

The Second New Deal was harder for FDR to push through Congress – just as dominated by millionaires as today – as more sections of the ruling class turned against deficit spending to put people to work. Some capitalists were willing to spend millions on anti-union and anti-Social Security campaigns through organizations like the American Liberty League and the National Association of Manufacturers in order to oppose policies that actually kept the capitalist system afloat.

In 1936 – coincidently a presidential election year – and through the beginning of 1937, there was a mild worldwide economic recovery. Charles Kindleberger in his book The World in Depression 1929-1939 attributes the recovery to international monetary agreements which raised the confidence of banks and investors to cease hoarding gold. In the U.S. the recovery was based on an increase in inventory as producers sought to prepare for an increase in strikes and labor organizing (Kindleberger). Stimulus from New Deal programs as well as the bonuses finally being paid to WWI veterans over FDR’s veto, putting $1.4 billion into veterans’ pockets, also helped raise wages and prices.

Further Recession

In 1937 the mild recovery came to a dramatic end as the U.S. economy experienced another downturn. This recession was in fact a steeper slump than even the crash of 1929. 

Keynesians, including Paul Krugman, have argued that this second dip was because the New Deal didn’t go far enough. Instead of continuing deficit spending, FDR chose to heed the warnings from big business and balance the budget. 

In fact the 1937-38 recession occured because none of the underlying causes of the Great Depression had actually been addressed. There was still a massive lack of demand and purchasing power from the masses coupled with a reluctance to invest. The U.S. still had an enormous productive capacity that could produce far more than working people at home or abroad could possibly buy in the context of mass unemployment. This contradiction was made worse by protectionist measures internationally but couldn’t have been solved with freer markets either. 

The recovery of 1936 based on an increase in inventory was reversed as production fell sharply and companies sold off their inventories. It is particularly interesting that Kindleberger attributes the inventory accumulation of 1936 to a reaction to increased labor organizing and strikes. This idea flies against the Keynesian theory that the New Deal stimulus was responsible for the recovery. If anything, the working class can take more responsibility than the first New Deal! Of course it is true that more expansive measures could have had some effect but it is not the case that this would in itself have ended the Depression.

Keynesian theories propose massive injections of money into the economy in order to raise consumer demand levels. These policies can make a large difference in the experience of working people who benefit from payments like the recent COVID-19 stimulus measures of $1,200 payments and $600 unemployment top-ups. However this type of stimulus is not able to actually end a recession or depression as seen not only in the Great Depression, but in Japan’s long history from the late 1980s with Keynesian measures. Despite passing Keynesian stimulus measures over and over, Japan’s economy remained moribund, caught in a deflationary trap, averaging under 1% growth per year in the 1990s. 

World War II and the End of the Great Depression

The true end of the Great Depression came as the world ramped up for the second World War. FDR, as mentioned earlier, greatly increased war expenditure far beyond any New Deal levels. 

In fact, Roosevelt abandoned the market system during WWII. He was allowed to do this by the corporations and capitalists because they saw the massive opportunities for profits that the war created, particularly in securing their domination of the world economy. FDR set up a command economy in which the government instructed companies on what to make, set profit margins, wages, and directed distribution of goods while giving ration cards out to millions of working people. It is only possible to organize a command economy that leaves private property and profits intact on a temporary basis. In this case, it could only last as long as the war.

Calling up over 15 million Americans into the military also dealt with the problem of unemployment, and in fact caused a labor shortage. Women were pushed into the workforce, Black sharecroppers migrated North and West to fill empty factory jobs, and working people as a whole continued to fight for higher wages and better conditions. In fact, the period immediately after the war saw more strikes than the 1930s.

Roosevelt’s New Deal was always meant to save the for-profit system. It could not succeed in ending the Great Depression, nor could it buy labor peace. However it did succeed in staving off revolution and preserving capitalist democracy. Even if it had been expanded to the point that Keynes, and later Krugman, recommended, they discounted the opposition of the capitalist class to raising taxes on their precious profits. In fact the top tax rate was raised in 1932 to 63% but the major increases in taxes wouldn’t come until the beginning of World War II. 

The New Deal and FDR have held an almost mythological status, particularly within the modern Democratic Party. Bernie Sanders pointed to the New Deal as a safe starting point for his popular pro-working-class demands. However, raising the example of a resolute defender of the for-profit system while calling yourself a socialist will lead to confusion among working people. As we enter a new era of depression and mass struggle, the lessons of the New Deal are immediately relevant to the working class.

Trotsky’s words from 1939 about the Great Depression then ring just as true today:

Therefore, to save society, it is not necessary either to check the development of technique, to shut down factories, to award premiums to farmers for sabotaging agriculture, to turn a third of the workers into paupers, or to call upon maniacs to be dictators. Not one of these measures, which are a shocking mockery of the interests of society, are necessary. What is indispensable and urgent is to separate the means of production from their present parasitic owners and to organise society in accordance with a rational plan. Then it would at once be possible really to cure society of its ills. All those able to work would find a job. The work-day would gradually decrease. The wants of all members of society would secure increasing satisfaction. The words “property,” “crisis,” “exploitation,” would drop out of circulation. Mankind would at last cross the threshold into true humanity.

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